corpo cases4

Corporation.Page1 of Syllabus

SEC Reorganization Decree

Renato Real vs Sangu ……………………………………………………………….. .2

LESLIE W. ESPINO, petitioner,vs.

HON. NATIONAL LABOR RELATIONS COMMISSION …………………………………………8

SECURITIES AND EXCHANGE COMMISSION, petitioner,vs.

THE HONORABLE COURT OF APPEALS …………………………………………………………….11

PEARSON & GEORGE, (S.E. ASIA), INC. petitioner, vs.

NATIONAL LABOR RELATIONS COMMISSION …………………………………………………..15

EASYCALL COMMUNICATIONS PHILS., INC.,

Petitioner,vs. EDWARD KING …………………………………………………………………………..18

Intra-Corporate Controversies

FRANCIS CHUA, petitioner, vs. HON. COURT OF APPEALS ………………………………..21

STRATEGIC ALLIANCE DEVELOPMENT CORPORATION, ,vs.

STAR INFRASTRUCTURE DEVELOPMENT CORPORATION ET AL …………………………25

PHILIP L. GO, ,vs.DISTINCTION PROPERTIES DEVELOPMENT

AND CONSTRUCTION, INC …………………………………………………………………………………27

ANTHONY S. YU, vs.JOSEPH S. YUKAYGUAN………………………………………………………33

LEGASPI TOWERS 300, INC. vs AMELIA P. MUER …………………………………………..….43

JUANITO ANG, for and in behalf of SUNRISE MARKETING (BACOLOD), INC.,

vs. SPOUSES ROBERTO and RACHEL ANG …………………………………………………………48

Intra-corporate controversies; not all stockholders are indispensable

R.N. SYMACO TRADING CORPORATION vs.

LUISITO T. SANTOS …………………………………………………………………………………………..53

Intra-Corporate Controversies; Appointment of management committee valid

RAMON P. JACINTO and JAIME J. COLAYCO, vs.

FIRST WOMEN'S CREDIT CORPORATION …………………………………………………………58

Appointment of mgt committee not valid

SY CHIM and FELICIDAD CHAN SY, vs.SY SIY HO & SONS, INC …………………………60

REV. LUIS AO-AS, vs. HON. COURT OF APPEALS ……………………………………………..70

Suspension of Payments

DANILO G. PUNONGBAYAN, vs.PERFECTO G. PUNONGBAYAN, JR ………………….79

ICC-Power to create management committee include power to reorganize

ATTY. VIRGILIO R. GARCIA, Petitioner,vs.EASTERN

TELECOMMUNICATIONS PHILIPPINES ……………………………………………………….…..82

Suspension of Payments

SAMUEL U. LEE and PAULINE LEE and ASIATRUST DEVELOPMENT BANK, INC.,,

vs.BANGKOK BANK PUBLIC COMPANY ……………………………………………………………87

MOBILIA PRODUCTS, INC., ,vs.HAJIME UMEZAWA ………………………………………...96

JARDINE DAVIES, INC.,vs.JRB REALTY, INC ……………………………………………………..106

MANUEL M. MENDOZA and EDGARDO A. YOTOKO, vs.

BANCO REAL DEVELOPMENT BANK ………………………………………………………………110

CHILD LEARNING CENTER, INC. vs.TIMOTHY TAGARIO ………………………………….112

Wrong case: ………………………………………………………………………….….…….114

Caelitus Mihi Vires 1


RENATO REAL,- versus- SANGU PHILIPPINES, INC. and/ or KIICHI ABE,

D E C I S I O N

DEL CASTILLO, J.:

The perennial question of whether a complaint for illegal dismissal is intra-corporate and thus beyond the jurisdiction of the Labor Arbiter is the core issue up for consideration in this case.

This Petition for Review on Certiorari assails the Decision[1] dated June 28, 2005 of the Court of Appeals (CA) in CA-G.R. SP. No. 86017 which dismissed the petition for certiorari filed before it.

Factual Antecedents

Petitioner Renato Real was the Manager of respondent corporation Sangu Philippines, Inc., a corporation engaged in the business of providing manpower for general services, like janitors, janitresses and other maintenance personnel, to various clients. In 2001, petitioner, together with 29 others who were either janitors, janitresses, leadmen and maintenance men, all employed by respondent corporation, filed their respective Complaints[2] for illegal dismissal against the latter and respondent Kiichi Abe, the corporation’s Vice-President and General Manager. These complaints were later on consolidated.

With regard to petitioner, he was removed from his position as Manager through Board Resolution 2001-03[3] adopted by respondent corporation’s Board of Directors. Petitioner complained that he was neither notified of the Board Meeting during which said board resolution was passed nor formally charged with any infraction. He just received from respondents a letter[4] dated March 26, 2001 stating that he has been terminated from service effective March 25, 2001 for the following reasons: (1) continuous absences at his post at Ogino Philippines Inc. for several months which was detrimental to the corporation’s operation; (2) loss of trust and confidence; and, (3) to cut down operational expenses to reduce further losses being experienced by respondent corporation.

Respondents, on the other hand, refuted petitioner’s claim of illegal dismissal by alleging that after petitioner was appointed Manager, he committed gross acts of misconduct detrimental to the company since 2000. According to them, petitioner would almost always absent himself from work without informing the corporation of his whereabouts and that he would come to the office only to collect his salaries. As he was almost always absent, petitioner neglected to supervise the employees resulting in complaints from various clients about employees’ performance. In one instance, petitioner together with a few others, while apparently drunk, went to the premises of one of respondents’ clients, Epson Precision (Phils.) Inc., and engaged in a heated argument with the employees therein. Because of this, respondent Abe allegedly received a complaint from Epson’s Personnel Manager concerning petitioner’s conduct. Respondents likewise averred that petitioner established a company engaged in the same business as respondent corporation’s and even submitted proposals for janitorial services to two of the latter’s clients. Because of all these, the Board of Directors of respondent corporation met on March 24, 2001 and adopted Board Resolution No. 2001-03 removing petitioner as Manager. Petitioner was thereafter informed of his removal through a letter dated March 26, 2001 which he, however, refused to receive.

Further, in what respondents believed to be an act of retaliation, petitioner allegedly encouraged the employees who had been placed in the manpower pool to file a complaint for illegal dismissal against respondents. Worse, he later incited those assigned in Epson Precision (Phils.) Inc., Ogino Philippines Corporation, Hitachi Cable Philippines Inc. and Philippine TRC Inc. to stage a strike on April 10 to 16, 2001. Not satisfied, petitioner together with other employees also barricaded the premises of respondent corporation. Such acts respondents posited constitute just cause for petitioner’s dismissal and that same was validly effected.

Rulings of the Labor Arbiter and the National Labor Relations Commission

The Labor Arbiter in a Decision[5] dated June 5, 2003 declared petitioner and his co-complainants as having been illegally dismissed and ordered respondents to reinstate complainants to their former positions without loss of seniority rights and other privileges and to pay their full backwages from the time of their dismissal until actually reinstated and furthermore, to pay them attorney’s fees. The Labor Arbiter found no convincing proof of the causes for which petitioner was terminated and noted that there was complete absence of due process in the manner of his termination.

Respondents thus appealed to the National Labor Relations Commission (NLRC) and raised therein as one of the issues the lack of jurisdiction of the Labor Arbiter over petitioner’s complaint. Respondents claimed that petitioner is both a stockholder and a corporate officer of respondent corporation, hence, his action against respondents is an intra-corporate controversy over which the Labor Arbiter has no jurisdiction.

The NLRC found such contention of respondents to be meritorious. Aside from petitioner’s own admission in the pleadings that he is a stockholder and at the same time occupying a managerial position, the NLRC also gave weight to the corporation’s General Information Sheet[6] (GIS) dated October 27, 1999 listing petitioner as one of its stockholders, consequently his termination had to be effected through a board resolution. These, the NLRC opined, clearly established petitioner’s status as a stockholder and as a corporate officer and hence, his action against respondent corporation is an intra-corporate controversy over which the Labor Arbiter has no jurisdiction. As to the other complainants, the NLRC ruled that there was no dismissal. The NLRC however, modified the appealed decision of the Labor Arbiter in a Decision[7] dated February 13, 2004, the dispositive portion of which reads:

WHEREFORE, all foregoing premises considered, the appealed Decision dated June 5, 2003 is hereby MODIFIED. Accordingly, judgment is hereby rendered DISMISSING the complaint of Renato Real for lack of jurisdiction. As to the rest of the complainants, they are hereby ordered to immediately report back to work but without the payment of backwages.

All other claims against respondents including attorney’s fees are DISMISSED for lack of merit.

SO ORDERED.



Still joined by his co-complainants, petitioner brought the case to the CA by way of petition for certiorari.

Ruling of the Court of Appeals

Before the CA, petitioner imputed upon the NLRC grave abuse of discretion amounting to lack or excess of jurisdiction in declaring him a corporate officer and in holding that his action against respondents is an intra-corporate controversy and thus beyond the jurisdiction of the Labor Arbiter.

While admitting that he is indeed a stockholder of respondent corporation, petitioner nevertheless disputed the declaration of the NLRC that he is a corporate officer thereof. He posited that his being a stockholder and his being a managerial employee do not ipso facto confer upon him the status of a corporate officer. To support this contention, petitioner called the CA’s attention to the same GIS relied upon by the NLRC when it declared him to be a corporate officer. He pointed out that although said information sheet clearly indicates that he is a stockholder of respondent corporation, he is not an officer thereof as shown by the entry “N/A” or “not applicable” opposite his name in the officer column. Said column requires that the particular position be indicated if the person is an officer and if not, the entry “N/A”. Petitioner further argued that the fact that his dismissal was effected through a board resolution does not likewise mean that he is a corporate officer. Otherwise, all that an employer has to do in order to avoid compliance with the requisites of a valid dismissal under the Labor Code is to dismiss a managerial employee through a board resolution. Moreover, he insisted that his action for illegal dismissal is not an intra-corporate controversy as same stemmed from employee-employer relationship which is well within the jurisdiction of the Labor Arbiter. This can be deduced and is bolstered by the last paragraph of the termination letter sent to him by respondents stating that he is entitled to benefits under the Labor Code, to wit:

In this connection (his dismissal) you are entitled to separation pay and other benefits provided for under the Labor Code of the Philippines.[8] (Emphasis supplied)

In contrast, respondents stood firm that the action against them is an intra-corporate controversy. It cited Tabang v. National Labor Relations Commission[9] wherein this Court declared that “an intra-corporate controversy is one which arises between a stockholder and the corporation;” that “[t]here is no distinction, qualification, nor any exemption whatsoever;” and that it is “broad and covers all kinds of controversies between stockholders and corporations.” In view of this ruling and since petitioner is undisputedly a stockholder of the corporation, respondents contended that the action instituted by petitioner against them is an intra-corporate controversy cognizable only by the appropriate regional trial court. Hence, the NLRC correctly dismissed petitioner’s complaint for lack of jurisdiction.

In the assailed Decision[10] dated June 28, 2005, the CA sided with respondents and affirmed the NLRC’s finding that aside from being a stockholder of respondent corporation, petitioner is also a corporate officer thereof and consequently, his complaint is an intra-corporate controversy over which the labor arbiter has no jurisdiction. Said court opined that if it was true that petitioner is a mere employee, the respondent corporation would not have called a board meeting to pass a resolution for petitioner’s dismissal considering that it was very tedious for the Board of Directors to convene and to adopt a resolution every time they decide to dismiss their managerial employees. To support its finding, the CA likewise cited Tabang. As to petitioner’s co-complainants, the CA likewise affirmed the NLRC’S finding that they were never dismissed from the service. The dispositive portion of the CA Decision reads:

WHEREFORE, the instant petition is hereby DISMISSED. Accordingly, the assailed decision and resolution of the public respondent National Labor Relations Commission in NLRC NCR CA No. 036128-03 NLRC SRAB-IV-05-6618-01-B/05-6619-02-B/05-6620-02-B/10-6637-01-B/10-6833-01-B, STANDS.

SO ORDERED.

Now alone but still undeterred, petitioner elevated the case to us through this Petition for Review on Certiorari.

The Parties’ Arguments

Petitioner continues to insist that he is not a corporate officer. He argues that a corporate officer is one who holds an elective position as provided in the Articles of Incorporation or one who is appointed to such other positions by the Board of Directors as specifically authorized by its By-Laws. And, since he was neither elected nor is there any showing that he was appointed by the Board of Directors to his position as Manager, petitioner maintains that he is not a corporate officer contrary to the findings of the NLRC and the CA.

Petitioner likewise contends that his complaint for illegal dismissal against respondents is not an intra-corporate controversy. He avers that for an action or suit between a stockholder and a corporation to be considered an intra-corporate controversy, same must arise from intra-corporate relations, i.e., an action involving the status of a stockholder as such. He believes that his action against the respondents does not arise from intra-corporate relations but rather from employer-employee relations. This, according to him, was even impliedly recognized by respondents as shown by the earlier quoted portion of the termination letter they sent to him.

For their part, respondents posit that what petitioner is essentially assailing before this Court is the finding of the NLRC and the CA that he is a corporate officer of respondent corporation. To the respondents, the question of whether petitioner is a corporate officer is a question of fact which, as held in a long line of jurisprudence, cannot be the subject of review under this Petition for Review on Certiorari. At any rate, respondents insist that petitioner who is undisputedly a stockholder of respondent corporation is likewise a corporate officer and that his action against them is an intra-corporate dispute beyond the jurisdiction of the labor tribunals. To support this, they cited several jurisprudence such as Pearson & George (S.E. Asia), Inc. v. National Labor Relations Commission,[11] Philippine School of Business Administration v. Leano,[12] Fortune Cement Corporation v. National Labor Relations Commission[13] and again, Tabang v. National Labor Relations Commission.[14]

Moreover, in an attempt to demolish petitioner’s claim that the present controversy concerns employer-employee relations, respondents enumerated the following facts and circumstances: (1) Petitioner was an incorporator, stockholder and manager of respondent company; (2) As an incorporator, he was one of only seven incorporators of respondent corporation and one of only four Filipino members of the Board of Directors; (3) As stockholder, he has One Thousand (1,000) of the Ten Thousand Eight Hundred (10,800) common shares held by Filipino stockholders, with a par-value of One Hundred Thousand Pesos (P100,000.00); (4) His appointment as



manager was by virtue of Section 1, Article IV of respondent corporation’s By-Laws; (5) As manager, he had direct management and authority over all of respondent corporation’s skilled employees; (6) Petitioner has shown himself to be an incompetent manager, unable to properly supervise the employees and even causing friction with the corporation’s clients by engaging in unruly behavior while in client’s premises; (7) As if his incompetence was not enough, in a blatant and palpable act of disloyalty, he established another company engaged in the same line of business as respondent corporation; (8) Because of these acts of incompetence and disloyalty, respondent corporation through a Resolution adopted by its Board of Directors was finally constrained to remove petitioner as Manager and declare his office vacant; (9) After his removal, petitioner urged the employees under him to stage an unlawful strike by leading them to believe that they have been illegally dismissed from employment.[15] Apparently, respondents intended to show from this enumeration that petitioner’s removal pertains to his relationship with respondent corporation, that is, his utter failure to advance its interest and the prejudice caused by his acts of disloyalty. For this reason, respondents see the action against them not as a case between an employer and an employee as what petitioner alleges, but one by an officer and at same time a major stockholder seeking to be reinstated to his former office against the corporation that declared his position vacant.

Finally, respondents state that the fact that petitioner is being given benefits under the Labor Code as stated in his termination letter does not mean that they are recognizing the employer-employee relations between them. They explain that the benefits provided under the Labor Code were merely made by respondent corporation as the basis in determining petitioner’s compensation package and that same are merely part of the perquisites of petitioner’s office as a director and manager. It does not and it cannot change the intra-corporate nature of the controversy. Hence, respondents pray that this petition be dismissed for lack of merit.

Issues

From the foregoing and as earlier mentioned, the core issue to be resolved in this case is whether petitioner’s complaint for illegal dismissal constitutes an intra-corporate controversy and thus, beyond the jurisdiction of the Labor Arbiter.

Our Ruling

Two-tier test in determining the existence of intra-corporate controversy

Respondents strongly rely on this Court’s pronouncement in the 1997 case of Tabang v. National Labor Relations Commission, to wit:

[A]n intra-corporate controversy is one which arises between a stockholder and the corporation. There is no distinction, qualification nor any exemption whatsoever. The provision is broad and covers all kinds of controversies between stockholders and corporations.[16]

In view of this, respondents contend that even if petitioner challenges his being a corporate officer, the present case still constitutes an intra-corporate controversy as petitioner is undisputedly a stockholder and a director of respondent corporation.

It is worthy to note, however, that before the promulgation of the Tabang case, the Court provided in Mainland Construction Co., Inc. v. Movilla[17] a “better policy” in determining which between the Securities and Exchange Commission (SEC) and the Labor Arbiter has jurisdiction over termination disputes,[18] or similarly, whether they are intra-corporate or not, viz:

The fact that the parties involved in the controversy are all stockholders or that the parties involved are the stockholders and the corporation does not necessarily place the dispute within the ambit of the jurisdiction of the SEC (now the Regional Trial Court[19]). The better policy to be followed in determining jurisdiction over a case should be to consider concurrent factors such as the status or relationship of the parties or the nature of the question that is subject of their controversy. In the absence of any one of these factors, the SEC will not have jurisdiction. Furthermore, it does not necessarily follow that every conflict between the corporation and its stockholders would involve such corporate matters as only SEC (now the Regional Trial Court[20]) can resolve in the exercise of its adjudicatory or quasi-judicial powers. (Emphasis ours)

And, while Tabang was promulgated later than Mainland Construction Co., Inc., the “better policy” enunciated in the latter appears to have developed into a standard approach in classifying what constitutes an intra-corporate controversy. This is explained lengthily in Reyes v. Regional Trial Court of Makati, Br. 142,[21] to wit:

Intra-Corporate Controversy

A review of relevant jurisprudence shows a development in the Court’s approach in classifying what constitutes an intra-corporate controversy. Initially, the main consideration in determining whether a dispute constitutes an intra-corporate controversy was limited to a consideration of the intra-corporate relationship existing between or among the parties. The types of relationships embraced under Section 5(b) x x x were as follows:

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

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



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

d) among the stockholders, partners or associates themselves.

The existence of any of the above intra-corporate relations was sufficient to confer jurisdiction to the SEC (now the RTC), regardless of the subject matter of the dispute. This came to be known as the relationship test.

However, in the 1984 case of DMRC Enterprises v. Esta del Sol Mountain Reserve, Inc., the Court introduced the nature of the controversy test. We declared in this case that it is not the mere existence of an intra-corporate relationship that gives rise to an intra-corporate controversy; to rely on the relationship test alone will divest the regular courts of their jurisdiction for the sole reason that the dispute involves a corporation, its directors, officers, or stockholders. We saw that there is no legal sense in disregarding or minimizing the value of the nature of the transactions which gives rise to the dispute.

Under the nature of the controversy test, the incidents of that relationship must also be considered for the purpose of ascertaining whether the controversy itself is intra-corporate. The controversy must not only be rooted in the existence of an intra-corporate relationship, but must as well pertain to the enforcement of the parties’ correlative rights and obligations under the Corporation Code and the internal and intra-corporate regulatory rules of the corporation. If the relationship and its incidents are merely incidental to the controversy or if there will still be conflict even if the relationship does not exist, then no intra-corporate controversy exists.

The Court then combined the two tests and declared that jurisdiction should be determined by considering not only the status or relationship of the parties, but also the nature of the question under controversy. This two-tier test was adopted in the recent case of Speed Distribution Inc. v. Court of Appeals:

‘To determine whether a case involves an intra-corporate controversy, and is to be heard and decided by the branches of the RTC specifically designated by the Court to try and decide such cases, two elements must concur: (a) the status or relationship of the parties, and (2) the nature of the question that is the subject of their controversy.

The first element requires that the controversy must arise out of intra-corporate or partnership relations between any or all of the parties and the corporation, partnership, or association of which they are not stockholders, members or associates, between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership, or association and the State insofar as it concerns the individual franchises. The second element requires that the dispute among the parties be intrinsically connected with the regulation of the corporation. If the nature of the controversy involves matters that are purely civil in character, necessarily, the case does not involve an intra-corporate controversy.’ [Citations omitted.]

Guided by this recent jurisprudence, we thus find no merit in respondents’ contention that the fact alone that petitioner is a stockholder and director of respondent corporation automatically classifies this case as an intra-corporate controversy. To reiterate, not all conflicts between the stockholders and the corporation are classified as intra-corporate. There are other factors to consider in determining whether the dispute involves corporate matters as to consider them as intra-corporate controversies.

What then is the nature of petitioner’s Complaint for Illegal Dismissal? Is it intra-corporate and thus beyond the jurisdiction of the Labor Arbiter? We shall answer this question by using the standards set forth in the Reyes case.

No intra-corporate relationship between the parties

As earlier stated, petitioner’s status as a stockholder and director of respondent corporation is not disputed. What the parties disagree on is the finding of the NLRC and the CA that petitioner is a corporate officer. An examination of the complaint for illegal dismissal, however, reveals that the root of the controversy is petitioner’s dismissal as Manager of respondent corporation, a position which respondents claim to be a corporate office. Hence, petitioner is involved in this case not in his capacity as a stockholder or director, but as an alleged corporate officer. In applying the relationship test, therefore, it is necessary to determine if petitioner is a corporate officer of respondent corporation so as to establish the intra-corporate relationship between the parties. And albeit respondents claim that the determination of whether petitioner is a corporate officer is a question of fact which this Court cannot pass upon in this petition for review on certiorari, we shall nonetheless proceed to consider the same because such question is not the main issue to be resolved in this case but is merely collateral to the core issue earlier mentioned.

Petitioner negates his status as a corporate officer by pointing out that although he was removed as Manager through a board resolution, he was never elected to said position nor was he appointed thereto by the Board of Directors. While the By-Laws of respondent corporation provides that the Board may from time to time appoint such officers as it may deem necessary or proper, he avers that respondents failed to present any board resolution that he was appointed pursuant to said By-Laws. He instead alleges that he was hired as Manager of respondent corporation solely by respondent Abe. For these reasons, petitioner claims to be a mere employee of respondent corporation rather than as a corporate officer.

We find merit in petitioner’s contention.

“‘Corporate officers’ in the context of Presidential Decree No. 902-A are those officers of the corporation who are given that character by the Corporation Code or by the corporation’s by-laws. There are three specific officers whom a corporation must have under Section 25 of the Corporation Code. These are the president, secretary and the treasurer. The number of officers is not limited to these three. A corporation may have such other officers as may be provided for by its by-laws like, but not limited to, the vice-president, cashier, auditor or general manager. The number of corporate officers is thus limited by law and by the corporation’s by-laws.”[22]



Respondents claim that petitioner was appointed Manager by virtue of Section 1, Article IV of respondent corporation’s By-Laws which provides:

ARTICLE IV

OFFICER

Section 1. Election/Appointment – Immediately after their election, the Board of Directors shall formally organize by electing the President, Vice-President, the Secretary at said meeting.

The Board, may from time to time, appoint such other officers as it may determine to be necessary or proper. Any two (2) or more positions may be held concurrently by the same person, except that no one shall act as President and Treasurer or Secretary at the same time.

x x x x[23] (Emphasis ours)

We have however examined the records of this case and we find nothing to prove that petitioner’s appointment was made pursuant to the above-quoted provision of respondent corporation’s By-Laws. No copy of board resolution appointing petitioner as Manager or any other document showing that he was appointed to said position by action of the board was submitted by respondents. What we found instead were mere allegations of respondents in their various pleadings[24] that petitioner was appointed as Manager of respondent corporation and nothing more. “The Court has stressed time and again that allegations must be proven by sufficient evidence because mere allegation is definitely not evidence.”[25]

It also does not escape our attention that respondents made the following conflicting allegations in their Memorandum on Appeal[26] filed before the NLRC which cast doubt on petitioner’s status as a corporate officer, to wit:

x x x x

24. Complainant-appellee Renato Real was appointed as the manager of respondent-appellant Sangu on November 6, 1998. Priorly [sic], he was working at Atlas Ltd. Co. at Mito-shi, Ibaraki-ken Japan. He was staying in Japan as an illegal alien for the past eleven (11) years. He had a problem with his family here in the Philippines which prompted him to surrender himself to Japan’s Bureau of Immigration and was deported back to the Philippines. His former employer, Mr. Tsutomo Nogami requested Mr. Masahiko Shibata, one of respondent-appellant Sangu’s Board of Directors, if complainant-appellee Renato Real could work as one of its employees here in the Philippines

because he had been blacklisted at Japan’s Immigration Office and could no longer go back to Japan. And so it was arranged that he would serve as respondent-appellant Sangu’s manager, receiving a salary of P25,000.00. As such, he was tasked to oversee the operations of the company. x x x (Emphasis ours)

x x x x

As earlier stated, complainant-appellee Renato Real was hired as the manager of respondent-appellant Sangu. As such, his position was reposed with full trust and confidence. x x x

While respondents repeatedly claim that petitioner was appointed as Manager pursuant to the corporation’s By-Laws, the above-quoted inconsistencies in their allegations as to how petitioner was placed in said position, coupled by the fact that they failed to produce any documentary evidence to prove that petitioner was appointed thereto by action or with approval of the board, only leads this Court to believe otherwise. It has been consistently held that “[a]n ‘office’ is created by the charter of the corporation and the officer is elected (or appointed) by the directors or stockholders.”[27] Clearly here, respondents failed to prove that petitioner was appointed by the board of directors. Thus, we cannot subscribe to their claim that petitioner is a corporate officer. Having said this, we find that there is no intra-corporate relationship between the parties insofar as petitioner’s complaint for illegal dismissal is concerned and that same does not satisfy the relationship test.

Present controversy does not relate to intra-corporate dispute

We now go to the nature of controversy test. As earlier stated, respondents terminated the services of petitioner for the following reasons: (1) his continuous absences at his post at Ogino Philippines, Inc; (2) respondents’ loss of trust and confidence on petitioner; and, (3) to cut down operational expenses to reduce further losses being experienced by the corporation. Hence, petitioner filed a complaint for illegal dismissal and sought reinstatement, backwages, moral damages and attorney’s fees. From these, it is not difficult to see that the reasons given by respondents for dismissing petitioner have something to do with his being a Manager of respondent corporation and nothing with his being a director or stockholder. For one, petitioner’s continuous absences in his post in Ogino relates to his performance as Manager. Second, respondents’ loss of trust and confidence in petitioner stemmed from his alleged acts of establishing a company engaged in the same line of business as respondent corporation’s and submitting proposals to the latter’s clients while he was still serving as its Manager. While we note that respondents also claim these acts as constituting acts of disloyalty of petitioner as director and stockholder, we, however, think that same is a mere afterthought on their part to make it appear that the present case involves an element of intra-corporate controversy. This is because before the Labor Arbiter, respondents did not see such acts to be disloyal acts of a director and stockholder but rather, as constituting willful breach of the trust reposed upon petitioner as Manager.[28] It was only after respondents invoked the Labor Arbiter’s lack of jurisdiction over petitioner’s complaint in the Supplemental Memorandum of Appeal[29] filed before the NLRC that respondents started considering said acts as such. Third, in saying that they were dismissing petitioner to cut operational expenses, respondents actually want to save on the salaries and other remunerations being given to petitioner as its Manager. Thus, when petitioner sought for reinstatement, he wanted to recover his position as Manager, a position which we have, however, earlier declared to be not a corporate position. He is not trying to recover a seat in the board of directors or to any appointive



or elective corporate position which has been declared vacant by the board. Certainly, what we have here is a case of termination of employment which is a labor controversy and not an intra-corporate dispute. In sum, we hold that petitioner’s complaint likewise does not satisfy the nature of controversy test.

With the elements of intra-corporate controversy being absent in this case, we thus hold that petitioner’s complaint for illegal dismissal against respondents is not intra-corporate. Rather, it is a termination dispute and, consequently, falls under the jurisdiction of the Labor Arbiter pursuant to Section 217[30] of the Labor Code.

We take note of the cases cited by respondents and find them inapplicable to the case at bar. Fortune Cement Corporation v. National Labor Relations Commission[31] involves a member of the board of directors and at the same time a corporate officer who claims he was illegally dismissed after he was stripped of his corporate position of Executive Vice-President because of loss of trust and confidence. On the other hand, Philippine School of Business Administration v. Leano[32] and Pearson & George v. National Labor Relations Commission[33] both concern a complaint for illegal dismissal by corporate officers who were not re-elected to their respective corporate positions. The Court declared all these cases as involving intra-corporate controversies and thus affirmed the jurisdiction of the SEC (now the RTC)[34] over them precisely because they all relate to corporate officers and their removal or non-reelection to their respective corporate positions. Said cases are by no means similar to the present case because as discussed earlier, petitioner here is not a corporate officer.

With the foregoing, it is clear that the CA erred in affirming the decision of the NLRC which dismissed petitioner’s complaint for lack of jurisdiction. In cases such as this, the Court normally remands the case to the NLRC and directs it to properly dispose of the case on the merits. “However, when there is enough basis on which a proper evaluation of the merits of petitioner’s case may be had, the Court may dispense with the time-consuming procedure of remand in order to prevent further delays in the disposition of the case.”[35] “It is already an accepted rule of procedure for us to strive to settle the entire controversy in a single proceeding, leaving no root or branch to bear the seeds of litigation. If, based on the records, the pleadings, and other evidence, the dispute can be resolved by us, we will do so to serve the ends of justice instead of remanding the case to the lower court for further proceedings.”[36] We have gone over the records before us and we are convinced that we can now altogether resolve the issue of the validity of petitioner’s dismissal and hence, we shall proceed to do so.

Petitioner’s dismissal not in accordance with law

“In an illegal dismissal case, the onus probandi rests on the employer to prove that [the] dismissal of an employee is for a valid cause.”[37] Here, as correctly observed by the Labor Arbiter, respondents failed to produce any convincing proof to support the grounds for which they terminated petitioner. Respondents contend that petitioner has been absent for several months, yet they failed to present any proof that petitioner was indeed absent for such a long time. Also, the fact that petitioner was still able to collect his salaries after his alleged absences casts doubts on the truthfulness of such charge. Respondents likewise allege that petitioner engaged in a heated argument with the employees of Epson, one of respondents’ clients. But just like in the charge of absenteeism, there is no showing that an investigation on the matter was done and that disciplinary action was imposed upon petitioner. At any rate, we have reviewed the

records of this case and we agree with the Labor Arbiter that under the circumstances, said charges are not sufficient bases for petitioner’s termination. As to the charge of breach of trust allegedly committed by petitioner when he established a new company engaged in the same line of business as respondent corporation’s and submitted proposals to two of the latter’s clients while he was still a Manager, we again observe that these are mere allegations without sufficient proof. To reiterate, allegations must be proven by sufficient evidence because mere allegation is definitely not evidence.[38]

Moreover, petitioner’s dismissal was effected without due process of law. “The twin requirements of notice and hearing constitute the essential elements of due process. The law requires the employer to furnish the employee sought to be dismissed with two written notices before termination of employment can be legally effected: (1) a written notice apprising the employee of the particular acts or omissions for which his dismissal is sought in order to afford him an opportunity to be heard and to defend himself with the assistance of counsel, if he desires, and (2) a subsequent notice informing the employee of the employer’s decision to dismiss him. This procedure is mandatory and its absence taints the dismissal with illegality.”[39] Since in this case, petitioner’s dismissal was effected through a board resolution and all that petitioner received was a letter informing him of the board’s decision to terminate him, the abovementioned procedure was clearly not complied with. All told, we agree with the findings of the Labor Arbiter that petitioner has been illegally dismissed. And, as an illegally dismissed employee is entitled to the two reliefs of backwages and reinstatement,[40] we affirm the Labor Arbiter’s judgment ordering petitioner’s reinstatement to his former position without loss of seniority rights and other privileges and awarding backwages from the time of his dismissal until actually reinstated. Considering that petitioner has to secure the services of counsel to protect his interest and necessarily has to incur expenses, we likewise affirm the award of attorney’s fees which is equivalent to 10% of the total backwages that respondents must pay petitioner in accordance with this Decision.

WHEREFORE, the petition is hereby GRANTED. The assailed June 28, 2005 Decision of the Court of Appeals insofar as it affirmed the National Labor Relations Commission’s dismissal of petitioner’s complaint for lack of jurisdiction, is hereby REVERSED and SET ASIDE. The June 5, 2003 Decision of the Labor Arbiter with respect to petitioner Renato Real is AFFIRMED and this case is ordered REMANDED to the National Labor Relations Commission for the computation of petitioner’s backwages and attorney’s fees in accordance with this Decision.

SO ORDERED.

G.R. Nos. 109642-43 January 5, 1995

LESLIE W. ESPINO, petitioner,

vs.

HON. NATIONAL LABOR RELATIONS COMMISSION and PHILIPPINE AIR LINES, respondents.



ROMERO, J.:

The controversy generated in the instant case once again calls for the resolution of the issue of whether or not the National Labor Relations Commission (NLRC) has jurisdiction over a complaint filed by a corporate Executive Vice President-Chief Operating Officer for illegal dismissal resulting from the termination of his services as such officer by virtue of four (4) separate resolutions of the Board of Directors Air Lines (PAL).

The undisputed facts are as follows:

Petitioner Leslie W. Espino was the Executive Vice President-Chief Operating Officer of private respondent Philippine Airlines (PAL) when his services were terminated sometime in December 1990 by the Board of Directors of PAL as a result of the findings of the panels created by then President Corazon C. Aquino to investigate the administrative charges filed against him and other senior officers for their purported involvement in four, denominated "Goldair," "Robelle," "Kasbah/La Primavera," and "Middle East" which allegedly prejudiced the interests of both PAL and the Philippine Government.

Petitioner started his employment with PAL on February 25, 1960 as a Traffic and Sales Trainee and, for 30 years, was successively promoted 1 until he became, by virtue of an election in March 1988 conducted by the Board of Directors, Executive Vice President and Chief Operating Officer for a term of one (1) year and who holds said office until his successor is elected and qualified, pursuant to Section 7, Article III in relation to Section 1, Article IV of the Amended By-Laws of PAL. The last time he was elected as such was on October 20, 1989.

Sometime on July 2, 1990, petitioner and several other senior officers of PAL were administratively charged by Romeo S. David, Senior Vice President for Corporate Services and Logistics Group, for their purported involvement in four cases, labelled as "Goldair," "Robelle," "Kasbah/Primavera" and "Middle East."

Except for the conflict of interest charges in the "Robelle" case, petitioner and several other senior officers of PAL were uniformly charged in the three (3) other aforementioned cases of gross incompetence, mismanagement, inefficiency, negligence, mismanagement, dereliction of duty, failure to observe and/or implement administrative and executive policies, and related acts or omissions resulting in the concealment or coverup and prevention of the seasonable discovery of anomalous transactions which, as a consequence, caused prejudice to the best interest of PAL and the Government.

Pending investigation by the panels created by then President Corazon C. Aquino, petitioner and other senior officers of PAL were placed under suspension by the Board of Directors.

On October 19, 1990, during the organizational meeting of the PAL Board of Directors, the election or appointment of some senior officers of the company who, like petitioner, had been charged administratively with various offenses and accordingly suspended, were deferred by the Board of Directors. During the said organizational meeting, Feliciano Belmonte was elected Chairman of the Board while Dante Santos was elected as President and Chief Executive Officer.

On the basis of the findings submitted by the presidential investigating panels, the Board issued separate resolutions dated January 19, 1991 in the "Goldair," "Robelle," and Kasbah/La Primavera," cases and another dated August 9, 1991 in the "Middle East" case wherein petitioner was considered resigned from the service effective immediately for loss of confidence and for acts inimical to the interests of the company.

As a result of his termination, petitioner Espino filed a complaint for illegal dismissal against PAL with the National Labor Relations Commission, Arbitration Branch, NCR, praying, among others, for reinstatement with backwages, recovery of P50 Million as moral damages, P10 Million as exemplary damages and attorney's fees. The case was docketed as NLRC Case No. 00-05-03210-91.

PAL justified the legality of petitioner Espino's dismissal from the service before the Labor Arbiter but questioned the jurisdiction of the NLRC contending that, because the investigating panels were created by President Corazon C. Aquino, it became, together with the PAL Board of Directors, a "parallel arbitration unit" which substituted the NLRC. As such, PAL argued that since the Board resolutions of the aforesaid cases; cannot be reviewed by the NLRC, the recourse of petitioner Espino should have been addressed, by way of an appeal, to the Office of the President of the Republic of the Philippines.

On February 20, 1992, Labor Arbiter Cresencio J. Ramos rendered a decision 2 finding that petitioner Espino was dismissed just and valid cause and accordingly ordered his reinstatement to his former position as Executive Vice-President-Chief Operating Officer without loss of seniority rights plus full backwages and other benefits appurtenant thereto, without qualification or deduction from the time of his illegal dismissal up to the date of his actual reinstatement. The dispositive portion reads:

WHEREFORE, premises considered, judgment is hereby rendered:

Ordering complainant's immediate reinstatement to his former position as Executive Vice President-Chief Operating Officer without loss of seniority rights plus full backwages and other benefits appurtenant thereto, without qualification or deduction, from the time of his illegal dismissal up to the time of his actual reinstatement. His backwages as of February 29, 1992 as computed are in the total sum of P2,925,000.00 (P195,000.00 x 15 months, including the one month suspension).

2)

Ordering respondent PAL to pay complainant Leslie Espino the following sums:



a)

Backwages as of February 1992

P2,925,000.00

b)

Cash equivalent of Annual trip passes

on first class, (1 for international, 1

for regional, and 1 for domestic)

for complainant, his spouse,

qualified dependent and parents

worth approximately US $45,000.00

at current rate of exchange rate of

exchange P26.50/dollar

1,192,000.00

c)

Midyear and Christmas bonuses

equivalent to two (2) months pay

390,000.00

3

Awarding moral damages to complainant in

the sum of P20 million plus exemplary damages of P2.0

22,000,000.00

TOTAL

P26,507,000.00

4

Granting attorney's fees of 10% of the total monetary award

2,650,700

GRAND TOTALCaelitus Mihi Vires 9


P28,157,700.00

From the said decision, PAL filed on March 5, 1992 an appeal with the NLRC and submitted on March 13, 1992 a supplemental memorandum on appeal. PAL argued that the Labor Arbiter's decision is null and void for lack of jurisdiction over the subject matter as it is the Securities and Exchange Commission, and not the NLRC, which has original and exclusive jurisdiction over cases involving dismissal or removal of corporate officers.

Earlier, or more specifically, on February 25, 1992, petitioner Espino filed a motion for issuance of writ of execution on the ground that the decision of the Labor Arbiter ordering reinstatement is immediately executory even pending appeal pursuant to Article 223 of the Labor Code, as amended.

On February 28, 1992, the Labor Arbiter issued a writ of execution.

PAL, for its part, filed a motion to quash the writ of execution reiterating its argument that the Securities and Exchange Commission (SEC) and not the NLRC has original and exclusive jurisdiction over the subject matter involving the dismissal or removal of corporate officers.

On March 31, 1992, after an exchange of pleadings, Labor Arbiter Ramos denied PAL's motion to quash the writ of execution. Thereafter, or on April 2, 1992, an alias writ of execution was issued.

PAL then filed on April 23, 1992 with the NLRC a petition for injunction, later amended to implead the Labor Arbiter, praying for the issuance of a temporary restraining order to enjoin the enforcement of said alias writ of execution.

On April 27, 1992, the NLRC issued a temporary restraining order enjoining Espino, Sheriff Anam Timbayan, their agents and all persons acting under them, from implementing the alias writ of execution issued on April 2, 1992 upon PAL's posting of P400,000.00 cash or surety bond. On May 5, 1992, PAL posted the P400,000.00 surety bond.

On July 31, 1992, the NLRC promulgated a resolution 3 dismissing the complaint for illegal dismissal for lack of jurisdiction and declaring the nullity of the alias writ of execution. Petitioner Espino, Labor Arbiter Cresencio Ramos and Sheriff Anam Timbayan were permanently enjoined from enforcing the said alias writ of execution.

Petitioner Espino filed a motion for reconsideration but the same was denied on January 8, 1993. 4

Dissatisfied, petitioner filed the instant petition for certiorari contending mainly that it is the NLRC which has jurisdiction under Article 217, par. (2) of the Labor Code, as amended, to hear the illegal dismissal case he filed against PAL as it involves the termination of a regular and permanent employee and the issues in the dispute involved, not only his removal from office, but also his claim for backwages and other benefits and damages; that PAL is estopped from questioning the jurisdiction of the NLRC.

We rule that the petition lacks merit.

The Court, citing Presidential Decree No. 902-A, laid down the rule in the case of Philippine School of Business Administration v. Leano, 5 and consequently reiterated in three (3) other cases 6 that it is the Securities and Exchange Commission (SEC) and not the NLRC which has original and exclusive jurisdiction over cases involving the removal from employment of corporate officers.

Sec. 5. of Presidential Decree No. 902-A regarding the jurisdiction of the Securities and Exchange Commission provides, as follows:

Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving:

(a) Devices or schemes employed by or any acts of the board of directors, business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, members of associations or organizations registered with the Commission.

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

(c) Controversies in the election or appointments of directors, trustees, officers or managers of such corporations, partnerships or associations.



(d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the corporation, partnership or association possesses sufficient property to cover all its debts but foresees the impossibility of meeting them when they respectively fall due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is under the management of a Rehabilitation Receiver or Management Committee created pursuant to this Decree.

In intra-corporate concerning the election or appointment of officers of a corporation, Section 5, PD 902-A specifically provides:


xxx xxx xxx

(c) Controversies in the election or appointments of directors, trustees, officers or managers of such corporations, partnerships or associations.

Indisputably, the position of Executive Vice President-Chief Operating Officer from which petitioner Espino claims to have been illegally dismissed, is an elective office under Section 7, Article III is an elective corporate office under Section 1, Article IV of the Amended by-Laws of PAL. The said corporate office has a fixed term of one (1) year and the one elected shall hold office until a successor shall have been elected and qualified. He lost that position when his appointment or election as Executive Vice President-Chief Operating Officer, together with other senior officers who were similarly charged administratively, were deferred by the Board of Directors in its organizational meeting on October 19, 1990. He was later considered by the Board as resigned from the service, for reasons earlier stated, and the said position was later abolished.

The matter of petitioner's not being elected to the office of Executive

Vice-President-Chief Operating Officer thus falls squarely within the purview of Section 5 par. (c) of P.D. 902-A. In the case of PSBA v. Leano, supra, which involved an Executive Vice President who was not re-elected to the said position during the election of officers on September 5, 1981 by the PSBA's newly elected Board of Directors, the Court emphatically stated:

This is not a case of dismissal. The situation is that of a corporate office having been declared vacant, and that of TAN's not having been elected thereafter. The matter of whom to elect is a prerogative that belongs to the Board, and involves the exercise of deliberate choice and the faculty of discriminative selection. Generally speaking, the relationship of a person to a corporation, whether as officer or as agent or employee, is not determined by the nature of the services performed, but by the incidents of the relationship as they actually exists.

A corporate officer's dismissal is always a corporate act and/or an intra-corporate controversy and that nature is not altered by the reason or wisdom which the Board of Directors may have in taking such action. 7

Furthermore, it must be noted that the reason behind the non-election of petitioner to the position of Executive Vice President-Chief Operating Officer arose from, or is closely connected with, his involvement in the alleged irregularities in the aforementioned cases which, upon investigation and recommendation, were resolved by the PAL Board of Directors against him and other senior officers. Evidently, this intra-corporate ruling places the instant case under the specialized competence and expertise of the SEC.

The jurisdiction of the SEC has likewise been clarified by this Court in the case of Union Glass and Container Corporation, et al. v. SEC, et al., 8 thus:

This grant of jurisdiction must be viewed in the light of the nature and function of the SEC under the law. Section 3 of PD No. 902-A confers upon the latter "absolute jurisdiction, supervision, and control over all corporations, partnerships or associations, who are grantees of primary franchise and/or license or permit issued by the government to operate in the Philippines . . . ." The principal function of the SEC is the supervision and control over corporations, partnerships and associations with the end in view that investment in these entities may be encouraged and protected, and their activities pursued for the promotion of economic development.

It is in aid of this office that the adjudicative power of the SEC must be exercised. Thus the law explicitly specified and delimited its jurisdiction to matters intrinsically connected with the regulations of corporations, partnerships and associations and those dealing with the internal affairs of such corporations, partnerships or associations.

Otherwise stated, in order that the SEC can take cognizance of a case, the controversy must pertain to any of the following relationships: (a) between the corporation, partnership or association and the public; (b) between the corporation, partnership or association and its stockholders, partners, members, or officers; (c) between the corporation, partnership or association and the state in so far as its franchise, permit or license to operate is concerned, and (d) among the stockholders, partners or associates themselves.

The fact that petitioner sought payment of his backwages, other benefits, as well as moral and exemplary damages and attorney's fees in his complaint for illegal dismissal will not operate to prevent the SEC from exercising its jurisdiction under PD 902-A. While the affirmative reliefs and monetary claims sought by petitioner in his complaint may, at first glance, mislead one into placing the case under the jurisdiction of the Labor Arbiter, a closer examination reveals that they are actually part of the perquisites of his elective position; hence, intimately linked with his relations with the corporation. In Dy v. NLRC, et al., 9 the Court, confronted with the same issue ruled, thus:

The question of remuneration, involving as it does, a person who is not a mere employee but a stockholder and officer, an integral part, it might be said, of the corporation, is not a simple labor problem but a matter that comes within the area of corporate affairs and management, and is in fact a corporate controversy in contemplation of the Corporation Code.



The Court has likewise ruled in the case of Andaya v. Abadia 10 that in

intra-corporate matters, such as those affecting the corporation, its directors, trustees, officers and shareholders, the issue of consequential damages may just as well be resolved and adjudicated by the SEC. Undoubtedly, it is still within the competence and expertise of the SEC to resolve all matters arising from or closely connected with all intra-corporate disputes.

Petitioner's reliance on the principle of estoppel to justify the exercise or jurisdiction by the NLRC over the instant complaint is misplaced. it is not accurate for petitioner to conclude that PAL did not raise the issue of jurisdiction at the initial stages of the case, for, while it may be predicated on a different ground, i.e., that appeal from the resolution of the Board of Directors of PAL as regards termination of his services, is to the Office of the President, PAL did in fact question the jurisdiction of the Labor Arbiter. An error of this nature, under the circumstances, could not justify petitioner's insistence that PAL did not raise the issue of jurisdiction at the outset, but only before the NLRC.

It is well-settled that jurisdiction over the subject matter is conferred by law and the question of lack of jurisdiction may be raised at anytime even on appeal. 11 The principle of estoppel cannot be invoked to prevent this Court from taking up the question, which has been apparent on the face of the pleadings since the start of the litigation before the Labor Arbiter. In the case of Dy v. NLRC, supra, the Court, citing the case of Calimlim v. Ramirez 12 reiterated that the decision of a tribunal not vested with appropriate jurisdiction is null and void. Again, the Court in Southeast Asian Fisheries Development Center-Aquaculture Department v. NLRC 13 restated the rule that the invocation of estoppel with respect to the issue of jurisdiction is unavailing because estoppel does not apply to confer jurisdiction upon a tribunal that has none over the cause of action. The instant case does not provide an exception to the said rule.

In fine, the issue of the SEC's jurisdiction is settled and the Court finds it unnecessary to dwell further on other questions raised by petitioner. Thus, finding no grave abuse of discretion on the part of NLRC in dismissing the complaint for illegal dismissal, the instant petition must be dismissed.

WHEREFORE, the instant petition for certiorari is DISMISSED for lack of merit. The resolution of the National Labor Relations Commission dated July 31, 1992 dismissing the complaint for illegal dismissal for lack of jurisdiction is AFFIRMED, without prejudice to petitioner's seeking relief, if so minded, in the proper forum.

SO ORDERED.

G.R. Nos. 106425 & 106431-32 July 21, 1995

SECURITIES AND EXCHANGE COMMISSION, petitioner,

vs.

THE HONORABLE COURT OF APPEALS, CUALOPING SECURITIES CORPORATION AND FIDELITY STOCK TRANSFERS, INC., respondents.

The Securities and Exchange Commission ("SEC") has both regulatory and adjudicative functions.

Under its regulatory responsibilities, the SEC may pass upon applications for, or may suspend or revoke (after due notice and hearing), certificates of registration of corporations, partnerships and associations (excluding cooperatives, homeowners' associations, and labor unions); compel legal and regulatory compliances; conduct inspections; and impose fines or other penalties for violations of the Revised Securities Act, as well as implementing rules and directives of the SEC, such as may be warranted.

Relative to its adjudicative authority, the SEC has original and exclusive jurisdiction to hear and decide controversies and cases involving —

a. Intra-corporate and partnership relations between or among the corporation, officers and stockholders and partners, including their elections or appointments;

b. State and corporate affairs in relation to the legal existence of corporations, partnerships and associations or to their franchises; and

c. Investors and corporate affairs, particularly in respect of devices and schemes, such as fraudulent practices, employed by directors, officers, business associates, and/or other stockholders, partners, or members of registered firms; as well as

d. Petitions for suspension of payments filed by corporations, partnerships or associations possessing sufficient property to cover all their debts but which foresee the impossibility of meeting them when they respectively fall due, or possessing insufficient assets to cover their liabilities and said entities are upon petition or motu proprio, placed under the management of a Rehabilitation Receiver or Management Committee.

The petition before this Court relates to the exercise by the SEC of its powers in a case involving a stockbroker (CUALOPING) and a stock transfer agency (FIDELITY).

For the factual backdrop, we adopt the findings of the Court of Appeals; we quote:

Cualoping Securities Corporation (CUALOPING for brevity) is a stockbroker, Fidelity Stock Transfer, Inc. (FIDELITY for brevity), on the other hand, is the stock transfer agent of Philex Mining Corporation (PHILEX for brevity).



On or about the first half of 1988, certificates of stock of PHILEX representing one million four hundred [thousand] (1,400,000) shares were stolen from the premises of FIDELITY. These stock certificates consisting of stock dividends of certain PHILEX shareholders had been returned to FIDELITY for lack of forwarding addresses of the shareholders concerned.

Later, the stolen stock certificates ended in the hands of a certain Agustin Lopez, a messenger of New World Security Inc., an entirely different stock brokerage firm. In the first half of 1989, Agustin Lopez brought the stolen stock certificates to CUALOPING for trading and sale with the stock exchange. When the said stocks were brought to CUALOPING, all of the said stock certificates bore the "apparent" indorsement (signature) in blank of the owners (the stockholders to whom the stocks were issued by PHILEX) thereof. At the side of these indorsements (signatures), the words "Signature Verified" apparently of FIDELITY were stamped on each and every certificate. Further, on the words "Signature Verified" showed the usual initials of the officers of FIDELITY.

Upon receipt of the said certificates from Agustin Lopez, CUALOPING stamped each and every certificate with the words "Indorsement Guaranteed," and thereafter traded the same with the stock exchange.

After the stock exchange awarded and confirmed the sale of the stocks represented by said certificates to different buyers, the same were delivered to FIDELITY for the cancellation of the stocks certificates and for issuance of new certificates in the name of the new buyers. Agustin Lopez on the other hand was paid by CUALOPING with several checks for Four Hundred Thousand (P400,000.00) Pesos for the value of the stocks.

After acquiring knowledge of the pilferage, FIDELITY conducted an investigation with assistance of the National Bureau of Investigation (NBI) and found that two of its employees were involved and signed the certificates.

After two (2) months from receipt of said stock certificates, FIDELITY rejected the issuance of new certificates in favor of the buyers for reasons that the signatures of the owners of the certificates were allegedly forged and thus the cancellation and new issuance thereof cannot be effected. 1

On 11 August 1988, FIDELITY sought an opinion on the matter from SEC, which, on 06 October 1988, summoned FIDELITY and CUALOPING to a conference. In this meeting, the parties stipulated, among other things, thusly:

1. That the normal procedure followed by Fidelity Stock Transfers, Inc. as transfer agent is that before stamping compares the signatures on the certificates with the specimen signature on file with it.

2. That there is an endorsement guaranty stamp made by Cualoping Securities Corporation.

3 That the checks of Cualoping Securities Corporation were made out payable to Agustin Lopez on the dates specified therein. 2

On 26 October 1988, the Brokers and Exchange Department ("BED") of the SEC disposed of the matter in this manner:

WHEREFORE, Fidelity Stock Transfers, Inc., is hereby ordered to replace all the subject shares and to cause the transfer thereof in the names of the buyers within ten days from actual receipt hereof.

Cualoping Securities, INC., for having violated Section 29 a(3) of the Revised Securities Act is hereby ordered to pay a fine of P50,000.00 within five (5) days from actual receipt hereof.

Henceforth, all brokers are required to make out checks in payment of shares transacted only in the name of the registered owners thereof. 3

From the above resolution, as well as that which denied a motion for reconsideration, both CUALOPING and FIDELITY appealed to the Commission En Banc.

On 14 December 1989, the Commission rendered its decision and concluded:

WHEREFORE, premises considered, the Commission en banc finding both Cualoping Securities Corporation and Fidelity Stock Transfers, Inc. equally negligent in the performance of their duties hereby orders them to (1) jointly replace the subject shares and for Fidelity to cause the transfer thereof in the names of the buyers and (2) to pay a fine of P50,000,00 each for hav[ing] violated Section 29 (a) of the Revised Securities Act. 4

The decision was appealed to the Court of Appeals (CA-G.R. SP No. 19585; CA-G.R. SP No. 19659; and CA-G.R. SP No. 19660). In a consolidated decision, dated 22 July 1992, the appellate court reversed the SEC and set aside SEC's order "without prejudice to the right of persons injured to file the proper action for damages."



The Commission has brought the case to this Court in the instant petition for review on certiorari, contending that the appellate court erred in setting aside the decision of the SEC which had (a) ordered the replacement of the certificates of stock of Philex and (b) imposed fines on both FIDELITY and CUALOPING.

There is partial merit in the petition.

The first aspect of the SEC decision appealed to the Court of Appeals, i.e., that portion which orders the two stock transfer agencies to "jointly replace the subject shares and for FIDELITY to cause the transfer thereof in the names of the buyers" clearly calls for an exercise of SEC's adjudicative jurisdiction. This case, it might be recalled, has started only on the basis of a request by FIDELITY for an opinion from the SEC. The stockholders who have been deprived of their certificates of stock or the persons to whom the forged certificates have ultimately been transferred by the supposed indorsee thereof are yet to initiate, if minded, an appropriate adversarial action. Neither have they been made parties to the proceedings now at bench. A justiciable controversy such as can occasion an exercise of SEC's exclusive jurisdiction would require an assertion of a right by a proper party against another who, in turn, contests it. 5 It is one instituted by and against parties having interest in the subject matter appropriate for judicial determination predicated on a given state of facts. That controversy must be raised by the party entitled to maintain the action. He is the person to whom the right to seek judicial redress or relief belongs which can be enforced against the party correspondingly charged with having been responsible for, or to have given rise to, the cause of action. A person or entity tasked with the power to adjudicate stands neutral and impartial and acts on the basis of the admissible representations of the contending parties.

In the case at bench, the proper parties that can bring the controversy and can cause an exercise by the SEC of its original and exclusive jurisdiction would be all or any of those who are adversely affected by the transfer of the pilfered certificates of stock. Any peremptory judgment by the SEC, without such proceedings having first been initiated, would be precipitate. We thus see nothing erroneous in the decision of the Court of Appeals, albeit not for the reason given by it, to set aside the SEC's adjudication "without prejudice" to the right of persons injured to file the necessary proceedings for appropriate relief.

The other issue, i.e., the question on the legal propriety of the imposition by the SEC of a P50,000 fine on each of FIDELITY and CUALOPING, is an entirely different matter. This time, it is the regulatory power of the SEC which is involved. When, on appeal to the Court of Appeals, the latter set aside the fines imposed by the SEC, the latter, in its instant petition, can no longer be deemed just a nominal party but a real party in interest sufficient to pursue an appeal to this Court.

The Revised Securities Act (Batas Pambansa Blg. 178) is designed, in main, to protect public investors from fraudulent schemes by regulating the sale and disposition of securities, creating, for this purpose, a Securities and Exchange Commission to ensure proper compliance with the law. Here, the SEC has aptly invoked the provisions of Section 29, in relation to Section 46, of the Revised Securities Act. This law provides:

Sec. 29. Fraudulent transactions. — (a) It shall be unlawful for any person, directly or indirectly, in connection with the purchase or sale of any securities —

xxx xxx xxx

(3) To engage in any act, transaction practice, or course of business which operates or would operate as a fraud or deceit upon any person.

Sec. 46. Administrative sanctions. — If, after proper notice and hearing, the Commission finds that there is a violation of this Act, its rules, or its orders or that any registrant has, in a registration statement and its supporting papers and other reports required by law or rules to be filed with the Commission, made any untrue statement of a material fact, or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or refused to permit any unlawful examination into its affairs, it shall, in its discretion, impose any or all of the following sanctions:

(a) Suspension, or revocation of its certificate of registration and permit to offer securities;

(b) A fine of no less than two hundred (P200.00) pesos nor more than fifty thousand (P50,000.00) pesos plus not more than five hundred (P500.00) pesos for each day of continuing violation. (Emphasis supplied.)

There is, to our mind, no question that both FIDELITY and CUALOPING have been guilty of negligence in the conduct of their affairs involving the questioned certificates of stock. To constitute, however, a violation of the Revised Securities Act that can warrant an imposition of a fine under Section 29(3), in relation to Section 46 of the Act, fraud or deceit, not mere negligence, on the part of the offender must be established. Fraud here is akin to bad faith which implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity; it is unlike that of the negative idea of negligence in that fraud or bad faith contemplates a state of mind affirmatively operating with furtive objectives. Given the factual circumstances found by the appellate court, neither FIDELITY nor CUALOPING, albeit indeed remiss in the observance of due diligence, can be held liable under the above provisions of the Revised Securities Act. We do not imply, however, that the negligence committed by private respondents would not at all be actionable; upon the other hand, as we have earlier intimated, such an action belongs not to the SEC but to those whose rights have been injured.

Our attention is called by the Solicitor General on the violation by FIDELITY of SEC-BED Memorandum Circular No. 9, series of 1987, which reads:

To expedite the release of Certificates of Securities to the buyers, the Commission reiterates the following rules in delivery of stock certificates:



1. Deadlines for Delivery of Documents — All requirements must be complied with the certificates of stock, as well as necessary documents required for the transfer of shares shall be delivered within the following periods:

xxx xxx xxx

d. From transfer agent back to clearing house and/or broker — not longer than ten (10) days from receipt of documents provided there is a "good delivery," where there is no "good delivery," the certificate and the accompanying documents shall be returned to the clearing house or broker not later than two (2) days after receipt thereof, except when defects can be readily remedied, in which case the clearing house or the broker shall instead be notified of the requirements within the same period. The notice to the clearing house or broker shall indicate that the Securities and Exchange Commission has been notified of such defective delivery. 6

FIDELITY is candid enough to admit that it has truly failed to promptly notify CUALOPING and the clearing house of the pilferage of the certificates of stock (pp. 225, 239-240, Rollo). FIDELITY strongly asserts, however, that it has been fined by the SEC not by virtue of Memorandum Circular No. 9 but for a violation of Section 29(a)(3) of the Revised Securities Act, and that the memorandum circular is only now being raised for the first time in the instant petition.

In Insular Life Assurance Co., Ltd., Employees Association-NATU vs. Insular Life Assurance Co., Ltd., 7 this Court has ruled that when issues are not specifically raised but they bear relevance and close relation to those properly raised, a court has the authority to include all such issues in passing upon and resolving the controversy. In Bank of America, NT & SA vs. Court of Appeals, 228 SCRA 357, we have said that "the rule that only issues or theories raised in the initial proceedings may be taken up by a party thereto on appeal should only refer to independent, not concomitant matters, to support or oppose the cause of action or defense." In this case at bench, particularly, it is not a new issue that is being raised but a memorandum-circular having the force and effect of law that has been cited to support a position that relates to the very subject matter of the controversy. On this point, accordingly, we must rule in favor of petitioner SEC.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED except the portion thereof which sets aside the imposition by the Securities and Exchange Commission of a fine on FIDELITY which is hereby REINSTATED. No costs.

SO ORDERED.

G.R. No. 113928 February 1, 1996

PEARSON & GEORGE, (S.E. ASIA), INC. petitioner,

vs.

NATIONAL LABOR RELATIONS COMMISSION and LEOPOLDO LLORENTE, respondents.

D E C I S I O N

DAVIDE, JR., J.:

In this special civil action for certiorari under Rule 65 of the Rules of Court, the petitioner seeks the annulment of the decision of 22 April 19931 and order of 25 November 19932 of public respondent National Labor Relations Commission (NLRC) in NLRC CA No. 0034-07-92 which, respectively, dismissed the petitioner's appeal from the decision of the Labor Arbiter in NLRC NCR Case No. 00-04-02127-90 and denied the petitioner's motion for reconsideration.

The petitioner insists that the Labor Arbiter and the NLRC do not have jurisdiction over the private respondent's complaint for illegal dismissal arising out of his removal as Managing Director of the petitioner due to his non-reelection and the abolition of the said position. It claims that the matter is intra-corporate and thus falls within the exclusive jurisdiction of the Securities and Exchange Commission (SEC) pursuant to Section 5(c) of P.D. No. 902-A.

In a Manifestation submitted in lieu of the required comment on the petition, the Office of the Solicitor General agrees with the petitioner that the NLRC has no jurisdiction over the private respondent's complaint for illegal dismissal and prays that the NLRC be granted a new period within which to file its own comment should it desire to do so.

The NLRC filed its own comment contending that it has jurisdiction over the case because the private respondent was not just an incorporator but also a Managing Director and a line officer or an employee of the petitioner with a salary of P33,000.00 a month; hence, his complaint for illegal dismissal as such employee is within the jurisdiction of the NLRC.

The private respondent does not meet the substantive issues raised by the petitioner but merely sets up the following defenses: (1) the petition was filed long after the lapse of ten days provided for in Article 223 of the Labor Code; (2) a special civil action for certiorari under Rule 65 is not the proper remedy because of the aforementioned provision; (3) the petition is defective because it does not allege when the petitioner received the NLRC decision; and (4) the petition raises factual issues.



In its Reply, the petitioner refutes the foregoing arguments of the private respondent by stating that (1) this Court may take cognizance of petitions questioning the decisions of the NLRC on the ground of lack or excess of jurisdiction or grave abuse of discretion inspite of Article 223 of the Labor Code making final the said decisions after ten calendar days from receipt thereof; (2) the only way by which a labor case may reach this Court is through a petition for certiorari, which must be filed within a reasonable time from receipt of the resolution denying the motion for reconsideration of the decision of the Commission; (3) for purposes of showing the timeliness of the petition, the petitioner has only to state, as it did, the date the order denying the motion for reconsideration was received; and (4) in order to resolve the main issue raised in this petition, viz., whether the NLRC has jurisdiction over this case, it was necessary to state the factual circumstances of the case.

After deliberating on the pleadings submitted by the parties, we resolved to give due course to this petition and to require the parties to submit their respective memoranda.

The factual antecedents as culled from the pleadings are not in dispute:

Private respondent Leopoldo Llorente (hereinafter Llorente) was a member of the Board of Directors of the petitioner. In its organizational meeting on 12 January 1989, the Board of Directors elected among themselves the corporate officers. Llorente was elected as Vice-Chairman of the Board and as Managing Director for a term of one year and until his successor should have been duly elected pursuant to the petitioner's by-laws.

On 29 January 1990, Llorente was preventively suspended, with pay, by reason of alleged anomalous transactions entered by him, which were prejudicial to the interest of the petitioner.

In a letter dated 1 February 1990, Llorente demanded from the petitioner access to his room which the latter allegedly sealed; compensation for his suspension or termination; and delivery of his stock certificates for 9,998 shares.

On 17 February 1990, the petitioner sent Llorente a letter requiring him to explain the acts enumerated therein which he allegedly committed.

On 27 February 1990, Llorente, through his counsel, protested his suspension and requested an examination of the supporting documents to enable him to explain the accusations leveled against him, but to no avail.

At the regular stockholders' meeting on 5 March 1990, the stockholders of the petitioner elected a new set of directors. Llorente was not reelected. On the same day, the new Board of Directors held a meeting wherein it elected a new set of officers and abolished the position of Managing Director.

On 12 March 1990, the petitioner's counsel informed Llorente of his non-reelection, the abolition of the position of Managing Director, and his termination for cause.

On 11 April 1990, Llorente filed with the Labor Arbiter a complaint for unfair labor practice, illegal dismissal, and illegal suspension alleging therein that he was dismissed without due process of law. The case was docketed as NLRC NCR Case No. 00-04-02127-90.

Upon receipt of the summons, the petitioner filed a Motion to Dismiss alleging therein that the case falls within the jurisdiction of the SEC and not of the NLRC.

In his order of 1 March 1991, the Labor Arbiter denied the said motion on the ground that Llorente was not merely acting as a Director but was likewise doing the functions of a manager or line officer of the corporation.

The parties thereafter filed their respective position papers.

In a decision dated 18 May 1992, the Labor Arbiter found for Llorente, ruled that he was illegally terminated from employment, and disposed as follows:

WHEREFORE, premises considered, judgment is hereby rendered finding the suspension and the eventual dismissal as illegal and ordering respondent to:

1. Pay the complainant his full backwages from January 29, 1990 to date or in the amount of Nine Hundred Twelve Thousand Seven Hundred Eighty (P912,780.00) Pesos;

2. To pay complainant attorney's fees equivalent to ten (10%) percent of his backwages;

3. This Office is cognizant of the fact that due to the instant case, the relations between the parties is so strained that the reinstatement may no longer be feasible. Besides, there may be no equivalent position as the Office of the Managing Director had been abolished; and



4. To pay complainant moral damages in the amount of Fifty Thousand (P50,000.00) Pesos.

The petitioner appealed to the NLRC from the said decision.

Relying on our decision in LEP International Philippines, Inc. vs. National Labor Relations Commission,3 the NLRC dismissed the petitioner's appeal and affirmed the decision of the Labor Arbiter. It likewise denied the petitioner's motion for reconsideration.

Hence, this petition for certiorari in support of which the petitioner asserts as follows:

I

THE NLRC ACTED WITHOUT JURISDICTION AND WITH GRAVE ABUSE OF DISCRETION IN ASSUMING JURISDICTION OVER THE PRESENT CONTROVERSY BETWEEN PETITIONER AND PRIVATE RESPONDENT WHO IS ADMITTEDLY ONE OF ITS INCORPORATORS/STOCKHOLDERS AND A CORPORATE OFFICER.

II

THE NLRC COMMITTED SERIOUS ERRORS AND ACTED WITH GRAVE ABUSE OF DISCRETION IN FINDING THAT THE REMOVAL FROM OFFICE BY NON-REELECTION OF PRIVATE RESPONDENT IS ONE OF ILLEGAL DISMISSAL CASE WHEREIN IT HAS JURISDICTION TO TRY AND DECIDE.

III

THE NLRC COMMITTED SERIOUS ERROR AND ACTED WITH GRAVE ABUSE OF DISCRETION, ASSUMING WITHOUT CONCEDING THAT IT HAS JURISDICTION OVER THE PRESENT CONTROVERSY, THAT PRIVATE RESPONDENT WAS ILLEGALLY DISMISSED FROM SERVICE.

The pith issue thus raised is whether it is the SEC or the NLRC which has jurisdiction over the complaint for illegal dismissal which the private respondent had filed with the NLRC.

We agree with both the petitioner and the Office of the Solicitor General that the removal of Llorente as Managing Director is purely an intra-corporate dispute which falls within the exclusive jurisdiction of the SEC and not of the NLRC.

In reality, Llorente was not dismissed. If he lost the position of Managing Director, it was primarily because he was not reelected as Director during the regular stockholders' meeting on 5 March 1990. The office of Managing Director presupposes that its occupant is a Director; hence, one who is not a Director of the petitioner or who has ceased to be a Director cannot be elected or appointed as a Managing Director. Elsewise stated, the holding of the position of Director is a prerequisite for the election, appointment, or designation of Managing Director. If a Managing Director should lose his position because he ceased to be a Director for any reason, such as non-reelection as in the case of Llorente, such loss is not dismissal but failure to qualify or to maintain a prerequisite for that position. Then too, the position of Managing Director was abolished.

Any question relating or incident to the election of the new Board of Directors, the non-reelection of Llorente as a Director, his loss of the position of Managing Director, or the abolition of the said office are intra-corporate matters. Disputes arising therefrom are intra-corporate disputes which, if unresolved within the corporate structure of the petitioner, may be resolved in an appropriate action only by the SEC pursuant to its authority under paragraphs (b) and (c), Section 5 of P.D. No. 902-A,4 which provide as follows:


xxx xxx xxx

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

(c) Controversies in the election or appointments of directors, trustees, officers or managers of such corporations, partnership or associations.

Thus, in Philippine School of Business Administration vs. Leano,5 we ruled that a complaint for illegal dismissal arising from a Board of Directors' action declaring vacant all corporate positions except that of Chairman and President, and from the non-reelection of the former Executive Vice-President during the ensuing election of officers is not cognizable by the NLRC. Pertinent portions of our opinion therein read as follows:

Basically, therefore, the question is whether the election of directors on August 1, 1981 and the election of officers on September 5, 1981, which resulted in TAN's failure to be re-elected, were validly held. This is the crux of the question that TAN has raised before the SEC. Even



in his position paper before the NLRC, TAN alleged that the election on August 1, 1981 of the three directors was in contravention of the PSBA By-Laws providing that any vacancy in the Board shall be filled by a majority vote of the stockholders at a meeting specially called for the purpose. Thus, he concludes, the Board meeting on September 5, 1981 was tainted with irregularity on account of the presence of illegally elected directors without whom the results could have been different.

TAN invoked the same allegations in his complaint filed with the SEC. So much so, that on December 17, 1981, the SEC (Case No. 2145) rendered a Partial Decision annulling the election of the three directors and ordered the convening of a stockholders' meeting for the purpose of electing new members of the Board. The correctness of said conclusion is not for us to pass upon in this case. TAN was present at said meeting and again sought the issuance of injunctive relief from the SEC.

The foregoing indubitably show that, fundamentally, the controversy is intra-corporate in nature. It revolves around the election of directors, officers or managers of the PSBA, the relation between and among its stockholders, and between them and the corporation. Private respondent also contends that his "ouster" was a scheme to intimidate him into selling his shares and to deprive him of his just and fair return on his investment as a stockholder received through his salary and allowances as Executive Vice-President. Vis-a-vis the NLRC, these matters fall within the jurisdiction of the SEC.

xxx xxx xxx

This is not a case of dismissal. The situation is that of a corporate office having been declared vacant, and of TAN's not having been elected thereafter. The matter of whom to elect is a prerogative that belongs to the Board, and involves the exercise of deliberate choice and the faculty of discriminative selection. Generally speaking, the relationship of a person to a corporation, whether as officer or as agent or employee, is not determined by the nature of the services performed, but by the incidents of the relationship as they actually exist.

We reiterated this rule in Dy vs. National Labor Relations Commission,6 which involved an action for illegal dismissal filed by a bank manager who was not reelected as such, and in Fortune Cement Corporation vs. National Labor Relations Commission,7 which involved a complaint for illegal dismissal instituted by an Executive Vice-President of the corporation who lost that position when he was dismissed as such by the Board of Directors for loss of trust and confidence.

The reliance by the NLRC on LEP International Philippines, Inc. vs. National Labor Relations Commission is misplaced. What was challenged in that case was not the jurisdiction of the respondent Commission but its act of upholding the validity of the dismissal of LEP's Chief Executive, who was not a stockholder, much less a director, of LEP but was merely a managerial employee of the said company.

WHEREFORE, the instant petition is GRANTED. The challenged decision of 22 April 1993 and order of 25 November 1993 of public respondent National Labor Relations Commission in NLRC Case No. 0034-07-92 and the decision of 18 May 1992 of the Labor Arbiter in NLRC NCR Case No. 00-04-02127-90 are hereby ANNULLED and SET ASIDE for having been rendered without jurisdiction.

No pronouncement as to costs.

SO ORDERED.

EASYCALL COMMUNICATIONS G.R. No. 145901

PHILS., INC.,

Petitioner,vs. EDWARD KING,

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

This petition for review on certiorari under Rule 45 of the Rules of Court assails the February 10, 2000 decision[1] and November 8, 2000 resolution of the Court of Appeals (CA) in CA-G.R. SP No. 53510. The assailed decision nullified the November 27, 1998 decision and April 29, 1999 resolution of the National Labor Relations Commission (NLRC) and entered a new one declaring that the respondent Edward King was illegally dismissed and awarding him backwages, separation pay and attorney’s fees.

Petitioner Easycall Communications Phils., Inc. was a domestic corporation primarily engaged in the business of message handling. On May 20, 1992, petitioner, through its general manager, Roberto B. Malonzo, hired the services of respondent as assistant to the general manager. He was given the responsibility of ensuring that the expansion plans outside Metro Manila and Metro Cebu were achieved at the soonest possible time.

In an August 14, 1992 memorandum, Mr. R.T. Casas, respondent’s immediate superior, recommended his promotion to assistant vice president for nationwide expansion. On December 22, 1992, respondent was appointed to the even higher position of vice president for nationwide expansion. Respondent’s promotion was based on his performance during the six months preceding his appointment. As vice president for nationwide expansion, he became responsible for the sales and rentals of pager units in petitioner’s expansion areas. He was also in charge of coordinating with the dealers in these areas.

Sometime in March 1993, Malonzo reviewed the sales performance of respondent. He also scrutinized the status of petitioner’s Nationwide Expansion Program (NEP) which was under respondent’s responsibility. He found that respondent’s actual sales for the period October 1992–March 1993 was 78% of his sales commitment and 70% of his sales target.

Malonzo also checked the frequency and duration of the provincial sales development visits made by respondent for the same period to expansion areas under his jurisdiction. He discovered that the latter spent around 40% of the total number of working days for that period in the field.



The management then confronted respondent regarding his sales performance and provincial sales development visits. A series of dialogues between petitioner’s management and respondent ensued.

On April 16, 1993, Rockwell Gohu, petitioner’s deputy general manager, talked to respondent to discuss his sales performance. In the course of the conversation, Gohu informed respondent that Malonzo wanted his resignation. This prompted respondent to write a memorandum to Malonzo. In his memorandum, he inquired whether Malonzo really wanted him to resign. He emphasized that his work performance had yet to be evaluated. He also stated that, based on the approved budget for fiscal year ending in June 1993, he was within the budget and targets set forth by petitioner. He further declared that he had no intention of resigning from his position.

On April 19, 1993, respondent received a notice of termination signed by Malonzo. The notice informed him of the termination of his employment with petitioner effective April 30, 1993. In particular, the relevant portion of the notice read:

This is to inform you that management is no longer confident that you are the right manager for the position you are occupying. Our series of discussions on the various aspects of your functions with you did not convince us that it is to the best interest of Easy Call to retain your services. xxx [2] (Emphasis supplied)

Aggrieved, the respondent filed a complaint for illegal dismissal with the NLRC. It was docketed as NLRC Case No. 00-04-02913-93.

In his June 24, 1997 decision, the labor arbiter found that the termination of respondent’s employment on the ground of loss of confidence was valid. Consequently, the labor arbiter dismissed the complaint for lack of merit.

On appeal, the NLRC affirmed the decision of the labor arbiter in its November 27, 1998 decision, with the modification that petitioner was ordered to indemnify respondent in the amount of P10,000 for violating respondent’s right to due process. Respondent filed a partial motion for reconsideration praying that the NLRC reverse its ruling insofar as it declared that he was validly dismissed for cause. The NLRC, however, denied the motion for lack of merit in a April 29, 1999 resolution. The NLRC also dismissed the complaint for lack of jurisdiction.

Respondent filed a petition for certiorari with the CA. The CA granted the petition and ruled that the NLRC erred in holding that it lacked jurisdiction over the case. The CA also ruled that the dismissal of respondent was illegal for having been done without cause and in violation of his right to due process.

Petitioner moved for a reconsideration of the CA decision but the motion was denied in the CA’s November 8, 2000 resolution. Hence, this petition.

Petitioner now raises the following errors:

I.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT SUBSTITUTED ITS OWN FINDINGS TO THAT OF THE NLRC IN VIOLATION OF THE RULE THAT REGULAR COURTS SHOULD ACCORD GREAT RESPECT TO FINDINGS OF ADMINISTRATIVE AGENCIES CONSIDERING THAT THERE IS SUBSTANTIAL EVIDENCE TO SUPPORT THE SIMILAR FINDINGS OF BOTH THE LABOR ARBITER AND THE COMMISSIONERS OF NLRC.

II.

FURTHERMORE, GLARING IS THE FACT THAT THE HONORABLE COURT OF APPEALS SIMPLY DISREGARDED THE SUBSTANTIAL EVIDENCE ON RECORD WHICH INDISPUTABLY SHOWED THAT RESPONDENT WAS TOTALLY REMISS IN HIS DUTIES AS VICE PRESIDENT FOR NATIONWIDE EXPANSION.

III.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT FAILED TO CONSIDER THAT BEING A CORPORATE OFFICER, THE NLRC HAS NO JURISDICTION OVER THE SUBJECT UNDER PD 902-A.[3]

We shall rule first on the issue of jurisdiction as it is decisive. If the NLRC had no jurisdiction, then it would be unnecessary to consider the validity of respondent’s dismissal.

Petitioner argues that since respondent was a “corporate officer,” the NLRC had no jurisdiction over the subject matter under PD 902-A. In support of its contention, petitioner invokes Paguio v. NLRC [4] where we held that the removal of a corporate officer, whether elected or appointed, is an intra-corporate controversy over which the NLRC has no jurisdiction. The petitioner also cites our ruling in de Rossi v. NLRC [5] to the effect that the SEC, not the NLRC, has original and exclusive jurisdiction over cases involving the removal of corporate officers.



Under Section 5 of PD 902-A, the law applicable at the time this controversy arose,[6] the SEC, not the NLRC, had original and exclusive jurisdiction over cases involving the removal of corporate officers. Section 5(c) of PD 902-A applied to a corporate officer’s dismissal for his dismissal was a corporate act and/or an intra-corporate controversy.[7]

However, it had to be first established that the person removed or dismissed was a corporate officer before the removal or dismissal could properly fall within the jurisdiction of the SEC and not the NLRC. Here, aside from its bare allegation, petitioner failed to show that respondent was in fact a corporate officer.

“Corporate officers” in the context of PD 902-A are those officers of a corporation who are given that character either by the Corporation Code or by the corporation’s by-laws.[8] Under Section 25 of the Corporation Code, the “corporate officers” are the president, secretary, treasurer and such other officers as may be provided for in the by-laws.

A careful look at de Rossi (as well as the line of cases involving the removal of corporate officers where we held that it was the SEC and not the NLRC which had jurisdiction[9]) will show that the person whose removal was the subject of the controversy was a corporate officer whose position was provided for in the by-laws. That is not by any means the case here.

The burden of proof is on the party who makes the allegation.[10] Here, petitioner merely alleged that respondent was a corporate officer. However, it failed to prove that its by-laws provided for the office of “vice president for nationwide expansion.” Since petitioner failed to satisfy the burden of proof that was required of it, we cannot sanction its claim that respondent was a “corporate officer” whose removal was cognizable by the SEC under PD 902-A and not by the NLRC under the Labor Code.

An “office” is created by the charter of the corporation and the officer is elected by the directors or stockholders.[11] On the other hand, an employee occupies no office and generally is employed not by the action of the directors or stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee.[12]

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

We now proceed to the substantive issue of the validity of the dismissal of respondent.

While loss of confidence is a valid ground for dismissing an employee, it should not be simulated.[13] It must not be indiscriminately used as a shield by the employer against a claim that the dismissal of an employee was arbitrary.[14]

To be a valid ground for an employee’s dismissal, loss of trust and confidence must be based on a willful breach and founded on clearly established facts.[15] A breach is willful if it is done intentionally, knowingly and purposely, without justifiable excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently.[16] Thus, a willful breach cannot be a breach resulting from mere carelessness.

In this case, the labor arbiter’s finding, affirmed by the NLRC, was that the sales record of respondent and the time he spent in the field were “clear indications of complainant’s inefficiency and/or negligence.”[17] Inefficiency implies negligence, incompetence, ignorance and carelessness.[18] Negligence is the want or lack of care required by the circumstances.[19]

The grounds cited by petitioner, i.e., respondent’s alleged poor sales performance and the allegedly excessive time he spent in the field, were not sufficient to support a claim of loss of confidence as a ground for dismissal.

Furthermore, the alleged loss of confidence was not founded on clearly established facts.[20] First, petitioner included the sales performance of respondent for the period covering October 1992 to December 1992 in arriving at the conclusion that his sales record was dismal. However, as the CA correctly pointed out, petitioner previously recognized that respondent’s performance for that period “was not merely satisfactory” but “more than extra-ordinary that it merited his promotion not only to the position of assistant vice president, to which he was recommended by his supervisor, but to the even higher position of vice president.”[21] This self-contradictory position of petitioner negates its claim of loss of confidence in repondent.

Moreover, the promotion of an employee negates the employer’s claim that it has lost its trust and confidence in the employee.[22] Hence, petitioner’s claim of loss of confidence crumbles in the light of respondent’s promotion not only to assistant vice-president but to the even higher position of vice- president.

Second, the sales record of respondent for the period October 1992–December 1992 was recognized as so exemplary that it merited his promotion. Later, however, this very same record was suddenly deemed poor and dismal to justify loss of confidence. Thus, petitioner interpreted one and the same sales record as proof of respondent’s simultaneous efficiency and inefficiency. This could only mean that there was no sufficient standard with which to measure the performance of respondent, an indication of the arbitrariness of petitioner.

Finally, during the hearing of this case before the labor arbiter, Malonzo stated that the percentage of the time spent by respondent in his sales area was actually “not below par.”[23] This admission of petitioner’s general manager only proves all the more the lack of sufficient standard for determining respondent’s performance.

The lack of just cause in respondent’s dismissal was aggravated by the absence of due process.



The twin requirements of notice and hearing constitute the essential elements of due process. The law requires the employer to furnish the employee sought to be dismissed with two written notices before termination of employment can be legally effected: (1) a written notice apprising the employee of the particular acts or omissions for which his dismissal is sought in order to afford him an opportunity to be heard and to defend himself with the assistance of counsel, if he desires, and (2) a subsequent notice informing the employee of the employer’s decision to dismiss him.[24] This procedure is mandatory and its absence taints the dismissal with illegality.[25]

In this case, respondent was served with one notice only ― the notice of his termination. The series of dialogues between petitioner’s management and respondent was not enough as it failed to show that the latter was apprised of the cause of his dismissal.[26] These dialogues or consultations could not validly substitute for the actual observance of notice and hearing.[27]

WHEREFORE, the petition is hereby DENIED. The February 10, 2000 decision and November 8, 2000 resolution of the Court of Appeals in CA-G.R. SP No. 53510 are AFFIRMED.

[G.R. No. 150793. November 19, 2004]

FRANCIS CHUA, petitioner, vs. HON. COURT OF APPEALS and LYDIA C. HAO, respondents.

D E C I S I O N

QUISUMBING, J.:

Petitioner assails the Decision,[1] dated June 14, 2001, of the Court of Appeals in CA-G.R. SP No. 57070, affirming the Order, dated October 5, 1999, of the Regional Trial Court (RTC) of Manila, Branch 19. The RTC reversed the Order, dated April 26, 1999, of the Metropolitan Trial Court (MeTC) of Manila, Branch 22. Also challenged by herein petitioner is the CA Resolution,[2] dated November 20, 2001, denying his Motion for Reconsideration.

The facts, as culled from the records, are as follows:

On February 28, 1996, private respondent Lydia Hao, treasurer of Siena Realty Corporation, filed a complaint-affidavit with the City Prosecutor of Manila charging Francis Chua and his wife, Elsa Chua, of four counts of falsification of public documents pursuant to Article 172[3] in relation to Article 171[4] of the Revised Penal Code. The charge reads:

That on or about May 13, 1994, in the City of Manila, Philippines, the said accused, being then a private individual, did then and there willfully, unlawfully and feloniously commit acts of falsification upon a public document, to wit: the said accused prepared, certified, and falsified the Minutes of the Annual Stockholders meeting of the Board of Directors of the Siena Realty Corporation, duly notarized before a Notary Public, Atty. Juanito G. Garcia and entered in his Notarial Registry as Doc No. 109, Page 22, Book No. IV and Series of 1994, and therefore, a public document, by making or causing it to appear in said Minutes of the Annual Stockholders Meeting that one LYDIA HAO CHUA was present and has participated in said proceedings, when in truth and in fact, as the said accused fully well knew that said Lydia C. Hao was never present during the Annual Stockholders Meeting held on April 30, 1994 and neither has participated in the proceedings thereof to the prejudice of public interest and in violation of public faith and destruction of truth as therein proclaimed.

CONTRARY TO LAW.[5]

Thereafter, the City Prosecutor filed the Information docketed as Criminal Case No. 285721[6] for falsification of public document, before the Metropolitan Trial Court (MeTC) of Manila, Branch 22, against Francis Chua but dismissed the accusation against Elsa Chua.

Herein petitioner, Francis Chua, was arraigned and trial ensued thereafter.

During the trial in the MeTC, private prosecutors Atty. Evelyn Sua-Kho and Atty. Ariel Bruno Rivera appeared as private prosecutors and presented Hao as their first witness.

After Hao’s testimony, Chua moved to exclude complainant’s counsels as private prosecutors in the case on the ground that Hao failed to allege and prove any civil liability in the case.

In an Order, dated April 26, 1999, the MeTC granted Chua’s motion and ordered the complainant’s counsels to be excluded from actively prosecuting Criminal Case No. 285721. Hao moved for reconsideration but it was denied.

Hence, Hao filed a petition for certiorari docketed as SCA No. 99-94846,[7] entitled Lydia C. Hao, in her own behalf and for the benefit of Siena Realty Corporation v. Francis Chua, and the Honorable Hipolito dela Vega, Presiding Judge, Branch 22, Metropolitan Trial Court of Manila, before the Regional Trial Court (RTC) of Manila, Branch 19.

The RTC gave due course to the petition and on October 5, 1999, the RTC in an order reversed the MeTC Order. The dispositive portion reads:



WHEREFORE, the petition is GRANTED. The respondent Court is ordered to allow the intervention of the private prosecutors in behalf of petitioner Lydia C. Hao in the prosecution of the civil aspect of Crim. Case No. 285721, before Br. 22 [MeTC], Manila, allowing Attys. Evelyn Sua-Kho and Ariel Bruno Rivera to actively participate in the proceedings.

SO ORDERED.[8]

Chua moved for reconsideration which was denied.

Dissatisfied, Chua filed before the Court of Appeals a petition for certiorari. The petition alleged that the lower court acted with grave abuse of discretion in: (1) refusing to consider material facts; (2) allowing Siena Realty Corporation to be impleaded as co-petitioner in SCA No. 99-94846 although it was not a party to the criminal complaint in Criminal Case No. 285721; and (3) effectively amending the information against the accused in violation of his constitutional rights.

On June 14, 2001, the appellate court promulgated its assailed Decision denying the petition, thus:

WHEREFORE, premises considered, the petition is hereby DENIED DUE COURSE and DISMISSED. The Order, dated October 5, 1999 as well as the Order, dated December 3, 1999, are hereby AFFIRMED in toto.

SO ORDERED.[9]

Petitioner had argued before the Court of Appeals that respondent had no authority whatsoever to bring a suit in behalf of the Corporation since there was no Board Resolution authorizing her to file the suit.

For her part, respondent Hao claimed that the suit was brought under the concept of a derivative suit. Respondent maintained that when the directors or trustees refused to file a suit even when there was a demand from stockholders, a derivative suit was allowed.

The Court of Appeals held that the action was indeed a derivative suit, for it alleged that petitioner falsified documents pertaining to projects of the corporation and made it appear that the petitioner was a stockholder and a director of the corporation. According to the appellate court, the corporation was a necessary party to the petition filed with the RTC and even if private respondent filed the criminal case, her act should not divest the Corporation of its right to be a party and present its own claim for damages.

Petitioner moved for reconsideration but it was denied in a Resolution dated November 20, 2001.

Hence, this petition alleging that the Court of Appeals committed reversible errors:

I. … IN RULING THAT LYDIA HAO’S FILING OF CRIMINAL CASE NO. 285721 WAS IN THE NATURE OF A DERIVATIVE SUIT

II. … IN UPHOLDING THE RULING OF JUDGE DAGUNA THAT SIENA REALTY WAS A PROPER PETITIONER IN SCA NO. [99-94846]

III. … IN UPHOLDING JUDGE DAGUNA’S DECISION ALLOWING LYDIA HAO’S COUNSEL TO CONTINUE AS PRIVATE PROSECUTORS IN CRIMINAL CASE NO. 285721

IV. … IN [OMITTING] TO CONSIDER AND RULE UPON THE ISSUE THAT JUDGE DAGUNA ACTED IN GRAVE ABUSE OF DISCRETION IN NOT DISMISSING THE PETITION IN SCA NO. [99-94846] FOR BEING A SHAM PLEADING.[10]

The pertinent issues in this petition are the following: (1) Is the criminal complaint in the nature of a derivative suit? (2) Is Siena Realty Corporation a proper petitioner in SCA No. 99-94846? and (3) Should private prosecutors be allowed to actively participate in the trial of Criminal Case No. 285721.

On the first issue, petitioner claims that the Court of Appeals erred when (1) it sustained the lower court in giving due course to respondent’s petition in SCA No. 99-94846 despite the fact that the Corporation was not the private complainant in Criminal Case No. 285721, and (2) when it ruled that Criminal Case No. 285721 was in the nature of a derivative suit.

Petitioner avers that a derivative suit is by nature peculiar only to intra-corporate proceedings and cannot be made part of a criminal action. He cites the case of Western Institute of Technology, Inc. v. Salas,[11] where the court said that an appeal on the civil aspect of a criminal case cannot be treated as a derivative suit. Petitioner asserts that in this case, the civil aspect of a criminal case cannot be treated as a derivative suit, considering that Siena Realty Corporation was not the private complainant.

Petitioner misapprehends our ruling in Western Institute. In that case, we said:

Here, however, the case is not a derivative suit but is merely an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098 filed with the RTC of Iloilo for estafa and falsification of public document. Among the basic requirements for a derivative suit to prosper is that



the minority shareholder who is suing for and on behalf of the corporation must allege in his complaint before the proper forum that he is suing on a derivative cause of action on behalf of the corporation and all other shareholders similarly situated who wish to join. . . .This was not complied with by the petitioners either in their complaint before the court a quo nor in the instant petition which, in part, merely states that “this is a petition for review on certiorari on pure questions of law to set aside a portion of the RTC decision in Criminal Cases Nos. 37097 and 37098” since the trial court’s judgment of acquittal failed to impose civil liability against the private respondents. By no amount of equity considerations, if at all deserved, can a mere appeal on the civil aspect of a criminal case be treated as a derivative suit.[12]

Moreover, in Western Institute, we said that a mere appeal in the civil aspect cannot be treated as a derivative suit because the appeal lacked the basic requirement that it must be alleged in the complaint that the shareholder is suing on a derivative cause of action for and in behalf of the corporation and other shareholders who wish to join.

Under Section 36[13] of the Corporation Code, read in relation to Section 23,[14] where a corporation is an injured party, its power to sue is lodged with its board of directors or trustees.[15] An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stocks in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued, or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest.[16]

A derivative action is a suit by a shareholder to enforce a corporate cause of action. The corporation is a necessary party to the suit. And the relief which is granted is a judgment against a third person in favor of the corporation. Similarly, if a corporation has a defense to an action against it and is not asserting it, a stockholder may intervene and defend on behalf of the corporation.[17]

Under the Revised Penal Code, every person criminally liable for a felony is also civilly liable.[18] When a criminal action is instituted, the civil action for the recovery of civil liability arising from the offense charged shall be deemed instituted with the criminal action, unless the offended party waives the civil action, reserves the right to institute it separately or institutes the civil action prior to the criminal action.[19]

In Criminal Case No. 285721, the complaint was instituted by respondent against petitioner for falsifying corporate documents whose subject concerns corporate projects of Siena Realty Corporation. Clearly, Siena Realty Corporation is an offended party. Hence, Siena Realty Corporation has a cause of action. And the civil case for the corporate cause of action is deemed instituted in the criminal action.

However, the board of directors of the corporation in this case did not institute the action against petitioner. Private respondent was the one who instituted the action. Private respondent asserts that she filed a derivative suit in behalf of the corporation. This assertion is inaccurate. Not every suit filed in behalf of the corporation is a derivative suit. For a derivative suit to prosper, it is required that the minority stockholder suing for and on behalf of the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit.[20] It is a condition sine qua non that the corporation be impleaded as a party because not only is the corporation an indispensable party, but it is also the present

rule that it must be served with process. The judgment must be made binding upon the corporation in order that the corporation may get the benefit of the suit and may not bring subsequent suit against the same defendants for the same cause of action. In other words, the corporation must be joined as party because it is its cause of action that is being litigated and because judgment must be a res adjudicata against it.[21]

In the criminal complaint filed by herein respondent, nowhere is it stated that she is filing the same in behalf and for the benefit of the corporation. Thus, the criminal complaint including the civil aspect thereof could not be deemed in the nature of a derivative suit.

We turn now to the second issue, is the corporation a proper party in the petition for certiorari under Rule 65 before the RTC? Note that the case was titled “Lydia C. Hao, in her own behalf and for the benefit of Siena Realty Corporation v. Francis Chua, and the Honorable Hipolito dela Vega, Presiding Judge, Branch 22, Metropolitan Trial Court of Manila.” Petitioner before us now claims that the corporation is not a private complainant in Criminal Case No. 285721, and thus cannot be included as appellant in SCA No. 99-94846.

Petitioner invokes the case of Ciudad Real & Dev’t. Corporation v. Court of Appeals.[22] In Ciudad Real, it was ruled that the Court of Appeals committed grave abuse of discretion when it upheld the standing of Magdiwang Realty Corporation as a party to the petition for certiorari, even though it was not a party-in-interest in the civil case before the lower court.

In the present case, respondent claims that the complaint was filed by her not only in her personal capacity, but likewise for the benefit of the corporation. Additionally, she avers that she has exhausted all remedies available to her before she instituted the case, not only to claim damages for herself but also to recover the damages caused to the company.

Under Rule 65 of the Rules of Civil Procedure,[23] when a trial court commits a grave abuse of discretion amounting to lack or excess of jurisdiction, the person aggrieved can file a special civil action for certiorari. The aggrieved parties in such a case are the State and the private offended party or complainant.[24]

In a string of cases, we consistently ruled that only a party-in-interest or those aggrieved may file certiorari cases. It is settled that the offended parties in criminal cases have sufficient interest and personality as “person(s) aggrieved” to file special civil action of prohibition and certiorari.[25]

In Ciudad Real, cited by petitioner, we held that the appellate court committed grave abuse of discretion when it sanctioned the standing of a corporation to join said petition for certiorari, despite the finality of the trial court’s denial of its Motion for Intervention and the subsequent Motion to Substitute and/or Join as Party/Plaintiff.



Note, however, that in Pastor, Jr. v. Court of Appeals[26] we held that if aggrieved, even a non-party may institute a petition for certiorari. In that case, petitioner was the holder in her own right of three mining claims and could file a petition for certiorari, the fastest and most feasible remedy since she could not intervene in the probate of her father-in-law’s estate.[27]

In the instant case, we find that the recourse of the complainant to the respondent Court of Appeals was proper. The petition was brought in her own name and in behalf of the Corporation. Although, the corporation was not a complainant in the criminal action, the subject of the falsification was the corporation’s project and the falsified documents were corporate documents. Therefore, the corporation is a proper party in the petition for certiorari because the proceedings in the criminal case directly and adversely affected the corporation.

We turn now to the third issue. Did the Court of Appeals and the lower court err in allowing private prosecutors to actively participate in the trial of Criminal Case No. 285721?

Petitioner cites the case of Tan, Jr. v. Gallardo,[28] holding that where from the nature of the offense or where the law defining and punishing the offense charged does not provide for an indemnity, the offended party may not intervene in the prosecution of the offense.

Petitioner’s contention lacks merit. Generally, the basis of civil liability arising from crime is the fundamental postulate that every man criminally liable is also civilly liable. When a person commits a crime he offends two entities namely (1) the society in which he lives in or the political entity called the State whose law he has violated; and (2) the individual member of the society whose person, right, honor, chastity or property has been actually or directly injured or damaged by the same punishable act or omission. An act or omission is felonious because it is punishable by law, it gives rise to civil liability not so much because it is a crime but because it caused damage to another. Additionally, what gives rise to the civil liability is really the obligation and the moral duty of everyone to repair or make whole the damage caused to another by reason of his own act or omission, whether done intentionally or negligently. The indemnity which a person is sentenced to pay forms an integral part of the penalty imposed by law for the commission of the crime.[29] The civil action involves the civil liability arising from the offense charged which includes restitution, reparation of the damage caused, and indemnification for consequential damages.[30]

Under the Rules, where the civil action for recovery of civil liability is instituted in the criminal action pursuant to Rule 111, the offended party may intervene by counsel in the prosecution of the offense.[31] Rule 111(a) of the Rules of Criminal Procedure provides that, “[w]hen a criminal action is instituted, the civil action arising from the offense charged shall be deemed instituted with the criminal action unless the offended party waives the civil action, reserves the right to institute it separately, or institutes the civil action prior to the criminal action.”

Private respondent did not waive the civil action, nor did she reserve the right to institute it separately, nor institute the civil action for damages arising from the offense charged. Thus, we find that the private prosecutors can intervene in the trial of the criminal action.

Petitioner avers, however, that respondent’s testimony in the inferior court did not establish nor prove any damages personally sustained by her as a result of petitioner’s alleged acts of falsification. Petitioner adds that since no personal damages were proven therein, then the participation of her counsel as private prosecutors, who were supposed to pursue the civil aspect of a criminal case, is not necessary and is without basis.

When the civil action is instituted with the criminal action, evidence should be taken of the damages claimed and the court should determine who are the persons entitled to such indemnity. The civil liability arising from the crime may be determined in the criminal proceedings if the offended party does not waive to have it adjudged or does not reserve the right to institute a separate civil action against the defendant. Accordingly, if there is no waiver or reservation of civil liability, evidence should be allowed to establish the extent of injuries suffered.[32]

In the case before us, there was neither a waiver nor a reservation made; nor did the offended party institute a separate civil action. It follows that evidence should be allowed in the criminal proceedings to establish the civil liability arising from the offense committed, and the private offended party has the right to intervene through the private prosecutors.

WHEREFORE, the instant petition is DENIED. The Decision, dated June 14, 2001, and the Resolution, dated November 20, 2001, of the Court of Appeals in CA-G.R. SP No. 57070, affirming the Order, dated October 5, 1999, of the Regional Trial Court (RTC) of Manila, Branch 19, are AFFIRMED. Accordingly, the private prosecutors are hereby allowed to intervene in behalf of private respondent Lydia Hao in the prosecution of the civil aspect of Criminal Case No. 285721 before Branch 22, of Metropolitan Trial Court (MeTC) of Manila. Costs against petitioner.

SO ORDERED.

G.R. No. 187872 April 11, 2011

STRATEGIC ALLIANCE DEVELOPMENT CORPORATION, Petitioner,

vs.

STAR INFRASTRUCTURE DEVELOPMENT CORPORATION ET AL., Respondents.

For resolution by the Court are the following motions and incidents filed by the parties, to wit:



1. Initial Motion for Reconsideration of the Grant of the Application for Writ of Preliminary Injunction (With Offer to File Counterbond)1 and Supplemental Motion for Reconsideration of the 17 November 2010 decision, filed by respondent Cypress Tree Capital Investment, Inc. (CTCII);2

2. Motions for Reconsideration of said 17 November 2010 decision filed by respondents Aderito Z. Yujuico and Bonifacio C. Sumbilla,3 Robert L. Wong,4 and Star Infrastructure Development Corporation (SIDC);5

3. Motion to Admit and Approve Preliminary Injunction Bond filed by petitioner Strategic Alliance Development Corporation (STRADEC);6

4. Oppositions to STRADEC’s Motion to Admit and Approve Preliminary Injunction Bond filed by respondents Yujuico and Sumbilla7 as well as CTCII and respondent Cynthia M. Laureta;8

5. Manifestation9 and Reply10 filed by STRADEC and Rejoinder filed by respondents Yujuico and Sumbilla;11 and

6. Comment (on CTCII’s Initial Motion for Reconsideration of the Grant of the Application for Writ of Preliminary Injunction (With Offer to File Counterbond)12 and Consolidated Comment (on Respondents’ Motion for Reconsideration)13 filed by STRADEC.

In their motions for reconsideration of the Court’s 17 November 2010 decision, respondents essentially argue that the issue of Ceasar Quiambao’s authority to represent STRADEC is a prejudicial question to the resolution of the dispute before the court a quo; that a declaration that respondent Yujuico and Sumbilla’s group constitutes STRADEC’s legitimate Board of Directors would not only discount Quiambao’s authority to represent said corporation but would also validate the authority said respondents were given to execute the 8 October 2004 pledge of said corporation’s SIDC shares; that the record is bereft of any showing that the Board of Directors who authorized Quiambao to file the 31 July 2006 amended petition before Branch 2 of the Regional Trial Court (RTC) of Batangas City was the legitimate successor of STRADEC’s Board of Directors which was restored into office by this Court’s 29 January 2007 decision in G.R. No. 168639; that there was misjoinder of causes of action in said amended complaint which incorporated claims both civil and intra-corporate in nature; that STRADEC has no clear and unmistakable right as would entitle it to a writ of preliminary injunction which, at any rate, cannot be directed against acts which had already been accomplished or consummated; and, that the preliminary injunction issued in the premises amounted a prejudgment of the case.14

In compliance with the 17 November 2010 decision sought be reconsidered, STRADEC, on the other hand, seeks the admission and approval of the preliminary injunction bond issued by the Empire Insurance Company in the sum of P10,000,000.00.15 On the ground, however, that grave and irreparable damage will be wrought by the issuance of the writ of preliminary injunction in these premises, CTCII’s motion for reconsideration of the grant of said writ is accompanied by an offer to post a counterbond in the sum of P20,000,000.00. For this purpose, CTCII calls our attention to the supposed fact, among other matters, that it is currently the principal shareholder of SIDC which, as a public utility company, holds the concession for the construction, operation and maintenance of the STAR toll road; that SIDC is scheduled to expand Stage II, Phase 2 of the STAR toll road with the construction of two additional new lanes at an

estimated cost of P2,000,000,000.00; that if it is prevented from exercising proprietary rights over the subject shares and SIDC is inhibited from implementing the 20 July 2006 stockholders’ resolution increasing its authorized capital stock, CTCII will be unable to infuse the equity participation commonly required for bank loans; and, that since the security for said loans consisting of SIDC’s assets requires the vote of stockholders owning/controlling 2/3 of SIDC’s outstanding capital stock, the writ of preliminary injunction would cause grave and irreparable damage which cannot be indemnified by the injunction bond to be posted by STRADEC.16 In support of the foregoing arguments, CTCII submitted an affidavit of merit executed by its President, Elizabeth Lee.17

In their opposition to STRADEC’s motion to admit and approve preliminary injunction bond, respondents Yujuico and Sumbilla, in turn, question Quiambao’s authority to file and submit said bond. Calling attention to the fact that the motion did not include a board resolution authorizing Quiambao to file the same for and in behalf of STRADEC, respondents Yujuico and Quiambao once again argue that there is no showing in the record that Quiambao was so authorized by a legitimate Board of Directors which succeeded the one restored in office by the 29 January 2007 decision in G.R. No. 168639.18 The foregoing arguments having been adopted in the 28 January 2011 manifestation filed by SIDC,19 STRADEC filed its reply, contending that the decision in G.R. No. 168639 had reference only to the election of its Board of Directors for the term 2004-2005; that since then, the annual meetings of its stockholders had resulted in the consistent re-election of Quiambao as its Corporate President; that said subsequent elections were recognized in the 2 February 2009 decision rendered by Branch 155 of the Pasig City RTC in SCA No. 3034-PSG, entitled "Citra Metro Manila Tollways Corporation [CMMTC] vs. Strategic Alliance Development Corporation, et al."; and, that the decision was effectively affirmed in G.R. No. 188864 when this Court denied the petition for review on certiorari filed by respondents Yujuico and Sumbilla.20 In their reply, however, the latter argue that said decision in SCA No. 3034 only referred to the validity of the proxies issued by STRADEC for the stockholders meetings of CMMTC for the years 2005 and 2006.21

In its comment to CTCII's Initial Motion for Reconsideration of the Grant of the Application for Writ of Preliminary Injunction (With Offer to File Counterbond), STRADEC additionally underscores the fact, among other matters, that as its duly elected Corporate President, Quiambao has been duly authorized to file its 31 July 2006 amended petition a quo and to obtain the requisite surety bond for the writ of preliminary injunction sought in connection with its petition for review on certiorari from the Court of Appeals' (CA) 22 December 2008 decision in CA-G.R. No. 96945; that CTCII's continuing violations of STRADEC's rights over its SIDC shares justify the issuance of the writ of preliminary injunction to which it is entitled as owner of said shares; and, that the grave and irreparable damage pleaded by CTCII is attributable to its illegal acquisition of the subject shares and its continued usurpation of STRADEC's rights could only result to instability in the conduct of SIDC's business.22 Reiterating the foregoing arguments in its consolidated comment to respondents' motions for reconsideration, STRADEC maintains that the arguments presently raised by respondents had already been squarely passed upon in the decision sought to be reconsidered; and, that the suspension of the proceedings regarding its third and fourth causes of action is not justified by the pendency of other intra-corporate disputes between STRADEC's corporators.23

We find respondents’ motions for reconsideration bereft of merit.

Having already discussed the matter extensively in the decision sought to be reconsidered, we no longer find any reason to go into great detail in discussing the reasons why the first and second causes of action pleaded in STRADEC’s 31 July 2006 amended complaint qualify as intra-corporate disputes cognizable by Branch 2 of the RTC of Batangas City, sitting as a Special Commercial Court (SCC). Fundamental is the rule that nature of the action, as well as the court or body which has jurisdiction over it, is determined based on the allegations contained in the complaint, irrespective of whether or not plaintiff is entitled to recover upon all or some of the claims asserted therein.24



It has been held that only ultimate facts and not legal conclusions or evidentiary facts, which should not be alleged in the complaint in the first place, are considered for purposes of applying the test.25 Applying the relationship test and the nature of the controversy test already discussed in our 17 November 2010 decision, we find that STRADEC’s causes of action for the nullification of the loan and pledge over its SIDC shareholdings contracted by respondents Yujuico and Sumbilla as well as the avoidance of the notarial sale conducted by respondent Raymond M. Caraos both qualify as intra-corporate disputes.26 It cannot, therefore, be argued that said causes of action were misjoined with STRADEC’s third and fourth causes of action for the cancellation of the transfer of its shares in SIDEC’s books, the invalidation of the 30 July 2005 and 20 July 2006 SIDC stockholders’ meetings, attorney’s fees and the costs.

Neither are we inclined to hospitably entertain respondents’ harping over the supposed fact that Quiambao’s authority to represent STRADEC – as litigated in the cases pending before the courts of Pasig City and Urdaneta City, involving the question of ownership of the controlling shares of stock of STRADEC as well as the legitimacy of the Board of Directors headed by Quiambao – pose a prejudicial question to the resolution of the dispute before Branch 2 of the Batangas City RTC. A prejudicial question is defined as that which arises in a case, the resolution of which is a logical antecedent of the issue involved therein, and the cognizance of which pertains to another tribunal.27 It is said to come into play when a civil action and a criminal action are both pending and there exists in the former case an issue which must be preemptively resolved before the latter case may proceed since the resolution of the issue raised in the civil action is resolved would be determinative juris et de jure of the guilt or innocence of the accused in the criminal case. Aimed at avoiding two conflicting decisions,28 a prejudicial question requires the concurrence of two essential requisites, to wit: (a) the civil action involves an issue similar or intimately related to the issue raised in the criminal action; and, (b) the resolution of such issue determines whether or not the criminal action may proceed.29 From the foregoing disquisition, it is evident that a prejudicial question cannot be appreciated where, as in the case at bench, the subject actions are all civil in nature.30

As an incident to the power inherent in every court to control the disposition of the cases on its dockets, the court in which an action is pending may, concededly, hold the action in abeyance in the exercise of sound discretion, to abide by the outcome of another case pending in another court,31 especially where the parties and the issues are the same.32 While applicable as between the actions pending before the courts of Pasig City and Urdaneta City which were supposedly instituted to determine the ownership of the controlling shares of stock of STRADEC as well as its legitimate Board of Directors, said principle cannot, however, apply to said cases vis-à-vis the one at bench which, at bottom, seek the nullification of the loan and pledge over said corporation’s shareholdings in SIDC as well as the subsequent notarial sale thereof. Even then, we find that respondents cannot expediently argue that the defects in the impugned loan, pledge and notarial sale would be automatically discounted by a declaration from the Pasay City and Urdaneta City courts that respondents Yujuico and Sumbilla’s group constitute said corporation’s legitimate Board of Directors. Assuming, arguendo, that respondents are justified in equating such determination with due authorization for the loan and pledge over STRADEC's shares in SIDC, we find that it would not still dispose of the issue of the alleged lack of consideration for the same transactions and the fraud which supposedly attended the execution of the same.

We have likewise gone over the Court's 29 January 2007 decision in G.R. No. 168639 and found no pronouncement therein that would bar the filing of the 31 July 2006 amended petition by STRADEC which, as a corporation with a personality separate and distinct from its corporators,33 has a right to protect its rights and interests over the subject SIDC shares. Considered in this light, we find that respondents are out on a limb in asserting that the record is be bereft of any showing that Quiambao's authority to said amended petition a quo was granted by the legitimate successor to STRADEC's Board of Directors which was restored into office by this Court’s 29 January 2007 decision in G.R. No. 168639. To a great extent, this situation is attributable to the fact that Civil Case No. 7956 was still on its preliminary stages when Branch 2 of the RTC of Batangas City issued its assailed 30 August 2006 order, withholding action on STRADEC's first and causes of action on the ground of improper venue and suspending proceedings regarding the corporation's third and fourth

causes of action in view of the then pendency of G.R. No. 168639 before this Court. Given that responsive pleadings squarely questioning Quiambao's authority to represent STRADEC have yet to be filed by respondents, the matter is clearly one better threshed out before the court a quo, alongside such issues as the validity of the transfers of STRADEC’s shares to respondents Wong and CTCII, the propriety of the recording of said transfers in SIDC’s books, STRADEC’s status as a stockholder of SIDC and the legality of the 30 July 2005 and 20 July 2006 SIDC stockholders’ meetings.1avvphi1

As an adjunct to the main action subject to the latter’s outcome,34 on the other hand, a writ of preliminary injunction may be issued upon the concurrence of the following essential requisites, to wit: (1) that the invasion of the right is material and substantial; (2) that the right of complainant is clear and unmistakable; and, (3) that there is an urgent and paramount necessity for the writ to prevent serious damage.35 Concurrence of the foregoing requisites is evident from the fact that STRADEC has been deprived of its rights to its shareholdings and to participate in SIDC's corporate affairs as a consequence of the impugned loan and pledge as well as the transfer of the shares to respondent Wong and CTCII. For these reasons alone, we find that STRADEC is entitled to a writ of preliminary injunction to restrain: (a) CTCII from further exercising proprietary rights over the subject shares; (b) SIDC and its officers from recognizing the transfer or further transfers of the same; (c) the implementation of the resolutions passed during the 20 July 2006 SIDC stockholders’ special meeting; and, (d) the SEC from acting on any report submitted in respect thereto. Far from amounting to a prejudgment of the case, the restraint of said acts is merely in the service of the office of a writ of preliminary injunction, i.e., the restoration of the status quo ante as well preservation and protection of the rights of the litigant during the pendency of the case.36

In view of CTCII's acquisition of STRADEC's shares as well as the changes in SIDC's corporate structure which were effected as a consequence thereof, respondents also argue that the writ of preliminary injunction granted in the decision sought to be reconsidered is directed against acts already consummated. Although the general rule is to the effect that a writ of preliminary injunction cannot be issued against acts already fait accompli,37 it has been held, however, that consummated acts which are continuing in nature may still be enjoined by the courts.38 The propriety of the grant of the provisional injunctive writ sought by STRADEC having been established, we find that approval of said corporation's Motion to Admit and Approve Preliminary Injunction Bond is in order. Contrary to respondents' harping about the lack of showing thereof in the record, Quiambao's authority to file said motion is implicit in the following 21 May 2009 Directors’ Certification attached to STRADEC's petition for review on certiorari, to wit:

"WE, as the incumbent members of the Board of Directors of the STRATEGIC ALLIANCE DEVELOPMENT CORPORATION (the "Corporation"), a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal office address at Quezon Boulevard, Poblacion Sur, Bayambang, Pangasinan, Philippines, do hereby certify that the following resolutions were approved by the Board, to wit:

‘RESOLVED, as it is hereby resolved that the Corporation shall file a Petition for Review on Certiorari under Rule 45 of the Rules of Court to assail the Decision dated 22 December 2008 and Resolution dated 30 April 2009 in CA-G.R. SP No. 96945, entitled ‘Strategic Alliance Development Corporation vs. RTC of Batangas City (Branch 2), Star Infrastructure Development Corporation, et al.", with an application for the issuance of a temporary restraining order and/or writ of injunction, if deemed necessary.

WHEREFORE, BE IT RESOLVED, as it is hereby resolved that the Corporation’s President, CEZAR T. QUIAMBAO, shall be authorized, as he is hereby authorized: to cause the filing of the Petition before the Supreme Court; to verify the pleadings; and to execute any affidavit in



support thereof, hereby giving and granting to CEZAR T. QUIAMBAO full power to carry into effect the foregoing, including the authority to appear on the Corporation’s behalf, as fully to all intents and purposes as the Corporation might or could lawfully do if personally present, and hereby ratifying and confirming all that CEZAR T. QUIAMBAO, or his representatives shall lawfully do by virtue hereof.

IN WITNESS WHEREOF, we have hereunto affixed our signatures this May 21, 2009 at Quezon City, Philippines.

(Sgd.) DEMETRIO G. DEMETRIA

Chairman of the Board (Sgd.) ANTHONY K. QUIAMBAO

Vice Chairman

CEZAR T. QUIAMBAO (Out of the Country)

JULIUS K. QUIAMBAO

(Sgd.) GIOVANNI T. CASANOVA

Director"39

Viewed in the light of the foregoing considerations, we find no merit in CTCII's objections to the writ of preliminary injunction and offer to file a counterbond in the sum of P20,000,000.00, on the ground that the P10,000,000.00 injunction bond STRADEC has been required to post is grossly insufficient to cover the grave and irreparable damage which would result from the issuance of said writ. Pursuant to Section 6, Rule 58 of the 1997 Rules of Civil Procedure,40 "a preliminary injunction may be dissolved if it appears after hearing that although the applicant is entitled to the injunction or restraining order, the issuance or continuance thereof, as the case may be, would cause irreparable damage to the party or person enjoined while the applicant can be fully compensated for such damages as he may suffer, and the former files a bond in an amount fixed by the court on condition that he will pay all damages which the applicant may suffer by the denial or the dissolution of the injunction or restraining order. Two conditions must concur: first, the court in the exercise of its discretion, finds that the continuance of the injunction would cause great damage to the defendant, while the plaintiff can be fully compensated for such damages as he may suffer; second, the defendant files a counterbond."41

Aside from the fact that the amount of injunction bond is equivalent to the sum of the supposed loan for which STRADEC's shares were pledged by respondents Yujuico and Sumbilla, we find that the projected damage to SIDC's construction, operation and maintenance of the STAR toll road is, to say the least, speculative. Even when reckoned from the commencement of the action a quo on 17 July 2006, the damage STRADEC suffered and continues to suffer as a consequence of the impugned transactions is, in contrast, clearly beyond monetary recompense as it not only amounts to a divesture of its ownership over said shares but, more importantly, translates into a denial of its rights to elect SIDC's officers, to participate in its corporate affairs and, as a major stockholder, to determine the course of its business dealings, among other matters. Moreover, the mere offer of a counterbond does not suffice to warrant the dissolution of the preliminary writ of injunction42 issued to stop an unauthorized act. A contrary holding would open the gates to the use of the counterbond as a vehicle of the commission or continuance of an unauthorized or illegal act which the injunction precisely is intended to prevent.43

WHEREFORE, premises considered, respondents' motions for reconsideration and CTCII's offer to file a counter bond are DENIED for lack of merit. Accordingly, STRADEC's motion to admit and approve injunction bond is GRANTED.

SO ORDERED

G.R. No. 194024 April 25, 2012

PHILIP L. GO, PACIFICO Q. LIM and ANDREW Q. LIM Petitioners,

vs.

DISTINCTION PROPERTIES DEVELOPMENT AND CONSTRUCTION, INC. Respondent.

Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure assailing the March 17, 2010 Decision1 and October 7, 2010 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 110013 entitled "Distinction Properties Development & Construction, Inc. v. Housing Land Use Regulatory Board (NCR), Philip L. Go, Pacifico Q. Lim and Andrew Q. Lim."

Factual and Procedural Antecedents:

Philip L. Go, Pacifico Q. Lim and Andrew Q. Lim (petitioners) are registered individual owners of condominium units in Phoenix Heights Condominium located at H. Javier/Canley Road, Bo. Bagong Ilog, Pasig City, Metro Manila.

Respondent Distinction Properties Development and Construction, Inc. (DPDCI) is a corporation existing under the laws of the Philippines with principal office at No. 1020 Soler Street, Binondo, Manila. It was incorporated as a real estate developer, engaged in the development of condominium projects, among which was the Phoenix Heights Condominium.

In February 1996, petitioner Pacifico Lim, one of the incorporators and the then president of DPDCI, executed a Master Deed and Declaration of Restrictions (MDDR)3 of Phoenix Heights Condominium, which was filed with the Registry of Deeds. As the developer, DPDCI undertook, among others, the marketing aspect of the project, the sale of the units and the release of flyers and brochures.

Thereafter, Phoenix Heights Condominium Corporation (PHCC) was formally organized and incorporated. Sometime in 2000, DPDCI turned over to PHCC the ownership and possession of the condominium units, except for the two saleable commercial units/spaces:



1. G/F Level BAS covered by Condominium Certificate of Title (CCT) No. 21030 utilized as the PHCC’s administration office, and

2. G/F Level 4-A covered by CCT No. PT-27396/C-136-II used as living quarters by the building administrator.

Although used by PHCC, DPDCI was assessed association dues for these two units.

Meanwhile, in March 1999, petitioner Pacifico Lim, as president of DPDCI, filed an Application for Alteration of Plan4 pertaining to the construction of 22 storage units in the spaces adjunct to the parking area of the building. The application, however, was disapproved as the proposed alteration would obstruct light and ventilation.

In August 2004, through its Board,5 PHCC approved a settlement offer from DPDCI for the set-off of the latter’s association dues arrears with the assignment of title over CCT Nos. 21030 and PT-27396/C-136-II and their conversion into common areas. Thus, CCT Nos. PT-43400 and PT-43399 were issued by the Registrar of Deeds of Pasig City in favor of PHCC in lieu of the old titles. The said settlement between the two corporations likewise included the reversion of the 22 storage spaces into common areas. With the conformity of PHCC, DPDCI’s application for alteration (conversion of unconstructed 22 storage units and units GF4-A and BAS from saleable to common areas) was granted by the Housing and Land Use Regulatory Board (HLURB).6

In August 2008, petitioners, as condominium unit-owners, filed a complaint7 before the HLURB against DPDCI for unsound business practices and violation of the MDDR. The case was docketed as REM- 080508-13906. They alleged that DPDCI committed misrepresentation in their circulated flyers and brochures as to the facilities or amenities that would be available in the condominium and failed to perform its obligation to comply with the MDDR.

In defense, DPDCI denied that it had breached its promises and representations to the public concerning the facilities in the condominium. It alleged that the brochure attached to the complaint was "a mere preparatory draft" and not the official one actually distributed to the public, and that the said brochure contained a disclaimer as to the binding effect of the supposed offers therein. Also, DPDCI questioned the petitioners’ personality to sue as the action was a derivative suit.

After due hearing, the HLURB rendered its decision8 in favor of petitioners. It held as invalid the agreement entered into between DPDCI and PHCC, as to the alteration or conversion of the subject units into common areas, which it previously approved, for the reason that it was not approved by the majority of the members of PHCC as required under Section 13 of the MDDR. It stated that DPDCI’s defense, that the brochure was a mere draft, was against human experience and a convenient excuse to avoid its obligation to provide the facility of the project. The HLURB further stated that the case was not a derivative suit but one which involved contracts of sale of the respective units between the complainants and DPDCI, hence, within its jurisdiction pursuant to Section 1, Presidential Decree (P.D.) No. 957 (The Subdivision and Condominium Buyers’ Protective Decree), as amended. The decretal portion of the HLURB decision reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered:

1. Ordering respondent to restore/provide proper gym facilities, to restore the hallway at the mezzanine floor.

2. Declaring the conversion/alteration of 22 storage units and Units GF4-A and BAS as illegal, and consequently, and ordering respondent to continue paying the condominium dues for these units, with interest and surcharge.

3. Ordering the Respondent to pay the sum of Php998,190.70, plus interests and surcharges, as condominium dues in arrears and turnover the administration office to PHCC without any charges pursuant to the representation of the respondent in the brochures it circulated to the public with a corresponding credit to complainants’ individual shares as members of PHCC entitled to such refund or reimbursements.

4. Ordering the Respondent to refund to the PHCC the amount of Php1,277,500.00, representing the cost of the deep well, with interests and surcharges with a corresponding credit to complainants’ individual shares as members of PHCC entitled to such refund or reimbursements.

5. Ordering the Respondent to pay the complainants moral and exemplary damages in the amount of P 10,000.00 and attorney’s fees in the amount of P 10,000.00.

All other claims and counterclaims are hereby dismissed accordingly.

IT IS SO ORDERED.9

Aggrieved, DPDCI filed with the CA its Petition for Certiorari and Prohibition10 dated August 11, 2009, on the ground that the HLURB decision was a patent nullity constituting an act without or beyond its jurisdiction and that it had no other plain, speedy and adequate remedy in the course of law.

On March 17, 2010, the CA rendered the assailed decision which disposed of the case in favor of DPDCI as follows:

WHEREFORE, in view of the foregoing, the petition is GRANTED. Accordingly, the assailed Decision of the HLURB in Case No. REM-0800508-13906 is ANNULLED and SET ASIDE and a new one is entered DISMISSING the Complaint a quo.



IT IS SO ORDERED.11

The CA ruled that the HLURB had no jurisdiction over the complaint filed by petitioners as the controversy did not fall within the scope of the administrative agency’s authority under P.D. No. 957. The HLURB not only relied heavily on the brochures which, according to the CA, did not set out an enforceable obligation on the part of DPDCI, but also erroneously cited Section 13 of the MDDR to support its finding of contractual violation.

The CA held that jurisdiction over PHCC, an indispensable party, was neither acquired nor waived by estoppel. Citing Carandang v. Heirs of De Guzman,12 it held that, in any event, the action should be dismissed because the absence of PHCC, an indispensable party, rendered all subsequent actuations of the court void, for want of authority to act, not only as to the absent parties but even as to those present.

Finally, the CA held that the rule on exhaustion of administrative remedies could be relaxed. Appeal was not a speedy and adequate remedy as jurisdictional questions were continuously raised but ignored by the HLURB. In the present case, however, "[t]he bottom line is that the challenged decision is one that had been rendered in excess of jurisdiction, if not with grave abuse of discretion amounting to lack or excess of jurisdiction."13

Petitioners filed a motion for reconsideration14 of the said decision. The motion, however, was denied by the CA in its Resolution dated October 7, 2010.

Hence, petitioners interpose the present petition before this Court anchored on the following

GROUNDS

(1)

THE COURT OF APPEALS ERRED IN HOLDING THAT THE HLURB HAS NO JURISDICTION OVER THE INSTANT CASE;

(2)

THE COURT OF APPEALS ALSO ERRED IN FINDING THAT PHCC IS AN INDISPENSABLE PARTY WHICH WARRANTED THE DISMISSAL OF THE CASE BY REASON OF IT NOT HAVING BEEN IMPLEADED IN THE CASE;

(3)

THE COURT OF APPEALS HAS LIKEWISE ERRED IN RELAXING THE RULE ON NON-EXHAUSTION OF ADMINISTRATIVE REMEDIES BY DECLARING THAT THE APPEAL MAY NOT BE A SPEEDY AND ADEQUATE REMEDY WHEN JURISDICTIONAL QUESTIONS WERE CONTINUOUSLY RAISED BUT IGNORED BY THE HLURB; and

(4)

THAT FINALLY, THE COURT A QUO ALSO ERRED IN NOT GIVING DUE RESPECT OR EVEN FINALITY TO THE FINDINGS OF THE HLURB.15

Petitioners contend that the HLURB has jurisdiction over the subject matter of this case. Their complaint with the HLURB clearly alleged and demanded specific performance upon DPDCI of the latter’s contractual obligation under their individual contracts to provide a back-up water system as part of the amenities provided for in the brochure, together with an administration office, proper gym facilities, restoration of a hallway, among others. They point out that the violation by DPDCI of its obligations enumerated in the said complaint squarely put their case within the ambit of Section 1, P.D. No. 957, as amended, enumerating the cases that are within the exclusive jurisdiction of the HLURB. Likewise, petitioners argue that the case was not a derivative suit as they were not suing for and in behalf of PHCC. They were suing, in their individual capacities as condominium unit buyers, their developer for breach of contract. In support of their view that PHCC was not an indispensable party, petitioners even quoted the dispositive portion of the HLURB decision to show that complete relief between or among the existing parties may be obtained without the presence of PHCC as a party to this case. Petitioners further argue that DPDCI’s petition before the CA should have been dismissed outright for failure to comply with Section 1, Rule XVI of the 2004 Rules of Procedure of the HLURB providing for an appeal to the Board of Commissioners by a party aggrieved by a decision of a regional officer.

DPDCI, in its Comment,16 strongly objects to the arguments of petitioners and insists that the CA did not err in granting its petition. It posits that the HLURB has no jurisdiction over the complaint filed by petitioners because the controversies raised therein are in the nature of "intra-corporate disputes." Thus, the case does not fall within the jurisdiction of the HLURB under Section 1, P.D. No. 957 and P.D. No. 1344. According to DPDCI, petitioners sought to address the invalidation of the corporate acts duly entered and executed by PHCC as a corporation of which petitioners are admittedly members of, and not the acts pertaining to their ownership of the units. Such being the case, PHCC should have been impleaded as a party to the complaint. Its non-inclusion as an indispensable party warrants the dismissal of the case. DPDCI further avers that the doctrine of exhaustion is inapplicable inasmuch as the issues raised in the petition with the CA are purely legal; that the challenged administrative act is patently illegal; and that the procedure of the HLURB does not provide a plain, speedy and adequate remedy and its application may cause great and irreparable damage. Finally, it claims that the decision of the HLURB Arbiter has not attained finality, the same having been issued without jurisdiction.



Essentially, the issues to be resolved are: (1) whether the HLURB has jurisdiction over the complaint filed by the petitioners; (2) whether PHCC is an indispensable party; and (3) whether the rule on exhaustion of administrative remedies applies in this case.

The petition fails.

Basic as a hornbook principle is that jurisdiction over the subject matter of a case is conferred by law and determined by the allegations in the complaint which comprise a concise statement of the ultimate facts constituting the plaintiff's cause of action. The nature of an action, as well as which court or body has jurisdiction over it, is determined based on the allegations contained in the complaint of the plaintiff, irrespective of whether or not the plaintiff is entitled to recover upon all or some of the claims asserted therein. The averments in the complaint and the character of the relief sought are the ones to be consulted. Once vested by the allegations in the complaint, jurisdiction also remains vested irrespective of whether or not the plaintiff is entitled to recover upon all or some of the claims asserted therein.17 Thus, it was ruled that the jurisdiction of the HLURB to hear and decide cases is determined by the nature of the cause of action, the subject matter or property involved and the parties.18

Generally, the extent to which an administrative agency may exercise its powers depends largely, if not wholly, on the provisions of the statute creating or empowering such agency.19 With respect to the HLURB, to determine if said agency has jurisdiction over petitioners’ cause of action, an examination of the laws defining the HLURB’s jurisdiction and authority becomes imperative. P.D. No. 957,20 specifically Section 3, granted the National Housing Authority (NHA) the "exclusive jurisdiction to regulate the real estate trade and business." Then came P.D. No. 134421 expanding the jurisdiction of the NHA (now HLURB), as follows:

SECTION 1. In the exercise of its functions to regulate the real estate trade and business and in addition to its powers provided for in Presidential Decree No. 957, the National Housing Authority shall have exclusive jurisdiction to hear and decide cases of the following nature:

(a) Unsound real estate business practices;

(b) Claims involving refund and any other claims filed by subdivision lot or condominium unit buyer against the project owner, developer, dealer, broker or salesman; and

(c) Cases involving specific performance of contractual and statutory obligations filed by buyers of subdivision lot or condominium unit against the owner, developer, dealer, broker or salesman.

This provision must be read in light of the law’s preamble, which explains the reasons for enactment of the law or the contextual basis for its interpretation.22 A statute derives its vitality from the purpose for which it is enacted, and to construe it in a manner that disregards or defeats such purpose is to nullify or destroy the law.23 P.D. No. 957, as amended, aims to protect innocent subdivision lot and condominium unit buyers against fraudulent real estate practices.24

The HLURB is given a wide latitude in characterizing or categorizing acts which may constitute unsound business practice or breach of contractual obligations in the real estate trade. This grant of expansive jurisdiction to the HLURB does not mean, however, that all cases involving subdivision lots or condominium units automatically fall under its jurisdiction. The CA aptly quoted the case of Christian General Assembly, Inc. v. Ignacio,25 wherein the Court held that:

The mere relationship between the parties, i.e., that of being subdivision owner/developer and subdivision lot buyer, does not automatically vest jurisdiction in the HLURB. For an action to fall within the exclusive jurisdiction of the HLURB, the decisive element is the nature of the action as enumerated in Section 1 of P.D. 1344. On this matter, we have consistently held that the concerned administrative agency, the National Housing Authority (NHA) before and now the HLURB, has jurisdiction over complaints aimed at compelling the subdivision developer to comply with its contractual and statutory obligations.26 [Emphases supplied]

In this case, the complaint filed by petitioners alleged causes of action that apparently are not cognizable by the HLURB considering the nature of the action and the reliefs sought. A perusal of the complaint discloses that petitioners are actually seeking to nullify and invalidate the duly constituted acts of PHCC - the April 29, 2005 Agreement27 entered into by PHCC with DPDCI and its Board Resolution28 which authorized the acceptance of the proposed offsetting/settlement of DPDCI’s indebtedness and approval of the conversion of certain units from saleable to common areas. All these were approved by the HLURB. Specifically, the reliefs sought or prayers are the following:

1. Ordering the respondent to restore the gym to its original location;

2. Ordering the respondent to restore the hallway at the second floor;

3. Declaring the conversion/alteration of 22 storage units and Units GF4-A and BAS as illegal, and consequently, ordering respondent to continue paying the condominium dues for these units, with interest and surcharge;

4. Ordering the respondent to pay the sum of PHP998,190.70, plus interest and surcharges, as condominium dues in arrears and turnover the administration office to PHCC without any charges pursuant to the representation of the respondent in the brochures it circulated to the public;



5. Ordering the respondent to refund to the PHCC the amount of PHP1,277,500.00, representing the cost of the deep well, with interests and surcharges;

6. Ordering the respondent to pay the complainants moral/exemplary damages in the amount of PHP100,000.00; and

7. Ordering the respondent to pay the complainant attorney’s fees in the amount of PHP100,000.00, and PHP3,000.00 for every hearing scheduled by the Honorable Office.29

As it is clear that the acts being assailed are those of PHHC, this case cannot prosper for failure to implead the proper party, PHCC.

An indispensable party is defined as one who has such an interest in the controversy or subject matter that a final adjudication cannot be made, in his absence, without injuring or affecting that interest.30 In the recent case of Nagkakaisang Lakas ng Manggagawa sa Keihin (NLMK-OLALIA-KMU) v. Keihin Philippines Corporation,31 the Court had the occasion to state that:

Under Section 7, Rule 3 of the Rules of Court, "parties in interest without whom no final determination can be had of an action shall be joined as plaintiffs or defendants." If there is a failure to implead an indispensable party, any judgment rendered would have no effectiveness. It is "precisely ‘when an indispensable party is not before the court (that) an action should be dismissed.’ The absence of an indispensable party renders all subsequent actions of the court null and void for want of authority to act, not only as to the absent parties but even to those present." The purpose of the rules on joinder of indispensable parties is a complete determination of all issues not only between the parties themselves, but also as regards other persons who may be affected by the judgment. A decision valid on its face cannot attain real finality where there is want of indispensable parties.32 (Underscoring supplied)

Similarly, in the case of Plasabas v. Court of Appeals,33 the Court held that a final decree would necessarily affect the rights of indispensable parties so that the Court could not proceed without their presence. In support thereof, the Court in Plasabas cited the following authorities, thus:

"The general rule with reference to the making of parties in a civil action requires the joinder of all indispensable parties under any and all conditions, their presence being a sine qua non of the exercise of judicial power. (Borlasa v. Polistico, 47 Phil. 345, 348) For this reason, our Supreme Court has held that when it appears of record that there are other persons interested in the subject matter of the litigation, who are not made parties to the action, it is the duty of the court to suspend the trial until such parties are made either plaintiffs or defendants. (Pobre, et al. v. Blanco, 17 Phil. 156). x x x Where the petition failed to join as party defendant the person interested in sustaining the proceeding in the court, the same should be dismissed. x x x When an indispensable party is not before the court, the action should be dismissed. (People, et al. v. Rodriguez, et al., G.R. Nos. L-14059-62, September 30, 1959) (sic)

"Parties in interest without whom no final determination can be had of an action shall be joined either as plaintiffs or defendants. (Sec. 7, Rule 3, Rules of Court). The burden of procuring the presence of all indispensable parties is on the plaintiff. (39 Amjur [sic] 885). The evident purpose of the rule is to prevent the multiplicity of suits by requiring the person arresting a right against the defendant to include with him, either as co-plaintiffs or as co-defendants, all persons standing in the same position, so that the whole matter in dispute may be determined once and for all in one litigation. (Palarca v. Baginsi, 38 Phil. 177, 178).

From all indications, PHCC is an indispensable party and should have been impleaded, either as a plaintiff or as a defendant,34 in the complaint filed before the HLURB as it would be directly and adversely affected by any determination therein. To belabor the point, the causes of action, or the acts complained of, were the acts of PHCC as a corporate body. Note that in the judgment rendered by the HLURB, the dispositive portion in particular, DPDCI was ordered (1) to pay P 998,190.70, plus interests and surcharges, as condominium dues in arrears and turnover the administration office to PHCC; and (2) to refund to PHCC P 1,277,500.00, representing the cost of the deep well, with interests and surcharges. Also, the HLURB declared as illegal the agreement regarding the conversion of the 22 storage units and Units GF4-A and BAS, to which agreement PHCC was a party.

Evidently, the cause of action rightfully pertains to PHCC. Petitioners cannot exercise the same except through a derivative suit. In the complaint, however, there was no allegation that the action was a derivative suit. In fact, in the petition, petitioners claim that their complaint is not a derivative suit.35 In the cited case of Chua v. Court of Appeals,36 the Court ruled:

For a derivative suit to prosper, it is required that the minority stockholder suing for and on behalf of the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit. It is a condition sine qua non that the corporation be impleaded as a party because not only is the corporation an indispensable party, but it is also the present rule that it must be served with process. The judgment must be made binding upon the corporation in order that the corporation may get the benefit of the suit and may not bring subsequent suit against the same defendants for the same cause of action. In other words, the corporation must be joined as party because it is its cause of action that is being litigated and because judgment must be a res adjudicata against it. (Underscoring supplied)

Without PHCC as a party, there can be no final adjudication of the HLURB’s judgment. The CA was, thus, correct in ordering the dismissal of the case for failure to implead an indispensable party.

To justify its finding of contractual violation, the HLURB cited a provision in the MDDR, to wit:

Section 13. Amendment. After the corporation shall have been created, organized and operating, this MDDR may be amended, in whole or in part, by the affirmative vote of Unit owners constituting at least fifty one (51%) percent of the Unit shares in the Project at a meeting duly called pursuant to the Corporation By Laws and subject to the provisions of the Condominium Act.



This citation, however, is misplaced as the above-quoted provision pertains to the amendment of the MDDR. It should be stressed that petitioners are not asking for any change or modification in the terms of the MDDR. What they are really praying for is a declaration that the agreement regarding the alteration/conversion is illegal. Thus, the Court sustains the CA’s finding that:

There was nothing in the records to suggest that DPDCI sought the amendment of a part or the whole of such MDDR. The cited section is somewhat consistent only with the principle that an amendment of a corporation’s Articles of Incorporation must be assented to by the stockholders holding more than 50% of the shares. The MDDR does not contemplate, by such provision, that all corporate acts ought to be with the concurrence of a majority of the unit owners.37

Moreover, considering that petitioners, who are members of PHCC, are ultimately challenging the agreement entered into by PHCC with DPDCI, they are assailing, in effect, PHCC’s acts as a body corporate. This action, therefore, partakes the nature of an "intra-corporate controversy," the jurisdiction over which used to belong to the Securities and Exchange Commission (SEC), but transferred to the courts of general jurisdiction or the appropriate Regional Trial Court (RTC), pursuant to Section 5b of P.D. No. 902-A,38 as amended by Section 5.2 of Republic Act (R.A.) No. 8799.39

An intra-corporate controversy is one which "pertains to any of the following relationships: (1) between the corporation, partnership or association and the public; (2) between the corporation, partnership or association and the State in so far as its franchise, permit or license to operate is concerned; (3) between the corporation, partnership or association and its stockholders, partners, members or officers; and (4) among the stockholders, partners or associates themselves."40

Based on the foregoing definition, there is no doubt that the controversy in this case is essentially intra-corporate in character, for being between a condominium corporation and its members-unit owners. In the recent case of Chateau De Baie Condominium Corporation v. Sps. Moreno,41 an action involving the legality of assessment dues against the condominium owner/developer, the Court held that, the matter being an intra-corporate dispute, the RTC had jurisdiction to hear the same pursuant to R.A. No. 8799.

As to the alleged failure to comply with the rule on exhaustion of administrative remedies, the Court again agrees with the position of the CA that the circumstances prevailing in this case warranted a relaxation of the rule.

The doctrine of exhaustion of administrative remedies is a cornerstone of our judicial system.1âwphi1 The thrust of the rule is that courts must allow administrative agencies to carry out their functions and discharge their responsibilities within the specialized areas of their respective competence.42 It has been held, however, that the doctrine of exhaustion of administrative remedies and the doctrine of primary jurisdiction are not ironclad rules. In the case of Republic of the Philippines v. Lacap,43 the Court enumerated the numerous exceptions to these rules, namely: (a) where there is estoppel on the part of the party invoking the doctrine; (b) where the challenged administrative act is patently illegal, amounting to lack of jurisdiction; (c) where there is unreasonable delay or official inaction that will irretrievably prejudice the complainant; (d) where the amount involved is relatively so small as to make the rule impractical and oppressive; (e) where the question involved is purely legal and will ultimately have to be decided by the courts of justice; (f) where judicial intervention is urgent; (g) where the application of the doctrine may cause great and irreparable damage; (h) where the controverted acts

violate due process; (i) where the issue of non-exhaustion of administrative remedies has been rendered moot; (j) where there is no other plain, speedy and adequate remedy; (k) where strong public interest is involved; and (l) in quo warranto proceedings.44 [Underscoring supplied]

The situations (b) and (e) in the foregoing enumeration obtain in this case.

The challenged decision of the HLURB is patently illegal having been rendered in excess of jurisdiction, if not with grave abuse of discretion amounting to lack or excess of jurisdiction. Also, the issue on jurisdiction is purely legal which will have to be decided ultimately by a regular court of law. As the Court wrote in Vigilar v. Aquino:45

It does not involve an examination of the probative value of the evidence presented by the parties. There is a question of law when the doubt or difference arises as to what the law is on a certain state of facts, and not as to the truth or the falsehood of alleged facts. Said question at best could be resolved only tentatively by the administrative authorities. The final decision on the matter rests not with them but with the courts of justice. Exhaustion of administrative remedies does not apply, because nothing of an administrative nature is to be or can be done. The issue does not require technical knowledge and experience but one that would involve the interpretation and application of law.

Finally, petitioners faulted the CA in not giving respect and even finality to the findings of fact of the HLURB. Their reliance on the case of Dangan v. NLRC,46 reiterating the well-settled principles involving decisions of administrative agencies, deserves scant consideration as the decision of the HLURB in this case is manifestly not supported by law and jurisprudence.

Petitioners, therefore, cannot validly invoke DPDCI’s failure to fulfill its obligation on the basis of a plain draft leaflet which petitioners were able to obtain, specifically Pacifico Lim, having been a president of DPDCI. To accord petitioners the right to demand compliance with the commitment under the said brochure is to allow them to profit by their own act. This, the Court cannot tolerate.

In sum, inasmuch as the HLURB has no jurisdiction over petitioners’ complaint, the Court sustains the subject decision of the CA that the HLURB decision is null and void ab initio. This disposition, however, is without prejudice to any action that the parties may rightfully file in the proper forum.

WHEREFORE, the petition is DENIED.

SO ORDERED.

G.R. No. 177549 June 18, 2009



ANTHONY S. YU, ROSITA G. YU and JASON G. YU, Petitioners,

vs.

JOSEPH S. YUKAYGUAN, NANCY L. YUKAYGUAN, JERALD NERWIN L. YUKAYGUAN, and JILL NESLIE L. YUKAYGUAN, [on their own behalf and on behalf of] WINCHESTER INDUSTRIAL SUPPLY, INC., Respondents.

D E C I S I O N

CHICO-NAZARIO, J.:

Before Us is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, which seeks to reverse and set aside the Resolutions dated 18 July 20062 and 19 April 20073 of the Court of Appeals in CA-G.R. SP No. 00185. Upon herein respondents’ motion, the Court of Appeals rendered the assailed Resolution dated 18 July 2006, reconsidering its Decision4 dated 15 February 2006; and remanding the case to the Regional Trial Court (RTC) of Cebu City, Branch 11, for necessary proceedings, in effect, reversing the Decision5 dated 10 November 2004 of the RTC which dismissed respondents’ Complaint in SRC Case No. 022-CEB. Herein petitioners’ Motion for Reconsideration of the Resolution dated 18 July 2006 was denied by the appellate court in the other assailed Resolution dated 19 April 2007.

Herein petitioners are members of the Yu Family, particularly, the father, Anthony S. Yu (Anthony); the wife, Rosita G. Yu (Rosita); and their son, Jason G. Yu (Jason).

Herein respondents composed the Yukayguan Family, namely, the father, Joseph S. Yukayguan (Joseph); the wife, Nancy L. Yukayguan (Nancy); and their children Jerald Nerwin L. Yukayguan (Jerald) and Jill Neslie Yukayguan (Jill).

Petitioner Anthony is the older half-brother of respondent Joseph.

Petitioners and the respondents were all stockholders of Winchester Industrial Supply, Inc. (Winchester, Inc.), a domestic corporation engaged in the operation of a general hardware and industrial supply and equipment business.

On 15 October 2002, respondents filed against petitioners a verified Complaint for Accounting, Inspection of Corporate Books and Damages through Embezzlement and Falsification of Corporate Records and Accounts6 before the RTC of Cebu. The said Complaint was filed by respondents, in their own behalf and as a derivative suit on behalf of Winchester, Inc., and was docketed as SRC Case No. 022-CEB. The factual background of the Complaint was stated in the attached Affidavit executed by respondent Joseph.

According to respondents,7 Winchester, Inc. was established and incorporated on 12 September 1977, with petitioner Anthony as one of the incorporators, holding 1,000 shares of stock worth P100,000.00.8 Petitioner Anthony paid for the said shares of stock with respondent Joseph’s money, thus, making the former a mere trustee of the shares for the latter. On 14 November 1984, petitioner Anthony ceded 800 of his 1,000 shares of stock in Winchester, Inc. to respondent Joseph, as well as Yu Kay Guan,9 Siao So Lan, and John S. Yu.10 Petitioner Anthony remained as trustee for respondent Joseph of the 200 shares of stock in Winchester, Inc., still in petitioner Anthony’s name.

Respondents then alleged that on 30 June 1985, Winchester, Inc. bought from its incorporators, excluding petitioner Anthony, their accumulated 8,500 shares in the corporation.11 Subsequently, on 7 November 1995, Winchester, Inc. sold the same 8,500 shares to other persons, who included respondents Nancy, Jerald, and Jill; and petitioners Rosita and Jason.12

Respondents further averred that although respondent Joseph appeared as the Secretary and Treasurer in the corporate records of Winchester, Inc., petitioners actually controlled and ran the said corporation as if it were their own family business. Petitioner Rosita handled the money market placements of the corporation to the exclusion of respondent Joseph, the designated Treasurer of Winchester, Inc. Petitioners were also misappropriating the funds and properties of Winchester, Inc. by understating the sales, charging their personal and family expenses to the said corporation, and withdrawing stocks for their personal use without paying for the same. Respondents attached to the Complaint various receipts13 to prove the personal and family expenses charged by petitioners to Winchester, Inc.

Respondents, therefore, prayed that respondent Joseph be declared the owner of the 200 shares of stock in petitioner Anthony’s name. Respondents also prayed that petitioners be ordered to: (1) deposit the corporate books and records of Winchester, Inc. with the Branch Clerk of Court of the RTC for respondents’ inspection; (2) render an accounting of all the funds of Winchester, Inc. which petitioners misappropriated; (3) reimburse the personal and family expenses which petitioners charged to Winchester, Inc., as well as the properties of the corporation which petitioners withheld without payment; and (4) pay respondents’ attorney’s fees and litigation expenses. In the meantime, respondents sought the appointment of a Management Committee and the freezing of all corporate funds by the trial court.

On 13 November 2002, petitioners filed an Answer with Compulsory Counterclaim,14 attached to which was petitioner Anthony’s Affidavit.15 Petitioners vehemently denied the allegation that petitioner Anthony was a mere trustee for respondent Joseph of the 1,000 shares of stock in Winchester, Inc. in petitioner Anthony’s name. For the incorporation of Winchester, Inc., petitioner Anthony contributed P25,000.00 paid-up capital, representing 25% of the total par value of the 1,000 shares he subscribed to, the said amount being paid out of petitioner Anthony’s personal savings and petitioners Anthony and Rosita’s conjugal funds. Winchester, Inc. was being co-managed by petitioners and respondents, and the attached receipts, allegedly evidencing petitioners’ use of corporate funds for personal and family expenses, were in fact signed and approved by respondent Joseph.

By way of special and affirmative defenses, petitioners contended in their Answer with Compulsory Counterclaim that respondents had no cause of action against them. Respondents’ Complaint was purely intended for harassment. It should be dismissed under Section 1(j), Rule 1616 of the Rules of Court for failure to comply with conditions precedent before its filing. First, there was no allegation in respondents’ Complaint that earnest efforts were exerted to settle the dispute between the parties. Second, since respondents’ Complaint purportedly constituted a derivative suit, it noticeably failed to allege that respondents exerted effort to exhaust all available remedies in the Articles of Incorporation and By-Laws of Winchester, Inc., as well as in the Corporation Code. And third, given that respondents’ Complaint was also for inspection of corporate books, it lacked the allegation that respondents made a previous demand upon petitioners to inspect the



corporate books but petitioners refused. Prayed for by petitioners, in addition to the dismissal of respondents’ Complaint, was payment of moral and exemplary damages, attorney’s fees, litigation expenses, and cost of suit.

On 30 October 2002, the hearing on the application for the appointment of a Management Committee was commenced. Respondent Joseph submitted therein, as his direct testimony, the same Affidavit that he executed, which was attached to the respondents’ Complaint. On 4 November 2002, respondent Joseph was cross-examined by the counsel for petitioners. Thereafter, the continuation of the hearing was set for 29 November 2002, in order for petitioners to adduce evidence in support of their opposition to the application for the appointment of a Management Committee.17

During the hearing on 29 November 2002, the parties manifested before the RTC that there was an ongoing mediation between them, and so the hearing on the appointment of a Management Committee was reset to another date.

In amicable settlement of their dispute, the petitioners and respondents agreed to a division of the stocks in trade,18 the real properties, and the other assets of Winchester, Inc. In partial implementation of the afore-mentioned amicable settlement, the stocks in trade and real properties in the name of Winchester, Inc. were equally distributed among petitioners and respondents. As a result, the stockholders and members of the Board of Directors of Winchester, Inc. passed, on 4 January 2003, a unanimous Resolution19 dissolving the corporation as of said date.

On 22 February 2004, respondents filed their pre-trial brief.20

On 25 June 2004, petitioners filed a Manifestation21 informing the RTC of the existence of their amicable settlement with respondents. Respondents, however, made their own manifestation before the RTC that they were repudiating said settlement, in view of the failure of the parties thereto to divide the remaining assets of Winchester, Inc. Consequently, respondents moved to have SRC Case No. 022-CEB set for pre-trial.

On 23 August 2004, petitioners filed their pre-trial brief.22

On 26 August 2004, instead of holding a formal pre-trial conference and resuming the hearing on the application for the appointment of a Management Committee, petitioners and respondents agreed that the RTC may already render a judgment based on the pleadings. In accordance with the agreement of the parties, the RTC issued, on even date, an Order23 which stated:

O R D E R

During the pre-trial conference held on August 26, 2004, counsels of the parties manifested, agreed and suggested that a judgment may be rendered by the Court in this case based on the pleadings, affidavits, and other evidences on record, or to be submitted by them, pursuant to the provision of Rule 4, Section 4 of the Rule on Intra-Corporate Controversies. The suggestion of counsels was approved by the Court.

Accordingly, the Court hereby orders the counsels of the parties to file simultaneously their respective memoranda within a non-extendible period of twenty (20) days from notice hereof. Thereafter, the instant case will be deemed submitted for resolution.

x x x x

Cebu City, August 26, 2004.

(signed)

SILVESTRE A. MAAMO, JR.

Acting Presiding Judge

Petitioners and respondents duly filed their respective Memoranda,24 discussing the arguments already set forth in the pleadings they had previously submitted to the RTC. Respondents, though, attached to their Memorandum a Supplemental Affidavit25 of respondent Joseph, containing assertions that refuted the allegations in petitioner Anthony’s Affidavit, which was earlier submitted with petitioners’ Answer with Compulsory Counterclaim. Respondents also appended to their Memorandum additional documentary evidence,26 consisting of original and duplicate cash invoices and cash disbursement receipts issued by Winchester, Inc., to further substantiate their claim that petitioners were understating sales and charging their personal expenses to the corporate funds.

The RTC subsequently promulgated its Decision on 10 November 2004 dismissing SRC Case No. 022-CEB. The dispositive portion of said Decision reads:

WHEREFORE, in view of the foregoing premises and for lack of merit, this Court hereby renders judgment in this case DISMISSING the complaint filed by the [herein respondents].

The Court also hereby dismisses the [herein petitioners’] counterclaim because it has not been indubitably shown that the filing by the [respondents] of the latter’s complaint was done in bad faith and with malice.27



The RTC declared that respondents failed to show that they had complied with the essential requisites for filing a derivative suit as set forth in Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies:

(1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the action was filed;

(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires;

(3) No appraisal rights are available for the act or acts complained of; and

(4) The suit is not a nuisance or harassment suit.

As to respondents’ prayer for the inspection of corporate books and records, the RTC adjudged that they had likewise failed to comply with the requisites entitling them to the same. Section 2, Rule 7 of the Interim Rules of Procedure Governing Intra-Corporate Controversies requires that the complaint for inspection of corporate books or records must state that:

(1) The case is for the enforcement of plaintiff's right of inspection of corporate orders or records and/or to be furnished with financial statements under Sections 74 and 75 of the Corporation Code of the Philippines;

(2) A demand for inspection and copying of books and records and/or to be furnished with financial statements made by the plaintiff upon defendant;

(3) The refusal of defendant to grant the demands of the plaintiff and the reasons given for such refusals, if any; and

(4) The reasons why the refusal of defendant to grant the demands of the plaintiff is unjustified and illegal, stating the law and jurisprudence in support thereof.

The RTC further noted that respondent Joseph was the corporate secretary of Winchester, Inc. and, as such, he was supposed to be the custodian of the corporate books and records; therefore, a court order for respondents’ inspection of the same was no longer necessary. The RTC similarly denied respondents’ demand for accounting as it was clear that Winchester, Inc. had been engaging the services of an

audit firm. Respondent Joseph himself described the audit firm as competent and independent, and believed that the audited financial statements the said audit firm prepared were true, faithful, and correct.

Finding the claims of the parties for damages against each other to be unsubstantiated, the RTC thereby dismissed the same.

Respondents challenged the foregoing RTC Decision before the Court of Appeals via a Petition for Review under Rule 43 of the Rules of Court, docketed as CA-G.R. SP No. 00185.

On 15 February 2006, the Court of Appeals rendered its Decision, affirming the 10 December 2004 Decision of the RTC. Said the appellate court:

After a careful and judicious scrutiny of the extant records of the case, together with the applicable laws and jurisprudence, WE see no reason or justification for granting the present appeal.

x x x x

x x x [T]his Court sees that the instant petition would still fail taking into consideration all the pleadings and evidence of the parties except the supplemental affidavit of [herein respondent] Joseph and its corresponding annexes appended in [respondents’] memorandum before the Court a quo. The Court a quo have (sic) outrightly dismissed the complaint for its failure to comply with the mandatory provisions of the Interim Rules of Procedure for Intra-Corporate Controversies particularly Rule 2, Section 4(3), Rule 8, Section [1(2)] and Rule 7, Section 2 thereof, which reads as follows:

RULE 2

COMMENCEMENT OF ACTION AND PLEADINGS

Sec. 4. Complaint. – The complaint shall state or contain:

x x x x

(3) the law, rule, or regulation relied upon, violated, or sought to be enforced;



x x x x

RULE 8

DERIVATIVE SUITS

Sec. 1. Derivative action. – x x x

x x x x

(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires.

x x x x

RULE 7

INSPECTION OF CORPORATE BOOKS AND RECORDS

Sec. 2. Complaint – In addition to the requirements in section 4, Rule 2 of these Rules, the complaint must state the following:

(1) The case is set (sic) for the enforcement of plaintiff’s right of inspection of corporate orders or records and/or to be furnished with financial statements under Section 74 and 75 of the Corporation Code of the Philippines;

(2) A demand for inspection and copying of books [and/or] to be furnished with financial statements made by the plaintiffs upon defendant;

(3) The refusal of the defendant to grant the demands of the plaintiff and the reasons given for such refusal, if any; and

(4) The reasons why the refusal of defendant to grant the demands of the plaintiff is unjustified and illegal, stating the law and jurisprudence in support thereof.

x x x x

A perusal of the extant record shows that [herein respondents] have not complied with the above quoted provisions. [Respondents] should be mindful that in filing their complaint which, as admitted by them, is a derivative suit, should have first exhausted all available remedies under its (sic) Articles of Incorporation, or its by-laws, or any laws or rules governing the corporation. The contention of [respondent Joseph] that he had indeed made several talks to (sic) his brother [herein petitioner Anthony] to settle their differences is not tantamount to exhaustion of remedies. What the law requires is to bring the grievance to the Board of Directors or Stockholders for the latter to take the opportunity to settle whatever problem in its regular meeting or special meeting called for that purpose which [respondents] failed to do. x x x The requirements laid down by the Interim Rules of Procedure for Intra-Corporate Controversies are mandatory which cannot be dispensed with by any stockholder of a corporation before filing a derivative suit.28 (Emphasis ours.)

The Court of Appeals likewise sustained the refusal by the RTC to consider respondent Joseph’s Supplemental Affidavit and other additional evidence, which respondents belatedly submitted with their Memorandum to the said trial court. The appellate court ratiocinated that:

With regard to the claim of [herein respondents] that the supplemental affidavit of [respondent] Joseph and its annexes appended to their memorandum should have been taken into consideration by the Court a quo to support the reliefs prayed [for] in their complaint. (sic) This Court rules that said supplemental affidavit and its annexes is (sic) inadmissible.

A second hard look of (sic) the extant records show that during the pre-trial conference conducted on August 26, 2004, the parties through their respective counsels had come up with an agreement that the lower court would render judgment based on the pleadings and evidence submitted. This agreement is in accordance with Rule 4, Sec. 4 of the Interim Rules of Procedure for Intra-Corporate Controversies which explicitly states:

SECTION. 4. Judgment before pre-trial. – If, after submission of the pre-trial briefs, the court determines that, upon consideration of the pleadings, the affidavits and other evidence submitted by the parties, a judgment may be rendered, the court may order the parties to file simultaneously their respective memoranda within a non-extendible period of twenty (20) days from receipt of the order. Thereafter, the court shall render judgment, either full or otherwise, not later than ninety (90) days from the expiration of the period to file the memoranda.

x x x x



Clearly, the supplemental affidavit and its appended documents which were submitted only upon the filing of the memorandum for the [respondents] were not submitted in the pre-trial briefs for the stipulation of the parties during the pre-trial, hence, it cannot be accepted pursuant to Rule 2, Sec. 8 of the same rules which reads as follows:

SEC. 8. Affidavits, documentary and other evidence. – Affidavits shall be based on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify on the matters stated therein. The affidavits shall be in question and answer form, and shall comply with the rules on admissibility of evidence.

Affidavits of witnesses as well as documentary and other evidence shall be attached to the appropriate pleading; Provided, however, that affidavits, documentary and other evidence not so submitted may be attached to the pre-trial brief required under these Rules. Affidavits and other evidence not so submitted shall not be admitted in evidence, except in the following cases:

(1) Testimony of unwilling, hostile, or adverse party witnesses. A witness is presumed prima facie hostile if he fails or refuses to execute an affidavit after a written request therefor;

(2) If the failure to submit the evidence is for meritorious and compelling reasons; and

(3) Newly discovered evidence.

In case of (2) and (3) above, the affidavit and evidence must be submitted not later than five (5) days prior to its introduction in evidence.

There is no showing in the case at bench that the supplemental affidavit and its annexes falls (sic) within one of the exceptions of the above quoted proviso, hence, inadmissible.

It must be noted that in the case at bench, like any other civil cases, "the party making an allegation in a civil case has the burden of proving it by preponderance of evidence." Differently stated, upon the plaintiff in [a] civil case, the burden of proof never parts. That is, appellants must adduce evidence that has greater weight or is more convincing that (sic) which is offered to oppose it. In the case at bar, no one should be blamed for the dismissal of the complaint but the [respondents] themselves for their lackadaisical attitude in setting forth and appending their defences belatedly. To admit them would be a denial of due process for the opposite party which this Court cannot allow.29

Ultimately, the Court of Appeals decreed:

WHEREFORE, judgment is hereby rendered DISMISSING the instant petition and the assailed Decision of the Regional Trial Court (RTC), 7th Judicial Region, Branch II, Cebu City, dated November 10, 2004, in SRC Case No. 022-CEB is AFFIRMED in toto. Cost against the [herein respondents].30

Unperturbed, respondents filed before the Court of Appeals, on 23 February 2006, a Motion for Reconsideration and Motion to Set for Oral Arguments the Motion for Reconsideration,31 invoking the following grounds:

(1) The [herein respondents] have sufficiently exhausted all remedies before filing the present action; and

(2) [The] Honorable Court erred in holding that the supplemental affidavit and its annexes is (sic) inadmissible because the rules and the lower court expressly allowed the submission of the same in its order dated August 26, 2004 x x x.32

In a Resolution33 dated 8 March 2006, the Court of Appeals granted respondents’ Motion to Set for Oral Arguments the Motion for Reconsideration.

On 4 April 2006, the Court of Appeals issued a Resolution34 setting forth the events that transpired during the oral arguments, which took place on 30 March 2006. Counsels for the parties manifested before the appellate court that they were submitting respondents’ Motion for Reconsideration for resolution. Justice Magpale, however, still called on the parties to talk about the possible settlement of the case considering their familial relationship. Independent of the resolution of respondents’ Motion for Reconsideration, the parties were agreeable to pursue a settlement for the dissolution of the corporation, which they had actually already started.

In a Resolution35 dated 11 April 2006, the Court of Appeals ordered the parties to submit, within 10 days from notice, their intended amicable settlement, since the same would undeniably affect the resolution of respondents’ pending Motion for Reconsideration. If the said period should lapse without the parties submitting an amicable settlement, then they were directed by the appellate court to file within 10 days thereafter their position papers instead.

On 5 May 2006, respondents submitted to the Court of Appeals their Position Paper,36 stating that the parties did not reach an amicable settlement. Respondents informed the appellate court that prior to the filing with the Securities and Exchange Commission (SEC) of a petition for dissolution of Winchester, Inc., the parties already divided the stocks in trade and the real assets of the corporation among themselves. Respondents posited, though, that the afore-mentioned distribution of the assets of Winchester, Inc. among the parties was null and void, as it violated the last paragraph of Section 122 of the Corporation Code, which provides that, "[e]xcept by a decrease of capital stock and as otherwise allowed by the Corporation Code, no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities." At the same time, however, respondents brought to the attention of



the Court of Appeals that the parties did eventually file with the SEC a petition for dissolution of Winchester, Inc., which the SEC approved.37

Respondents no longer discussed in their Position Paper the grounds they previously invoked in their Motion for Reconsideration of the Court of Appeals Decision dated 15 February 2006, affirming in toto the RTC Decision dated 10 November 2004. They instead argued that the RTC Decision in question was null and void as it did not clearly state the facts and the law on which it was based. Respondents sought the remand of the case to the RTC for further proceedings on their derivative suit and completion of the dissolution of Winchester, Inc., including the legalization of the prior partial distribution among the parties of the assets of said corporation.

Petitioners filed their Position Paper38 on 23 May 2006, wherein they accused respondents of attempting to incorporate extraneous matters into the latter’s Motion for Reconsideration. Petitioners pointed out that the issue before the Court of Appeals was not the dissolution and division of assets of Winchester, Inc., thus, a remand of the case to the RTC was not necessary.

On 18 July 2006, the Court of Appeals rendered the assailed Resolution, granting respondents’ Motion for Reconsideration. The Court of Appeals reasoned in this wise:

After a second look and appreciation of the facts of the case, vis-à-vis the issues raised by the [herein respondents’] motion for reconsideration and in view of the formal dissolution of the corporation which leaves unresolved up to the present the settlement of the properties and assets which are now in danger of dissipation due to the unending litigation, this Court finds the need to remand the instant case to the lower court (commercial court) as the proper forum for the adjudication, disposition, conveyance and distribution of said properties and assets between and amongst its stockholders as final settlement pursuant to Sec. 122 of the Corporation Code after payment of all its debts and liabilities as provided for under the same proviso. This is in accord with the pronouncement of the Supreme Court in the case of Clemente et. al. vs. Court of Appeals, et. al. where the high court ruled and which WE quote, viz:

"the corporation continues to be a body corporate for three (3) years after its dissolution for purposes of prosecuting and defending suits by and against it and for enabling it to settle and close its affairs, culminating in the disposition and distribution of its remaining assets. It may, during the three-year term, appoint a trustee or a receiver who may act beyond that period. The termination of the life of a juridical entity does not by itself cause the extinction or diminution of the rights and liabilities of such entity x x x nor those of its owners and creditors. If the three-year extended life has expired without a trustee or receiver having been expressly designated by the corporation within that period, the board of directors (or trustees) xxx may be permitted to so continue as "trustees" by legal implication to complete the corporate liquidation. Still in the absence of a board of directors or trustees, those having any pecuniary interest in the assets, including not only the shareholders but likewise the creditors of the corporation, acting for and in its behalf, might make proper representation with the Securities and Exchange Commission, which has primary and sufficiently broad jurisdiction in matters of this nature, for working out a final settlement of the corporate concerns."

In the absence of a trustee or board of director in the case at bar for purposes above mentioned, the lower court under Republic Act No. [8799] (otherwise known as the Securities and Exchange Commission) as implemented by A.M. No. 00-8-10-SC (Transfer of Cases from the

Securities and Exchange Commission to the Regional Trial Courts) which took effect on October 1, 2001, is the proper forum for working out the final settlement of the corporate concern.39

Hence, the Court of Appeals ruled:

WHEREFORE, premises considered, the motion for reconsideration is GRANTED. The order dated February 15, 2006 is hereby SET ASIDE and the instant case is REMANDED to the lower court to take the necessary proceedings in resolving with deliberate dispatch any and all corporate concerns towards final settlement.40

Petitioners filed a Motion for Reconsideration41 of the foregoing Resolution, but it was denied by the Court of Appeals in its other assailed Resolution dated 19 April 2007.

In the Petition at bar, petitioners raise the following issues:

I.

WHETHER OR NOT THE ASSAILED RESOLUTIONS[,] WHICH VIOLATED THE CONSTITUTION OF THE PHILIPPINES, JURISPRUDENCE AND THE LAW[,] ARE NULL AND VOID[.]

II.

WHETHER OR NOT THE ASSAILED RESOLUTIONS WAS (sic) ISSUED WITHOUT JURISDICTION[.]

III.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN REMANDING THIS CASE TO THE LOWER COURT FOR THE REASON CITED IN THE ASSAILED RESOLUTIONS, AND WITHOUT RESOLVING THE GROUNDS FOR THE [RESPONDENTS’] MOTION FOR RECONSIDERATION. (sic) INASMUCH AS [THE] REASON CITED WAS A NON-ISSUE IN THE CASE.

IV.Caelitus Mihi Vires 38


WHETHER OR NOT REMANDING THIS CASE TO THE REGIONAL TRIAL COURT VIOLATES THE SUMMARY PROCEDURE FOR INTRA-CORPORATE CASES.42

The crux of petitioners’ contention is that the Court of Appeals committed grievous error in reconsidering its Decision dated 15 February 2006 on the basis of extraneous matters, which had not been previously raised in respondents’ Complaint before the RTC, or in their Petition for Review and Motion for Reconsideration before the appellate court; i.e., the adjudication, disposition, conveyance, and distribution of the properties and assets of Winchester, Inc. among its stockholders, allegedly pursuant to the amicable settlement of the parties. The fact that the parties were able to agree before the Court of Appeals to submit for resolution respondents’ Motion for Reconsideration of the 15 February 2006 Decision of the same court, independently of any intended settlement between the parties as regards the dissolution of the corporation and distribution of its assets, only proves the distinction and independence of these matters from one another. Petitioners also contend that the assailed Resolution dated 18 July 2006 of the Court of Appeals, granting respondents’ Motion for Reconsideration, failed to clearly and distinctly state the facts and the law on which it was based. Remanding the case to the RTC, petitioners maintain, will violate the very essence of the summary nature of the Interim Rules of Procedure Governing Intra-Corporate Controversies, as this will just entail delay, protract litigation, and revert the case to square one.

The Court finds the instant Petition meritorious.

To recapitulate, the case at bar was initiated before the RTC by respondents as a derivative suit, on their own behalf and on behalf of Winchester, Inc., primarily in order to compel petitioners to account for and reimburse to the said corporation the corporate assets and funds which the latter allegedly misappropriated for their personal benefit. During the pendency of the proceedings before the court a quo, the parties were able to reach an amicable settlement wherein they agreed to divide the assets of Winchester, Inc. among themselves. This amicable settlement was already partially implemented by the parties, when respondents repudiated the same, for which reason the RTC proceeded with the case on its merits. On 10 November 2004, the RTC promulgated its Decision dismissing respondents’ Complaint for failure to comply with essential pre-requisites before they could avail themselves of the remedies under the Interim Rules of Procedure Governing Intra-Corporate Controversies; and for inadequate substantiation of respondents’ allegations in said Complaint after consideration of the pleadings and evidence on record.

In its Decision dated 15 February 2006, the Court of Appeals affirmed, on appeal, the findings of the RTC that respondents did not abide by the requirements for a derivative suit, nor were they able to prove their case by a preponderance of evidence. Respondents filed a Motion for Reconsideration of said judgment of the appellate court, insisting that they were able to meet all the conditions for filing a derivative suit. Pending resolution of respondents’ Motion for Reconsideration, the Court of Appeals urged the parties to again strive to reach an amicable settlement of their dispute, but the parties were unable to do so. The parties were not able to submit to the appellate court, within the given period, any amicable settlement; and filed, instead, their Position Papers. This effectively meant that the parties opted to submit respondents’ Motion for Reconsideration of the 15 February 2006 Decision of the Court of Appeals, and petitioners’ opposition to the same, for resolution by the appellate court on the merits.

It was at this point that the case took an unexpected turn.

In accordance with respondents’ allegation in their Position Paper that the parties subsequently filed with the SEC, and the SEC already approved, a petition for dissolution of Winchester, Inc., the Court of Appeals remanded the case to the RTC so that all the corporate concerns between the parties regarding Winchester, Inc. could be resolved towards final settlement.

In one stroke, with the use of sweeping language, which utterly lacked support, the Court of Appeals converted the derivative suit between the parties into liquidation proceedings.

The general rule is that where a corporation is an injured party, its power to sue is lodged with its board of directors or trustees. Nonetheless, an individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stocks in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued, or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest. A derivative action is a suit by a shareholder to enforce a corporate cause of action. The corporation is a necessary party to the suit. And the relief which is granted is a judgment against a third person in favor of the corporation. Similarly, if a corporation has a defense to an action against it and is not asserting it, a stockholder may intervene and defend on behalf of the corporation.43 By virtue of Republic Act No. 8799, otherwise known as the Securities Regulation Code, jurisdiction over intra-corporate disputes, including derivative suits, is now vested in the Regional Trial Courts designated by this Court pursuant to A.M. No. 00-11-03-SC promulgated on 21 November 2000.

In contrast, liquidation is a necessary consequence of the dissolution of a corporation. It is specifically governed by Section 122 of the Corporation Code, which reads:

SEC. 122. Corporate liquidation. – Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose of continuing the business for which it was established.

At any time during said three (3) years, said corporation is authorized and empowered to convey all of its property to trustees for the benefit of stockholders, members, creditors, and other persons in interest. From and after any such conveyance by the corporation of its property in trust for the benefit of its stockholders, members, creditors and others in interest, all interest which the corporation had in the property terminates, the legal interest vests in the trustees, and the beneficial interest in the stockholders, members, creditors or other persons in interest.

Upon winding up of the corporate affairs, any asset distributable to any creditor or stockholder or member who is unknown or cannot be found shall be escheated to the city or municipality where such assets are located.



Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities.

Following the voluntary or involuntary dissolution of a corporation, liquidation is the process of settling the affairs of said corporation, which consists of adjusting the debts and claims, that is, of collecting all that is due the corporation, the settlement and adjustment of claims against it and the payment of its just debts.44 More particularly, it entails the following:

Winding up the affairs of the corporation means the collection of all assets, the payment of all its creditors, and the distribution of the remaining assets, if any among the stockholders thereof in accordance with their contracts, or if there be no special contract, on the basis of their respective interests. The manner of liquidation or winding up may be provided for in the corporate by-laws and this would prevail unless it is inconsistent with law.45

It may be undertaken by the corporation itself, through its Board of Directors; or by trustees to whom all corporate assets are conveyed for liquidation; or by a receiver appointed by the SEC upon its decree dissolving the corporation.46lawphil.net

Glaringly, a derivative suit is fundamentally distinct and independent from liquidation proceedings. They are neither part of each other nor the necessary consequence of the other. There is totally no justification for the Court of Appeals to convert what was supposedly a derivative suit instituted by respondents, on their own behalf and on behalf of Winchester, Inc. against petitioners, to a proceeding for the liquidation of Winchester, Inc.

While it may be true that the parties earlier reached an amicable settlement, in which they agreed to already distribute the assets of Winchester, Inc., and in effect liquidate said corporation, it must be pointed out that respondents themselves repudiated said amicable settlement before the RTC, even after the same had been partially implemented; and moved that their case be set for pre-trial. Attempts to again amicably settle the dispute between the parties before the Court of Appeals were unsuccessful.

Moreover, the decree of the Court of Appeals to remand the case to the RTC for the "final settlement of corporate concerns" was solely grounded on respondents’ allegation in its Position Paper that the parties had already filed before the SEC, and the SEC approved, the petition to dissolve Winchester, Inc. The Court notes, however, that there is absolute lack of evidence on record to prove said allegation. Respondents failed to submit copies of such petition for dissolution of Winchester, Inc. and the SEC Certification approving the same. It is a basic rule in evidence that each party must prove his affirmative allegation. Since it was respondents who alleged the voluntary dissolution of Winchester, Inc., respondents must, therefore, prove it.47 This respondents failed to do.

Even assuming arguendo that the parties did submit a petition for the dissolution of Winchester, Inc. and the same was approved by the SEC, the Court of Appeals was still without jurisdiction to order the final settlement by the RTC of the remaining corporate concerns. It

must be remembered that the Complaint filed by respondents before the RTC essentially prayed for the accounting and reimbursement by petitioners of the corporate funds and assets which they purportedly misappropriated for their personal use; surrender by the petitioners of the corporate books for the inspection of respondents; and payment by petitioners to respondents of damages. There was nothing in respondents’ Complaint which sought the dissolution and liquidation of Winchester, Inc. Hence, the supposed dissolution of Winchester, Inc. could not have resulted in the conversion of respondents’ derivative suit to a proceeding for the liquidation of said corporation, but only in the dismissal of the derivative suit based on either compromise agreement or mootness of the issues.

Clearly, in issuing its assailed Resolutions dated 18 July 2006 and 19 April 2007, the Court of Appeals already went beyond the issues raised in respondents’ Motion for Reconsideration. Instead of focusing on whether it erred in affirming, in its 15 February 2006 Decision, the dismissal by the RTC of respondents’ Complaint due to respondents’ failure to comply with the requirements for a derivative suit and submit evidence to support their allegations, the Court of Appeals unduly concentrated on respondents’ unsubstantiated allegation that Winchester, Inc. was already dissolved and speciously ordered the remand of the case to the RTC for proceedings so vitally different from that originally instituted by respondents.

Despite the foregoing, the Court still deems it appropriate to already look into the merits of respondents’ Motion for Reconsideration of the 15 February 2006 Decision of the Court of Appeals, for the sake of finally putting an end to the case at bar.

In their said Motion for Reconsideration, respondents argued that: (1) they had sufficiently exhausted all remedies before filing the derivative suit; and (2) respondent Joseph’s Supplemental Affidavit and its annexes should have been taken into consideration, since the submission thereof was allowed by the rules of procedure, as well as by the RTC in its Order dated 26 August 2004.

As regards the first ground of sufficient exhaustion by respondents of all remedies before filing a derivative suit, the Court subscribes to the ruling to the contrary of the Court of Appeals in its Decision dated 16 February 2006.1avvphi1

The Court has recognized that a stockholder’s right to institute a derivative suit is not based on any express provision of the Corporation Code, or even the Securities Regulation Code, but is impliedly recognized when the said laws make corporate directors or officers liable for damages suffered by the corporation and its stockholders for violation of their fiduciary duties. Hence, a stockholder may sue for mismanagement, waste or dissipation of corporate assets because of a special injury to him for which he is otherwise without redress. In effect, the suit is an action for specific performance of an obligation owed by the corporation to the stockholders to assist its rights of action when the corporation has been put in default by the wrongful refusal of the directors or management to make suitable measures for its protection. The basis of a stockholder’s suit is always one in equity. However, it cannot prosper without first complying with the legal requisites for its institution.48

Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies lays down the following requirements which a stockholder must comply with in filing a derivative suit:



Sec. 1. Derivative action. – A stockholder or member may bring an action in the name of a corporation or association, as the case may be, provided, that:

(1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the action was filed;

(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires;



A perusal of respondents’ Complaint before the RTC would reveal that the same did not allege with particularity that respondents exerted all reasonable efforts to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing Winchester, Inc. to obtain the relief they desire.

Respondents assert that their compliance with said requirement was contained in respondent Joseph’s Affidavit, which was attached to respondents’ Complaint. Respondent Joseph averred in his Affidavit that he tried for a number of times to talk to petitioner Anthony to settle their differences, but the latter would not listen. Respondents additionally claimed that taking further remedies within the corporation would have been idle ceremony, considering that Winchester, Inc. was a family corporation and it was impossible to expect petitioners to take action against themselves who were the ones accused of wrongdoing.

The Court is not persuaded.

The wordings of Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies are simple and do not leave room for statutory construction. The second paragraph thereof requires that the stockholder filing a derivative suit should have exerted all reasonable efforts to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires; and to allege such fact with particularity in the complaint. The obvious intent behind the rule is to make the derivative suit the final recourse of the stockholder, after all other remedies to obtain the relief sought had failed.

The allegation of respondent Joseph in his Affidavit of his repeated attempts to talk to petitioner Anthony regarding their dispute hardly constitutes "all reasonable efforts to exhaust all remedies available." Respondents did not refer to or mention at all any other remedy under the articles of incorporation or by-laws of Winchester, Inc., available for dispute resolution among stockholders, which respondents unsuccessfully availed themselves of. And the Court is not prepared to conclude that the articles of incorporation and by-laws of Winchester, Inc. absolutely failed to provide for such remedies.

Neither can this Court accept the reasons proffered by respondents to excuse themselves from complying with the second requirement under Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies. They are flimsy and insufficient, compared to the seriousness of respondents’ accusations of fraud, misappropriation, and falsification of corporate records against the petitioners. The fact that Winchester, Inc. is a family corporation should not in any way exempt respondents from complying with the clear requirements and formalities of the rules for filing a derivative suit. There is nothing in the pertinent laws or rules supporting the distinction between, and the difference in the requirements for, family corporations vis-à-vis other types of corporations, in the institution by a stockholder of a derivative suit.

The Court further notes that, with respect to the third and fourth requirements of Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies, the respondents’ Complaint failed to allege, explicitly or otherwise, the fact that there were no appraisal rights available for the acts of petitioners complained of, as well as a categorical statement that the suit was not a nuisance or a harassment suit.

As to respondents’ second ground in their Motion for Reconsideration, the Court agrees with the ruling of the Court of Appeals, in its 15 February 2006 Decision, that respondent Joseph’s Supplemental Affidavit and additional evidence were inadmissible since they were only appended by respondents to their Memorandum before the RTC. Section 8, Rule 2 of the Interim Rules of Procedure Governing Intra-Corporate Controversies is crystal clear that:

Sec. 8. Affidavits, documentary and other evidence. – Affidavits shall be based on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify on the matters stated therein. The affidavits shall be in question and answer form, and shall comply with the rules on admissibility of evidence.

Affidavits of witnesses as well as documentary and other evidence shall be attached to the appropriate pleading, Provided, however, that affidavits, documentary and other evidence not so submitted may be attached to the pre-trial brief required under these Rules. Affidavits and other evidence not so submitted shall not be admitted in evidence, except in the following cases:

(1) Testimony of unwilling, hostile, or adverse party witnesses. A witness is presumed prima facie hostile if he fails or refuses to execute an affidavit after a written request therefor;

(2) If the failure to submit the evidence is for meritorious and compelling reasons; and



(3) Newly discovered evidence.

In case of (2) and (3) above, the affidavit and evidence must be submitted not later than five (5) days prior to its introduction in evidence. (Emphasis ours.)

According to the afore-quoted provision, the parties should attach the affidavits of witnesses and other documentary evidence to the appropriate pleading, which generally should mean the complaint for the plaintiff and the answer for the respondent. Affidavits and documentary evidence not so submitted must already be attached to the respective pre-trial briefs of the parties. That the parties should have already identified and submitted to the trial court the affidavits of their witnesses and documentary evidence by the time of pre-trial is strengthened by the fact that Section 1, Rule 4 of the Interim Rules of Procedure Governing Intra-Corporate Controversies require that the following matters should already be set forth in the parties’ pre-trial briefs:

Section 1. Pre-trial conference, mandatory nature. – Within five (5) days after the period for availment of, and compliance with, the modes of discovery prescribed in Rule 3 hereof, whichever comes later, the court shall issue and serve an order immediately setting the case for pre-trial conference, and directing the parties to submit their respective pre-trial briefs. The parties shall file with the court and furnish each other copies of their respective pre-trial brief in such manner as to ensure its receipt by the court and the other party at least five (5) days before the date set for the pre-trial.

The parties shall set forth in their pre-trial briefs, among other matters, the following:

x x x x

(4) Documents not specifically denied under oath by either or both parties;

x x x x

(7) Names of witnesses to be presented and the summary of their testimony as contained in their affidavits supporting their positions on each of the issues;

(8) All other pieces of evidence, whether documentary or otherwise and their respective purposes.

Also, according to Section 2, Rule 4 of the Interim Rules of Procedure Governing Intra-Corporate Controversies,49 it is the duty of the court to ensure during the pre-trial conference that the parties consider in detail, among other things, objections to the admissibility of testimonial, documentary, and other evidence, as well as objections to the form or substance of any affidavit, or part thereof.

Obviously, affidavits of witnesses and other documentary evidence are required to be attached to a party’s pre-trial brief, at the very last instance, so that the opposite party is given the opportunity to object to the form and substance, or the admissibility thereof. This is, of course, to prevent unfair surprises and/or to avoid the granting of any undue advantage to the other party to the case.

True, the parties in the present case agreed to submit the case for judgment by the RTC, even before pre-trial, in accordance with Section 4, Rule 4 of the Interim Rules of Procedure Governing Intra-Corporate Controversies:

Sec. 4. Judgment before pre-trial. – If after submission of the pre-trial briefs, the court determines that, upon consideration of the pleadings, the affidavits and other evidence submitted by the parties, a judgment may be rendered, the court may order the parties to file simultaneously their respective memoranda within a non-extendible period of twenty (20) days from receipt of the order. Thereafter, the court shall render judgment, either full or otherwise, not later than ninety (90) days from the expiration of the period to file the memoranda.

Even then, the afore-quoted provision still requires, before the court makes a determination that it can render judgment before pre-trial, that the parties had submitted their pre-trial briefs and the court took into consideration the pleadings, affidavits and other evidence submitted by the parties. Hence, cases wherein the court can render judgment prior to pre-trial, do not depart from or constitute an exception to the requisite that affidavits of witnesses and documentary evidence should be submitted, at the latest, with the parties’ pre-trial briefs. Taking further into account that under Section 4, Rule 4 of the Interim Rules of Procedure Governing Intra-Corporate Controversies parties are required to file their memoranda simultaneously, the same would mean that a party would no longer have any opportunity to dispute or rebut any new affidavit or evidence attached by the other party to its memorandum. To violate the above-quoted provision would, thus, irrefragably run afoul the former party’s constitutional right to due process.

In the instant case, therefore, respondent Joseph’s Supplemental Affidavit and the additional documentary evidence, appended by respondents only to their Memorandum submitted to the RTC, were correctly adjudged as inadmissible by the Court of Appeals in its 15 February 2006 Decision for having been belatedly submitted. Respondents neither alleged nor proved that the documents in question fall under any of the three exceptions to the requirement that affidavits and documentary evidence should be attached to the appropriate pleading or pre-trial brief of the party, which is particularly recognized under Section 8, Rule 2 of the Interim Rules of Procedure Governing Intra-Corporate Controversies.



WHEREFORE, premises considered, the Petition for Review under Rule 45 of the Rules of Court is hereby GRANTED. The assailed Resolutions dated 18 July 2006 and 19 April 2007 of the Court of Appeals in CA-G.R. SP No. 00185 are hereby REVERSED AND SET ASIDE. The Decision dated 15 February 2006 of the Court of Appeals is hereby AFFIRMED. No costs.

SO ORDERED.

G.R. No. 170783 June 18, 2012

LEGASPI TOWERS 300, INC., LILIA MARQUINEZ PALANCA, ROSANNA D. IMAI, GLORIA DOMINGO and RAY VINCENT, Petitioners,

vs.

AMELIA P. MUER, SAMUEL M. TANCHOCO, ROMEO TANKIANG, RUDEL PANGANIBAN, DOLORES AGBAYANI, ARLENEDAL A. YASUMA, GODOFREDO M. CAGUIOA and EDGARDO M. SALANDANAN, Respondents.

D E C I S I O N

PERALTA, J.:

This is a petition for review on certiorari of the Court of Appeals’ Decision1 dated July 22, 2005 in CA-G.R. CV No. 87684, and its Resolution2 dated November 24, 2005, denying petitioners’ motion for reconsideration.

The Court of Appeals held that Judge Antonio I. De Castro of the Regional Trial Court (RTC) of Manila, Branch 3, did not commit grave abuse of discretion in issuing the Orders dated July 21, 2004 and September 24, 2004 in Civil Case No. 04-109655, denying petitioners’ Motion to Admit Second Amended Complaint.

The facts, as stated by the Court of Appeals, are as follows:

Pursuant to the by-laws of Legaspi Towers 300, Inc., petitioners Lilia Marquinez Palanca, Rosanna D. Imai, Gloria Domingo and Ray Vincent, the incumbent Board of Directors, set the annual meeting of the members of the condominium corporation and the election of the new Board of Directors for the years 2004-2005 on April 2, 2004 at 5:00 p.m. at the lobby of Legaspi Towers 300, Inc.

Out of a total number of 5,723 members who were entitled to vote, 1,358 were supposed to vote through their respective proxies and their votes were critical in determining the existence of a quorum, which was at least 2,863 (50% plus 1). The Committee on Elections of Legaspi Towers 300, Inc., however, found most of the proxy votes, at its face value, irregular, thus, questionable; and for lack of time to authenticate the same, petitioners adjourned the meeting for lack of quorum.

However, the group of respondents challenged the adjournment of the meeting. Despite petitioners' insistence that no quorum was obtained during the annual meeting held on April 2, 2004, respondents pushed through with the scheduled election and were elected as the new Board of Directors and officers of Legaspi Towers 300, Inc. Subsequently, they submitted a General Information Sheet to the Securities and Exchange Commission (SEC) with the following new set of officers: Amelia P. Muer, President; Samuel M. Tanchoco, Internal Vice President; Romeo V. Tankiang, External Vice-President; Rudel H. Panganiban, Secretary; Dolores B. Agbayani, Assistant Secretary; Arlenedal A. Yasuma, Treasurer; Godofredo M. Caguioa, Assistant Treasurer; and Edgardo M. Salandanan, Internal Auditor.

On April 13, 2004, petitioners filed a Complaint for the Declaration of Nullity of Elections with Prayers for the lssuance of Temporary Restraining Orders and Writ of Preliminary Injunction and Damages against respondents with the RTC of Manila. Before respondents could file an Answer to the original Complaint, petitioners filed an Amended Complaint, which was admitted by the RTC in an Order dated April 14, 2004.

On April 20, 2004, before respondents could submit an Answer to the Amended Complaint, petitioners again filed an Urgent Ex-Parte Motion to Admit Second Amended Complaint and for the lssuance of Ex-Parte Temporary Restraining Order Effective only for Seventy-Two (72) Hours. It was stated in the said pleading that the case was raffled to Branch 24, but Presiding Judge Antonio Eugenio, Jr. inhibited himself from handling the case; and when the case was assigned to Branch 46, Presiding Judge Artemio S. Tipon also inhibited himself from the case.

On April 21, 2004, Executive Judge Enrico A. Lanzanas of the RTC of Manila acted on the Motion for the Issuance of an Ex Parte Temporary Restraining Order, and issued an Order disposing, thus:

WHEREFORE, pursuant to administrative Circular No. 20-95 of the Supreme Court, a seventy-two (72) hour Temporary Restraining Order is hereby issued, enjoining defendants from taking over management, or to maintain a status quo, in order to prevent further irreparable damages and prejudice to the corporation, as day-to-day activities will be disrupted and will be paralyzed due to the legal controversy.3

On the same date, April 21, 2004, respondents filed their Answer4 to the Amended Complaint, alleging that the election on April 2, 2004 was lawfully conducted. Respondents cited the Report5 of SEC Counsel Nicanor P. Patricio, who was ordered by the SEC to attend the annual meeting of Legaspi Towers 300, Inc. on April 2, 2004. Atty. Patricio stated in his Report that at 5:40 p.m. of April 2, 2004, a representative of the Board of the condominium corporation stated that the scheduled elections could not proceed because the Election Committee was not able to validate the authenticity of the proxies prior to the election due to limited time available as the submission was made only the day before. Atty. Patricio noted that the Board itself fixed the deadline for submission of proxies at 5:00 p.m. of April 1, 2004. One holder of proxy stood up and questioned the motives of the Board in postponing the elections. The Board objected to this and



moved for a declaration of adjournment. There was an objection to the adjournment, which was ignored by the Board. When the Board adjourned the meeting despite the objections of the unit owners, the unit owners who objected to the adjournment gathered themselves at the same place of the meeting and proceeded with the meeting. The attendance was checked from among the members who stayed at the meeting. Proxies were counted and recorded, and there was a declaration of a quorum – out of a total of 5,721 votes, 2,938 were present either in person or proxy. Thereafter, ballots were prepared, proxies were counterchecked with the number of votes entitled to each unit owner, and then votes were cast. At about 9:30 p.m., canvassing started, and by 11:30 p.m., the newly-elected members of the Board of Directors for the years 2004-2005 were named.

Respondents contended that from the proceedings of the election reported by SEC representative, Atty. Patricio, it was clear that the election held on April 2, 2004 was legitimate and lawful; thus, they prayed for the dismissal of the complaint for lack cause of action against them.

This case was scheduled to be re-raffled to regular courts on April 22, 2004, and was assigned to Judge Antonio I. De Castro of the RTC of Manila, Branch 3 (trial court).

On April 26, 2004, the trial court conducted a hearing on the injunction sought by petitioners, and issued an Order clarifying that the TRO issued by Executive Judge Enrico A. Lanzanas, enjoining respondents from taking over management, was not applicable as the current Board of Directors (respondents) had actually assumed management of the corporation. The trial court stated that the status quo mentioned in the said TRO shall mean that the current board of directors shall continue to manage the affairs of the condominium corporation, but the court shall monitor all income earned and expenses incurred by the corporation. The trial court stated:

Precisely this complaint seeks to annul the election of the Board due to alleged questionable proxy votes which could not have produced a quorum. As such, there is nothing to enjoin and so injunction shall fail. As an answer has been filed, the case is ripe for pre-trial and the parties are directed to file their pre-trial briefs by May 3, 2004.

As plaintiffs’ second amended complaint is admitted by the Court, defendants are given up to May 3, 2004 to file a comment thereto. In the meantime, the banks and other persons & entities are advised to recognize the Board headed by its president, Amelia Muer. All transactions made by the Board and its officers for the corporation are considered legal for all intents and purposes.6

On May 3, 2004, respondents filed a Comment on the Motion to Amend Complaint, praying that the name of Legaspi Towers 300, Inc., as party-plaintiff in the Second Amended Complaint, be deleted as the said inclusion by petitioners was made without the authority of the current Board

of Directors, which had been recognized by the trial court in its Order dated April 26, 2004.

During the pre-trial conference held on July 21, 2004, the trial court resolved various incidents in the case and other issues raised by the contending parties. One of the incidents acted upon by the trial court was petitioners' motion to amend complaint to implead Legaspi Towers 300, Inc. as plaintiff, which motion was denied with the issuance of two Orders both dated July 21, 2004. The first Order7 held that the said motion could not be admitted for being improper, thus:

x x x x

On plaintiffs’ motion to admit amended complaint (to include Legaspi Towers 300, Inc. as plaintiff), the Court rules to deny the motion for being improper. (A separate Order of even date is issued.) As prayed for, movants are given 10 days from today to file a motion for reconsideration thereof, while defendants are given 10 days from receipt thereof to reply.8

The second separate Order,9 also dated July 21, 2004, reads:

This resolves plaintiffs’ motion to amend complaint to include Legaspi Towers 300, Inc. as party-plaintiff and defendants’ comment thereto. Finding no merit therein and for the reasons stated in the comment, the motion is hereby DENIED.

Petitioners filed a Motion for Reconsideration of the Orders dated July 21, 2004. In the Order10 dated September 24, 2004, the trial court denied the motion for reconsideration for lack of merit.

Petitioners filed a petition for certiorari with the Court of Appeals alleging that the trial court gravely abused its discretion amounting to lack or excess of jurisdiction in issuing the Orders dated July 21, 2004 and September 24, 2004, and praying that judgment be rendered annulling the said Orders and directing RTC Judge De Castro to admit their Second Amended Complaint.

In a Decision dated July 22, 2005, the Court of Appeals dismissed the petition for lack of merit. It held that RTC Judge De Castro did not commit grave abuse of discretion in denying petitioners' Motion To Admit Second Amended Complaint.

The Court of Appeals stated that petitioners’ complaint sought to nullify the election of the Board of Directors held on April 2, 2004, and to protect and enforce their individual right to vote. The appellate court held that as the right to vote is a personal right of a stockholder of a corporation, such right can only be enforced through a direct action; hence, Legaspi Towers 300, Inc. cannot be impleaded as plaintiff in this case.

Petitioners’ motion for reconsideration was denied by the Court of Appeals in a Resolution dated November 24, 2005.



Petitioners filed this petition raising the following issues:

I

THE HONORABLE COURT OF APPEALS ERRED IN RESOLVING THAT PUBLIC RESPONDENT-APPELLEE DID NOT COMMIT ANY WHIMSICAL, ARBITRARY AND OPPRESSIVE EXERCISE OF JUDICIAL AUTHORITY WHEN THE LATTER REVERSED HIS EARLIER RULING ALREADY ADMITTING THE SECOND AMENDED COMPLAINT OF PETITIONERS-APPELLANTS.

II

THERE IS NO LEGAL BASIS FOR THE HONORABLE COURT OF APPEALS TO RESOLVE THAT PETITIONERS-APPELLANTS HAVE NO RIGHT AS BOARD OF DIRECTORS TO BRING AN ACTION IN BEHALF OF LEGASPI TOWERS 300, INC.

III

THERE IS NO LEGAL BASIS FOR THE HONORABLE COURT OF APPEALS TO RESOLVE THAT THE ELECTIONS CONDUCTED IN LEGASPI TOWERS 300, INC. FOR THE PERIOD OF 2005 TO 2006 HAVE RENDERED THE ISSUE IN CIVIL CASE NO. 04-10655 MOOT AND ACADEMIC.11

Petitioners contend that the Court of Appeals erred in not finding that RTC Judge Antonio I. De Castro committed grave abuse of discretion amounting to lack or excess of jurisdiction in denying the admission of the Second Amended Complaint in the Orders dated July 21, 2004 and September 24, 2004, despite the fact that he had already ordered its admission in a previous Order dated April 26, 2004.

Petitioners’ contention is unmeritorious.

It is clear that in the Orders dated July 21, 2004, the trial court did not admit the Second Amended Complaint wherein petitioners made the condominium corporation, Legaspi Towers 300, Inc., the party-plaintiff. In the Order dated September 24, 2004, denying petitioners’ motion for reconsideration of the Orders dated July 21, 2004, the RTC explained its action, thus:

x x x The word "admitted" in the 3rd paragraph of the Order dated April 26, 2004 should read "received" for which defendants were told to comment thereon as an answer has been filed. It was an oversight of the clerical error in said Order.

The Order of July 21, 2004 states "amended complaint" in the 3rd paragraph thereof and so it does not refer to the second amended complaint. The amended complaint was admitted by the court of origin – Br. 24 in its Order of April 14, 2004 as there was no responsive pleading yet.

Nonetheless, admission of the second amended complaint is improper. Why should Legaspi Towers 300, Inc. x x x be included as party-plaintiff when defendants are members thereof too like plaintiffs. Both parties are deemed to be acting in their personal capacities as they both claim to be the lawful board of directors. The motion for reconsideration for the admission of the second amended complaint is hereby DENIED.12

The courts have the inherent power to amend and control their processes and orders so as to make them conformable to law and justice.13 A judge has an inherent right, while his judgment is still under his control, to correct errors, mistakes, or injustices.14

Next, petitioners state that the Court of Appeals seems to be under the impression that the action instituted by them is one brought forth solely by way of a derivative suit. They clarified that the inclusion of Legaspi Towers 300, Inc. as a party-plaintiff in the Second Amended Complaint was, first and foremost, intended as a direct action by the corporation acting through them (petitioners) as the reconstituted Board of Directors of Legaspi Towers 300, Inc. Petitioners allege that their act of including the corporation as party-plaintiff is consistent with their position that the election conducted by respondents was invalid; hence, petitioners, under their by-laws, could reconstitute themselves as the Board of Directors of Legaspi Towers 300, Inc. in a hold-over capacity for the succeeding term. By so doing, petitioners had the right as the rightful Board of Directors to bring the action in representation of Legaspi Towers 300, Inc. Thus, the Second Amended Complaint was intended by the petitioners as a direct suit by the corporation joined in by the petitioners to protect and enforce their common rights.

Petitioners contend that Legaspi Towers 300, Inc. is a real party-ininterest as it stands to be affected the most by the controversy, because it involves the determination of whether or not the corporation’s by-laws was properly carried out in the meeting held on April 2, 2004, when despite the adjournment of the meeting for lack of quorum, the elections were still conducted. Although petitioners admit that the action involves their right to vote, they argue that it also involves the right of the condominium corporation to be managed and run by the duly-elected Board of Directors, and to seek redress against those who wrongfully occupy positions of the corporation and who may mismanage the corporation.

Petitioners’ argument is unmeritorious.

The Court notes that in the Amended Complaint, petitioners as plaintiffs stated that they are the incumbent reconstituted Board of Directors of Legaspi Towers 300, Inc., and that defendants, herein respondents, are the newly-elected members of the Board of Directors;



while in the Second Amended Complaint, the plaintiff is Legaspi Towers 300, Inc., represented by petitioners as the allegedly incumbent reconstituted Board of Directors of Legaspi Towers 300, Inc.

The Second Amended Complaint states who the plaintiffs are, thus:

1. That the plaintiffs are: LEGASPI TOWERS 300, INC., non-stock corporation xxx duly represented by the incumbent reconstituted Board of Directors of Legaspi Towers 300, Inc., namely: ELIADORA FE BOTE VERA xxx, as President; BRUNO C. HAMAN xxx, as Director; LILY MARQUINEZ PALANCA xxx, as Secretary; ROSANNA DAVID IMAI xxx, as Treasurer; and members of the Board of Directors, namely: ELIZABETH GUERRERO xxx, GLORIA DOMINGO xxx, and RAY VINCENT.15

The Court agrees with the Court of Appeals that the Second Amended Complaint is meant to be a derivative suit filed by petitioners in behalf of the corporation. The Court of Appeals stated in its Decision that petitioners justified the inclusion of Legaspi Towers 300, Inc. as plaintiff in Civil Case No. 0410655 by invoking the doctrine of derivative suit, as petitioners specifically argued, thus:

x x x x

x x x [T]he sudden takeover by private respondents of the management of Legaspi Towers 300, Inc. has only proven the rightfulness of petitioners’ move to include Legaspi Towers 300, Inc. as party-plaintiff. This is because every resolution passed by private respondents sitting as a board result[s] in violation of Legaspi Towers 300, Inc.’s right to be managed and represented by herein petitioners.

In short, the amendment of the complaint [to include] Legaspi Towers 300, Inc. was done in order to protect the interest and enforce the right of the Legaspi [Towers 300,] Inc. to be administered and managed [by petitioners] as the duly constituted Board of Directors. This is no different from and may in fact be considered as a DERIVATIVE SUIT instituted by an individual stockholder against those controlling the corporation but is being instituted in the name of and for the benefit of the corporation whose right/s are being violated.16

Is a derivative suit proper in this case?

Cua, Jr. v. Tan17 differentiates a derivative suit and an individual/class suit as follows:

A derivative suit must be differentiated from individual and representative or class suits, thus:

Suits by stockholders or members of a corporation based on wrongful or fraudulent acts of directors or other persons may be classified into individual suits, class suits, and derivative suits. Where a stockholder or member is denied the right of inspection, his suit would be individual because the wrong is done to him personally and not to the other stockholders or the corporation. Where the wrong is done to a group of stockholders, as where preferred stockholders' rights are violated, a class or representative suit will be proper for the protection of all stockholders belonging to the same group. But where the acts complained of constitute a wrong to the corporation itself, the cause of action belongs to the corporation and not to the individual stockholder or member. Although in most every case of wrong to the corporation, each stockholder is necessarily affected because the value of his interest therein would be impaired, this fact of itself is not sufficient to give him an individual cause of action since the corporation is a person distinct and separate from him, and can and should itself sue the wrongdoer. Otherwise, not only would the theory of separate entity be violated, but there would be multiplicity of suits as well as a violation of the priority rights of creditors. Furthermore, there is the difficulty of determining the amount of damages that should be paid to each individual stockholder.

However, in cases of mismanagement where the wrongful acts are committed by the directors or trustees themselves, a stockholder or member may find that he has no redress because the former are vested by law with the right to decide whether or not the corporation should sue, and they will never be willing to sue themselves. The corporation would thus be helpless to seek remedy. Because of the frequent occurrence of such a situation, the common law gradually recognized the right of a stockholder to sue on behalf of a corporation in what eventually became known as a "derivative suit." It has been proven to be an effective remedy of the minority against the abuses of management. Thus, an individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever officials of the corporation refuse to sue or are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as the nominal party, with the corporation as the party-ininterest.18

Since it is the corporation that is the real party-in-interest in a derivative suit, then the reliefs prayed for must be for the benefit or interest of the corporation.19 When the reliefs prayed for do not pertain to the corporation, then it is an improper derivative suit.20

The requisites for a derivative suit are as follows:

a) the party bringing suit should be a shareholder as of the time of the act or transaction complained of, the number of his shares not being material;

b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of directors for the appropriate relief but the latter has failed or refused to heed his plea; and

c) the cause of action actually devolves on the corporation, the wrongdoing or harm having been, or being caused to the corporation and not to the particular stockholder bringing the suit.21



In this case, petitioners, as members of the Board of Directors of the condominium corporation before the election in question, filed a complaint against the newly-elected members of the Board of Directors for the years 2004-2005, questioning the validity of the election held on April 2, 2004, as it was allegedly marred by lack of quorum, and praying for the nullification of the said election.

As stated by the Court of Appeals, petitioners’ complaint seek to nullify the said election, and to protect and enforce their individual right to vote. Petitioners seek the nullification of the election of the Board of Directors for the years 2004-2005, composed of herein respondents, who pushed through with the election even if petitioners had adjourned the meeting allegedly due to lack of quorum. Petitioners are the injured party, whose rights to vote and to be voted upon were directly affected by the election of the new set of board of directors. The party-in-interest are the petitioners as stockholders, who wield such right to vote. The cause of action devolves on petitioners, not the condominium corporation, which did not have the right to vote. Hence, the complaint for nullification of the election is a direct action by petitioners, who were the members of the Board of Directors of the corporation before the election, against respondents, who are the newly-elected Board of Directors. Under the circumstances, the derivative suit filed by petitioners in behalf of the condominium corporation in the Second Amended Complaint is improper.

The stockholder’s right to file a derivative suit is not based on any express provision of The Corporation Code, but is impliedly recognized when the law makes corporate directors or officers liable for damages suffered by the corporation and its stockholders for violation of their fiduciary duties,22 which is not the issue in this case.

Further, petitioners’ change of argument before this Court, asserting that the Second Amended Complaint is a direct action filed by the corporation, represented by the petitioners as the incumbent Board of Directors, is an afterthought, and lacks merit, considering that the newly-elected Board of Directors had assumed their function to manage corporate affairs.23

In fine, the Court of Appeals correctly upheld the Orders of the trial court dated July 21, 2004 and September 24, 2004 denying petitioners’ Motion to Admit Second Amended Complaint.

Lastly, petitioners contend that the Court of Appeals erred in resolving that the recent elections conducted by Legaspi Towers, 300, Inc. have rendered the issue raised via the special civil action for certiorari before the appellate court moot and academic.

The Court of Appeals, in its Resolution dated November 24, 2005, stated:

x x x [T]he election of the corporation’s new set of directors for the years 2005-2006 has, finally, rendered the petition at bench moot and academic. As correctly argued by private respondents, the nullification of the orders assailed by petitioners would, therefore, be of little or no practical and legal purpose.24

The statement of the Court of Appeals is correct.

Petitioners question the validity of the election of the Board of Directors for the years 2004-2005, which election they seek to nullify in Civil Case No. 04-109655. However, the valid election of a new set of Board of Directors for the years 2005-2006 would, indeed, render this petition moot and academic.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 87684, dated July 22, 2005, and its Resolution dated November 24, 2005 are AFFIRMED.

Costs against petitioners.

SO ORDERED.

G.R. No. 201675 June 19, 2013

JUANITO ANG, for and in behalf of SUNRISE MARKETING (BACOLOD), INC.,* Petitioner,

vs.

SPOUSES ROBERTO and RACHEL ANG, Respondents.

The Case

This petition for review1 assails the Decision2 of the Court of Appeals-Cebu (CA-Cebu) dated 20 September 2011 in CA-G.R. SP No. 05546. The CA-Cebu reversed and set aside the Order3 of the Regional Trial Court, Branch 53, Bacolod City (RTC Bacolod) dated 27 September 2010 in Commercial Court Case No. 09-070 entitled Sunrise Marketing (Bacolod), Inc., represented by Juanita Ang -v: Spouses Roberto and Rachel Ang.

The Facts

Sunrise Marketing (Bacolod), Inc. (SMBI) is a duly registered corporation owned by the Ang family.4 Its current stockholders and their respective stockholdings are as follows:5

Stockholder Number of Shares

Juanito Ang 8,750Caelitus Mihi Vires 47


Anecita Ang 1,250

Jeannevie Ang 2,500

Roberto Ang 8,750

Rachel Ang 3,750

Total 25,000

Juanito Ang (Juanito) and Roberto Ang (Roberto) are siblings. Anecita Limoco-Ang (Anecita) is Juanito’s wife and Jeannevie is their daughter. Roberto was elected President of SMBI, while Juanito was elected as its Vice President. Rachel Lu-Ang (Rachel) and Anecita are SMBI’s Corporate Secretary and Treasurer, respectively.

On 31 July 1995, Nancy Ang (Nancy), the sister of Juanito and Roberto, and her husband, Theodore Ang (Theodore), agreed to extend a loan to settle the obligations of SMBI and other corporations owned by the Ang family, specifically Bayshore Aqua Culture Corporation, Oceanside Marine Resources and JR Aqua Venture.6 Nancy and Theodore issued a check in the amount of $1,000,000.00 payable to "Juanito Ang and/or Anecita Ang and/or Roberto Ang and/or Rachel Ang." Nancy was a former stockholder of SMBI, but she no longer appears in SMBI’s General Information Sheets as early as 1996.7 Nancy and Theodore are now currently residing in the United States. There was no written loan agreement, in view of the close relationship between the parties. Part of the loan was also used to purchase real properties for SMBI, for Juanito, and for Roberto.8

On 22 December 2005, SMBI increased its authorized capital stock to P10,000,000.00. The Certificate of Increase of Capital Stock was signed by Juanito, Anecita, Roberto, and Rachel as directors of SMBI.9 Juanito claimed, however, that the increase of SMBI’s capital stock was done in contravention of the Corporation Code.10 According to Juanito, when he and Anecita left for Canada:

x x x Sps. Roberto and Rachel Ang took over the active management of [SMBI]. Through the employment of sugar coated words, they were able to successfully manipulate the stocks sharings between themselves at 50-50 under the condition that the procedures mandated by the Corporation Code on increase of capital stock be strictly observed (valid Board Meeting). No such meeting of the Board to increase capital stock materialized. It was more of an accommodation to buy peace x x x.11

Juanito claimed that payments to Nancy and Theodore ceased sometime after 2006. On 24 November 2008, Nancy and Theodore, through their counsel here in the Philippines, sent a demand letter to "Spouses Juanito L. Ang/Anecita L. Ang and Spouses Roberto L. Ang/Rachel L. Ang" for payment of the principal amounting to $1,000,000.00 plus interest at ten percent (10%) per annum, for a total of $2,585,577.37 within ten days from receipt of the letter. 12 Roberto and Rachel then sent a letter to Nancy and Theodore’s counsel on 5 January 2009, saying that they are not complying with the demand letter because they have not personally contracted a loan from Nancy and Theodore.

On 8 January 2009, Juanito and Anecita executed a Deed of Acknowledgment and Settlement Agreement (Settlement Agreement) and an Extra-Judicial Real Estate Mortgage (Mortgage). Under the foregoing instruments, Juanito and Anecita admitted that they, together with Roberto and Rachel, obtained a loan from Nancy and Theodore for $1,000,000.00 on 31 July 1995 and such loan shall be secured by:

a) Juanito and Anecita’s fifty percent share over a parcel of land registered in the name of SMBI;

b) a parcel of land registered in the name of Juanito Ang;

c) Juanito’s fifty percent share in 7 parcels of land registered in his and Roberto’s name;

d) a parcel of land registered in the name of Roberto;

e) a parcel of land registered in the name of Rachel; and

f) Roberto and Rachel’s fifty percent share in 2 parcels of land registered in the name of their son, Livingstone L. Ang (Livingstone), and in another lot registered in the name of Livingstone and Alvin Limoco Ang.13

A certain Kenneth C. Locsin (Locsin) signed on behalf of Nancy and Theodore, under a Special Power of Attorney which was not attached as part of the Settlement Agreement or the Mortgage, nor included in the records of this case.

Thereafter, Juanito filed a "Stockholder Derivative Suit with prayer for an ex-parte Writ of Attachment/Receivership" (Complaint) before the RTC Bacolod on 29 January 2009. He alleged that "the intentional and malicious refusal of defendant Sps. Roberto and Rachel Ang to settle their 50% share x x x of the total obligation x x x will definitely affect the financial viability of plaintiff SMBI."14 Juanito also claimed that he has been "illegally excluded from the management and participation in the business of [SMBI through] force, violence and intimidation" and that Rachel and Roberto have seized and carted away SMBI’s records from its office.15

The Complaint sought the following reliefs:

a) Issuance of an ex-parte Writ of Attachment and/or Garnishment, with a Break Open Order covering the assets of the spouses Roberto and Rachel Ang, or any interest they may have against third parties;



b) Placement of SMBI under Receivership pending resolution of the case;

c) Enforcement of Juanito’s right to actively participate in the management of SMBI;

d) Issuance of an Order compelling the Spouses Roberto and Rachel Ang to:

i. Render an accounting of the utilization of the loan amounting to $2,585,577.37 or P120,229,347.26;

ii. Pay fifty percent of the aforementioned loan, amounting to ₱60,114,673.62;

iii. Explain why Nancy was removed as a stockholder as far as SMBI’s reportorial requirements with the SEC are concerned;

iv. Restore Juanito’s right to actively manage the affairs of the corporation; and

v. Pay attorney’s fees amounting to P20,000.00.

On 29 January 2009, the RTC Bacolod issued an Order16 granting the application for an ex-parte writ of attachment and break open order. Atty. Jerry Basiao, who filed an application for appointment as Receiver of SMBI, was directed by the RTC Bacolod to furnish the required Receivership Bond.17 On the same date, Roberto and Rachel moved to quash the writ of attachment and set aside the break open order and appointment of receiver.18 They claimed that these were issued in violation of their right to due process:

Records of this case would show that the complaint was filed before the RTC Bacolod at 2:50 p.m. of January 29, 2009. x x x Counsel for the defendant-spouses went to the RTC Bacolod at around 3:00 p.m. on January 29, 2009 to inquire on the status of the case and was informed that the last pleading on record is his entry of appearance with the conformity of the defendant Rachel Ang. Counsel was however informed by the clerk of court that the Honorable Judge has already issued an order directing the issuance of the writ of preliminary attachment, receivership and break open order but said order was not officially released yet x x x. Due to the undersigned counsel’s insistence, however, said clerk of court of this Honorable Court furnished him a copy of said order x x x. The clerk of court and the clerk in charge of civil cases assured counsel that no writ of preliminary attachment was prepared or issued x x x. Despite such assurance x x x [and counsel’s advice that they shall move to quash the order the following morning], that afternoon, the clerk of court x x x clandestinely, hurriedly and surreptitiously, for reasons known only to her, x x x prepared the writ of attachment x x x.19

In her Verified Answer Ad Cautelam which was filed on 10 February 2009, Rachel prayed that the Complaint be dismissed as it was not a bona fide derivative suit as defined under the Interim Rules of Procedure for Intra-Corporate Controversies20 (Interim Rules). According to Rachel, the Complaint, although labelled as a derivative suit, is actually a collection suit since the real party in interest is not SMBI, but Nancy and Theodore:

The cause of action does not devolve on the corporation as the alleged harm or wrong pertains to the right of the Sps. Theodore and Nancy Ang, as creditors, to collect the amount allegedly owed to them. x x x

x x x x

That the instant suit is for the benefit of a non-stockholder and not the corporation is obvious when the primary relief prayed for in the Complaint which is for the defendants "to pay the amount of Php 60,114,673.62 plus interest which is 50% of the loan obligations of plaintff [SMBI] to its creditor Sps. Theodore and Nancy Ang." Otherwise stated, the instant suit is nothing but a complaint for sum of money shamelessly masked as a derivative suit.21

Rachel also argued that the Complaint failed to allege that Juanito "exerted all reasonable efforts to exhaust all intra-corporate remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation to obtain the relief he desires," as required by the Interim Rules.

During cross-examination, Juanito admitted that there was no prior demand for accounting or liquidation nor any written objection to SMBI’s increase of capital stock. He also conceded that the loan was extended by persons who are not stockholders of SMBI. Thus, Rachel filed a Motion for Preliminary Hearing on Affirmative Defenses on 27 November 2009, arguing that in view of Juanito’s admissions, the Complaint should be dismissed pursuant to Section 1 of the Interim Rules. Juanito filed his Opposition thereto on 8 January 2010,22 arguing that applying this Court’s ruling in Hi-Yield Realty, Inc. v. Court of Appeals,23 the requirement for exhaustion of intra-corporate remedies is no longer needed when the corporation itself is "under the complete control of the persons against whom the suit is filed." Juanito also alleged that he and Anecita were deceived into signing checks to pay off bogus loans purportedly extended by Rachel’s relatives in favor of SMBI. Some of the checks were payable to cash, and were allegedly deposited in Rachel’s personal account.24 He also claimed that Rachel’s Motion is disallowed under the Interim Rules.

On 9 February 2009, Juanito moved that Rachel and her daughter, Em Ang (Em), as well as their counsel, Atty. Filomeno Tan, Jr. (Atty. Tan) be held in contempt. Juanito claimed that on the date the writ of attachment and break open order were issued, Atty. Tan, accompanied by Rachel and Em, "arrogantly demanded from the Clerk in charge of Civil Cases that he be furnished a copy of the [said orders] x x x otherwise he will tear the records of the subject commercial case." Juanito also accused Atty. Tan of surreptitiously photocopying the said orders prior to service of the summons, Complaint, Writ of Attachment and Attachment Bond. According to Juanito, the purpose of obtaning a copy of the orders was to thwart its implementation. Thus, when the authorities proceeded to the SMBI premises to enforce



the orders, they found that the place was padlocked, and that all corporate documents and records were missing. On 14 December 2010, the Sheriff and other RTC Bacolod employees then filed a Verified Complaint against Atty. Tan before this Court, which also contained the foregoing allegations.25

Rachel then filed a Reply on 27 January 2010, claiming that Juanito’s reliance on the Hi-Yield case is misplaced:

The facts x x x of this case are strikingly different from that in Hi-Yield Realty. In that case, the Supreme Court noted that the complaining stockholder was a minority stockholder. However, in the case at bar, Juanito Ang is one of the biggest stockholders of [SMBI]. x x x He is a member of [SMBI’s] Board of Directors and is even the vice-president thereof. Furthermore, in Hi-Yield Realty, the Supreme Court noted that the complaining stockholder was excluded from the affairs of the corporation. However, the evidence thus far presented, particularly Juanito Ang’s admission, show that he and his wife, Anecita, participate in the disbursement of [SMBI’s] funds x x x.26

Juanito filed his Rejoinder on 2 March 2010.

The Ruling of the RTC Bacolod

On 27 September 2010, the RTC Bacolod issued an Order which stated that:

WHEREFORE, premises considered, the court hereby rules that the present action is a DERIVATIVE SUIT and the Motion to Dismiss based on Affirmative Defenses raised by defendants is DENIED for lack of merit.27

The RTC Bacolod found that the issuance of the checks to settle the purported obligations to Rachel’s relatives, as well as the removal of Nancy as a stockholder in SMBI’s records as filed with the SEC, shows that Rachel and Roberto committed fraud. The Order likewise stated that the requirement of exhaustion of intra-corporate remedies is no longer necessary since Rachel and Roberto exercised complete control over SMBI.

Aggrieved, Rachel filed a Petition for Certiorari with the CA-Cebu.

The Ruling of the CA-Cebu

On 20 September 2011, the CA-Cebu promulgated its Decision which reversed and set aside the Order of the RTC Bacolod dated 27 September 2010. According to the CA-Cebu, the Complaint filed by Juanito should be dismissed because it is a harassment suit, and not a valid derivative suit as defined under the Interim Rules. The CA-Cebu also found that Juanito failed to exhaust intra-corporate remedies and that the loan extended by Nancy and Theodore was not SMBI’s corporate obligation. There is nothing on record to show that non-payment of the loan will result in any damage or prejudice to SMBI.

Juanito then filed a Motion for Reconsideration with Prayer for Voluntary Inhibition on 28 October 2011. In his Motion, Juanito pointed out that Rachel filed her Petition for Certiorari without previously filing a Motion for Reconsideration, warranting the dismissal of the said Petition. The CA-Cebu denied the Motion.

Hence, this petition.

The Issues

The issues raised in the instant petition are:

<

p align="justify">I. Whether based on the allegations of the complaint, the nature of the case is one of a derivative suit or not.

Corollary to the above, whether the Honorable Court of Appeals erred x x x in ordering the dismissal of the Complaint on the ground that the case is not a derivative suit.

II. Whether the Honorable Court of Appeals x x x seriously erred in considering evidence aliunde, that is, other than the four corners of the complaint, in determining the nature of the complaint, in utter violation of the doctrine that the jurisdiction is determined by law and allegations of the complaint alone.

III. Granting arguendo, but without necessarily admitting that the complaint is not one of a derivative suit, but only an ordinary civil action, whether the Honorable Court of Appeals x x x gravely erred in dismissing the petition entirely, when the Regional Trial Court a quo has jurisdiction also over the case as an ordinary civil action, and can just proceed to hear the same as such.28

The Ruling of this Court



The petition has no merit.

We uphold the CA-Cebu’s finding that the Complaint is not a derivative suit. A derivative suit is an action brought by a stockholder on behalf of the corporation to enforce corporate rights against the corporation’s directors, officers or other insiders.29 Under Sections 2330 and 3631 of the Corporation Code, the directors or officers, as provided under the by-laws,32 have the right to decide whether or not a corporation should sue. Since these directors or officers will never be willing to sue themselves, or impugn their wrongful or fraudulent decisions, stockholders are permitted by law to bring an action in the name of the corporation to hold these directors and officers accountable.33 In derivative suits, the real party ininterest is the corporation, while the stockholder is a mere nominal party.

This Court, in Yu v. Yukayguan,34 explained:

The Court has recognized that a stockholder’s right to institute a derivative suit is not based on any express provision of the Corporation Code, or even the Securities Regulation Code, but is impliedly recognized when the said laws make corporate directors or officers liable for damages suffered by the corporation and its stockholders for violation of their fiduciary duties. Hence, a stockholder may sue for mismanagement, waste or dissipation of corporate assets because of a special injury to him for which he is otherwise without redress. In effect, the suit is an action for specific performance of an obligation owed by the corporation to the stockholders to assist its rights of action when the corporation has been put in default by the wrongful refusal of the directors or management to make suitable measures for its protection. The basis of a stockholder’s suit is always one in equity. However, it cannot prosper without first complying with the legal requisites for its institution. (Emphasis in the original)

Section 1, Rule 8 of the Interim Rules imposes the following requirements for derivative suits:

(1) The person filing the suit must be a stockholder or member at the time the acts or transactions subject of the action occurred and the time the action was filed;

(2) He must have exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires;



Applying the foregoing, we find that the Complaint is not a derivative suit. The Complaint failed to show how the acts of Rachel and Roberto resulted in any detriment to SMBI. The CA-Cebu correctly concluded that the loan was not a corporate obligation, but a personal debt of the Ang brothers and their spouses. The check was issued to "Juanito Ang and/or Anecita Ang and/or Roberto Ang and/or Rachel Ang" and not SMBI. The proceeds of the loan were used for payment of the obligations of the other corporations owned by the Angs as well as the purchase of real properties for the Ang brothers. SMBI was never a party to the Settlement Agreement or the Mortgage. It was never named as a co-debtor or guarantor of the loan. Both instruments were executed by Juanito and Anecita in their personal capacity, and not in their capacity as directors or officers of SMBI. Thus, SMBI is under no legal obligation to satisfy the obligation.

The fact that Juanito and Anecita attempted to constitute a mortgage over "their" share in a corporate asset cannot affect SMBI. The Civil Code provides that in order for a mortgage to be valid, the mortgagor must be the "absolute owner of the thing x x x mortgaged."35 Corporate assets may be mortgaged by authorized directors or officers on behalf of the corporation as owner, "as the transaction of the lawful business of the corporation may reasonably and necessarily require."36 However, the wording of the Mortgage reveals that it was signed by Juanito and Anecita in their personal capacity as the "owners" of a pro-indiviso share in SMBI’s land and not on behalf of SMBI:

This Mortgage is made and executed by and between:

Spouses JUANITO and ANECITA ANG, of legal age, Filipino citizens, residents of Sunrise Marketing Building at Hilado Street, Capitol Shopping Center, Bacolod City, hereinafter referred to as the MORTGAGORS;

Spouses THEODORE and NANCY ANG, x x x hereinafter referred to as the MORTGAGEES represented in this instance through their attorney-in-fact, Mr. Kenneth Locsin;

x x x x

In order to ensure payment x x x the MORTGAGORS hereby CONVEY unto the MORTGAGEES by way of EXTRA-JUDICIAL REAL ESTATE MORTGAGE their 50% rights and interests over the following real properties to wit:

a. Those registered in the name of SUNRISE MARKETING (BACOLOD), INC. x x x

x x x x37 (Emphasis supplied)

Juanito and Anecita, as stockholders of SMBI, are not co-owners of SMBI assets. They do not own pro-indiviso shares, and therefore, cannot mortgage the same except in their capacity as directors or officers of SMBI.



We also find that there is insufficient evidence to suggest that Roberto and Rachel fraudulently and wrongfully removed Nancy as a stockholder in SMBI’s reportorial requirements. As early as 2005, when SMBI increased its capital stock, Juanito and Anecita already knew that Nancy was not listed as a stockholder of SMBI. However, they attempted to rectify the error only in 2009, when the Complaint was filed. That it took four years for them to make any attempt to question Nancy’s exclusion as stockholder negates their allegation of fraud.

Since damage to the corporation was not sufficiently proven by Juanito, the Complaint cannot be considered a bona fide derivative suit. A derivative suit is one that seeks redress for injury to the corporation, and not the stockholder. No such injury was proven in this case.

The Complaint also failed to allege that all available corporate remedies under the articles of incorporation, by-laws, laws or rules governing the corporation were exhausted, as required under the Interim Rules. The CA-Cebu, applying our ruling in the Yu case, pointed out:

x x x No written demand was ever made for the board of directors to address private respondent Juanito Ang’s concerns.1âwphi1

The fact that [SMBI] is a family corporation does not exempt private respondent Juanito Ang from complying with the Interim Rules. In the x x x Yu case, the Supreme Court held that a family corporation is not exempt from complying with the clear requirements and formalities of the rules for filing a derivative suit. There is nothing in the pertinent laws or rules which state that there is a distinction between x x x family corporations x x x and other types of corporations in the institution by a stockholder of a derivative suit.38

Furthermore, there was no allegation that there was an attempt to remove Rachel or Roberto as director or officer of SMBI, as permitted under the Corporation Code and the by-laws of the corporation. Thus, the Complaint failed to satisfy the requirements for a derivative suit under the

Interim Rules.

The CA-Cebu correctly ruled that the Complaint should be dismissed since it is a nuisance or harassment suit under Section 1(b) of the Interim Rules. Section 1(b) thereof provides:

b) Prohibition against nuisance and harassment suits. - Nuisance and harassment suits are prohibited. In determining whether a suit is a nuisance or harassment suit, the court shall consider, among others, the following:

(1) The extent of the shareholding or interest of the initiating stockholder or member;

(2) Subject matter of the suit;

(3) Legal and factual basis of the complaint;

(4) Availability of appraisal rights for the act or acts complained of; and

(5) Prejudice or damage to the corporation, partnership, or association in relation to the relief sought.

In case of nuisance or harassment suits, the court may, motu proprio or upon motion, forthwith dismiss the case.

Records show that Juanito, apart from being Vice President, owns the highest number of shares, equal to those owned by Roberto. Also, as explained earlier, there appears to be no damage to SMBI if the loan extended by Nancy and Theodore remains unpaid. The CA-Cebu correctly concluded that "a plain reading of the allegations in the Complaint would readily show that the case x x x was mainly filed to collect a debt allegedly extended by the spouses Theodore and Nancy Ang to [SMBI]. Thus, the aggrieved party is not SMBI x x x but the spouses Theodore and Nancy Ang, who are not even x x x stockholders."39

WHEREFORE, we DENY the petition. We AFFIRM the 20 September 2011 Decision of the Court of Appeals-Cebu in CA-G.R. SP No. 05546.

SO ORDERED.

G.R. No. 142474. August 18, 2005

R.N. SYMACO TRADING CORPORATION and/or NORMA SYMACO, ESTATE OF MARIANO GUISON, Petitioners,

vs.

LUISITO T. SANTOS, for and in behalf of the MALABON FISH BROKERS ASSOCIATION, INC., Respondent.

\Respondent Malabon Fish Brokers Association, Inc. (MFBAI) was a non-stock corporation established to erect and operate the Malabon Fish Brokers Association Fish Market, aimed at promoting the economic welfare of its members in their business of buying and selling fish and other marine products. Linda Sioson was elected as treasurer of the corporation.



On April 30, 1980, Mariano Guison, as lessor, and the MFBAI, as lessee, executed a contract of lease over a portion of five parcels of land located in Malabon, Metro Manila. Included in the lease agreement was a portion of his property occupied by Rudy Symaco along Estrella Street, Malabon, Metro Manila. The lease was for a period of ten years from the execution of the contract, renewable on such terms as agreed upon by the parties, provided that the rentals shall not be increased in excess of 500% of the monthly rate agreed upon. As provided in the contract, the lessee paid P28,000.00 upon its execution as advance rentals for four years, and a monthly rental of P600.00 to be paid thereafter.2

The MFBAI, thus, constructed the market on the leased property where its members installed their respective stalls.

On August 13, 1983, a group of MFBAI members, led by Marcos Valle, Jr., approved the corporation’s By-Laws.

On August 18, 1983, another set of MFBAI members, led by Lino Buhain, met and amended the By-Laws which the Securities and Exchange Commission (SEC) approved on September 7, 1983. However, Valle, Jr. and ten others filed a petition with the SEC against Buhain, et al. for the nullification of the amended By-Laws; to give due course to the By-Laws approved on August 13, 1983; and to declare them (Valle, Jr., et al.) as the duly-established members of the corporation’s Board of Directors.3 The case was docketed as SEC Case No. 2521.

On May 8, 1987, the SEC Hearing Officer rendered a Decision4 ordering the dismissal of the petition, and directing the hold-over officers to call for a membership meeting to elect the new Board of Directors and Officers of the Malabon Fish Brokers Association, Inc. within 30 days from finality of the decision. According to the hearing officer, from its incorporation, the MFBAI had only 35 legitimate members,5 and respondent Luisito T. Santos was not listed as one of them.

The decision was appealed to the SEC, docketed as SEC-AC No. 205, which was, however, dismissed on November 2, 1988.6 This prompted Valle, Jr., et al. to elevate the decision to the Court of Appeals (CA) via petition for review.

Meanwhile, Mariano Guison died intestate. On April 30, 1990, the Heirs of Mariano Guison and petitioner Norma Symaco, then President and Chairman of the Board of Directors of petitioner R.N. Symaco Trading Corporation (Symaco Corporation), executed an unnotarized contract of lease over a portion of the property previously leased to MFBAI. Two rows of 25 stalls each, with a path in between, had been installed on the leased premises; there was also another perpendicular road which intersected with Estrella Street. This latter area, consisting of about 5,978 square meters, was then occupied by the MFBAI.7 The contract, which took effect on May 1, 1990, was for a four-year period, renewable under the same terms and conditions, except as to the amount of rentals.8 The parties also agreed on the following:

"2. The monthly rental of the premises shall be TWENTY FIVE THOUSAND (P25,000.00) PESOS, PROVIDED that upon signing of this Agreement, the LESSEE shall pay the LESSOR an advance rental equivalent to the First (1st) year, or THREE HUNDRED THOUSAND (P300,000.00) PESOS, and PROVIDED furthermore, that on May 1, 1990, the LESSEE shall again pay the LESSOR in advance, the rental for the second (2nd) year or another sum of THREE HUNDRED THOUSAND (P300,000.00) PESOS less the ONE HUNDRED THOUSAND (P100,000.00) PESOS, which the LESSEE had advanced to the LESSOR on March 14, 1987.9

Norma Symaco was then also a member of the MFBAI Board of Directors.

Symaco Corporation had the stallholders evicted from the market, and filed a complaint for forcible entry against them with the Metropolitan Trial Court (MeTC) of Malabon, Branch 55. On October 4, 1990, the MeTC issued a writ of preliminary mandatory injunction against the defendants. It rendered judgment in favor of the plaintiff corporation on October 11, 1990.10

On May 31, 1990, the CA rendered judgment affirming the SEC decision in SEC Case No. 2521. The decision became final and executory.11

On October 29, 1990, respondent Santos, for and in behalf of the MFBAI, filed a complaint for the annulment of the April 30, 1990 Contract of Lease between the Heirs of Mariano Guison and defendant Symaco Corporation, with injunctive relief, against petitioners Estate of Mariano Guison, Symaco Corporation, and Norma Symaco in the Regional Trial Court (RTC) of Malabon.

Respondent Santos alleged, inter alia, that as an MFBAI member, he was a nominal party; he filed the derivative suit for and in behalf of MFBAI. He further alleged that the April 30, 1990 Contract of Lease executed by the defendants was null and void since it was executed by Symaco Corporation, through Norma Symaco, who was the president and chairman of the Board of Directors of the said corporation and still a member of the MFBAI Board of Directors; hence, the contract was executed in violation of the principle of corporate opportunity under Sections 31 and 34 of the Corporation Code of the Philippines. It was also pointed out that Symaco Corporation was actually owned by Norma Symaco’s family. It was, likewise, stated that the MFBAI failed to provide market stalls for its members on account of the April 30, 1990 Contract of Lease between Symaco Corporation and the Heirs of Mariano Guison. Moreover, the complaint was filed since the officials of the corporation, by their pronouncements and actions, had virtually accepted the April 30, 1990 Contract of Lease, thereby leaving no room for redress within the corporation itself.

The complaint contained the following prayer:

WHEREFORE, it is most respectfully prayed that:

1. The second lease contract between the Defendant Corporation and the Defendant Estate, which is evidenced by Annex B hereof, be annulled and set aside;



2. The Defendant Estate be directed to execute a new contract over the aforesaid leased premises in favor of the Plaintiff Corporation;

3. In the meantime that this action is pending, a temporary restraining order or a writ of preliminary injunction be issued stopping the Defendants or any other person acting under them from enforcing, in any manner, the second lease contract (Annex B hereof), and, after hearing, to make this injunction permanent.

Plaintiff prays for such other just and equitable remedies proper under the premises.12

The petitioner Estate opposed the respondent’s plea for injunctive relief, alleging that Santos had filed the complaint simply because Patricinio Gaddi and spouses Emmanuel and Angelina Cruz, the sublessees of his stall in the fish market, had been evicted based on the MTC decision in Civil Case No. 057-90.

During the hearing of the MFBAI’s plea for injunction, Santos testified and declared that he was a member of the said corporation. A market was constructed on the leased property, where he leased Stall No. 39, but Symaco Corporation had him evicted. When the contract of lease between Mariano Guison and MFBAI expired, he asked the corporate secretary, Brigida Bautista, why it was not renewed, and he was told that nothing could be done about it. He also inquired from other officers, to no avail. He admitted that he was not aware of any meeting of the MFBAI Board of Directors regarding the renewal of the contract of lease. He thus decided to file the complaint in behalf of MFBAI.

Restituto Santos testified that Lino Buhain even issued a certification that his son, Luisito T. Santos, was member of MFBAI.13

In opposition to the motion for a writ of preliminary injunction, the petitioners presented Linda Sioson, MFBAI treasurer since 1979 to 1990. She testified that although Santos had been a member of the MFBAI, he was able to pay his membership fee and monthly dues only from August 1983 to February 1984, and a part of March 1984, and never offered to pay his dues despite reminders.14

Lino Buhain testified that the MFBAI failed to pay its rentals over the subject property for four years because of a dispute (between his group and that of Marcos Valle, Jr.) as to who were its legitimate members and officers; its members likewise failed to pay their membership dues. Nonetheless, the MFBAI was able to build a fish market on the property and leased the stalls therein to its members. On July 9, 1985, a Deed of Assignment over its leasehold rights under its contract of lease was executed by Mariano Guison to the MFBAI, represented by its president, Luzviminda Francisco. On April 9, 1990, the corporation received a letter from the Heirs of Mariano Guison informing it that the contract of lease would not be renewed.

Petitioner Norma Symaco testified that the defendant corporation was established in 1986 to engage in the business of leasing stalls. She further stated that MFBAI could not renew its contract of lease with Mariano Guison because it had failed to pay rentals over the property for six years, since its members were not paying their monthly dues. The corporate secretary, Brigida Bautista, tried to collect the dues from the members, to no avail. Moreover, there was an internal struggle between two factions of its members. She clarified that Symaco Corporation leased a portion of the property from the petitioner Estate only after it decided not to renew the lease contract with the MFBAI upon its expiry, and that the said corporation had likewise paid advance rentals of P100,000.00 to the Heirs of Mariano Guison.

In the meantime, 22 stallholders of the fish market, some of whom were MFBAI members, sought to intervene, seeking the same reliefs prayed for by the latter. The petitioner Estate opposed the intervention on the ground that, the plaintiff had earlier filed a complaint with the RTC of Malabon City, docketed as Civil Case No. 1571, against the same defendants (Lino Buhain and Linda Sioson), praying for the same reliefs, plus damages; hence, the intervention filed for harassment purposes. Nevertheless, the court allowed the intervenors to intervene, and admitted the complaint-in-intervention.15

On their evidence-in-chief, petitioners Norma Symaco and Symaco Corporation offered in evidence the decisions of the Hearing Officer in SEC Case No. 2521, the SEC in SEC-AC No. 205, and that of the CA.16 The petitioners also offered in evidence the testimonies of Guison, Buhain, Bautista and Norma Symaco during the hearing of the plea for a writ of preliminary injunction, as well as the letters of the petitioner Estate’s counsel, dated April 9 and 16, 1990, addressed to Lino Buhain, as evidence.17

The defendants Norma Symaco and Symaco Corporation adduced in evidence the Deed of Assignment dated July 9, 1985, where the leasehold rights over the property were turned over to Tony Francisco,18 and the letters of the counsel of Mariano Guison’s Estate addressed to the plaintiff, through Lino Buhain, informing the latter that the Estate had decided not to renew the contract of lease after its expiry.19

The court admitted all the documentary exhibits of the petitioners. The parties did not adduce any other further evidence on evidence-in-chief.

In their answer to the complaint, the petitioners specifically denied the allegation that (a) Luisito T. Santos was a member of MFBAI and as such, had no standing to file the complaint for and in its behalf; (b) the petitioner Estate could not be compelled to execute a contract of lease in favor of MFBAI after the expiry of the 1980 Contract of Lease; and (c) petitioner Norma Symaco was not personally liable for the execution of the 1990 Contract of Lease.

On September 27, 1993, the trial court rendered judgment in favor of the petitioners. The fallo of the decision reads:

WHEREFORE, in view of the foregoing, the complaint and complaint-in-intervention are hereby dismissed for lack of merit.



On defendants’ compulsory counterclaim, the plaintiffs are ordered to pay the sum of Ten Thousand (P10,000.00) Pesos to each counsel for the defendants for and as attorneys fees and the costs of suit.

SO ORDERED.20

The court ruled that, based on the decisions of the SEC Hearing Officer, the SEC and the CA on appeal, Santos and most of the intervenors were not bona fide members of the MFBAI; hence, they had no cause of action against the petitioners. It also ruled that Norma Symaco did not violate the doctrine of corporate opportunity.

The private respondent and intervenors appealed the decision to the CA, wherein it averred that –

I. THE COURT A QUO ERRED IN HOLDING THAT THE DEFENDANTS NORMA SYMACO AND/OR R.N. SYMACO TRADING CORP. DID NOT VIOLATE THE DOCTRINE OF CORPORATE OPPORTUNITY.

II. THE COURT A QUO, WHILE HOLDING THAT THE CONTRACT OF LEASE BETWEEN DEFENDANTS R.N. SYMACO TRADING WITH DEFENDANT ESTATE IS VALID, ERRED IN NOT ORDERING SYMACO TO PAY THE PLAINTIFFS DAMAGES.

III. THE COURT A QUO ERRED IN HOLDING THAT THE PLAINTIFF LUISITO SANTOS AND THE INTERVENORS CANNOT BRING A DERIVATIVE SUIT FOR AND IN BEHALF OF THE MALABON FISH BROKERS ASSOCIATION, INC.21

The intervenors failed to file their respective briefs as appellees before the CA. As a consequence, the appellate court dismissed the intervenors’ appeal.22

On May 21, 1997, the CA rendered judgment reversing the decision of the RTC. The fallo of the decision reads:

WHEREFORE, the Decision dated December 27, 1993, of the court a quo is hereby reversed and SET ASIDE and a new judgment is entered ordering appellee Norma T. Symaco to render an accounting to [the] appellant of all the profits acquired by [the] appellees during the five years that appellee R.N. Symaco Trading was the lessee of the subject property from 1990 to 1995.

The records of the case are remanded to the court a quo which is directed to hear the accounting proceedings and thereafter to decide the case on the basis of the results of the accounting.23

The CA held that as early as 1987, Norma Symaco had negotiated with the Heirs of Mariano Guison for the lease of the property; hence, she was guilty of violating the doctrine of corporate opportunity. The appellate court failed to rule on the issue of whether Santos was a member of MFBAI or not.

The petitioners then filed a motion for the reconsideration of the decision, alleging that:

a.) The Honorable Court, with all due respects, erred in giving due course to the appeal, despite the lack of personality and authority of Luisito Santos to initiate the same as a derivative suit, being a non-member of MFBAI and the abandonment and dismissal of the appeal of the intervenors;

b.) The Honorable Court, with all due respects, erred in its findings that defendant-appellee Norma Symaco negotiated for the lease of the subject property for RN Symaco in 1987, while the lease with MFBAI was still subsisting;

c.) The Honorable Court, with all due respects, erred in holding defendant-appellee Norma T. Symaco liable for violation of the doctrine of corporate opportunity.24

They also alleged that Santos was not a member of the MFBAI; hence, he "had no legal personality" and "no authority" to appeal the RTC decision. They averred that petitioner Norma Symaco did not violate the doctrine of corporate opportunity because:

a) As early as 1985, the MFBAI is (sic) already in shambles. It is (sic) in total disarray, with the members feuding, with two sets of officers, and with two persons claiming to be President of the corporation leading to several cases filed by the officers against each other. (TSN, Lino Buhain, March 1, 1991, Pages 56-60)

b) MFBAI has NOT paid its rentals from 1984 up to the expiration of the contract in 1990. Stated otherwise, the MFBAI was only able to pay for 4 years out of a 10-year contract. (TSN, Norma Symaco, January 15, 1992, Pages 18, 35, 38 & 39)

Although the President of MFBAI, Lino Buhain insists that MFBAI failed to pay rentals only for a period of 4 years. (TSN, Lino Buhain, March 1, 1991, Pages 38, 50 & 51)



c) Defendant-appellant Norma T. Symaco leased only a PORTION of the original property leased by MFBAI, while the other half is being leased by a certain Tony Francisco of New Malabon Corporation, who is not even a member of MFBAI. (TSN, Norma T. Symaco, January 15, 1992, Pages 23, 43 & 44) (TSN, Lino Buhain, March 1, 1991, Pages 77 & 78)

d) Guizon (sic) Estate, through counsel, sent a letter to the MFBAI President Lino Buhain on April 9, 1990, notifying MFBAI that they are no longer interested in renewing their contract. (Exh. 2-Guizon Injunction; Exh. 3-Symaco Injunction and TSN, Lino Buhain, Mar. 1, 1991, P. 52)25

On March 20, 1998, the CA issued a Resolution26 granting the motion for reconsideration; it set aside its decision and affirmed that of the RTC. The appellate court declared that when it rendered its initial ruling, it had no full view of the appeal because of the respondent’s failure to file their Brief. Relying on the decisions of the SEC Hearing Officer and the SEC, the appellate court ruled that Santos was not a member of MFBAI; hence, he had no standing to file a complaint for and in behalf of the said corporation.

This time, the respondent filed a motion for reconsideration of the CA Resolution. On February 21, 2000, the CA granted the motion and rendered an Amended Decision, this time, in favor of the respondent. The fallo of the amended decision reads:

WHEREFORE, the Motion for Reconsideration filed by plaintiff-appellant is hereby given due course, the Resolution dated March 20, 1998 is hereby REVERSED AND/OR REVIVING Our Decision dated May 21, 1997 with modification which reversed and SET ASIDE the Decision dated September 27, 1993 of the court a quo.

Accordingly, defendant-appellee Norma T. Symaco is hereby ordered to render an accounting to this Court of all the profits acquired by appellees during the five years that appellee RN Symaco Trading was the lessee of the subject property from 1990 to 1995 and thereafter to turn over said profits to herein plaintiffs-appellants.

SO ORDERED.27

The appellate court ruled that based on the respondent’s claim in SEC Case No. 2521, the MFBAI had 42 legitimate members, including the 35 original members and respondent Santos; moreover, the RTC resolved that Santos was a member. The petitioners were bound by the said evidence and were estopped from claiming that Santos was not a member. Hence, Santos had the standing to file the complaint with the RTC "for and in behalf of the appellant". The CA further held that Norma Symaco violated the principle of corporate opportunity, and that the other members/stockholders of MFBAI should be impleaded as parties to the suit.

The petitioners filed the instant petition for review on certiorari under Rule 45 of the Rules of Court, as amended, raising the following issues:

1. Whether respondent Luisito T. Santos was a bona fide member of the respondent corporation;

2. Whether the petitioners are estopped from assailing the membership of Luisito T. Santos in the respondent corporation;

3. Whether the case filed by Luisito T. Santos is a derivative suit, for and in behalf of the respondent corporation;

4. Whether the other members of the respondent corporation should be impleaded as parties-respondents; and

5. Whether the petitioners violated the principle of corporate opportunity.

On the first three issues, the petitioners aver that, as gleaned from the Hearing Officer’s Decision in SEC Case No. 2521, the Decision in SEC-AC No. 205, and the CA ruling, Santos was not a member of MFBAI. Any admission made by Lino Buhain in the SEC could not bind it, unless approved by its board of directors or majority of its members. The petitioners insist that estoppel will apply only when the party who relied on the admissions of another seeks only to enforce a purely private right or private interest, and not when an action is to enforce a corporate right. They claim that respondent Santos’ action was not a derivative suit, and that the complaint he filed was premature, considering that he failed to seek redress from MFBAI first before filing the complaint.

For his part, respondent Santos avers that the petitioners are estopped from claiming in the CA, and in this case, that he is not a member of the respondent MFBAI. He insists that the RTC declared in its decision that, based on the petitioners’ (therein defendants’) evidence, he was such a member.

The ruling of the CA is erroneous. As gleaned from the decision of the Hearing Officer in SEC Case No. 2521, there were 35 original members of the respondent MFBAI, including petitioner Norma Symaco. Respondent Luisito Santos is not one of them, and failed to testify for or against any of the parties therein. While it is true that Lino Buhain and the other respondents therein claimed that the MFBAI had 42 members, including the original members, the Hearing Officer declared that such claim was not proven:

On the other hand, while the respondents claimed that MFBAI has forty-two (42) members, including the thirty-five (35) original members therein, this fact was, likewise, not proven during the trial.

As regards Virgilio Sarmiento, who is one of the incorporators/directors of MFBAI whose name does not appear in the aforesaid list of members, there was no showing that his membership therein has been terminated in one way or another.



Hence, We find that since its incorporation, MFBAI has not accepted any new member and, therefore, it has only thirty-five (35) legitimate members including that of Virgilio Sarmiento.

The second and third issues are quite interrelated and thus can be resolved jointly.

From the evidence on hand, it appears that there was but one meeting for the election of the members of the board of directors and officers of MFBAI that took place in 1983 and that was the alleged membership meeting conducted by the petitioners’ group held on August 13, 1983. Said meeting, however, was not attended by the majority of the aforesaid thirty-five (35) legitimate members of MFBAI; hence, there was no quorum (Section 52, Code). In fact, most of those present then were non-members. Therefore, since there was no quorum, it follows that all actions taken in said meeting, including the alleged adoption of the by-laws by the petitioners’ group, are not valid. On the contrary, the respondents have categorically stated, in their answer, that the organizational meeting for the election of the members of the Board of Directors and Officers of MFBAI, which was supposed to be held on September 17, 1983, did not proceed.

Accordingly, We hold that since there were no legally elected directors and officers of MFBAI for the year 1983, and the by-laws purportedly adopted on August 13, 1983, filed by the petitioners, has not been legally adopted and approved by the general membership of MFBAI since the meeting of the sixty-four (64) alleged members held on August 13, 1983 was not valid.

Anent the fourth issue, our records show that the By-Laws of MFBAI was adopted by the majority of its members on August 18, 1983, certified to by a majority of the original members of its Board of Directors and countersigned by its Corporate Secretary, Brigida Bautista. Said By-Laws was filed with, and approved by, the Commission on September 7, 1983 pursuant to the provisions of Section 46 of the Code.

We do not agree with petitioners’ claim that MFBAI’s By-Laws which was filed by the respondents has not been approved and adopted by the affirmative vote of at least a majority of all the members of MFBAI. Petitioners would have been correct in their contention had there been either sixty-four (64) or forty-two (42) MFBAI members at the time of the adoption of the said By-Laws. That is so since the signatories in said By-Laws are only twenty-one (21) members. But that is not the case. The Commission has already ruled that from the time of its inception up to this moment, MFBAI has only thirty-five (35) legitimate members and the clear majority of which is eighteen (18) members. Besides, the presumption of the validity and regularity in the adoption of the said By-Laws lies in favor of the respondents. The petitioners failed to disprove said presumption.28

The SEC Hearing Officer concluded that from its inception, the MFBAI had not accepted any new member and, therefore, it had only 35 legitimate members, including Virgilio Sarmiento.29 The Hearing Officer also ruled that:

Consistent with our rulings, the Members of the Board of Directors appearing in the Articles of Incorporation of MFBAI shall hold office until their successors are elected and qualified. As regards the officers of MFBAI, respondents Lino Buhain and Brigida Bautista shall act as President and Secretary of MFBAI, respectively, since they were duly recognized by the majority of the said members of the Board of Directors appearing in the Articles of Incorporation as shown by the Certification accompanying MFBAI’s By-Laws and the Minutes of the Meeting held on August 18, 1983, the date when the By-Laws of MFBAI was adopted by the majority of its members. Respondent Erlinda Sioson shall act as Treasurer, being the designated Treasurer whose name appears in the Articles of Incorporation. These three (3) officers shall, likewise, hold their respective offices until their successors are elected and qualified.30

This ruling was affirmed by the SEC on appeal.

For its part, the CA affirmed the rulings of the Hearing Officer and the SEC on appeal, as follows:

The thirty (30) alleged members were not original members of the association. They showed up later on, i.e., long after the incorporation, and they failed to comply with the requirements laid down in the by-laws aforementioned. They were never accepted as members even informally by the association. Their acceptance as members could not be done by the president alone, let alone by Marcos Valle whose position as president has been successfully assailed here. There was no quorum in the said meeting held on August 13, 1983 because those thirty (30) persons who attended were non-members; and whatever was agreed upon in said meeting was null and void.31

In its Amended Decision, the appellate court relied on the statement in the RTC decision, that the petitioners (defendants therein) adduced evidence that Santos was an MFBAI member. This reliance is misplaced. The CA failed to consider the RTC decision in its entirety and the ratio decidendi of the ruling. As gleaned from the said decision, the RTC ruled in favor of the petitioners (defendants therein), and relied on the decisions of the Hearing Officer, the SEC on appeal and the CA; the trial court did not rely on the parties’ evidence aliunde.32 In fine, the RTC correctly considered the decisions of the Hearing Officer, the SEC and the CA on appeal as conclusive and binding on it, prescinding from the parties’ evidence aliunde. Indeed, the testimonial and documentary evidence of the petitioners and the respondent cannot prevail over the decisions of the Hearing Officer, the SEC and the CA. The respondent was proscribed from attacking the said decision either directly or collaterally in the RTC.

It may not be amiss to observe that the erroneous amended decision of the CA was precipitated in part by the petitioners, when they adduced testimonial and documentary evidence that Santos was a member of the respondent, but that he failed to pay his monthly dues from March 1984. The evidence on record showing that Santos paid the membership fee and his monthly dues up to March 1984 and was certified as a member by Lino Buhain is not sufficient to qualify him as such member under the By-laws of respondent MFBAI.

The Court also agrees with the petitioners’ contention that as respondent Santos was not a legitimate MFBAI member, he had no standing to file a derivative suit for and in its behalf. One of the requisites of a derivative suit is that the party bringing the suit should be a stockholder/member at the time of the action or transaction complained of.33 The right to sue derivatively is an attribute of corporate ownership which, to be exercised, requires that the injury alleged be indirect as far as the stockholders/members are concerned, and direct only insofar as the corporation is concerned. The whole purpose of the law authorizing a derivative suit is to allow the



stockholder/member to enforce rights which are derivative (secondary) in nature.34 A derivative action is a suit by a shareholder/member to enforce a corporate cause of action.35

The Court notes that several MFBAI members, like Brigida Baustista, Jose Cruz, Constantino Lopez, Eduardo del Rosario, Rogelio Vicente, Araceli Banaag and Rosalinda Reyes, intervened as plaintiffs. However, they failed to file their Brief in the CA, which impelled the appellate court to dismiss their appeal. The resolution of the court, likewise, became final and executory.

The Court also agrees with the petitioners’ contention that the CA erred in ordering that all the original members of the MFBAI should be impleaded as parties in respondent Santos’ complaint. Contrary to the CA ruling, all the MFBAI members are not indispensable parties in a derivative suit. It is enough that a member or a minority of such members file a derivative suit for and in behalf of the corporation. After all, the members/stockholders who filed a derivative suit are merely nominal parties, the real party-in-interest being the corporation itself for and in whose behalf the suit is filed.36 Any monetary benefits under the decision of the court shall pertain to the corporation.37

In light of the foregoing, there is no longer a need for the Court to still resolve the other issues that were raised in the petition.

WHEREFORE, PREMISES CONSIDERED, the petition is GRANTED. The Amended Decision of the Court of Appeals in CA-G.R. CV No. 43425 dated February 21, 2000 is REVERSED AND SET ASIDE. The Decision of the Regional Trial Court of Manila, Branch 51 in Civil Case No. 90-54960, as affirmed by the CA in its Resolution dated March 20, 1998, is AFFIRMED. No costs.

SO ORDERED.

G.R. No. 154049 August 28, 2003

RAMON P. JACINTO and JAIME J. COLAYCO, Petitioners,

vs.

FIRST WOMEN'S CREDIT CORPORATION, represented in this derivative suit by SHIG KATAYAMA, Respondents.

The propriety of the appointment of an Interim Management Committee "to take over the management of First Women’s Credit Corporation (FWCC)"1 is the subject of this petition for review on certiorari. It seeks to set aside the 8 January 2002 Decision2 of the Court of Appeals affirming the 4 July 2000 Order3 of the Securities and Exchange Commission (SEC) which, in turn, sustained the assailed order of Hearing Officer George T. Palmares appointing the Interim Management Committee.

Shig Katayama, in his capacity as director and minority stockholder of FWCC, instituted a derivative suit before the SEC against petitioners Ramon P. Jacinto and Jaime J. Colayco, President and Vice President, respectively, of FWCC. Katayama claimed that petitioners Jacinto and Colayco committed company plunder when they raided FWCC’s coffers and diverted the staggering amount of P720,333,266.00 to RJ Guitars, RJ Holdings, RJ Music, RJ Bistro, Rajah Broadcasting Network, RJ FM, RJ Productions (collectively referred to herein as "RJ Group of Companies") as well as to companies affiliated with FWCC, namely, Quantum, Shigra, RJ Ventures Realty Corporation and Save-a-Lot. Katayama prayed that petitioners be ordered to account for and return the diverted amount to FWCC and that in the interim a management committee be appointed to end the dissipation, wastage and loss of corporate funds.4

In support of his petition, Katayama presented the Special Audit Report prepared by FWCC’s external auditor, Carlos J. Valdez & Associates, stating that from 1993 to 1997 petitioners withdrew P720,333,266.00 from FWCC and transferred the withdrawn amount to RJ Group of Companies and companies affiliated with FWCC without Board authorization.5 In the wake of the diversion, FWCC was left flat broke causing it to default on several of its obligations with creditor banks, particularly with Land Bank of the Philippines and Philippine National Bank, and to close down several of its offices around the country. Katayama also averred that the intemperate withdrawal of funds amounted to grave mismanagement as petitioners placed almost all of the operating funds of FWCC in one basket, that of petitioner Jacinto’s companies, instead of lending to as many of its customers to distribute the risk of non-payment.

In their answer, petitioners while admitting that they withdrew money from FWCC for the benefit of companies associated with petitioner Jacinto claimed that such withdrawals constituted legitimate advances and loans extended in the ordinary course of business. As a matter of fact, the Board’s decision to lend money to RJ Group of Companies was intended to maximize FWCC’s idle funds. Petitioners explained that Katayama obliged FWCC to accept his dollar investments at the rate of 26% per annum even if it would result in surplusage of loanable funds. Since FWCC did not have enough customers the Board at first decided to place the amounts invested by Katayama in money market placements where it earned interest from 8% to 9%. At about this time, RJ Group of Companies decided to obtain advances from FWCC instead of using its credit line with other financial institutions to make use of FWCC’s idle funds. Thus, by extending loans to RJ Group of Companies at 18% per annum FWCC was able to reduce its losses from the money advanced by Katayama. Petitioners likewise insisted that Katayama was estopped from questioning the legality of the loans to RJ Group of Companies inasmuch as he himself had consented thereto. Lastly, all loans and advances extended by FWCC to RJ Group of Companies had been fully paid by the latter through an off-setting agreement done with the knowledge and consent of Katayama.6

Katayama denied consenting to, much less knowing, the transfer of FWCC funds to RJ Group of Companies. In fact, he averred that members of the Board were given instructions by petitioners not to tell him about the unauthorized disbursements. He also contested petitioners’ claim that FWCC experienced surplusage of funds which justified the unauthorized lending to RJ Group of Companies. If truth be told, FWCC even had to borrow P600,000,00.00 from Land Bank and PNB to meet the demands of the business.

Before resolving Katayama’s prayer for the appointment of an interim management committee, Hearing Officer Palmares ordered the presentation of evidence.7 A year and a half later and after Katayama had concluded with the presentation of his evidence, he moved for the early resolution of his application for the appointment of an interim management committee. Hearing Officer Palmares deferred ruling on the application and gave petitioners the opportunity to present rebutting evidence.



On 17 November 1999, after petitioners presented their evidence, Hearing Officer Palmares issued an order creating an Interim Management Committee composed of three (3) members to oversee the administration of FWCC pending resolution of the dispute. Hearing Officer Palmares explained that the massive diversion of funds and the constant bickering among stockholders demanded the immediate creation of a management committee pendente lite.8

Petitioners moved for reconsideration but were denied. Forthwith, they went to the SEC en banc which nevertheless upheld the creation of the Committee. According to the SEC, while the appointment of a management committee is a drastic remedy and may only be employed in cases of urgent necessity, the creation of the Committee in the present case was within the authoritative discretion of Hearing Officer Palmares considering the imminent danger of dissipation, loss and wastage of assets and property of FWCC.9

Petitioners appealed to the Court of Appeals attributing error to the SEC en banc for upholding the appointment of the Interim Management Committee. Petitioners’ plea for a reversal was denied for the reason that the existing danger to the interests of the stockholders, i.e., suspension of corporate business and threatened reduction in the value of corporate assets, demanded the creation of a management committee pendente lite.

Their motion for reconsideration having been denied, petitioners filed this petition for review raising the very same issues they presented before the appellate court. Petitioners, in the main, argue that the drastic relief of appointing an interim management committee must be granted only after much serious thought; in other words, they posit that the creation of a management committee for a solvent and going corporation should be a last-resort remedy considering that it would deprive the Board of Directors of its power over the corporation.

Further, petitioners aver that the IMC was created on the unfounded allegation that they diverted corporate funds to RJ Group of Companies. They deny the charge and assert that RJ Group of Companies had settled its obligations with FWCC through an off-setting agreement which was consented to by Katayama himself. Besides, petitioner Jacinto’s financial exposure as surety to FWCC’s creditor-banks far exceeds the amounts loaned to RJ Group of Companies. Jacinto claims that he acted as surety for FWCC in the latter’s obligations with Land Bank and PNB amounting to almost a billion pesos. If on this account alone, the IMC should be dissolved and management of FWCC should be given back to the Board of Directors headed by petitioner Jacinto.

In exercising the discretion to appoint a management committee, the officer or tribunal before whom the application was made must take into account all the circumstances and facts of the case, the presence of conditions and grounds justifying the relief, the ends of justice, the rights of all the parties interested in the controversy and the adequacy and effectiveness of other available remedies. The discretion must be exercised with great caution and circumspection and only for a reason strongly appealing to the tribunal or officer exercising jurisdiction. At any rate, once the discretion has been exercised, the presumption to be considered is that the officer or tribunal has fairly weighed and appraised the evidence submitted by the parties.

In determining whether Hearing Officer Palmares correctly exercised his judgment when he ordered the creation of the IMC, it is necessary to refer to Sec. 6, par. (d), of PD 902-A -

Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers: x x x x d) To create and appoint a management committee, board, or body upon petition or motu propio when there is imminent danger of dissipation, loss, wastage or destruction of assets or other properties or paralization of business operations of such corporations or entities which may be prejudicial to the interest of minority stockholders, parties-litigants or the general public (emphasis supplied).

A reading of the aforecited legal provision reveals that for a minority stockholder to obtain the appointment of an interim management committee, he must do more than merely make a prima facie showing of a denial of his right to share in the concerns of the corporation; he must show that the corporate property is in danger of being wasted and destroyed; that the business of the corporation is being diverted from the purpose for which it has been organized; and that there is serious paralization of operations all to his detriment. It is only in a strong case where there is a showing that the majority are clearly violating the chartered rights of the minority and putting their interests in imminent danger that a management committee may be created.

In this regard, mere disagreement among stockholders as to the affairs of the corporation would not in itself suffice as a ground for the appointment of a management committee. At least where there is no imminent danger of loss of corporate property or of any other injury to stockholders, management of corporate business should not be wrested away from duly elected officers, who are prima facie entitled to administer the affairs of the corporation, and placed in the hands of the management committee. However, where the dissension among stockholders is such that the corporation cannot successfully carry on its corporate functions the appointment of a management committee becomes imperative.1âwphi1

After a review of the records, we are convinced that the appointment of the Interim Management Committee is fully warranted by the circumstances. The findings of Hearing Officer Palmares relative to the transfer of funds from FWCC to RJ Group of Companies without the corresponding Board resolutions, the drastic reduction of the number of FWCC branch offices all over the country, the suspension of lending operations, the limitation of FWCC’s operations to mere collection of receivables as well as the inability of FWCC to pay its pressing obligations amply support the conclusion that there is "imminent danger of dissipation, loss, wastage or destruction of corporate assets."

The word "imminent" has been defined as "impending or on the point of happening;"10 while "danger" means "peril or exposure to loss or injury."11 The findings of FWCC’s external auditor, which were embodied in an audit report the accuracy of which was not questioned by petitioners, support the conclusion that petitioners’ unrestricted and continuous management of FWCC poses an impending peril to corporate assets. For one, petitioners allowed the release of loans to companies associated with petitioner Jacinto without the corresponding Board resolutions. Petitioners’ argument that Katayama knew of the practice does not justify the impropriety of their dealings inasmuch as a corporate act inherently illegal does not cease to be illegal simply because the questioning stockholder is aware of the illegal practice and hence cannot claim that he was deceived. Also, petitioners’ contention that there is no need for the IMC to oversee corporate operations since FWCC had collected on the obligations of RJ Group of Companies through the 30 July 1997 Deed of Assignment is flawed. Petitioners need to be reminded that FWCC has not consummated the contract, that is, collect the assigned receivables, and there is still the danger that these receivables may turn out to be bad loans much to the detriment of FWCC as assignee.12



Additionally, as admitted by the parties and borne out by the evidence on record, the prevailing internal dispute and feud between petitioners and Katayama have resulted in the total paralization of FWCC’s business operations and adversely affected its collection efforts. In view of these facts, Hearing Officer Palmares was clearly justified in ordering the appointment of the IMC to oversee the operation of FWCC and preserve its assets pending resolution of the parties’ dispute.

With regard to petitioners’ argument that the appointment of the IMC caused them injuries which far outweigh the benefits granted to Katayama, suffice it to state that a management committee is not the representative or agent of the stockholder upon whose instance the committee has been appointed; rather, it is for the time being a ministerial officer and representative of the court hearing the derivative suit. Since its appointment is for the benefit of all interested parties, it holds and manages the property for the benefit of those ultimately entitled to, and not primarily for the benefit of the party at whose instance the appointment has been made.

In fine, it cannot be denied that the circumstances obtaining in the present case demonstrate quite clearly the need for the immediate appointment of the IMC. It is our ruling therefore that the competence of Hearing Officer Palmares to issue the questioned order is fully warranted by law; petitioners’ protestations thereto are groundless and illusory.

WHEREFORE, the petition is DENIED. The assailed 8 January 2002 Decision of the Court of Appeals upholding the appointment of the Interim Management Committee tasked with overseeing the operations of respondent First Women’s Credit Corporation is AFFIRMED. Costs against petitioners.

SO ORDERED.

G.R. No. 164958 January 27, 2006

SY CHIM and FELICIDAD CHAN SY, Petitioners,

vs.

SY SIY HO & SONS, INC., doing business under the name and style GUAN YIAC HARDWARE, Respondents.

The Sy Siy Ho & Sons, Inc. (hereinafter referred to as the corporation) is a domestic corporation which was organized in the 1940s,1 engaged primarily in importing, buying and selling hardware, machineries, spare parts, supplies and other allied products and merchandise to be sold exclusively on wholesale basis. It was doing business under the name and style Guan Yiac Hardware2 with office at No. 453-455 T. Pinpin Street, Binondo, Manila.

The corporation was owned and controlled by Sy Chim and his children. Sometime in 1990, a controversy ensued between Sy Chim’s two sons, Sy Tiong Shiou and Sy Tiong Bio who was then the Vice President for Finance. Sy Chim sided with Sy Tiong Shiou. The intra-corporate dispute reached the Securities and Exchange Commission (SEC), docketed as SEC Case No. 04443.

On May 31, 1993, the stockholders of record, Sy Chim and Sy Tiong Shiou (Sy Chim Group), on the one hand, and Sy Tiong Bio, Sy Tiong Gue, Sy Tiong Sim, Sy Tiong Han and Sy Tiong Yan (Sy Tiong Bio Group), on the other, executed a Compromise Agreement,3 where the latter group relinquished their shares to Sy Chim. The parties also agreed to divide and distribute the assets and liabilities of the corporation as follows:

(a) Mr. SY CHIM GROUP – Four (4) parts, or three (3) parts Sy Chim, one (1) part Sy Tiong Shiou.

(b) Mr. SY TIONG BIO GROUP – Five (5) parts at the rate of one (1) each.4

Some of the shares of stocks were assigned to Felicidad Chan Sy, wife of Sy Chim. The spouses Sy Chim and Felicidad Chan Sy, and spouses Sy Tiong Shiou and Juanita Tan Sy, and their children, Charlie, Romer and Jesse James Tan, then became stockholders and members of the Board of Directors of the corporation. The officers of the corporation were as follows: Sy Chim, President; Felicidad Chan Sy, Assistant Treasurer; Sy Tiong Shiou, Vice President and General Manager; Juanita Tan Sy (wife of Sy Tiong Shiou), Corporate Treasurer; and Charlie Tan (son of spouses Sy Tiong Shiou), Assistant General Manager.

As of the year 2000, the corporation had a gross profit of P45,084,908.11 and P42,954,252.32 in 2001.5 As of April 19, 2002, it had a capital stock of P150,000,000.00, divided into 150,000 shares, with a par value of P1,000.00 per share. The treasury stocks amounted to P70,720,000.00. It had a subscribed and paid-up capital of 103,733 shares and P103,733,000.00 respectively. The stockholders and the respective shareholdings were as follows:

Stockholder No. of Shares

SubscribedAmount Subscribed

and Paid (PHP)

SY CHIM 35,013 35,013,000

FELICIDAD CHAN SY 17,509 17,509,000

CHARLIE TAN 20,338 20,338,000

ROMER TAN 19,636 19,636,000

JESSE JAMES TAN 11,233 11,233,000



SY TIONG SHIOU 2 2,000

JUANITA TAN SY 2 2,000

TOTAL

103,733

PHP103,733,0006

After almost a decade later, another intra-corporate dispute ensued, this time between Sy Chim and his wife, on the one hand, and their son Sy Tiong Shiou, on the other. In a letter addressed to the corporation dated February 3, 2003, Corporate Treasurer Juanita Tan Sy requested that she immediately be "removed from all responsibilities and obligations pertaining to all corporate funds" of the corporation, considering that Felicidad Chan Sy was the one who handled and managed all deposits and funds while Sy Chim supervised all expenditures. She further reported that Felicidad Chan Sy did not make any cash deposit to any bank from November 1, 2002 to January 31, 2003, and that the total amount of cash as reflected in the bank statements is far less than that reported in the corporation’s financial statements and other records. She then proposed that the Board call a special meeting to discuss these matters.7 Thus, on March 24, 2003, a special meeting of the board of directors was held with the spouses Sy Tiong Shiou and Juanita Tan Sy and their sons Charlie, Romer and Jesse James Tan in attendance. In two separate resolutions, Juanita Tan Sy was removed as corporate treasurer and relieved of all responsibilities; the spouses Sy Chim were held accountable for the undeposited money; and a new external auditor was hired to make a complete audit of all books and records.8 Banaria Banaria and Company then submitted Financial Reports covering 2001 and 2002.9

In a Letter10 dated April 15, 2003, Sy Tiong Shiou informed his parents of the corporation’s cash balance shortage as of March 31, 2003 (as reflected in the auditor’s report) and that there was also an undeposited amount of P2,000,000.00 for the current salary and emergency funds, and they had several postdated checks in their possession. Sy Tiong Shiou requested that the shortage be accounted for, and that the undeposited funds be remitted. He also requested that the postdated checks and original receipts for all disbursements of corporate funds be turned over to Corporate Treasurer Juanita Tan Sy. The spouses Sy Chim did not respond.

Spouses Sy Tiong Shiou and Juanita Tan Sy, their three sons held another meeting on April 21, 2003, again without written notice to the spouses Sy Chim, and approved a resolution11 authorizing Romer Tan to file a complaint for and in behalf of the corporation against the said spouses in the Regional Trial Court (RTC) of Manila. Sy Tiong Shiou was elected President of the corporation.

The complaint12 for accounting and damages against the spouses Sy Chim was filed on May 6, 2003. The complaint alleged that Felicidad Chan Sy, as custodian of all cash collections, had been depositing amounts less than those appearing in the financial statements which are in the defendants’ custody and that no deposits were made in the corporation’s account from November 1, 2002 to January 31, 2003. Based on the accountant’s report, Felicidad Chan Sy failed to account for P67,117,230.30. Plaintiff further alleged that, based on the corporation’s General Information Sheet for 2003, the subscribed shares of the corporation were as follows:

Name of Subscriber No. of Shares

SubscribedAmount Paid-Up

Sy Tiong Shiou 27,987 P 27,987,000.00

Juanita Tan 32,017 32,017,000.00

Charlie Tan 12,512 12,512,000.00

Romer Tan12,079 12,079,000.00

Jesse James Tan 6,910 6,910,000.00

Sy Chim 21,539 21,539,000.00

Felicidad Chan Sy 10,771 10,771,000.00

Total 123,815 P123,815,000.0013

Plaintiff prayed that, after due proceedings, judgment be rendered in its favor, as follows:

a. Ordering defendants to render a full, complete and true accounting of all the amounts, proceeds and funds paid to, received and earned by the plaintiff since 1993 and to restitute to the plaintiff, jointly and severally, all such amounts, proceeds and funds that they have misappropriated;

b. Ordering defendants to pay, jointly and severally, the plaintiff the amount of One Million (P1,000,000.00) Pesos by way of exemplary damages, and One Million (P1,000,000.00) Pesos by way of attorney’s fees plus Five Thousand (P5,000.00) Pesos per court appearance and litigation expenses in the amount of not less than One Hundred Thousand (P100,000.00) Pesos;

c. Cost of suit.

Plaintiff further prays for such other reliefs [it] deems just and equitable in the premises.14

In their answer15 to the complaint, defendants averred, inter alia, that any unaccounted cash account and irregularities in the management of the corporation, if any, were the full responsibility of Sy Tiong Shiou, Romer Tan’s own father, since he has direct and actual management of the corporation under the by-laws. Sy Chim, as corporate president, was a mere figurehead, who only had general supervision over the corporation’s officers. Juanita Tan Sy, as corporate treasurer, had custody of the corporation’s funds and should have kept a complete and accurate record of receipts, disbursements, and other commercial transactions of the corporation. Felicidad Chan Sy merely performed clerical work and acted as Corporate Treasurer only in the absence of Juanita Tan Sy and under the latter’s close supervision. They averred that any and all meetings of the stockholders and members of the corporation’s Board of Directors were null and void as they violated the corporate by-laws as well as the Corporation Code. Defendants further denied executing any deed or document authorizing the transfer of their shares, or that treasury shares had been issued by the corporation. Assuming that treasury shares were validly issued in 2002 as claimed in the complaint, defendants should have been allowed to exercise their pre-emptive rights over such shares.



Defendants prayed that they be granted the following reliefs:

(1) Dismissing the instant Complaint for utter lack of merit;

(2) Ordering Plaintiff Mr. Romer S. Tan to pay the following:

(a) Three Million Pesos (PHP3,000,000.00), by way of moral damages;

(b) Three Million Pesos (PHP3,000,000.00), by way of exemplary damages;

(c) Two Million Pesos (PHP2,000,000.00), by way of attorney’s fees;

(d) Costs of suit.

Other reliefs just and equitable under the premises are, likewise prayed for.16

Feeling aggrieved, the spouses Sy Chim and Felicidad Chan Sy filed a criminal complaint in the Office of the City Prosecutor of Makati against the spouses Sy Tiong Shiou and their children for violation of Section 74 of the Corporation Code.

In the meantime, Sy Chim, as corporate president, called for a stockholders’ meeting on June 11, 2003. An amended complaint was filed on July 1, 2003, praying for the issuance of a temporary restraining order and/or writ of preliminary prohibitory injunction. It was alleged, among others, that on April 15, 2003, defendant Sy Chim and his other children and the siblings of Sy Tiong Shiou, namely, Sy Yu Hui-Pabilona, Sy Tiong Gue, Sy Tiong Yan, Sy Yu San, Sy Yu Siong, Sy Yu Bun and her son, Bryan Lim, with two armed unidentified men, forcibly entered the office and took P6,500,000.00 in cash and postdated checks and other important documents, including five boxes of Hennesy X.O. wine. Since defendant Sy Chim abandoned his duties and responsibilities as president, the board of directors elected Sy Tiong Shiou as president during a special meeting on May 6, 2003. Sy Chim issued a Notice of Stockholders’ Meeting on June 11, 2003 although he was no longer the president of the corporation. The amended complaint further alleged that a criminal complaint for robbery was filed against the culprits in the Office of the City Prosecutor of Manila.

The plaintiff corporation prayed for that the court grant injunctive relief, as follows:

a. An order be issued making the preliminary injunction permanent;

b. Ordering defendants to render a full, complete and true accounting of all the amounts, proceeds and funds paid to, received and earned by the plaintiff since 1993 and to restitute to the plaintiff, jointly and severally, all such amounts, proceeds and funds that they have misappropriated;

c. Ordering defendants to pay, jointly and severally, the plaintiff the amount of One Million (P1,000,000.00) Pesos by way of exemplary damages, and One Million (P1,000,000.00) Pesos by way of attorney’s fees plus Five Thousand (P5,000.00) Pesos per court appearance and litigation expenses in the amount of not less than One Hundred Thousand (P100,000.00) Pesos;

d. Cost of suit.

Plaintiff further prays for such other reliefs [it] deems just and equitable in the premises.17

During the hearing of plaintiff’s petition for injunctive relief, defendants submitted the following to the court: a Joint Affidavit,18 the Joint Supporting Affidavit19 of See Cha and See Su Pe, and the Complaint-Affidavit20 of Felicidad Chan Sy for violation of Section 74 of the Corporation Code against the spouses Sy Tiong Shiou and Juanita Tan Sy, Jolie Ross Tan, Charlie Tan, Romer Tan and Jesse James Tan filed in the Office of the City Prosecutor.

On August 6, 2003, the RTC issued an Order21 granting the plea for a writ of preliminary injunction on a bond of P500,000.00, and enjoined defendant Sy Chim or any person acting for and in his behalf from "calling or holding a stockholders’ and/or Board of Directors’ meetings" of the corporation. This was followed by a writ of preliminary injunction.22

On July 18, 2003, defendants filed a "Motion for Production and Inspection of Documents"23 (all the corporate books, accounting records, financial statements and other documents mentioned in, and pertinent to, the allegations of the complaint), praying that they be permitted to inspect, examine and photocopy such documents. Plaintiff opposed the motion, contending that it was premature because defendants had not yet filed their answer to the complaint.24 On August 5, 2003, defendants also filed a "Motion for the Appointment of an Independent Auditor," to conduct an audit of the funds and assets of the plaintiff corporation.25

Plaintiff did not object to the motion.26 The RTC granted the motion on August 8, 2003 and appointed the accounting firm of Punongbayan & Araullo to conduct the audit of the corporation’s books and records covering the period from 1993 to the present. The



Motion for Production and Inspection of Documents filed by the defendants was, however, denied. Instead, the parties have been directed to provide the accounting firm of all the books of accounts, vouchers, receipts, purchase orders and similar other documents necessary, and warned that failure to comply with the order will be dealt with as for contempt. The RTC also directed plaintiff to make its records available to the accounting firm, and after completion of the firm’s task, to make such records available for defendants’ inspection.27

In their answer to the amended complaint, defendants averred that the meetings of the stockholders and board of directors were null and void for having been conducted without prior notice to them.28

Meanwhile, plaintiff moved that the court set aside its Order appointing an independent auditor.

On August 26, 2003, defendants filed a "Motion for the Appointment of a Management Committee,"29 thus:

3. Defendants alleged that under Article IV of the By-Laws of Sy Siy Ho & Sons, Inc., the funds of the corporation are under the supervision, control and administration of Sy Tiong Shiou, as the General Manager, and Sy Tiong Shiou’s wife, Juanita Tan, as Treasurer; and that the direction and control of the business and operations of Guan Yiac Hardware were in the hands of the General Manager Sy Tiong Shiou, who had the power to direct and actively manage Guan Yiac Hardware.

4. Thus, defendants alleged that for any unaccounted difference of the corporation’s account, including the PHP67,117,230.30 alleged in the Amended Complaint, it is Sy Tiong Shiou and Juanita Tan who are at fault in view of their powers as General Manager and Treasurer under the By-Laws of the Corporation and in actual practice since they have active control of the day-to-day operations of the Corporation.

5. However, while this Honorable Court will still determine, in the course of these proceedings, whether it is defendants Sy Chim and Felicidad Chan Sy or whether it is Sy Tiong Shiou and Juanita Tan who are the parties responsible for the dissipation and loss of the corporate funds and assets of Sy Siy Ho & Sons, Inc., the active day-to-day control and management of Sy Siy Ho & Sons, Inc. is still under the control and supervision of Sy Tiong Shiou and Juanita Tan, especially so since defendants had been physically ousted from their residence by Sy Tiong Shiou and his family since 15 April 2003, and defendants have been denied access to the corporate premises and its books and records.

6. The plaintiff itself has alleged that there has been a massive dissipation and loss of its corporate assets and funds, and this Court is still in the process of determining whether the General Manager, Sy Tiong Shiou, and Treasurer, Juanita Tan, are the parties responsible for such dissipation and loss. In view of the foregoing, until this Honorable Court resolves with finality that Sy Tiong Shiou and his wife, Juanita Tan, are not responsible for the dissipation and loss, the control and management of the Corporation must be transferred to an independent party to ensure the preservation of the corporate assets.

7. While Sy Tiong Shiou and Juanita Tan remain in control of the management of the corporation, there is imminent danger of further dissipation, loss, wastage or destruction of the corporate funds and assets.

8. Nor can control and management of the corporation be transferred to the other stockholders Romer Sy Tan, Jesse James Tan and Charlie Tan, or the Corporate Secretary Jolie Ross S. Tan, who are all children of Sy Tiong Shiou and Juanita Tan.

9. Annexes "E" and "J" of the Amended Complaint, show that Romer Sy Tan, Jesse James Tan and Charlie Tan, and Jolie Ross S. Tan, allegedly acting as the members of the Board of Directors and the corporate secretary of Sy Siy Ho & Sons, Inc., took part in the actuations against defendants.

9.1 Plaintiff’s annex "E" shows that Romer Sy Tan, Jesse James Tan and Charlie Tan all signed the minutes of the purported special meeting of the board of directors wherein, in a highly self-serving manner, Juanita Tan was declared to have no knowledge of the deposits, disbursements and expenditures of the plaintiff since 1993, and that all of these as well as the deposits were in the control of the defendants. Jolie Ross Tan, on the other hand, signed the Secretary’s Certificate wherein Juanita Tan was removed of all responsibilities pertaining to the funds of the corporation since 1993.

9.2 On the other hand, annex "J" of plaintiff’s Amended Complaint shows that Romer Sy Tan, Jesse James Tan and Charlie Tan, and Jolie Ross S. Tan all signed the minutes of the purported special joint meeting of the board of directors and stockholders wherein they supposedly declared defendant Sy Chim as having abandoned his position, made Sy Tiong Shiou the President and Chairman of the Board of Directors of the corporation, made Juanita Tan the Vice President of the corporation, and cancelled defendant Sy Chim’s authority as a signatory on the corporation’s bank accounts.

9.3 Romer Sy Tan is also acting as the representative of Sy Siy Ho & Sons, Inc. in this and in another case against the defendants.

10. Hence, all of the children of Sy Tiong Shiou and Juanita Tan have taken action against their grandparents, defendants Sy Chim and Felicidad Chan Sy. Obviously, the entire family of Sy Tiong Shiou and Juanita Tan is acting against the defendants. In view of the foregoing, the management and control of Sy Siy Ho & Sons, Inc. cannot be transferred to any or all of the children of Sy Tiong Shiou and Juanita Tan since they obviously would not protect the interests of defendants Sy Chim and Felicidad Chan Sy as stockholders of Sy Siy Ho & Sons, Inc.

11. Thus, there exists an urgent need for the immediate appointment of a management committee to administer, manage and preserve the assets, funds, properties and records of Sy Siy Ho & Sons, Inc. in order to prevent any further dissipation, wastage and loss.30



The control and management of the corporation must be transferred pendente lite to an independent party to ensure the preservation of the corporate assets.31

Plaintiff opposed the motion, contending that defendants failed to allege and establish the two requisites for the creation of a management committee under Section 1, Rule 9 of the Interim Rules of Procedure for Intra-Corporate Controversies (Interim Rules for brevity) under Republic Act No. 8799. It averred that, compared to previous years under the management of Sy Tiong Shiou, the volume of sales and importation of the corporation had considerably increased, and that its obligation of P29,404,664.00 to Metrobank was paid, and was thus in "current status." Plaintiff also alleged that:

8. The kind of plaintiff’s business requires a special talent or managerial sagacity that only a person who has been exposed to it for a long and continuous period of time possesses. Sy Tiong Shiou is that kind of individual because he has been in this kind of business for more than forty (40) years, starting as an ordinary employee and now as President and General Manager of the plaintiff. As such, he knows its intimate details and nuances.

9. The appointment of a management committee to manage the business affairs of the plaintiff would not only be unwise and ill-advised. It might lead to a disastrous consequence for all its stockholders and instead of saving the enterprise, as defendants would claim, it will only result to its untimely demise. If this will happen, the interest of all the stockholders as well as the welfare of its more than seventy (70) employees, including that of their families, will be greatly affected and jeopardized. xxx32

On September 9, 2003, defendants filed a Motion for Leave to File and Third-Party Complaint against Sy Tiong Shiou and Juanita Tan Sy, with the following prayer:

1. Declaring third-party defendants Sy Tiong Shiou and Juanita Tan directly and solely liable in respect of plaintiff’s claim for accounting and damages and, in the same judgment, in the remote event that third-party plaintiffs Sy Chim and/or Felicidad Chan Sy are adjudged liable to plaintiff, ordering Sy Tiong Shiou and Juanita Tan to pay all amounts necessary to discharge Sy Chim’s and Felicidad Chan Sy’s liability to plaintiff by way of indemnity or reimbursement;

2. Ordering third-party defendants to pay third-party plaintiffs the amount of P300,000.00 as litigation expenses and attorney’s fees.

Third-party plaintiffs further pray for such other reliefs as the Honorable Court may deem just and equitable under the premises.33

For their part, Sy Tiong Shiou and Juanita Tan Sy alleged –

31. As shown, since 1993, third-party defendants Sy Tiong Shiou and Juanita Tan have had full and complete control of the day-to-day operations and complete custody and control of the corporate funds of Sy Siy Ho & Sons, Inc., hence, they are the real parties-in-interest in this case.

32. As shown, third-party defendants Sy Tiong Shiou and Juanita Tan are liable for any shortfall or unaccounted difference of cash account of Sy Siy Ho & Sons, Inc. for the period 1993 to 2003, including the PHP67,117,230.30 alleged in paragraph 12 of the Amended Complaint dated 30 June 2003, especially so since third-party plaintiffs have been physically ousted from their residence by Sy Tiong Shiou and his family since 15 April 2003, and denied access to the corporate premises by Sy Tiong Shiou and his family as well as its books and records.

33. Hence, third-party defendants Sy Tiong Shiou and Juanita Tan should render a full, complete and true accounting of all the amounts, proceeds and funds paid to, received and earned by Sy Siy Ho & Sons, Inc. since 1993, and should be declared solely liable to Sy Siy Ho & Sons, Inc. for any shortfall or unaccounted difference of cash account of Sy Siy Ho & Sons, Inc. for the period 1993-2003, including the PHP67,117,230.30 alleged in paragraph 12 of the Amended Complaint dated 30 June 2003, and in the remote event that this Honorable Court holds Sy Chim and Felicidad Chan Sy liable to plaintiff, Sy Chim and Felicidad Chan Sy are entitled to full indemnity and reimbursement from Sy Tiong Shiou and Juanita Tan in respect of plaintiff’s claim.34

On September 12, 2003, the RTC issued an Order35 granting the motion for the creation of a management committee pendente lite to be composed of three members, one to be designated by the court as chairman, and two others to be nominated by the parties within 10 days, failing which the court would appoint the same. Such management committee would have the power and functions enumerated under Section 5, Rule 9 of the Interim Rules.36 The RTC justified the issuance of its order on its finding that the parties were pointing accusing fingers at each other for the unaccounted funds. According to the trial court, the question of who should be held responsible for the unaccounted funds would only be determined after an extensive audit of the company’s books. Moreover, while the main case is yet to be heard, the fact remains that corporate assets, funds, properties and records were in imminent danger of further dissipation or total loss. Thus, it would serve the best interest of the company, as well as its stockholders and creditors, to have the corporation managed by an independent committee exclusively accountable to the court. According to the RTC, the corporation’s assets, income and properties would be protected and preserved until the final determination of the main controversy.

The court further stated that the appointment of a receiver was justified where pleadings requesting appointment were without qualification as to information and belief and were not controverted by defendants.37 It noted that sufficient allegations of misappropriation of corporate assets were made, and that the appointment of a receiver is justified upon a showing that one who is president, director, managing officer and controlling stockholder has allowed himself unauthorized salary increases, used corporate funds for his private purposes, entrusted his duties to others, conducted a competing business and made a secret profit by transactions between the two concerns, used employees and equipment of the company for his own business, failed to keep complete corporate accounts, incurred penalties for delinquent corporate taxes, and otherwise caused waste and loss.38

On October 8, 2003, the RTC granted defendants’ Motion to File a Third-Party Complaint and ordered that such complaint be admitted.39 Third-party defendants failed to file their answer thereon and were declared in default upon motion of the third-party plaintiffs.



Plaintiff corporation filed a motion for reconsideration of the September 12, 2003 Order of the trial court creating a management committee. Plaintiff reiterating its claim that defendants failed to adduce evidence to prove the twin requisites for the creation of a management committee under Section 1, Rule 9 of the Interim Rules.

On October 15, 2003, the trial court issued a Supplemental Order40 directing the president, vice president, secretary, treasurer, accountant, bookkeeper of the corporation or any person acting on their behalf or under their instruction to allow the parties or their duly-authorized representatives to be present during the audit. The said officers were likewise enjoined to secure court approval before disbursing funds in excess of P10,000.00. Finally, the officers were directed to submit the names of the banks the corporation did business with and to indicate the balance of its accounts. The trial court gave the said officers ten (10) days to comply with this order and that, upon their failure to do so, would be dealt with as for contempt and meted the appropriate penalty as warranted by the evidence.

However, Punongbayan & Araullo withdrew as independent auditor.41 Plaintiff filed a motion for the reconsideration of the Supplemental Order, and, thereafter, a Manifestation and Motion,42 praying that the order of the court appointing an independent auditor be executed. On December 11, 2003, defendants filed a Comment/Opposition to Plaintiff Manifestation and Motion.43 Plaintiff made a reply thereto.

In an Order44 dated December 19, 2003, the RTC denied plaintiff’s motion for reconsideration of the Supplemental Order. The trial court designated Wencita C. Salvador as comptroller tasked to oversee the maintenance of corporate books of accounts, budget administration, internal control on disbursements, reporting and interpretation of financial statements, tax administration, protection of assets, financial evaluation and government reporting. She was also designated as a co-signatory to all checks or withdrawals of funds, to receive a monthly fee of P50,000.00. The RTC reserved the authority to expand her authority. However, it modified its Order dated October 15, 2003, in that its prior approval was no longer required in the disbursement of funds, except those in excess of P500,000.00. It further ordered plaintiff not to obtain any loan or other credit accommodations without its prior approval, and directed plaintiff’s depository banks to be advised of its order.

The hearing for the formation of the management committee was set on January 9, 2004.45 Plaintiff filed a motion for reconsideration of the trial court’s Order dated December 19, 2003.1awphi1.net

The spouses Sy Tiong Shiou and Juanita Tan Sy filed a petition for certiorari in the Court of Appeals (CA) assailing the October 8, 2003 and December 19, 2003 Orders of the RTC. The petition, docketed as CA-G.R. SP No. 81897 and raffled to the appellate court’s 7th Division, contained the following prayer:

1. Upon the filing of this petition, a temporary restraining order and/or writ of preliminary injunction be issued restraining/enjoining the Honorable Respondent JUDGE from undertaking further proceedings in Civil Case No. 03-106456 until further orders from this Honorable Court;1avvphi1.net

2. After due proceedings, this petition be given due course and, thereafter, judgment be rendered annulling and setting aside the assailed Orders dated October 8, 2003 (Annex "H," supra) and the Order dated December 19, 2003 (Annex "R," supra) and striking out and quashing the Third-Party Complaint or ordering the Honorable Respondent JUDGE to strike out and quash the Third-Party Complaint.

Petitioners also pray for costs and for such other reliefs as just and equitable under the premises.46

Meantime, in an Order47 dated January 27, 2004, the RTC declared that its December 19, 2003 Order designating Wencita Salvador as comptroller was immediately executory. She was, likewise, directed to immediately assume her functions and ordered all the corporation officers to immediately turn over all corporate books and records as may be required by her, and to cooperate fully. The court designated the accounting firm of R.S. Bernaldo & Associates to conduct the audit. The court also directed the parties to provide the firm with all the financial books of the corporation.

In a Letter dated January 30, 2004, Salvador informed the corporation that she was assuming the position of comptroller effective February 2, 2004.

The corporation filed an Urgent Motion48 to lift the January 27, 2004 Order of the RTC, but before the RTC could resolve the motion, the corporation filed a petition for certiorari with injunctive relief in the CA, docketed as CA-G.R. SP No. 82171. The following allegations were made:

A. THE RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION AND ACTED WITHOUT OR IN EXCESS OF JURISDICTION AND VIOLATED PETITIONER’S RIGHT TO DUE PROCESS IN ISSUING THE ORDER OF 12 SEPTEMBER 2003 (Annex "F") GRANTING THE MOTION OF THE DEFENDANTS (Private Respondents herein) FOR THE CREATION OF A MANAGEMENT COMMITTEE PENDENTE LITE, AND IN NOT RESOLVING BUT INSTEAD MOOTING PETITIONER’S MOTION FOR RECONSIDERATION (Annex "G") AND SUPPLEMENTAL MOTION FOR RECONSIDERATION OF SAID ORDER (Annex "H").

B. THE RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION AND ACTED WITHOUT OR IN EXCESS OF JURISDICTION AND VIOLATED PETITIONER’S RIGHT TO DUE PROCESS IN ISSUING THE SUPPLEMENTARY ORDER DATED OCTOBER 15, 2003 (Annex "I"), AND IN NOT RESOLVING BUT INSTEAD MOOTING PETITIONER’S MOTION FOR RECONSIDERATION OF SAID ORDER (Annex "J").

C. THE RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION AND ACTED WITHOUT OR IN EXCESS OF JURISDICTION AND VIOLATED PETITIONER’S RIGHT TO DUE PROCESS IN ISSUING THE ORDER DATED DECEMBER 19, 2003 (Annex "P"), AND IN NOT RESOLVING BUT INSTEAD MOOTING PETITIONER’S MOTION FOR RECONSIDERATION OF SAID ORDER (Annex "Q").



D. THE RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION AND ACTED WITHOUT OR IN EXCESS OF JURISDICTION AND VIOLATED PETITIONER’S RIGHT TO DUE PROCESS IN ISSUING THE ORDER DATED JANUARY 27, 2004 (Annex "S") AND IN NOT RESOLVING BUT INSTEAD MOOTING PETITIONER’S URGENT MOTION TO LIFT ORDER DATED JANUARY 27, 2004 (Annex "T").49

The appellate court set the hearing on the plea for injunctive relief.50

On June 29, 2005, the CA rendered judgment granting the petition and nullifying the orders issued by the RTC. The fallo of the decision reads:

WHEREFORE, in view of the foregoing, the petition is GRANTED. The Orders of September 12, 2003, October 15, 2003, December 19, 2003 and January 27, 2004, are hereby ANNULLED and SET ASIDE. The instant case is remanded to the Regional Trial Court of

Manila, Branch 46, for further proceedings with special instructions to resolve the same with deliberate dispatch in accordance with the rules on summary procedure as defined by the Interim Rules of Procedure for Intra-Corporate Controversies. No pronouncement as to cost.

SO ORDERED.51

The CA ruled that respondents failed to prove a requirement for the creation of a management committee under Section 1, Rule 9 of the Interim Rules: that there was imminent danger of massive dissipation, loss, wastage or destruction of assets and other properties of the corporation. The appellate court declared that other than the bare allegations of Sy Chim and Felicidad Chan Sy that they could not protect their interests because of dissention among themselves on the one hand, and members of the board of directors on the other, they failed to show that the business operations of the corporation were paralyzed. The CA emphasized that the creation of a management committee is for the benefit of all the interested parties, not exclusively for the benefit of the party at whose instance it is to be created. The appellate court stated that a simple turn over of pertinent receipts would facilitate the accounting sought for, without resorting to the creation of a management committee; the accuracy of the validity of the accounting report made as basis of the complaint for accounting and damages should then be validated during trial on the merits. Citing Jacinto v. First Women’s Credit Corporation,52 the CA ruled that the trial court abused its discretion amounting to excess of jurisdiction in ordering the creation of a management committee pendente lite.

The CA also ruled that the trial court abused its discretion in designating a comptroller and an accounting firm to assess the corporation’s financial books and records. The CA stated that the appointment of a comptroller was not authorized by the Interim Rules. Thus, while Section 2, Rule 9 of the Interim Rules allows the appointment of a receiver, there was no point in discussing the same since the trial court committed abuse of its discretion in creating a management committee. The CA concluded that, when the trial court created a management committee and designated an auditing firm and a comptroller, it thereby imposed additional burden on the corporation.

The CA likewise declared that "the order imposing a limitation of Five Hundred Thousand Pesos (P500,000.00) disbursement without prior court approval was likewise unnecessary and has no direct bearing to the issue involved in the case pending before the court a quo.

Spouses Sy Chim and Felicidad Chan Sy filed a motion for the partial reconsideration of the decision, which the appellate court denied.53

Said spouses, now petitioners, filed the instant petition for review on certiorari, alleging that:

I

RESPONDENT COURT OF APPEALS ERRED IN INTERPRETING SECTION 1, RULE 9 OF THE INTERIM RULES OF PROCEDURE GOVERNING INTRA-CORPORATE CONTROVERSIES BECAUSE IT FAILS TO GIVE FULL FORCE AND EFFECT TO THE PROTECTIVE POWERS OF THE COURT.

II

RESPONDENT COURT OF APPEALS ERRED IN RULING THAT THE AUDIT AND ASSESSMENT OF THE CORPORATE BOOKS AND RECORDS OF THE CORPORATION IS UNNECESSARY AND IS MORE THAN WHAT THE CASE DEMANDS.

III

RESPONDENT COURT OF APPEALS ERRED IN RULING ON THE 8 AUGUST 2003 ORDER OF THE TRIAL COURT DIRECTING THE CONDUCT OF AN AUDIT OF THE BOOKS AND RECORDS OF SY SIY HO & SONS, INC. (SSHI) BECAUSE SUCH ORDER WAS NOT COVERED BY THE PETITION BEFORE THE COURT OF APPEALS.

IV

RESPONDENT COURT OF APPEALS ERRED IN RULING THAT THE TRIAL COURT HAS NO POWER AND AUTHORITY TO DESIGNATE A COMPTROLLER AND TO MONITOR THE DISBURSEMENTS OF THE CORPORATION.



V

RESPONDENT COURT OF APPEALS ERRED IN RULING THAT THE APPOINTMENT OF AN AUDITING FIRM IS PREMATURE.

VI

RESPONDENT COURT OF APPEALS ERRED IN RULING THAT THE TRIAL COURT GRAVELY ABUSED ITS DISCRETION IN ISSUING THE ASSAILED ORDERS.54

The threshold issue is whether or not the RTC committed grave abuse of its discretion amounting to excess or lack of jurisdiction in (a) creating a management committee; (b) designating an independent auditor and ordering an audit of the corporate books and records of the corporation; and (c) appointing a comptroller; and whether the issues raised in this Court are factual in nature and proscribed by Rule 45 of the Rules of Civil Procedure.

On the first issue, petitioners aver that the CA erred in strictly applying the requisites under Section 1, Rule 9 of the Interim Rules regarding the creation of a management committee. The petitioners posit that the word "and" in Section 1(1), Rule 9 should be interpreted as "or," since a literal interpretation of the provision would frustrate the plain intention of the Rule. They point out that the appellate court’s strict interpretation of the rule is contrary to the spirit of Presidential Decree No. 902-A. They further assert that the RTC is empowered to act and put a stop to misappropriation of a corporation’s funds and thus prevent business operations from being paralyzed. According to the petitioners, for the Court to idly wait and watch as assets of the corporation are plundered until the business is paralyzed, would render inutile Section 1, Rule 9 of the Interim Rules.

Petitioners assert that at the time the complaint was filed in the trial court, respondents abused their positions and mismanaged corporate affairs, thus necessitating the immediate creation of a management committee.

Petitioners maintain that corporate funds have massively dissipated and would continue as long as the management and control of the corporation remained with respondents. In fact, respondents admitted in their complaint that there had been massive dissipation of the funds and assets of the corporation since 1993 when they (respondents) were still corporate officers. Contrary to the ruling of the CA, the creation of the management committee would ensure the continuity of the corporation’s business operations and remove the management of the business from the hands of those responsible for the dissipation of its assets. Thus, petitioners insist, the interest of the corporation and its stockholders would be preserved and protected through the creation of a management committee.

Petitioners further assert that the appointment of an independent auditing firm would satisfy the corporation’s claim for a full accounting and ensure that all books, records and documents of the corporation would be submitted to the auditor to ensure a fair, impartial and full

accounting. Such accounting would determine the full extent of misappropriation of corporate funds, as well as the shareholdings of its stockholders. Petitioners insist that there was a necessity for the court to do so in order to determine the true status of corporate funds, and to determine who should be held responsible for the alleged misappropriation. Petitioners assert that the auditor’s report is of doubtful credibility as it is inconsistent with the external auditor’s report (which has no indication of any missing fund). Moreover, the appointment of an external auditor is necessitated by time constraints and the volume of financial records to be examined. Petitioners point out that, as gleaned from the amended complaint, the corporation prayed for the accounting of the missing funds; the appointment of an impartial and competent auditor to conduct the audit achieves this purpose.

Petitioners maintain that respondent corporation’s failure to question the trial court’s appointment of an independent auditor and accounting firm through a motion for reconsideration effectively estopped them from assailing such orders; instead of filing a petition for certiorari in the CA, respondent should have moved that such orders be reconsidered.

On the issue of whether or not the trial court may designate a comptroller, petitioners point out that although Section 1, Rule 9 of the Interim Rules does not specifically authorize the RTC to appoint a comptroller, the same rule authorizes such court to appoint a receiver; this latter power necessarily implies the authority to designate a comptroller. According to petitioners, a comptroller would exercise more limited functions and ensure that no illegitimate corporate expenditures would be made and that all government requirements will be complied with before the formation of a management committee.

By way of comment, respondent avers that the issues raised by petitioners are factual, which is proscribed by Rule 45 of the Rules of Civil Procedure; whether or not there is factual basis for the creation of a management committee under Section 1, Rule 9 of the Interim Rules is a question of fact. The CA correctly ruled that petitioners failed to allege and substantiate the need for the appointment of an auditing firm, as well as the requisites for the creation of a management committee. The Order of the trial court dated August 8, 2003 had already been overtaken and rendered moot by the January 27, 2004 Order of the RTC which the CA affirmed. Also, whether or not there is a need for the appointment of comptroller and the limits of her power are questions of fact which should not be raised in this Court.

The petition is partially granted.

Section 1, Rule 9 of the Interim Rules provides:

SECTION 1. Creation of a management committee. – As an incident to any of the cases filed under these Rules or the Interim Rules on Corporate Rehabilitation, a party may apply for the appointment of a management committee for the corporation, partnership or association, when there is imminent danger of:

(1) Dissipation, loss, wastage or destruction of assets or other properties; and



(2) Paralyzation of its business operations which may be prejudicial to the interest of the minority stockholders, parties-litigants or the general public.55

The said Rules, which took effect on April 1, 2001, was promulgated by the Court pursuant to its power to promulgate rules concerning "pleading, practice and procedure in all courts xxx providing for simplified and inexpensive procedure for the speedy disposition of cases" under Section 5(5), Article VIII of the Constitution.

We do not agree with petitioners’ contention that the word "and" in Section 1, Rule 9 of the Interim Rules should be interpreted to mean "or." While it is true that in Section 6(d) of Presidential Decree No. 902-A,56 an applicant for the appointment of a management committee is mandated to prove only one of the two requisites provided therein, the Court, in Jacinto v. First Women’s Credit Corporation,57 ruled that the two requisites should be present before a management committee may be created and a receiver appointed by the RTC:

A reading of the aforecited legal provision reveals that for a minority stockholder to obtain the appointment of an interim management committee, he must do more than merely make a prima facie showing of a denial of his right to share in the concerns of the corporation; he must show that the corporate property is in danger of being wasted and destroyed; that the business of the corporation is being diverted from the purpose for which it has been organized; and that there is serious paralyzation of operations all to his detriment. …

The rationale for the need to establish the confluence of the two (2) requisites under Section 1, Rule 9 by an applicant for the appointment of a management committee is primarily based upon the fact that such committee and receiver appointed by the court will immediately take over the management of the corporation, partnership or association, including such power as it may deem appropriate, and any of the powers specified in Section 5 of the Rule.58

Indeed, upon the appointment of a receiver, the duly elected/appointed officers of the corporation are divested of the management of such corporation in favor of the management committee/receiver. Such transference of the corporation’s management will certainly have a negative, if not crippling effect, on the operations/affairs of the corporation not only with banks and other business institutions including those abroad which it deals business with. A wall of uncertainty is erected; the short and long-term plans of the management of the corporation are disrupted, if not derailed.59

Thus, the creation and appointment of a management committee and a receiver is an extraordinary and drastic remedy to be exercised with care and caution; and only when the requirements under the Interim Rules are shown. It is a drastic course for the benefit of the minority stockholders, the parties-litigants or the general public are allowed only under pressing circumstances and, when there is inadequacy, ineffectual or exhaustion of legal or other remedies. The power to intervene before the legal remedy is exhausted and misused when it is exercised in aid of such a purpose.60 The power of the court to continue a business of a corporation, partnership or association must be exercised with the greatest care and caution. There should be a full consideration of all the attendant facts, including the interest of all the parties concerned.

Neither Presidential Decree No. 902-A and Republic Act No. 8799 nor the Interim Rules of Procedure define "imminent danger." "Danger" is a general term, including peril, jeopardy, hazard and risk; as used in the Rule, it refers to exposure or liability to injury. "Imminent" refers to something which is threatening to happen at once, something close at hand, something to happen upon the instant, close although not yet happening, and on the verge of happening.61

In the present case, petitioners failed to make a strong showing that there was an imminent danger of dissipation, loss, wastage or destruction of assets or other properties of respondent corporation and paralysis of its business operations which may be prejudicial to the interest of the parties-litigants, petitioners, or the general public. The RTC thus committed grave abuse of its discretion amounting to excess of jurisdiction in creating a management committee and the subsequent appointment of a comptroller.

The bone of contention between the parties is whether there was a shortage or unaccounted funds of the corporation, including P67,117,230.30 allegedly incurred from 1993 (when petitioner Sy Chim assumed office as President, Felicidad Chan Sy as Assistant Treasurer, Sy Tiong Shiou as General Manager, and Juanita Tan Sy as Corporate Treasurer); and who should be held accountable therefor. Petitioners blame Sy Tiong Shiou and Juanita Tan Sy, while the latter pin liability on petitioners based on the financial report of the Banaria Banaria and Company and the claim of Juanita Tan Sy. However, these issues of fact have yet to be determined by the trial court after due proceedings. Indeed, petitioners admitted the following in their motion for the appointment of a management committee:

4. Thus, defendants allege that for any unaccounted difference of the corporation’s account, including the PHP67,117,230.30 alleged in the Amended Complaint, it is Sy Tiong Shiou and Juanita Tan who are at fault in view of their powers as General Manager and Treasurer under the By-laws of the Corporation and in actual practice since they have active control of the day-to-day operations of the Corporation.

5. However, while this Honorable Court will still determine, in the course of these proceedings, whether it is defendants Sy Chim and Felicidad Chan Sy or whether it is Sy Tiong Shiou and Juanita Tan who are the parties responsible for the dissipation and loss of the corporate funds and assets of Sy Siy Ho & Sons, Inc., the active day-to-day control and management of Sy Siy Ho and Sons, Inc. is still under the control and supervision of Sy Tiong Shiou and Juanita Tan, especially so since defendants have been physically ousted from their residence by Sy Tiong Shiou and his family since 15 April 2003, and defendants have been denied access to the corporate premises and its books and records.62

Petitioners failed to adduce a shred of evidence during the hearing of their motion to prove their claim that there was imminent danger of dissipation, loss, wastage or destruction of the assets or other properties of respondent ever since Sy Tiong Shiou became president and Juanita Tan Sy continued discharging her duties as corporate treasurer; nor is there proof that there was imminent danger of paralyzing the business operations of the corporation.1avvphi1.net



We have reviewed the records and find that, contrary to the findings of the RTC, there is no imminent danger of dissipation or total loss of the assets, funds, properties and records of respondent corporation, or paralysis of business operations. In fact, records show that there has been no slack in the business operations of respondent corporation.

Petitioners were divested of their corporate positions, and thus stockholdings in the corporation were reduced. Petitioners claim that Sy Tiong Shiou and Juanita Tan Sy (third-party defendants below) and their children unlawfully ousted them from their positions and reduced their shareholdings in the corporation. They posit that the former’s claim that they (petitioners) misappropriated the funds and assets of respondent was designed to justify the unlawful ouster of petitioners from the management of respondent corporation. Such claims, however, have yet to be proven.

While the allegation that Sy Tiong Shiou and Juanita Tan Sy abused their positions and mismanaged the affairs of respondent corporation is a distinct possibility, petitioners failed to adduce proof thereon. Mere possibility without proof of abusing corporate positions and dissipation of assets and properties of the corporation is not a valid ground for the appointment of a management committee/receiver. Petitioners even failed to adduce evidence to controvert the following allegations of respondent:

b. A comparative breakdown of the volume of sales and importation of the plaintiff for the years 2002 and 2003, during the watch of defendant Sy Chim as President and during the time that Sy Tiong Shiou took over as President would clearly show that it has tremendously increased. A copy of the comparative chart is attached hereto as Annex "B";

c. In a certification dated August 29, 2003 issued by Amelin S. Yap, SVP, Center Head of Metrobank, it is demonstrated that plaintiff, through the able and competent management and leadership of Sy Tiong Shiou, has been able to service and pay its financial obligations when it paid Fourteen Million Nine Hundred Eleven Thousand Six Hundred Sixty-Four (P14,911,664.00) Pesos under trust receipt obligation from the period of April 2003 up to August 2003. Likewise, it has also paid Fourteen Million Four Hundred Ninety-Three Thousand (P14,493,000.00) Pesos under loan obligation from the period April 2003 to August 2003. Further, the bank certified that plaintiff’s obligations are in current status. Photocopy of the said certification is attached hereto as Annex "C";

d. On September 1, 2003, CHINABANK, through its Senior Assistant Vice President, International Banking Group, Elaine Marissa L. Ong issued a certification that, as per records as of August 28, 2003, plaintiff’s outstanding trust receipts amounted only to P9,462,835.90 and that these trust receipts are not beyond 180 days. Photocopy of the said certification is attached hereto as Annex "D";

e. Likewise, on September 1, 2003, Allied Banking Corporation, through its Senior Assistant Vice President Florentina Garrovillo, issued a certification that, as per records as of August 29, 2003, plaintiff’s outstanding trust receipts amounted to Seven Million Two Hundred Ninety-Four Thousand Three Hundred Six Pesos & 77/100 (Php7,294,306.77) and that, as of that date, these trust receipts are not beyond 180 days. Photocopy of the said certification is attached hereto as Annex "E."

…

7. In contrast, during defendant Sy Chim’s incumbency as President, the plaintiff could hardly pay its financial obligations with its creditor banks. In fact, it has to ask and request for extensions. When Trust Receipt with Reference No. 014/TR/000631/02 fell due on February 7, 2003 after 180 days, defendant Sy Chim as President of the plaintiff could not pay the same and instead asked for an extension of 90 days or up to May 8, 2003. Photocopy of the document showing this transaction is attached hereto as Annex "F."63

We agree that past conduct and condition of the corporation may be considered in determining the present situation and what the future will be. However, a management committee or receiver will not be appointed merely because of things done or attempted at a past time when the present situation and the prospects for the future are not such as to warrant taking the control of the property out of the hands of its owners.64 The circumstances to justify the appointment of a management committee/ receiver must be extraordinary and something more must be shown than past misconduct and a mere apprehension based thereon of future wrongdoing.65 To repeat, in the absence of a strong showing of an imminent danger of dissipation, loss, wastage or destruction of assets or other properties of a corporation and paralysis of its business operations, the mere apprehension of future misconduct based upon prior mismanagement will not authorize the appointment of a management committee/receiver.66

We also agree with the CA ruling that the RTC committed grave abuse of its discretion in excess of its jurisdiction in appointing a comptroller and ordering her to immediately assume office before the creation of a management committee. However, the CA ruled that the RTC committed a grave abuse of its discretion amounting to excess of its jurisdiction, thus:

As defined in Black’s Law Dictionary, a "comptroller" is an officer of a business, charged with certain duties in relation to the fiscal affairs of the same, principally to examine and audit the accounts, to keep records, and report the financial situation from time to time. We have perused the Interim Rules of Procedure for Intra-Corporate Controversies and nowhere in the said rules does it authorize the designation of a comptroller. Rule 9, Section 2 of the Procedure, however, mandates that, in the event the court finds the application for the creation of a management committee sufficient in form and substance, the court shall issue an order appointing a receiver of known probity, integrity and competence and without any conflict of interest as therein defined to immediately take over the corporation, partnership or association, specifying such powers as it may deem appropriate under the circumstances, including any of the powers specified in Section 5 of said Rule. We see no need to discuss whether it would have been appropriate for the court-a-quo to appoint a receiver in view of the finding of this Court that the creation of a management committee was done in grave abuse of discretion.67

Indeed, the RTC committed grave abuse of its discretion in ordering the appointment of Wencita Salvador as comptroller. We do not foreclose the power of a management committee to appoint a comptroller under Section 5, Rule 9 of the Interim Rules. However, with the Court’s ruling that the creation of such committee and the appointment of a receiver is without factual basis, it follows that the appointment of a comptroller is, likewise, unnecessary.1avvphi1.net

We agree with petitioners’ contention that the RTC acted in the exercise of its discretion in appointing an independent auditor. Such appointment is appropriate and even necessary if only to limit the issues for trial and thus abbreviate the proceedings. The ouster of petitioners as president and treasurer of respondent and the takeover by third-party defendants and their children of the management and control of the corporation is based on the claim of Juanita Tan Sy that petitioner Felicidad Chan Sy had a shortage of P67,117,230.30



for 2001 and 2002 per the report of the auditing firm, Banaria Banaria & Company. Petitioners, for their part, claim that such report is inconsistent with that of respondent’s external auditor Anita Uy from 1994 to 2002 which were submitted to the Bureau of Internal Revenue and the SEC showing that no amount was due to stockholders. In the report of the Banaria Banaria & Company, the corporation had retained earnings of P56,170,114.89 for the period ending December 31, 2001, whereas per report of Uy, respondent had net earnings of only P16,252,114.89, hence, the need for an independent auditor. Moreover, such audit would forestall any misappropriation of corporate funds and assets of respondent corporation in the interim.

We note that petitioners prayed for the appointment of an independent auditor, and that respondent did not even object to the motion. Consequently, the RTC appointed the Punongbayan & Araullo firm to conduct the audit. However, respondent made a volte face and filed its Manifestation and Motion dated November 26, 2003 and posited that an independent auditor was not necessary since in its complaint, it merely prayed for an accounting of the funds which were missing based on the report of the Banaria Banaria & Company auditing firm.

We hold that an independent audit is imperative in this case so that, based on such report, the RTC would be able to determine the veracity not only of respondent’s claim that petitioners misappropriated corporate funds and assets, but also that of petitioners who claim otherwise.

IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The Decision of the Court of Appeals is AFFIRMED WITH THE MODIFICATION that the Orders of the Regional Trial Court dated August 8, 2003, October 15, 2003 and January 27, 2004, relative to the appointment of R.S. Bernabe and Associates as independent auditor, are AFFIRMED.

No costs.

SO ORDERED.

G.R. No. 128464 June 20, 2006

REV. LUIS AO-AS, REV. JOSE LAKING, EUSQUICIO GALANG, REV. ISABELO MONONGGIT, REV. EDWINO MERCADO, REV. DANIEL PONDEVIDA, REV. TEODORICO TARAN and DR. BENJAMIN GALAPIA, Petitioners,

vs.

HON. COURT OF APPEALS, THOMAS P. BATONG, JUANITO BASALONG, AUGUSTO CATANGI, PAUL GARCIA, QUIDO RIVERA, VICTORIO Y. SAQUILAYAN and DANILO ZAMORA, Respondents.

This is a Petition for Certiorari under Rule 45 of the Rules of Court to seek the reversal of the Court of Appeals’ Decision1 dated 10 October 1996 in favor of respondents [hereinafter referred to as the Batong group] and Resolution2 dated 3 March 1997 denying the Motion for Reconsideration of the herein petitioners [hereinafter referred to as the Ao-As group].

The Court of Appeals found the facts to be as follows:

The Lutheran Church in the Philippines (hereinafter referred to as the LCP) is a religious organization duly registered with the Securities and Exchange Commission on May 8, 1967. Its members are comprised of the Lutheran clergymen and the local Lutheran congregations in the Philippines which, at the time of its incorporation, was divided into three districts, namely: the North Luzon District (hereinafter referred to as the NLD); the South Luzon District (hereinafter referred to as the SLD); [and] the Mindanao district (hereinafter referred to as the MDD).

The governing body of the LCP is its national board of directors (hereinafter referred to as the LCP Board) which was originally composed of seven (7) members serving a term of two years. Six members of the LCP Board are elected separately in district conferences held in each district, with two members representing each district – the elected district president becomes the clergy representative to the LCP Board and the other is a lay representative to the LCP Board. The seventh member of the Board is the National President of the LCP who is elected at large in a national convention held in October of every even-numbered year.

During the 1976 LCP national convention, a resolution was passed dividing the North Luzon district (NLD) into two districts: the NLD Highland District (NLHD) and the NLD Lowland District (NLLD) -- thereby increasing the number of directors from seven (7) to nine (9). Again in the 1984 LCP national convention, a resolution was passed creating another district, namely, the Visayan Islands District (VID) thereby increasing further the number of directors to eleven (11). Both resolutions were passed pursuant to Section 2 of Article 7 of the LCP By-Laws which provides that: "LCP in convention may form additional districts as it sees fit".

Since the addition of two or more districts, an eleven (11) member board of directors representing the five (5) districts managed the LCP without any challenge from the membership until several years later when certain controversies arose involving the resolutions of the Board terminating the services of the LCP business manager and corporate treasurer since 1979, Mr. Eclesio Hipe.

The termination of Mr. Hipe sparked a series of intracorporate complaints lodged before the Securities and Exchange Commission (SEC). For the first time, the legality of the eleven (11) member Board was put in issue as being in excess of the number of directors provided in the Articles of Incorporation since no amendments were made thereto to reflect the increase.

Aside from the present case, SEC-SICD Case no. 3556 entitled "Excelsio Hipe, et. al. vs. Thomas Batong, et. al." and SEC-SICD Case No. 3524, "Domingo Shambu, et. al. vs. Thomas Batong, et. al." respectively, sought to declare null and void Board Resolution Nos. LCP-BD-6-89 and LCP-BD-7-89; and SEC-SICD Case No. 3550 entitled "The Lutheran Church in the Philippines vs. Exclesio Hipe" which sought to recover the corporate records still in the possession of Mr. Hipe.



[The members of the Batong group] are the duly elected board of directors of the LCP at the time of the filing of SEC-SICD Case No. 3857. On the other hand, [the Ao-As group] have served in various capacities as directors or officers of the LCP.

On August 17, 1990, [the Ao-As group] filed SEC-SICD Case No. 3857 for accounting and damages with prayer for preliminary injunction and appointment of a management committee asserting the following causes of action:

"First, the alleged non-liquidation and/or non-accounting of a part of the proceeds of the La Trinidad land transaction in the amount of P64,000.00 by petitioner Thomas Batong;

Second, the alleged non-liquidation and/or unaccounting of cash advances in the aggregate amount of P323,750.00 by petitioner Thomas Batong;

Third, the alleged dissipation and/or unaccounting of the LCP general fund in the amount of 4.8 million;

Fourth, the non-registration of the Leyte land purchased with LCP funds by petitioner Victorio Saquilayan;

Fifth, severance of church-partnership relationship with Lutheran Church-Missouri Synod (LCMS); and

Sixth, the transfer of LCP corporate books from the Sta. Mesa office to the Caloocan office."

During the hearings on the application for creation of a management committee, [the Batong group] filed an Urgent Motion to Suspend the Proceedings of the Case in view of an amicable settlement agreed upon by the parties entitled "A FORMULA FOR CONCORD". However, notwithstanding the FORMULA FOR CONCORD, the SEC-SICD denied [the Batong group’s] motion to suspend proceedings.

On January 23, 1992, petitioners filed a Motion to Dismiss alleging again the FORMULA OF CONCORD. Again, the SEC-SICD denied [the Batong group’s] motion.

Subsequently, on September 3, 1992, the SEC-SICD Hearing Officer after the presentation of the parties respective evidence, issued an Order creating a management committee. Said Order reads, in part:

" x x x All board resolutions and/or management actions or decisions passed and approved by them are deemed null and void ab initio for they were passed, and approved by an illegally constituted Board of Directors. . . And worse, several resolutions or Board’s actions are not only (deemed) null and void but have caused irreparable damage to the corporation such as the termination of all LCP staff and employee (LCP-BD-29-90); dissolution of LCP Business Office (LCP-BD-37-90); termination of the partner-church relationship between the LCP and the Lutheran Church Missouri Synod which is the major benefactor and source of funds of LCP (LCP-BD-28-90); forcible taking of almost all official records and equipment of LCP by respondent Thomas B. Batong and transferring the (same) from the LCP business office; acquisition of some lands using the corporate funds were in the name of some person other than the LCP; and various cash advances of corporate funds by the respondents are not liquidated up to the present.

WHEREFORE, premises considered, A MANAGEMENT COMMITTEE is hereby created to undertake the management of the Lutheran Church in the Philippines until such time that new members of the LCP Board of Directors shall have been elected and qualified in the election to be called and conducted by the Management Committee in accordance with the LCP’s Articles of Incorporation and By-Laws preferably in October 1992."

On September 14, 1992, [the Batong group] filed their Motion for Reconsideration which was subsequently denied in an Order dated September 23, 1992.

On September 23, 1992, [the Batong group] filed with the SEC En Banc a Petition for Certiorari with prayer for a temporary restraining order alleging that the SEC-SIDC acted with grave abuse of discretion in creating the management committee.

Shortly thereafter, on September 29, 1992, the following were appointed to the management committee: Atty. Puno as Chairman; and private respondents Jose Laking, Eduardo Ladlad, Romeo Celiz as members. However, Atty. Puno later resigned and was replaced by Atty. Oscar Almazan who was appointed as Chairman. After the death of Romeo Celiz, he was replaced by private respondent Luis Ao-As.

On October 6, 1992, [the Ao-As group] filed a motion for issuance of a writ of preliminary injunction seeking to enjoin [the Batong group] not only from continuing to act as LCP board of directors but also from calling a national convention to elect new set of officers and members of the Board as provided in the LCP Constitution and By-Laws.

On October 16, 1992, the SEC-SIDC ordered the issuance of a writ of preliminary injunction prohibiting [the Batong group] from "acting as a board of directors or officers of Lutheran Church in the Philippines, Inc. (LCP) and from holding any convention or general or special membership meeting as well as election of the members of the LCP board of directors, until further orders".

The [the Batong group] allege that the SEC-SIDC management committee used the Order dated October 16, 1992 to carry out ultra vires acts, more specifically: (i) to take control of and closing down church buildings; (ii) to evict LCP clergymen from their church parsonages; (iii) to ordain and appoint new clergymen to replace incumbent members of the church hierarchy. In at least one case which has reached this Court, CA-G.R. No. 34504, it was found that:



"On August 13, 1993, [members of the Ao-As group] Oscar Almazan, James Cerdenola, Edgar Balunsat and Edwino Mercado, together with armed security guards, acting in behalf of LCP, forcibly took possession of the houses occupied by [the Batong group]. In view of the latter’s refusal to leave the premises, they permanently padlocked the main gate of the compound confining [the Batong group] and their families therein and prevented the ingress and egress thereto. Later the [Batong group] left their houses due to the alleged intimidation and threats employed by the [Ao-As group]. Thereafter, the latter entered the dwelling and took possession of the same."

However, even before the creation of the management committee, the LCP national convention had already been called in a Board meeting held on September 26, 1991 at the Lutheran Hospice, Quezon City. Hence, by the time the writ of preliminary injunction was issued, all notices had already been received by all local congregations and convention delegates had likewise already been chosen to attend the national convention.

Thus, the 17th LCP National Convention was held on October 26 to 30, 1992 as earlier scheduled at the Immanuel Lutheran Church and School, Tugatong, Malabon, Metro-Manila. The list of official delegates to the Convention is shown in pages 32 to 33 of the Convention Records.

During the 17th LCP National Convention, the delegates representing the majority of the members which comprised the three districts (North Luzon, South Luzon and Mindanao) issued a "Manifesto" to initiate by themselves the election for a new set of church leaders because the incumbent directors were enjoined to act as a board. In the election, the following were elected as LCP officers, namely:

President -- Rev. Victorino Saquilayan

Vice-President -- Rev. Juanito Basalong

Secretary -- Rev. Charlito Mercado

Treasurer -- Rev. Benjamin Lasegan

Similarly, prior to the issuance of the writ of preliminary injunction and the appointment of the management committee, the SLD (South Luzon District) of LCP already held its district conference on august 26 to 28, 1992 which elected, among other of its officers, the SLD Lay Representative pursuant to the LCP Constitution and By Laws. The following were elected:

SLD President and

Clergy Representative : Rev. Elmer Banes

SLD Lay Representative: Roman Moscoso

The district conference for NLD was likewise held before the issuance of the writ of preliminary injunction on October 7 to 9, 1992. In said convention, the local congregations and clergymen executed a manifesto expressing their own opposition to the appointment of a management committee.

[The Batong group] then filed with the SEC En Banc a Supplemental Petition dated November 13, 1992 alleging the supervening events in the case which took place after the filing of the original petition on September 23, 1992.

Subsequent to the 17th LCP national convention of October 1992, a special convention was called by the SEC Management Committee on January 25 to 29, 1993 at Cagayan de Oro City to elect a different set of officers for LCP. [The Batong group] allege that the required notices were not sent to several local congregations and even fewer LCP members were permitted by [the Ao-As group] to attend the special convention as evidenced by the list of official delegates contained in the minutes of the special convention.

On July 21, 1993, [the Batong Group] filed a Second Supplement to its petition for certiorari in the SEC En Banc alleging the supervening events and seeking the review of an Order of the Hearing Officer dated June 9, 1993 which enlisted the aid of the Secretary of the Department of Interior and Local Government and the PNP Director General to enforce the writ of preliminary injunction.

Pending the resolution of the above-mentioned petitions, the management committee took control of several church properties, replaced clergymen from their parsonages and froze all bank accounts in the name of LCP.

[The Batong group] then filed a Petition for Mandamus and Damages with Prayer for Preliminary Mandatory Injunction on August 19, 1993 seeking to unfreeze the bank accounts and recover the seized buildings.

All of the aforementioned petitioners (sic) were denied by the SEC En Banc. A motion for reconsideration was filed but the same was likewise denied.3



The Batong group then filed a Petition for Review with the Court of Appeals seeking to annul the Decision of the Securities and Exchange Commission En Banc. In said Petition, the Batong group alleged that the Ao-As group persisted in carrying out ultra vires and illegal acts, to wit:

(a) Private respondent Luis L. Ao-As, purportedly on the strength of a board action held at Baguio on February 22-24, 1994 and of the assailed Order dated October 16, 1992, closed the premises of the Gloria Dei School after school year 1993-1994 in an attempt to take-over the management and operations of the said school. The closure of the Gloria Dei School is the subject of SEC Case No. 05-93-4463.

(b) On February 1, 1994, Rev. Eduardo Ladlad, acting as President of the LCP, executed a Contract to Sell with Solid Gold Realty Corporation whereby he agreed to sell a portion of LCP’s property in Cavite with an area of 7,218 square meters at a price of P1,000 per square meter or a total of P7,218,000 with a down payment of P1,000,000.

(c) Upon application of the [Ao-As group], the SEC-SIDC issued an Order dated June 1, 1994 ex parte and on June 14, 1994 at around 7 p.m., a certain Rev. Laking, using the Order of the SEC-SIDC dated June 1, 1994 and October 16, 1992 writ of preliminary injunction, entered the premises of the Abatan Hospital located in Baguias, Benguet Province, took over the management and control of the Abatan Hospital and forced the pastor previously assigned therein – Pastor Laapniten – to leave his post simply because Pastor Lapniten is identified with the Saquilayan Group.4

On 30 June 1994, the Batong group filed with the Court of Appeals a motion for the issuance of a Temporary Restraining Order and/or Preliminary Injunction. On 12 July 1994, the Court of Appeals issued a Temporary Restraining Order to enjoin the Ao-As group "from implementing the contract to sell between the Lutheran church in the Philippines (LCP) and Solid Gold Realty Corporation and from selling, transferring, assigning and/or disposing of any other property of the LCP; to enjoin the Ao-As group and/or those officers elected in their convention from enforcing or implementing the Order dated October 16, 1992 and the writ of preliminary injunction issued in SEC Case 3857."

On 22 September 1994, the Batong group filed a Motion/ Manifestation to cite Eduardo Ladlad, Harry Roa, James Cerdenola and Luis Ao-As in contempt of court, alleging that the latter, on 15 September 1994, entered the Olongapo Lutheran Church with six armed men and there and then padlocked the main gate of the church. Consequently, Rev. Elmer Bañes, the assigned overseer at said church, was barred from entering the premises on 17 September 1994.

On 10 October 1996, the Court of Appeals ruled in favor of the Batong group, disposing the petition as follows:

WHEREFORE, the petition is hereby granted. The Decision dated August 25, 1993 of the SEC En Banc is hereby RECONSIDERED and SET-ASIDE and the Orders of the SEC-SIDC dated September 3, 1992 and October 16, 1992 are hereby ANNULLED and SET ASIDE. The SEC is hereby directed to conduct a new election of the directors of the LCP consistent with the provisions of the Corporation Code.5

Hence, this petition, where the Ao-As group brings forth the following issues to be resolved by this Court:

I.

Whether or not the Court of Appeals gravely erred in utterly ignoring and disregarding all the evidence adduced by [the Ao-As group], and in making findings of facts contradicted by the evidence on record and not supported by any evidence whatsoever.

II.

Whether or not the Court of Appeals reversibly erred in ruling that SEC-SICD Case No. 3857 is a case of forum shopping.

III.

Whether or not the Court of Appeals committed reversible error in declaring as invalid the manner of elections of the Board of Directors of the Lutheran Church in the Philippines as provided for in its By-Laws.

IV.

Whether or not the Court of Appeals committed reversible error in ruling that the SEC-SICD had no jurisdiction to call for a special election of the Board of Directors of the Lutheran Church in the Philippines.6

In addition to the prayer to reverse the 10 October 1996 Decision and 3 March 1997 Resolution of the Court of Appeals, and the revival of Resolution of the SEC En Banc in SEC-EB Case No. 330 and the Order of the SEC-SIDC in Case No. 3857, the Ao-As group prays for the following:

1. x x x x



2. Declaring the Board of Directors elected at the National Convention called by the Management Committee on January 25-27, 1993 in Cagayan de Oro as the legitimate members of the Board of LCP;

3. Declaring all acts and resolutions passed by the Batong group invalid and of no legal effect; and

4. Ordering the Batong group to return all the properties seized from the LCP and to refrain from the representing the LCP.7

The Ao-As group did not commit willful and deliberate forum shopping in the filing of SEC-SIDC Case No. 3857.

Since a ruling upholding the Court of Appeals on the issue of forum shopping would render all the other issues in this petition moot, we resolve to pass upon the same at the onset.

The Ao-As group claims that the Court of Appeals reversibly erred in ruling that SEC-SICD Case No. 3857 is a case of forum shopping. The Court of Appeals had ruled:

Finally, SEC-SICD Case No. 3857 is a clear case of forum shopping. The acts of [the Batong group], as embodied in several board resolutions, have already been raised and passed upon in other cases pending at the time the [Ao-As group] instituted the present controversy.

The board resolutions denominated as LCP-BD-29-90 and LCP-BD-37-90 – authorizing the dissolution of the LCP business office and termination of the employees connected therewith – was the subject of NLRC CASE NOS. 03-01935-90 and 04-01979-90 pending before the National Labor Relations Commission.

The board resolution denominated as LCP-BD-28-90 authorizing the transfer of the LCP corporate records from the Sta. Mesa Office to the Caloocan Office – was the subject of Civil Case No. 133394-CV and 131879-CV pending before the Metropolitan Trial Court of Manila, Branches 20 and 21 and subsequently dismissed in view of the FORMULA OF CONCORD entered into between the parties.

On the other hand, the legality of the composition of the eleven-member LCP Board was already the subject matter of SICD Case No. 3524 which was appealed to the SEC En Banc and docketed as SEC Case No. 352.

SEC Case No. 3857 is not the first case where the [Ao-As group], or those with similar interests, have asked for the appointment of a management committee. In SEC Case 3556 entitled "Exclesio Hipe and Lutheran Church of the Philippines v. Thomas Batong, et al.", in a motion dated June 18, 1991, private respondent Exclesio Hipe prayed for the appointment of a management committee for LCP. In an Order dated August 15, 1991, the SEC-SICD ruled that the Motion for the Appointment of a Management Committee and Accounting filed by the petitioners cannot be given due course considering that the same is one of the incidents in SEC Case No. 3857 entitled Rev. Luis Ao-As, et al. vs. Thomas Batong now pending in the sala of Hon. Elpidio Salgado". Petitioners knew that similar petitions have been previously commenced because Atty. Oscar Almazan who is also a co-counsel in the case was the counsel of record in SEC Case No. 3556 and the other cases.

Clearly, the act of the [Ao-as group] in filing multiple petitions involving the same issues constitutes forum shopping and should be sanctioned with dismissal. x x x8

SEC-SICD Case No. 3857 is a petition for accounting with prayer for the appointment of a management committee and the issuance of a writ of injunction. The Ao-As group claims that the issue involved in the case is whether the Ao-As group is entitled to an accounting and to the creation of a management committee due to the Batong group’s alleged dissipation and waste of the assets of the LCP, and the subject matter is the act of dissipation and waste committed by the Batong group. On the other hand:

1. NLRC Cases No. 03-01935-90 and 04-01979-90 pending before the National Labor Relations Commission, is a case for illegal termination, which allegedly "obviously involves a different cause of action";

2. The cases pending before Branches 20 and 21 of the Municipal Trial Court of Manila, docketed as Civil Cases No. 133394-CV and 131879-CV, respectively, are actions for forcible entry and unlawful detainer; and

3. SEC-SICD Case No. 3556 puts in issue the validity of LCP Board resolutions LCP-BD-6-89 and LCP-BD-7-89, where what are involved are the incidents resulting from the issuance of the resolutions – the unjust termination of Mr. Exclesio Hipe as LCP Business Manager and treasurer and the illegal appointment of one Hildelberto Espejo in his place. SEC-SIDC Case No. 3524 puts in issue the legality of the composition of the eleven-member LCP Board. These are allegedly different issues from that of SEC-SIDC Case No. 3857 where the acts of respondents are claimed to the basis of a prayer for accounting and appointment of a management committee.

As elucidated above, the causes of action under SEC-SIDC Case No. 3857 are the following:

First, the alleged non-liquidation and/or non-accounting of a part of the proceeds of the La Trinidad land transaction in the amount of P64,000.00 by petitioner Thomas Batong;



Second, the alleged non-liquidation and/or unaccounting of cash advances in the aggregate amount of P323,750.00 by petitioner Thomas Batong;

Third, the alleged dissipation and/or unaccounting of the LCP general fund in the amount of 4.8 million;

Fourth, the non-registration of the Leyte land purchased with LCP funds by petitioner Victorio Saquilayan;

Fifth, severance of church-partnership relationship with Lutheran Church-Missouri Synod (LCMS); and

Sixth, the transfer of LCP corporate books from the Sta. Mesa office to the Caloocan office.

The elements of forum shopping are: (a) identity of parties, or at least such parties as represent the same interests in both actions; (b) identity of rights asserted and the relief prayed for, the relief being founded on the same facts; and (c) the identity of the two preceding particulars, such that any judgment rendered in the other action will, regardless of which party is successful, amount to res judicata in the action under consideration.9

Otherwise stated, there is forum shopping where a litigant sues the same party against whom another action or actions for the alleged violation of the same right and the enforcement of the same relief is/are still pending. The defense of litis pendentia in one case is a bar to the other/others; and, a final judgment is one that would constitute res judicata and thus would cause the dismissal of the rest. Absolute identity of the parties is not required. It is enough that there is substantial identity of the parties. It is enough that the party against whom the estoppel is set up is actually a party to the former case. There is identity of causes of action if the same evidence will sustain the second action. The principle applies even if the relief sought in the two cases may be different. Forum shopping consists of filing multiple suits involving the same parties for the same cause of action, either simultaneously or successively, for the purpose of obtaining a favorable judgment.10

As the present jurisprudence now stands, forum shopping can be committed in three ways: (1) filing multiple cases based on the same cause of action and with the same prayer, the previous case not having been resolved yet (litis pendentia); (2) filing multiple cases based on the same cause of action and the same prayer, the previous case having been finally resolved (res judicata); and (3) filing multiple cases based on the same cause of action but with different prayers (splitting of causes of action, where the ground for dismissal is also either litis pendentia or res judicata11 ). If the forum shopping is not considered willful and deliberate, the subsequent cases shall be dismissed without prejudice on one of the two grounds mentioned above. However, if the forum shopping is willful and deliberate, both (or all, if there are more than two) actions shall be dismissed with prejudice.12lavvphi1.net

The six grounds originally relied upon by the Ao-As group in SEC-SICD Case No. 3857 are entirely different from the causes of action in NLRC Cases No. 03-01935-90 and 04-01979-90, Civil Cases No. 133394-CV and 131879-CV, and SEC-SICD Cases No. 3556 and 3524. It is true that the causes of action in the latter cases were included as additional grounds in SEC-SICD Case No. 3857 for the appointment of the management committee and for accounting "of all funds, properties and assets of LCP which may have come into their possession during their incumbency as officers and/or directors of LCP."13 However, the creation of a management committee and the prayer for accounting could not have been asked for in the labor (NLRC Cases No. 03-01935-90 and 04-01979-90) and forcible entry (Civil Cases No. 133394-CV and 131879-CV) cases.

As regards the other SEC Cases, though, the Ao-As group could have indeed prayed for the creation of the management committee and the accounting of the funds of the LCP. In fact, as stated by the Court of Appeals, the petitioner in SEC-SICD Case No. 3556 had prayed for the appointment of a management committee in a motion dated 18 June 1991. This motion, however, was subsequent to the filing of SEC-SICD Case No. 3857 on 17 August 1990, for which reason the SEC-SICD ruled that such motion cannot be given due course considering that it was one of the incidents of SEC-SIDC Case No. 3857. In effect, the SEC-SIDC had denied the subsequent motion on the ground of litis pendentia. But should SEC-SICD Case No. 3857, which contains the earlier prayer to create a management committee, be likewise dismissed? Following the rules set forth in the preceding paragraphs, it would depend on whether the different SEC cases constitute willful and deliberate forum shopping on the part of Ao-As group.

We hold that this is not a case of willful and deliberate forum shopping and, hence, the SEC-SICD Case No. 3857, which contains the earlier prayer to create a management committee, should not be dismissed. The reason for this is the strict evidentiary requirement needed to grant a prayer to create a management committee. The power of the SEC14 to create a management committee is found in Section 6(d) of Presidential Decree No. 902-A, as amended, which provides:

Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers:

d) To create and appoint a management committee, board or body upon petition or motu propio to undertake the management of corporations, partnerships or other associations not supervised or regulated by other government agencies in appropriate cases when there is imminent danger of dissipation, loss, wastage or destruction of assets or other properties or paralization of business operations of such corporations or entities which may be prejudicial to the interest of the minority stockholders, parties-litigants or the general public.

Evidently, it should be difficult to deduce the "imminent danger of dissipation, loss, wastage or destruction of assets or other properties" from an allegation of a single act of previous misappropriation or dissipation on the part of the Batong group. It is often only when the previous misappropriations and dissipations have become extensive and out of control that it can be candidly said that there is an imminent danger of further dissipation. The Ao-As group cannot be faulted therefore for not praying for the creation of a management committee in the first couple of cases it filed with the SEC, and neither can they be faulted for using the causes of action in previously filed cases to prove their allegation of imminent dissipation. We cannot rule out the possibility that the danger of imminent dissipation of the corporate assets became apparent only in the acts of the respondents subsequent to the filing of the first two SEC cases.



The creation of a management committee is not warranted by the facts of the case.

The Ao-As group claims that the Court of Appeals "unceremoniously disregarded all the undisputed testimonial and documentary evidence presented before the SEC,"15 and strongly pointed to their evidence which "clearly show the dissipation, wastage and loss of LCP funds and assets."16 These pieces of evidence supposedly proved the following:

1. The alleged anomaly concerning the sale of the land and the purchase of another land, both located in La Trinidad. The La Trinidad Land Transaction, the proceeds whereof were allegedly unliquidated, was testified to by petitioner Ao-As and Mr. Excelsio Hipe before the SEC-SICD in a hearing conducted on 11 September 1990.

2. Unliquidated cash advances and unaccounted funds. Petitioners presented evidence to prove the failure of respondent Batong to liquidate cash advances and account for P4,000,000 of LCP funds.

3. Purchase of Leyte Land in the name of respondent Saquilayan with LCP funds. Respondent LCP Vice-President Victorio Y. Saquilayan allegedly purchased a parcel of land in Albuera, Leyte in his name, using LCP funds. Respondent Saquilayan subsequently donated to the LCP, and explained that the purchase in his name was upon advice of LCP’s lawyers to comply with the rulings in Republic of the Philippines v. Hon. Arsenio M. Gonong17 and Republic of the Philippines v. Iglesia Ni Cristo.18

4. Severance of partner-church relationship between the LCP and the LCMS. Respondents issued LCP Board Resolution No. LCP-BD-28-90 severing all relations with the Lutheran Church-Missouri Synod (LCMS), allegedly in violation of LCP Board Resolution No. LCP-BD-33-70 which stated that "all actions taken by LCP in convention can only be amended, modified and changed by LCP in convention."

5. Taking of LCP Books of Account. Respondent Batong, accompanied by members of the LCP Board and about 15 armed security guards allegedly barged into the premises of the LCP in Old Sta. Mesa, Manila, and removed all of the official records and documents of the LCP (including the books of account, official receipts, check and journal vouchers, official papers and titles to property) and had the same relocated to his residence in Caloocan City and to the offices of Immanuel Lutheran Church in Malabon.

The Court of Appeals had ruled:

Nothing in [Ao-As group’s] evidence presented in support for their application for a management committee showed an impending or imminent danger of dissipation of funds. In the assailed SEC-SICD Order dated September 3, 1992, the appointment of a management committee was justified because of "acquisition of some lands using the corporate funds . . . in the name of some person other than the LCP, and various cash advances of corporate funds by the respondents not liquidated up to the present".

The SEC-SICD Order refers to the La Trinidad and Leyte land transactions and the alleged non-liquidation or unaccountability of cash advances and other funds – which constitutes the four causes of action alleged in the petition.

[The Ao-As group] admit[s] that the La Trinidad Land transactions [were] consummated in 1984 while the Leyte transaction was made in 1989. Both occurred prior to the Commencement (sic) of the present petition in 1990. Similarly, the alleged unliquidated cash advances referred to accumulated funds long withdrawn in the past by Dr. Thomas Batong "(in varying amounts) for personal, travel and other miscellaneous purposes, all in the aggregate amount of not less than P 323,750.00". And the alleged unaccounted funds referred to the "trial balance of LCP as of September 15, 1989".

Notably, the remaining two causes of action in the aforementioned petition do not involve dissipation of funds, namely: (i) the severance of partner-church relationship between LCP and Lutheran Church-Missouri Synod; and (ii) the transfer of corporate books from the Sta. Mesa Office to Caloocan City.

All of the grounds relied upon by [the Ao-As group] pertain to past delinquencies for which there are other available remedies such as accounting and reconveyance. The [Ao-As group] did not allege, much less prove, any present or imminent loss or destruction of LCP properties and assets. At best, it expresses merely a general apprehension for possible mismanagement by respondent on the basis of the aforementioned past transactions.

It must be stressed that the appointment of a management committee inevitably results in the drastic summary removal of all directors and officers of LCP. Clearly, the appointment of a management committee is not justified due to the failure of only two (2) of the LCP Board members to liquidate past cash advances and other transactions involving corporate property and funds.

Where the corporation is solvent, a receiver will not be appointed because of past misconduct and a subsequent mere apprehension of a future misdoing, where the present situation and the prospects for the future are not such as to warrant a receivership. x x x"

Significantly, the SEC En Banc even pointed out that: "the question of whether or not the [Batong group] have to account for all funds, properties and assets of LCP which may come into their possession as directors and/or officers of LCP is still to be resolved by the hearing officer after trial on the merits."

Under prevailing law, the SEC-SICD should have refused the appointment of a management committee.



"It is the general rule that a receiver (or a management committee) will not be appointed unless it appears that the appointment is necessary either to prevent fraud, or to save the property from fraud or threatened destruction, or at least in case of solvent corporation x x x. The burden of proof is a heavy one which requires a clear showing that an emergency exists.

"x x x Similarly, a receiver (or a management committee) should not be appointed in an action by a minority stockholder against corporate officers for an accounting where the corporation is solvent and going concern and a receiver is not necessary to preserve the corporate property pending the accounting".

Furthermore, a management committee should not be created when there was an adequate remedy available to private respondents for the liquidation of unaccounted funds.19

The Court of Appeals went on to rule that the members of the Ao-As group "have not positively shown that the said funds are unaccounted for,"20 and analyzed the evidence presented by the Ao-As group to illustrate that the unaccounted funds were only P1,572.43, "which may be attributable to adjustment errors but certainly not a case of misappropriation or misuse."21

The Ao-As group maintains that the unaccounted funds amount to around P4.8 million, and claim that if the Court of Appeals "had only given the [the Ao-As group] a chance to prove their allegations (concerning acts committed by respondents subsequent to the creation of the management committee), then it would have confirmed the earlier determination made by the SEC-SICD regarding the necessity for the creation of the management committee."22 It further asseverates:

20. The acts constituting [the Ao-As group’s] six causes of action in the petition filed with the SEC-SICD (the La Trinidad land transaction, the unliquidated cash advances, the unaccounted funds amounting to P4.8 million, the Leyte land transaction, the severance of the sister-church relationship and forcible removal of the LCP books of account) could not be characterized merely as "past delinquencies". The six causes of action and the subsequent acts of the [Batong group], after the filing of the petition with the SEC-SICD, clearly show a continuing and deliberate scheme of the dissipation and wastage of LCP properties and assets, which if unrestricted would cause further destruction of LCP assets and paralyzation of its operations, as it had already done. The creation of the Management Committee was, therefore, perfectly legal and justified. And the ruling of respondent Court of Appeals that these acts do not justify its appointment is, [the Ao-As group] humbly submit, reversible error.

21. In addition, the CA Decision also declared that "in any event, the past anomalies were only done by some of the Batong group." This is erroneous. Under the By-Laws of the LCP, the Board of Directors is in charge of the disbursement of funds. Sections 1 and 2 of Article 6 of the LCP By-Laws state:

"Section 1. The President of the LCP shall be given the following executive powers and supervisory duties:

xxx xxx xxx

b. The President together with two other members of the LCP Board of Directors, may authorize the release of surplus funds in emergencies or in cases of sudden need.

xxx xxx xxx

Section 2. The Board of Directors of the LCP

xxx xxx xxx

c. The Board of Directors shall prepare the annual budget of the LCP.

d. The Board of Directors shall be responsible for the annual auditing of all the LCP Properties and may initiate special auditing at any time."

22. From the foregoing, it is clear that respondent Batong did not act alone, but in concert with the other members of the LCP Board. The creation of the management committee was therefore justified.

23. The CA Decision also noted that since there were other remedies available to the petitioners to correct these anomalies, the creation of the management committee was unjustified. [The Ao-As group] again humbly submit again (sic) that respondent Court of Appeals erred when it made this statement. The LCP management committee was created precisely because of the extreme urgency that [mere] caused by the continued dissipation, loss and wastage of LCP funds and assets by the Batong group. If [the Ao-As group] were to avail of these so-called available remedies then by the time a decision is to be rendered in these "available remedies" the assets and funds of the LCP would have indubitably been lost forever since the dissipation, loss and wastage were then, and still is, an on going process. Consequently, it is clearly unreasonable for respondent Court of Appeals to declare that the [Ao-As group] should have first availed of these so-called remedies.23

Even without delving into the analysis of the prosecution evidence concerning the six causes of action and the alleged acts subsequent to these six causes of action, it is already appropriate for us to rule that the facts as they appear to us now do not warrant the creation of a management committee.



Refusal to allow stockholders (or members of a non-stock corporation) to examine books of the company is not a ground for appointing a receiver (or creating a management committee) since there are other adequate remedies, such as a writ of mandamus.24 Misconduct of corporate directors or other officers is not a ground for the appointment of a receiver where there are one or more adequate legal action against the officers, where they are solvent, or other remedies.25

The appointment of a receiver for a going corporation is a last resort remedy, and should not be employed when another remedy is available. Relief by receivership is an extraordinary remedy and is never exercised if there is an adequate remedy at law or if the harm can be prevented by an injunction or a restraining order. Bad judgment by directors, or even unauthorized use and misapplication of the company’s funds, will not justify the appointment of a receiver for the corporation if appropriate relief can otherwise be had.26

The fact that the President of the LCP needs the concurrence of only two other directors to authorize the release of surplus funds plainly contradicts the conclusion of conspiracy among the presently 11-man board. Neither does the fact that the Board of Directors of the LCP prepares the annual budget and the annual auditing of properties of the LCP justify the conclusion that the alleged acts of respondent Batong was done in concert with the other directors. There should have been evidence that such dissipation took place with the knowledge and express or implied consent of most or the entire board. Good faith is always presumed.27 As it is the obligation of one who alleges bad faith to prove it, so should he prove that such bad faith was shared by all persons to whom he attributes the same. The last resort remedy of replacing the entire board, therefore, with a management committee, is uncalled for.

The Court of Appeals erred in declaring as invalid the manner of elections of the Board of Directors of the LCP as provided in its By-Laws.

The Ao-As group stresses that the Court of Appeals committed reversible error in declaring as invalid the manner of elections of the Board of Directors of the Lutheran Church in the Philippines as provided in its By-Laws. The Court of Appeals ruled:

The Court notes that the LCP By-Laws provide for a special procedure for the election of its directors. This was the procedure followed by both the [Batong group] and the [Ao-As group].

"Section 2. Composition of the Board of Directors of LCP.

a. The Board of Directors shall be composed of the President of LCP and the President and lay representative of each District.

b. Newly elected members of the LCP Board of Directors shall assume their positions immediately after LCP conventions or the October LCP Board of Directors’ meeting in the year in which they are elected."

However, Section 24 of the Corporation Code provides that "[a]t all elections of directors or trustees, there must be present, either in person or by representative to act by written proxy, x x x if there be no capital stock, a majority of the members entitled to vote."

It is clear from Section 24 that in the election of the trustees of a non-stock corporation, it is necessary that at least "a majority of the members entitled to vote" must be present at the meeting held for the purpose. It follows that trustees cannot be elected by zones or regions, each zone or region electing independently and separately a member of the board of trustees of the corporation, such method being violative of Section 24. (SEC Opinions, Jan. 30, 1969, April 1, 1981). The election of the directors by district or regions as provided in the LCP By-Laws where a majority of the members are not present is inconsistent with the Corporation [Code] and must be struck down as invalid. Consequently, the directors elected by district cannot be considered as bona fide directors. Even the election of LCP officers in the SEC-SICD sponsored national convention of the LCP must be considered as invalid.28

As argued by the Ao-As group, however, the validity of the LCP By-Laws providing for a special procedure in the election of the LCP Board of Directors was never put in issue, either by the Ao-As group or the Batong group. The Court of Appeals, therefore, should have refrained from passing upon such issue, motu propio. According to Rule 51, Section 8 of the Rules of Court, which pertains to matters which may be decided on appeal:

Sec. 8. Questions that may be decided. – No error which does not affect the jurisdiction over the subject matter or the validity of the judgment appealed from or the proceedings therein will be considered unless stated in the assignment of errors, or closely related to or dependent on an assigned error and properly argued in the brief, save as the court may pass upon plain errors and clerical errors.

The ruling of the SEC En Banc setting aside the SEC-SICD determination that LCP Board of Directors was illegally constituted has therefore become final and executory, subject to the determination by the SEC-SICD of the seven members that should comprise the Board, as likewise provided in said Decision.29

Even the Batong group agrees with the Ao-As group on the validity of the by-laws provision concerning the election of the directors by districts:

[The Batong group] respectfully submit[s] that the matter of how the directors or other leaders of a church shall be chosen is a matter of ecclesiastical law or custom which is outside the jurisdiction of civil courts. Hence, even assuming arguendo, that the mode of election of the LCP is not strictly in accordance with the Corporation Code, it was improper for the Securities and Exchange Commission to apply the provisions of the said Code to the LCP.30

In any case, the stipulation in the By-Laws is not contrary to the Corporation Code. Section 89 of the Corporation Code pertaining to non-stock corporations provides that "(t)he right of the members of any class or classes (of a non-stock corporation) to vote may be limited, broadened or denied to the extent specified in the articles of incorporation or the by-laws."31 This is an exception to Section 6 of the same code where it is 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."32 The stipulation in the By-Laws providing for the election of the Board of Directors by districts is a form of limitation on the voting rights of the members of a non-stock corporation as recognized under the aforesaid Section 89. Section 24, which requires the presence of a majority of the members entitled to vote in the election of the board of directors, applies only when the directors are elected by the members at large, such as is always the case in stock corporations by virtue of Section 6.

WHEREFORE, the Decision of the Court of Appeals annulling and setting aside the order to create a management committee is thereby AFFIRMED, with the MODIFICATION that every subsequent election of the directors of Lutheran Church in the Philippines shall henceforth be in accordance with the By-Laws and Articles of Incorporation of the same. Costs against petitioners.

SO ORDERED.

G.R. No. 157671 June 20, 2006

DANILO G. PUNONGBAYAN, Petitioner,

vs.

PERFECTO G. PUNONGBAYAN, JR., MARILOU P. VISITACION, and SOTERO A. PUNONGBAYAN, Respondents.

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

Before us is a petition for review on certiorari assailing the Decision1 dated March 17, 2003 of the Court of Appeals in CA-G.R. SP No. 65420, entitled "Perfecto G. Punongbayan, Jr. and Marilou P. Visitacion vs. Hon. Maximo Magno-Libre (in his official capacity as Presiding Judge of the Regional Trial Court of Lanao Del Norte, Branch 5 of Iligan City), Danilo Punongbayan, Rico Quilab, Luis Lacar and Adelfa Silor (in their official capacity as members of the management committee of St. Peter’s College)."

The facts are:

St. Peter’s College is a non-stock, non-profit educational corporation in Iligan City. It is administered by its Board of Trustees composed of five members. As of 1995, the members of the Board were Leonila, Leonora, Danilo, Perfecto, Jr., sisters and brothers, all surnamed Punongbayan, and Sotero Punongbayan, their uncle.

In 1995, Leonila and Leonora died, leaving as members of the Board Danilo, petitioner, Perfecto, Jr., respondent, and Sotero, respondent-intervenor.

Danilo was then the President, while Perfecto, Jr. acted as Treasurer. Marilou Visitacion, another respondent, acted as the Corporate Secretary. However, there has been no Board meeting.

In 1998, Sotero filed with the Securities and Exchange Commission (SEC) a Petition for Disqualification of Members/Trustees/Officers; Production of Corporate and Financial Records; Examination and Accounting of Corporate Assets; and Damages with Prayer for a Temporary Restraining Order and/or Writ of Preliminary Injunction against Danilo, Perfecto, Jr., and Marilou, docketed as SEC Case No. 10-96-5471. The petition prays for the immediate creation of a management committee on the ground of lack of quorum among the members of the Board resulting in an impending halt of the school’s operation.

In an Order2 dated November 10, 1998, the SEC granted the prayer for the creation of a management committee.

On February 24, 1999, the SEC appointed the following as members of the management committee: Carmen V. Dormitorio, as chairperson, representing the Commission on Higher Education; Jose L. Zalsos, representing the Faculty Club of St. Peter’s College, Inc.; Henie Natuel Punongbayan, representing Sotero; Carmelita Punzalan-Punongbayan, representing Danilo; and Perfecto, Jr.3

Subsequently, Carmen Dormitorio inhibited herself as a member and chairperson of the committee. This resulted in a deadlock among the remaining members.

Meanwhile, SEC Case No. 10-96-5471 was transferred to the Regional Trial Court (RTC), Branch 5, Iligan City, pursuant to Republic Act No. 8799.4 The case was docketed therein as Corporation Case No. 006.

Sotero then filed with the RTC a Motion to Abolish the Management Committee, assailing the Orders of the SEC creating and appointing the members of the management committee. He prayed that the original members of the Board (himself, Danilo, and Perfecto, Jr.) be required to reconvene and run the affairs of the school.

On June 5, 2001, the RTC issued an Order5 denying Sotero’s motion, thus:

WHEREFORE, premises considered, the instant motion to abolish the management committee is ordered denied. Instead, the Mancom will have to be revamped to be composed only of three members as mandated by the aforequoted interim rules of procedure, but before



the three members to be appointed by the court to constitute the new Mancom will be made, the parties-movants are directed to jointly nominate three members they wish to be appointed to the Mancom, and the oppositor to do likewise.

x x x.

On June 20, 2001, the RTC issued an Order appointing Luis Lacar, Adelfa Silor, and Rico Quilab as members of the new management committee. Lacar and Silor were the nominees of Danilo, while Quilab was the nominee of Perfecto, Jr.6

Sotero filed a Motion for Reconsideration but the same was not acted upon being a prohibited pleading under the Interim Rules of Procedure for Intra-Corporate Controversies.

On June 23, 2001, Perfecto, Jr. and Marilou Visitacion, Acting Corporate Secretary, filed with the Court of Appeals a Petition for Certiorari with Application for the Issuance of a Writ of Preliminary Injunction against RTC Presiding Judge Maximo Magno-Libre, the members of the new management committee, and Danilo. Petitioners therein alleged that in issuing his June 5 and 20, 2001 Orders, respondent Judge gravely abused his discretion. In a Resolution dated July 9, 2001, the Court of Appeals dismissed the petition for petitioners’ failure to comply with the Rule against forum shopping.

On July 17, 2001, Perfecto, Jr. and Visitacion filed a Motion for Reconsideration. Later, or on July 20, 2001, they filed a Motion to Amend Petition.

In the meantime, Sotero filed with the Appellate Court his petition-in-intervention.

On July 26, 2001, the Court of Appeals issued a Resolution reconsidering its previous Resolution dismissing the petition and admitting the amended petition as well as the petition-in-intervention.

In a Resolution dated March 13, 2002, the Appellate Court issued a writ of preliminary injunction enjoining the implementation of the Orders dated June 5, 2001 and June 20, 2001 issued by the RTC.

Danilo filed a Motion for Reconsideration but the same was denied in a Resolution dated October 8, 2002.

On March 17, 2003, the Court of Appeals promulgated its Decision setting aside the RTC Orders dated June 5 and 20, 2001, holding that:

The Decision of the SEC that created MANCOM 1 was contained in the Order of November 10, 1998 (Rollo, pp. 523-528), while the appointment of intervenor’s representative, Henie N. Punongbayan, and petitioner Perfecto Punongbayan, Jr. to MANCOM 1 was set forth in the Order of February 24, 1999 (Rollo, pp. 532-533). There was no appeal taken from both Orders of the SEC, thus, the said Orders had become final and executory and they could no longer be amended, altered, or set aside. In fact, they were already implemented before the respondent Court assumed jurisdiction over the case. Intervenor’s representative and petitioner Perfecto Punongbayan, Jr. had already assumed their office as members of MANCOM 1 and commenced to discharge their duties long before the case was transferred to respondent Judge’s court.

It is a well-established rule that a judgment which had become final and executory can no longer be amended or modified by the courts (Cardoza vs. Singson, 181 SCRA 53) as it thereby becomes immutable and unalterable (Mining International Corp. vs. NLRC, 195 SCRA 155). x x x Clearly, then, the respondent Judge acted capriciously, arbitrarily and with grave abuse of discretion amounting to lack or excess of jurisdiction when he issued the assailed Orders on June 5, 2001 abolishing MANCOM 1 and creating MANCOM 2, and on June 20, 2001 appointing the members of MANCOM 2. Public respondent had no legal authority to abolish MANCOM 1 which was formed, duly constituted, and its members chosen by SEC, which is the government agency tasked with the supervision of corporations.

x x x what public respondent should have done was to convene the Board of Trustees of the corporation composed of Sotero, Danilo, and Perfecto, Jr., which, under its Charter and By-Laws, is tasked with its management and operation, and only after there shall have been no quorum should he have ordered the revamp of the old MANCOM. There appeared to be no legal impediment to the exercise by the Board of Trustees of the School of its corporate powers. Under the By-Laws of the School, a majority of the trustees shall constitute a quorum for the transaction of the corporate business. Since there were only three surviving members, then at least two of the surviving members could constitute a quorum.

The situation now obtaining being different from that prevailing during the filing of the instant petition in that the Board of Trustees had convened on July 4, 2001 and new members in the persons of Henie N. Punongbayan, Marilou P. Visitacion and Restituto Punongbayan had been elected to the Board, and a new By-Laws of the School had been adopted and approved by the SEC on August 21, 2001, the necessity of creating a MANCOM is rendered already moot and academic. x x x

WHEREFORE, premises considered, the petition is given DUE COURSE. The assailed Orders of public respondent Judge dated June 5, 2001 and June 20, 2001 in Corporation Case No. 006 of Branch 5 of the Regional Trial Court in Iligan City, Lanao del Norte, are hereby REVERSED and SET ASIDE for having been issued with grave abuse of discretion amounting to lack or excess of jurisdiction, and another one is issued convening the Board of Trustees of St. Peter’s College, Inc. in Iligan City, Lanao del Norte, and making permanent the injunction issued by this Court in this case.

SO ORDERED.



Hence, the instant petition for review on certiorari raising the following issues:

1. WHETHER OR NOT THE APPELLATE COURT COMMITTED AN ERROR THROUGH GROSS MISAPPREHENSION OF FACTS AS IT RULED THAT THE LOWER COURT REVOKED, VACATED, AMENDED OR MODIFIED THE ORDER CREATING A MANAGEMENT COMMITTEE WHEN IT ISSUED THE ORDER OF JUNE 5, 2001.

2. WHETHER OR NOT THE APPELLATE COURT COMMITTED AN ERROR THROUGH GRAVE MISAPPREHENSION OF FACTS WHEN IT RULED THAT THE LOWER COURT COMMITTED GRAVE ABUSE OF DISCRETION BY APPOINTING CARMELITA P. PUNONGBAYAN AS CHIEF EXECUTIVE OFFICER OF THE CORPORATION, WHEN THERE IS NO SUCH ORDER OF APPOINTMENT.

3. WHETHER OR NOT THE APPELLATE COURT ERRED IN RULING TO THE EFFECT THAT ‘UNDER THE BY-LAWS OF THE SCHOOL, A MAJORITY OF THE TRUSTEES SHALL CONSTITUTE A QUORUM FOR THE TRANSACTION OF THE CORPORATE BUSINESS. SINCE THERE WERE ONLY THREE SURVIVING MEMBERS, THAT AT LEAST TWO OF THE SURVIVING MEMBERS COULD CONSTITUTE A QUORUM.’ THE APPELLATE COURT HAS THUS DECIDED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW AND THE APPLICABLE DECISION OF THE SUPREME COURT.

4. WHETHER OR NOT THE APPELLATE COURT ERRED IN MAKING A FINDING THAT THERE IS NOW A FUNCTIONING BOARD OF TRUSTEES AND IT MUST BE ALLOWED TO FUNCTION AND TO EXERCISE ITS POWER AND DUTIES, AS IN DOING SO THE APPELLATE COURT WENT BEYOND THE ISSUES OF THE CASE.

5. A QUESTION OF LAW IS ALSO BEING POSED AS TO WHETHER THE APPELLATE COURT CAN RULE THAT THERE IS NOW A FUNCTIONING BOARD OF TRUSTEES AND THAT THE NECESSITY OF CREATING A MANCOM IS RENDERED MOOT AND ACADEMIC IN THE LIGHT OF THE PROVISION OF SEC. 12, RULE 9 OF THE INTERIM RULES OF PROCEDURE FOR INTRA-CORPORATE CONTROVERSIES.

Petitioner Danilo Punongbayan contends that the management committee created by the SEC was not abolished by the RTC. Its composition was only reorganized because of the existence of a deadlock among the members.

Respondents maintain that the RTC gravely abused its discretion when it ordered the creation of a new management committee in lieu of the one created by the SEC. Instead, it should have directed the remaining three members to reconvene.

The main issue for our consideration is whether the RTC could reorganize the management committee created by the SEC.

We rule in the affirmative.

Under Section 57 of Presidential Decree No. 902-A, the SEC has jurisdiction, among others, to hear and decide controversies in the appointments of directors, trustees, officers or managers of corporations.

Section 6 provides:

SECTION 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers:

x x x

d) To create a management committee x x x

The management committee x x x shall have the power to take custody of, and control over, all the existing assets and property of such entities under management; to evaluate the existing assets and liabilities, earnings and operations of such corporations, partnerships or other associations; to determine the best way to salvage and protect the interest of the investors and creditors; to study, review and evaluate the feasibility of continuing operations and restructure and rehabilitate such entities if determined to be feasible by the Commission. It shall report and be responsible to the Commission until dissolved by order of the Commission: Provided, however, That the Commission may, on the basis of the findings and recommendation of the management committee x x x or on its own findings, determine that the continuance in business of such corporation or entity would not be feasible or profitable nor work to the best interest of the stockholders, parties-litigants, creditors, or the general public, order the dissolution of such corporation entity and its remaining assets liquidated accordingly. The management committee x x x may overrule or revoke the actions of the previous management and board of directors of the entity or entities under management notwithstanding any provision of law, articles of incorporation or by-laws to the contrary.

x x x

A management committee is tasked to manage, take custody of and control all existing assets, funds and records of the corporation, and to determine the best way to protect the interest of its stockholders and creditors.

In this case, the SEC created a management committee, upon Sotero’s application, and appointed its five members. However, one member, Carmen Dormitorio (representing the CHED), inhibited herself from sitting in the committee, resulting in a deadlock among the remaining members. The committee became so divided, hence, the school’s business and affairs could no longer be conducted effectively to the prejudice of the stockholders and the students. In the meantime, the SEC’s jurisdiction over intra-corporate controversies was



transferred to the RTC. This prompted Sotero to file with the RTC, Branch 5, Iligan City, a motion to abolish the management committee created by the SEC. The RTC denied his motion and instead, ordered the reorganization of the management committee. Sotero challenged the RTC Orders before the Court of Appeals via a petition for certiorari. The Appellate Court ruled that the RTC should have directed the remaining members of the Board to reconvene instead of ordering the reorganization of the management committee.

Republic Act No. 8799, which became effective on August 8, 2000, transferred the jurisdiction of the SEC over cases involving intra-corporate disputes to the Regional Trial Courts.8 Thus, the RTC assumed powers provided under Sections 5 and 6 of Presidential Decree No. 902-A quoted earlier. As such, it has the discretion to grant or deny an application for the creation of a management committee. This discretion, however, must be exercised with great caution and circumspection.

Having the power to create a management committee, it follows that the RTC can order the reorganization of the existing management committee. Here, knowing that the deadlock among the members of the committee (appointed by the SEC) may lead to the paralyzation of the school’s business operations, the RTC removed the said members and appointed new members. This is pursuant to Section 11, Rule 9 of the Interim Rules of Procedure Governing Intra-Corporate Controversies which provides:

A member of the management committee is deemed removed upon appointment by the court of his replacement chosen in accordance with Section 4 of this Rule.

Such appointment of new members does not mean the creation of a new management committee. The existing management committee was not abolished. The RTC merely reorganized it by appointing new members. The management committee created by the SEC continues to exist. However, when it failed to function due to the division among the members, the RTC replaced them. Clearly, there was no revocation of the final Order of the SEC.

Significantly, in appointing new members of the management committee, chosen from the lists of nominees submitted by both petitioner and respondents, the RTC did not deprive respondents herein of their representation in the committee.

In fine, we find no grave abuse of discretion committed by the RTC.

WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is REVERSED.

SO ORDERED.

G.R. No. 173115 April 16, 2009

ATTY. VIRGILIO R. GARCIA, Petitioner,

vs.

EASTERN TELECOMMUNICATIONS PHILIPPINES, INC. and ATTY. SALVADOR C. HIZON, Respondents.

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

G.R. Nos. 173163-64 April 16, 2009

EASTERN TELECOMMUNICATIONS PHILIPPINES, INC. and ATTY. SALVADOR C. HIZON, Petitioners,

vs.

ATTY. VIRGILIO R. GARCIA, Respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

Assailed before Us via consolidated petitions for certiorari under Rule 45 of the Rules of Court is the Decision1 of the Court of Appeals in CA-G.R. SP No. 88887 and No. 89066 dated 24 March 2006, which dismissed the petitions for certiorari questioning the Decision2 of the National Labor Relations Commission (NLRC) dated 21 March 2003, docketed as NLRC NCR CA No. 028901-01. The NLRC reversed the decision of the Labor Arbiter dated 30 September 2002, finding the preventive suspension and dismissal of Atty. Virgilio R. Garcia illegal, and dismissed the case for lack of jurisdiction.

The facts are not disputed.

Atty. Virgilio R. Garcia was the Vice President and Head of Business Support Services and Human Resource Departments of the Eastern Telecommunications Philippines, Inc. (ETPI).

ETPI is a corporation duly organized and existing under the laws of the Republic of the Philippines.



Atty. Salvador C. Hizon is the President/Chief Executive Officer of ETPI.

On 16 January 2000, Atty. Garcia was placed under preventive suspension based on three complaints for sexual harassment filed by Atty. Maria Larrie Alinsunurin, former manager of ETPI’s Office of the Legal Counsel; Ms. Emma Valeros-Cruz, Assistant Vice President of ETPI and former secretary of Atty. Garcia; and Dr. Mercedita M. Macalintal, medical retainer/company physician of ETPI. In response to the complaints, the Human Resources Department constituted a Committee on Decorum to investigate the complaints. By reason of said complaints, Atty. Garcia was placed in preventive suspension. The committee conducted an investigation where Atty. Garcia was given copies of affidavits of the witnesses against him and a chance to defend himself and to submit affidavits of his witnesses. The Committee submitted a report which recommended his dismissal.3 In a letter dated 14 April 2000, Atty. Hizon advised Atty. Garcia that his employment with ETPI was, per recommendation of the Committee, terminated effective 16 April 2000.

A complaint-affidavit for illegal dismissal with prayer for full backwages4 and recovery of moral and exemplary damages was filed on 11 July 2000 by Atty. Virgilio R. Garcia against ETPI and Atty. Salvador C. Hizon.5 The case, docketed as NLRC NCR-30-07-02787-00, was assigned to Labor Arbiter Patricio P. Libo-on. The parties submitted their respective position papers,6 reply position papers7 and rejoinders.8 Per agreement of the parties, ETPI and Atty. Hizon filed a sur-rejoinder on 6 March 2001.9 Atty. Garcia manifested that he was no longer submitting a sur-rejoinder and was submitting the case for resolution.

On 15 April 2001, Atty. Garcia filed a Motion to Inhibit, praying that Labor Arbiter Libo-on inhibit himself from further proceeding with the case, on the ground that he was a fraternity brother of Atty. Hizon.10 Atty. Garcia thereafter filed a second Motion to Inhibit11 on 10 May 2001. ETPI and Atty. Hizon opposed said motion, arguing that the reason on which it was grounded was not one of those provided by law.12 In an Order dated 13 June 2001, said motions were denied.13 Atty. Garcia appealed said order before the NLRC via a Memorandum on Appeal dated 4 July 2001,14 to which ETPI and Atty. Hizon filed an Answer.15

The NLRC, in its decision dated 20 December 2001, set aside the order of Labor Arbiter Libo-on and ordered the re-raffling of the case.16 ETPI and Atty. Hizon moved for the reconsideration17 of the decision, but the same was denied.18 Consequently, the case was re-raffled to Labor Arbiter Ramon Valentin C. Reyes.19

The parties were directed to submit their respective memoranda.20 Atty. Garcia filed his memorandum21 on 9 July 2002 while ETPI and Atty. Hizon submitted their memorandum22 on 22 July 2002. On 16 August 2002, with leave of court, ETPI and Atty. Hizon filed a Reply Memorandum, raising for the first time the issue of lack of jurisdiction.

In his decision dated 30 September 2002, Labor Arbiter Reyes found the preventive suspension and subsequent dismissal of Atty. Garcia illegal. The dispositive portion of the decision reads:

WHEREFORE, premises all considered, judgment is hereby rendered, finding the preventive suspension and the dismissal illegal and ordering the respondents to:

1. Reinstate complainant to his former position without loss of seniority rights and other benefits appurtenant to the position that complainant received prior to the illegal dismissal;

2. Pay complainant his backwages which for purpose of appeal is computed to the amount of P4,200,000.00 (P150,000 x 28);

3. Pay complainant Moral damages in the amount of P1,000,000.00 and Exemplary damages in the amount of P500,000.00.23

On 14 November 2002, Atty. Garcia filed an Ex-Parte Motion for the Issuance of a Writ of Execution.24 On 20 November 2002, Labor Arbiter Reyes issued a Writ of Execution insofar as the reinstatement aspect of the decision was concerned.25 ETPI and Atty. Hizon filed a Very Urgent Motion to Lift/Quash Writ of Execution on 28 November 2002.26 Per Sheriff’s Return on the Writ of Execution, said writ remained unsatisfied because ETPI and Atty. Hizon refused to reinstate Atty. Garcia to his former position.27

On 29 November 2002, Atty. Garcia filed an Ex-Parte Motion for the Issuance of an Alias Writ of Execution praying that said writ be issued ordering the sheriff to enforce the decision by garnishing the amount of P450,000.00 representing his monthly salaries for two months and 13th month pay from any of ETPI’s bank accounts.28 Atty. Garcia manifested that he was no longer filing any responsive pleading to the Very Urgent Motion to Lift/Quash Writ of Execution because the Labor Arbiter lost jurisdiction over the case when an appeal had been perfected.29 In an Order dated 10 December 2002, Labor Arbiter Reyes denied the Very Urgent Motion to Lift/Quash Writ of Execution, explaining that it still had jurisdiction over the reinstatement aspect of the decision, notwithstanding the appeal taken, and that the grounds relied upon for the lifting or quashing of the writ were not valid grounds.30 Labor Arbiter Reyes subsequently issued a 1st Alias Writ of Execution dated 11 December 2002 ordering the sheriff to proceed to the premises of ETPI to reinstate Atty. Garcia and/or garnish the amounts prayed for.31 Per Sheriff’s Return dated 17 January 2003, the 1st Alias Writ of Execution was satisfied with the amount of P450,000.00 being released for proper disposition to Atty. Garcia.32

ETPI and Atty. Hizon appealed the decision to the NLRC, filing a Notice of Appeal and Memorandum of Appeal,33 which appeal was opposed by Atty. Garcia.34 The appeal was docketed as NLRC NCR CA Case No. 028901-01. ETPI and Atty. Hizon filed a Supplemental Appeal Memorandum dated 23 January 2003 (With Very Urgent Motion for Issuance of Temporary Restraining Order).35 In a Manifestation ad Cautelam dated 28 January 2003, without waiving their right to continue to question the jurisdiction of the Labor Arbiter, they informed the Labor Arbiter that they had filed a Supplemental Appeal Memorandum before the NLRC and asked that all processes relating to the implementation of the reinstatement order be held in abeyance so as not to render moot the reliefs prayed for in said Supplemental Appeal Memorandum.36 They likewise filed on 31 January 2003 a Very Urgent Motion to Lift/Quash Order of Garnishment ad Cautelam, praying that the notice of garnishment on ETPI’s bank account with Metrobank, Dela Costa Branch, or with other banks with which ETPI maintained an account and which received said notice of garnishment be immediately lifted/quashed.37 On 12 February 2003, Atty. Garcia filed his Opposition to said Supplemental Appeal Memorandum.38



On 3 February 2003, Atty. Garcia filed an Ex-Parte Motion for the Issuance of a 2nd Alias Writ of Execution.39 In an Order dated 5 February 2003, Labor Arbiter Reyes lifted the notice of garnishment on ETPI’s bank account with Metrobank, Dela Costa Branch.40 On 10 February 2003, Labor Arbiter Reyes issued a 2nd Writ of Execution.41

In a Manifestation ad Cautelam42 dated 10 February 2003, ETPI and Atty. Hizon said that they filed with the NLRC on 7 February 2003 an Urgent Petition (for Preliminary Injunction With Issuance of Temporary Restraining Order)43 which prayed, inter alia, for the issuance of a temporary restraining order to restrain the execution pending appeal of the order of reinstatement and to enjoin the Labor Arbiter from issuing writs of execution or other processes implementing the decision dated 30 September 2002. They added that they also filed on 7 February 2003 a Notice to Withdraw44 their Supplemental Appeal Memorandum dated 23 January 2003.

ETPI and Atty. Hizon, without waiving their right to continue to question the jurisdiction of the Labor Arbiter over the case, filed on 18 February 2003 a Motion to Inhibit, seeking the inhibition of Labor Arbiter Reyes for allegedly evident partiality in favor of the complainant in issuing writs of execution in connection with the order of reinstatement contained in his decision dated 30 September 2002, despite the pendency of an Urgent Petition (for Preliminary Injunction With Prayer for the Issuance of Temporary Restraining Order) with the NLRC, which sought the restraining of the execution pending appeal of the order of reinstatement.45 The petition for injunction was docketed as NLRC NCR IC No. 0001193-02. Atty. Garcia filed an opposition,46 to which ETPI and Atty. Hizon filed a reply.47 Said motion to inhibit was subsequently granted by Labor Arbiter Reyes.48 The case was re-raffled to Labor Arbiter Elias H. Salinas.49

In an Order dated 26 February 2003, the NLRC, in NLRC NCR IC No. 0001193-02, issued a temporary restraining order (TRO) enjoining Labor Arbiter Reyes from executing pending appeal the order of reinstatement contained in his decision dated 30 September 2002, and from issuing similar writs of execution pending resolution of the petition for preliminary injunction. It directed ETPI and Atty. Hizon to post a bond in the amount of P30,000.00 to answer for any damage which Atty. Garcia may suffer by reason of the issuance of the TRO.50

On 21 March 2003, the NLRC rendered its decision in NLRC NCR CA Case No. 028901-01 reversing the decision of Labor Arbiter Reyes and dismissing the case for lack of jurisdiction. The decretal portion of the decision reads:

WHEREFORE, the decision appealed from is REVERSED, and the instant case DISMISSED for lack of jurisdiction.51

The Commission ruled that the dismissal of Atty. Garcia, being ETPI’s Vice President, partook of the nature of an intra-corporate dispute cognizable by Regional Trial Courts and not by Labor Arbiters. It added that ETPI and Atty. Hizon were not barred by estoppel from challenging the jurisdiction of the Labor Arbiter over the instant case.

Atty. Garcia moved for the reconsideration52 of the decision, which ETPI and Atty. Hizon opposed.53 In a resolution dated 16 December 2003, the motion for reconsideration was denied for lack of merit.54

On 26 March 2003, Atty. Garcia filed a Motion to Inhibit, requesting Associate Commissioner Angelita A. Gacutan to inhibit herself from further participating in the deliberation and resolution of the case for manifest bias and partiality in favor of ETPI and Atty. Hizon. The motion was later withdrawn.55

On 3 April 2003, the NLRC made permanent the TRO it issued pursuant to its ruling in NLRC NCR CA Case No. 028901-01, that since the Labor Arbiter had no jurisdiction over the case, the decision of the Labor Arbiter dated 30 September 2002 was void.56

On 6 March 2004, the resolution dated 16 December 2003 became final and executory. Consequently, on 14 June 2004, an entry of judgment was made recording said resolution in the Book of Entries of Judgments.57

On 18 June 2004, ETPI and Atty. Hizon filed a Motion to Discharge and/or Release the Appeal Bond58 in the amount of P5,700,000.00 that they had posted. 59

On 9 July 2004, Atty. Garcia filed a Motion to Set Aside Finality of Judgment With Opposition to Motion to Discharge Appeal Bond,60 claiming that he did not receive the resolution dated 16 December 2003 of the NLRC, the same having been sent to his former address at 9 Isidora St., Don Antonio Heights, Diliman, Quezon City, and not to his new address at 4 Pele St., Filinvest 2, Batasan Hills, Quezon City, where he had been receiving all pleadings, Resolutions, Orders and Decisions pertaining to the instant case since April 2001. On 19 July 2004, ETPI and Atty. Hizon filed their opposition thereto. On 23 August 2004, the NLRC, admitting that it missent the resolution dated 16 December 2003 denying Atty. Garcia’s motion for reconsideration, issued an order granting the motion. It recalled and set aside the Entry of Judgment dated 14 June 2004 and denied the Motion to Discharge and/or Release the Appeal Bond.61

In its Motion for Reconsideration dated 17 September 2004, ETPI and Atty. Hizon argued that the NLRC correctly sent the resolution of 16 December 2003 to counsel’s allegedly old address, considering that same was counsel’s address of record, there being no formal notice filed with the NLRC informing it of a change of address. They contended that the aforesaid resolution had become final and executory, and that Atty. Garcia should bear the consequences of his inequitable conduct and/or gross negligence.62 On 10 January 2005, the NLRC denied the motion for reconsideration.63

On 14 March 2005, Atty. Garcia appealed to the Court of Appeals via a Petition for Certiorari. It prayed that the Decision dated 21 March 2003 and resolution dated 16 December 2003 of the NLRC be annulled and set aside, and that the decision of the Labor Arbiter dated 30 September 2002 be reinstated.64 The appeal was docketed as CA-G.R. SP No. 88887.

On 28 March 2005, ETPI and Atty. Hizon likewise filed a Petition for Certiorari asking that the Orders dated 23 August 2004 and 10 January 2005 of the NLRC be set aside; that its resolution dated 16 December 2003 be declared final and executory; and that the NLRC be directed to discharge and/or release Supersedeas Bond No. JCL (15) 00823 SICI Bond No. 75069 dated 18 November 2002 posted by them.65 The appeal was docketed as CA-G.R. SP No. 89066.



Upon motion of Atty. Garcia, the two petitions for certiorari were consolidated.66

On 24 March 2006, the assailed decision of the Court of Appeals was rendered, the dispositive portion reading:

UPON THE VIEW WE TAKE OF THIS CASE, THUS, the consolidated petitions are hereby DISMISSED for lack of merit. Without costs in both instances.67

The appellate court, on ETPI and Atty. Hizon’s argument that Atty. Garcia’s petition for certiorari was filed out of time, ruled that the NLRC did not commit grave abuse of discretion in liberally applying the rules regarding changes in the address of counsel. It likewise ruled that Atty. Garcia, being the Vice President for Business Support Services and Human Resource Departments of ETPI, was a corporate officer at the time he was removed. Being a corporate officer, his removal was a corporate act and/or an intra-corporate controversy, the jurisdiction of which rested with the Securities and Exchange Commission (now with the Regional Trial Court), and not the Labor Arbiter and the NLRC. It added that ETPI and Atty. Hizon were not estopped from questioning the jurisdiction of the Labor Arbiter before the NLRC on appeal, inasmuch as said issue was seasonably raised by ETPI and Atty. Hizon in their reply memorandum before the Labor Arbiter.

On 18 April 2006, Atty. Garcia filed his Motion for Reconsideration.68 On 20 April 2006, ETPI and Atty. Hizon filed a Motion for Partial Reconsideration.69 The parties filed their respective comments thereon.70 On 14 June 2006, the Court of Appeals denied the motions for reconsideration.71

Atty. Garcia is now before us via a Petition for Review, which he filed on 3 August 2006.72 The petition was docketed as G.R. No. 173115. On 8 August 2006, he filed an Amended Petition for Review.73 He prays that the decision of the NLRC dated 21 March 2003 and its resolution dated 16 December 2003, and the decision of the Court of Appeals dated 24 March 2006 and its resolution dated 14 June 2006, be reconsidered and set aside and that the decision of the Labor Arbiter dated 30 September 2002 be affirmed and reinstated.

ETPI and Atty. Hizon are also before us by way of a Petition for Certiorari.74 The petition which was filed on 6 July 2006 was docketed as G.R. Nos. 173163-64.

In our resolution dated 30 August 2006, G.R. Nos. 173163-64 were consolidated with G.R. No. 173115, and the parties were required to comment on the petitions within ten days from notice. 75 Atty. Garcia filed his comment on 13 November 2006,76 while ETPI and Atty. Hizon filed theirs on 29 November 2006.77

On 15 January 2007, we noted the comments filed by the parties and required them to file their Replies to said comments.78 ETPI and Atty. Hizon79 filed their Reply on 26 February 2007, with Atty. Garcia filing his on 2 March 2007.80

On 26 March 2007, we gave due course to the petitions and required the parties to submit the respective memoranda within 30 days from notice.81 Atty. Garcia submitted his Memorandum82 on 12 June 2007 and ETPI and Atty. Hizon filed theirs on 13 July 2007.83 With leave of court, ETPI and Atty. Hizon filed a reply memorandum.84

Atty. Garcia raises the lone issue:

WHETHER THE QUESTION OF LEGALITY OR ILLEGALITY OF THE REMOVAL OR TERMINATION OF EMPLOYMENT OF AN OFFICER OF A CORPORATION IS AN INTRA-CORPORATE CONTROVERSY THAT FALLS UNDER THE ORIGINAL EXCLUSIVE JURISDICTION OF THE REGIONAL TRIAL COURTS?85

ETPI and Atty. Hizon argue that the Court of Appeals, in ruling that the NLRC did not commit grave abuse of discretion amounting to lack or excess of jurisdiction in issuing its order dated 23 August 2004 and its resolution dated 10 January 2005, committed grave reversible error and decided questions of substance in a way not in accordance with law and applicable decisions of the Honorable Court, and departed from the accepted and usual course of judicial proceedings, necessitating the Honorable Court’s exercise of its power of supervision.

I

THE RESOLUTION DATED 16 DECEMBER 2003 ISSUED BY THE NATIONAL LABOR RELATIONS COMMISSION (SECOND DIVISION) HAS ALREADY BECOME FINAL AND EXECUTORY AND HAS VESTED UPON PETITIONERS ETPI, ET AL. A RIGHT RECOGNIZED AND PROTECTED UNDER THE LAW CONSIDERING THAT:

A. RESPONDENT’S COPY OF SAID RESOLUTION WAS PROPERLY SENT TO HIS ADDRESS OF RECORD, AT THE LATEST ON 15 JANUARY 2004, IN ACCORDANCE WITH WELL ESTABLISHED JURISPRUDENCE. HENCE, RESPONDENT GARCIA HAD ONLY UNTIL 15 MARCH 2004 WITHIN WHICH TO FILE HIS PETITION FOR CERTIORARI WITH THE COURT OF APPEALS. RESPONDENT GARCIA FAILED TO FILE HIS PETITION FOR CERTIORARI BY SAID DATE.

B. NOTWITHSTANDING THE FOREGOING, RESPONDENT GARCIA HAD ACTUAL NOTICE OF THE ISSUANCE OF THE SAME AS OF 24 JUNE 2004. HENCE RESPONDENT GARCIA HAD ONLY UNTIL 23 AUGUST 2004 WITHIN WHICH TO FILE HIS PETITION FOR CERTIORARI WITH THE COURT OF APPEALS. RESPONDENT GARCIA FAILED TO FILE HIS PETITION FOR CERTIORARI BY SAID DATE.



C. EVEN IF THE DATE OF RECEIPT IS RECKONED FROM 15 SEPTEMBER 2005, THE DATE RESPONDENT GARCIA ADMITTED IN HIS PETITION FOR CERTIORARI TO BE THE DATE OF HIS RECEIPT OF THE COPY OF THE RESOLUTION DATED 16 DECEMBER 2003 AT HIS ALLEGED NEW ADDRESS, RESPONDENT GARCIA HAD ONLY UNTIL 15 NOVEMBER 2005 TO FILE HIS PETITION FOR CERTIORARI DATED 11 MARCH 2005. RESPONDENT GARCIA FAILED TO FILE HIS PETITION FOR CERTIORARI BY SAID DATE.

II

THE COURT OF APPEALS ERRED IN AFFIRMING THE NLRC’S LIBERAL APPLICATION OF RULES CONSIDERING THAT A LIBERAL APPLICATION OF RULES CANNOT BE USED TO DEPRIVE A RIGHT THAT HAS ALREADY IPSO FACTO VESTED ON PETITIONERS ETPI, ET AL.

III

THE COURT OF APPEALS ERRED IN RULING THAT THE NLRC DID NOT COMMIT GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ISSUING ITS ORDER DATED 23 AUGUST 2004 AND RESOLUTION DATED 10 JANUARY 2005 CONSIDERING THAT RESPONDENT GARCIA MAY NOT ASSAIL THE FINALITY OF RESOLUTION DATED 16 DECEMBER 2003 THROUGH A MERE MOTION.

IV

THE COURT OF APPEALS ERRED IN FAILING TO RULE ON PETITIONERS’ COUNTER-MOTION TO CITE RESPONDENT GARCIA IN CONTEMPT OF COURT DESPITE ITS PREVIOUS RESOLUTION DATED 30 MAY 2005 STATING THAT IT SHALL ADDRESS THE SAME IN THE DECISION ON THE MERITS OF THE CASE.86

The issue raised by Atty. Garcia – whether the termination or removal of an officer of a corporation is an intra-corporate controversy that falls under the original exclusive jurisdiction of the regional trial courts – is not novel. The Supreme Court, in a long line of cases, has decreed that a corporate officer’s dismissal or removal is always a corporate act and/or an intra-corporate controversy, over which the Securities and Exchange Commission [SEC] (now the Regional Trial Court)87 has original and exclusive jurisdiction.88

We have ruled that an intra-corporate controversy is one which pertains to any of the following relationships: (1) between the corporation, partnership or association and the public; (2) between the corporation, partnership or association and the State insofar as the former’s franchise, permit or license to operate is concerned; (3) between the corporation, partnership or association and its stockholders, partners, members or officers; and (4) among the stockholders, partners or associates themselves.89 In Lozon v. National Labor Relations Commission,90 we declared that Presidential Decree No. 902-A confers on the SEC original and exclusive jurisdiction to

hear and decide controversies and cases involving intra-corporate and partnership relations between or among the corporation, officers and stockholders and partners, including their elections or appointments x x x.

Before a dismissal or removal could properly fall within the jurisdiction of the SEC, it has to be first established that the person removed or dismissed was a corporate officer.91 "Corporate officers" in the context of Presidential Decree No. 902-A92 are those officers of the corporation who are given that character by the Corporation Code or by the corporation’s by-laws.93 There are three specific officers whom a corporation must have under Section 25 of the Corporation Code.94 These are the president, secretary and the treasurer. The number of officers is not limited to these three. A corporation may have such other officers as may be provided for by its by-laws like, but not limited to, the vice-president, cashier, auditor or general manager. The number of corporate officers is thus limited by law and by the corporation’s by-laws.1avvphi1

In the case before us, the by-laws of ETPI provide:

ARTICLE V

Officers

Section 1. Number. – The officers of the Company shall be a Chairman of the Board, a President, one or more Vice-Presidents, a Treasurer, a Secretary, an Assistant Secretary, and such other officers as may be from time to time be elected or appointed by the Board of Directors. One person may hold any two compatible offices.95

Atty. Garcia tries to deny he is an officer of ETPI. Not being a corporate officer, he argues that the Labor Arbiter has jurisdiction over the case. One of the corporate officers provided for in the by-laws of ETPI is the Vice-President. It can be gathered from Atty. Garcia’s complaint-affidavit that he was Vice President for Business Support Services and Human Resource Departments of ETPI when his employment was terminated effective 16 April 2000. It is therefore clear from the by-laws and from Atty. Garcia himself that he is a corporate officer. One who is included in the by-laws of a corporation in its roster of corporate officers is an officer of said corporation and not a mere employee.96 Being a corporate officer, his removal is deemed to be an intra-corporate dispute cognizable by the SEC and not by the Labor Arbiter.

We agree with both the NLRC and the Court of Appeals that Atty. Garcia’s ouster as Vice-President, who is a corporate officer of ETPI, partakes of the nature of an intra-corporate controversy, jurisdiction over which is vested in the SEC (now the RTC). The Labor Arbiter thus erred in assuming jurisdiction over the case filed by Atty. Garcia, because he had no jurisdiction over the subject matter of the controversy.

Having ruled which body has jurisdiction over the instant case, we find it unnecessary, due to mootness, to further discuss and rule on the issues raised by ETPI and Atty. Hizon regarding the NLRC order dated 23 August 2004 granting Atty. Garcia’s Motion to Set Aside Finality of



Judgment with Opposition to Motion to Discharge Appeal Bond, and its resolution dated 10 January 2005 denying their motion for reconsideration thereon. The decision of the Labor Arbiter, who had jurisdiction over the case, was properly dismissed by the NLRC. Consequently, Supersedeas Bond No. JCL (15) 00823 SICI Bond No. 75069 dated 18 November 2002, posted by ETPI as a requirement for the filing of an appeal before the NLRC, is ordered discharged.

WHEREFORE, premises considered, the petition for certiorari of Atty. Garcia in G.R. No. 173115 is hereby DENIED. The petition for review on certiorari of ETPI and Atty. Hizon in G.R. Nos. 173163-64 is PARTIALLY GRANTED insofar as the discharge of Supersedeas Bond No. JCL (15) 00823 SICI Bond No. 75069 dated 18 November 2002 is concerned. This ruling is without prejudice to Atty. Garcia’s taking recourse to and seeking relief through the appropriate remedy in the proper forum.

SO ORDERED.

G.R. No. 173349 February 9, 2011

SAMUEL U. LEE and PAULINE LEE and ASIATRUST DEVELOPMENT BANK, INC., Petitioners,

vs.

BANGKOK BANK PUBLIC COMPANY, LIMITED, Respondent.

The Case

In this Petition for Review on Certiorari under Rule 45, petitioners assail the March 15, 2006 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 79362, which reversed and set aside the April 21, 2003 Decision2 of the Regional Trial Court (RTC), Branch 73 in Antipolo City, in Civil Case No. 99-5388, entitled Bangkok Bank Public Company Limited v. Spouses Samuel U. Lee and Pauline Lee and Asiatrust Development Bank for the Rescission of Real Estate Mortgage (REM), Annulment of Foreclosure Sale, Cancellation of Titles and Damages. They assail also the June 29, 2006 CA Resolution denying their motion for reconsideration.

The Facts

Midas Diversified Export Corporation (MDEC) and Manila Home Textile, Inc. (MHI) entered into two separate Credit Line Agreements (CLAs) with Respondent Bangkok Bank Public Company, Limited (Bangkok Bank) on November 29, 1995 and April 17, 1996, respectively.3 MDEC and MHI are owned and controlled by the Lee family: Thelma U. Lee, Maybelle L. Lim, Daniel U. Lee and Samuel U. Lee (Samuel).4

Both corporations have interlocking directors and management led by the Lee family; and engaged in the manufacturing and export of garments, ladies’ bags and apparel.

Bangkok Bank required guarantees from the Lee family for the two CLAs. Consequently, the Lee family executed guarantees in favor of Bangkok Bank on December 1, 1995 for the CLA for MDEC and on April 17, 1996 for the CLA of MHI. Under the guarantees, the Lee family irrevocably and unconditionally guaranteed, as principal debtors, the payment of any and all indebtedness of MDEC and MHI with Bangkok Bank.5 Prior to the granting of the CLAs, Bangkok Bank conducted a property check on the Lee family and required Samuel to submit a list of his properties. Bangkok Bank, however, did not require the setting aside, as collateral, of any particular property to answer for any future unpaid obligation.6 Subsequently, MDEC and MHI made several availments from the CLAs. In time, the advances, which MDEC and MHI had taken out from the CLAs, amounted to three million dollars (USD 3,000,000).7

On July 25, 1996, MDEC was likewise granted a loan facility by Asiatrust Development Bank, Inc. (Asiatrust).8 This facility had an available credit line of forty million pesos (PhP 40,000,000) for letters of credit, advances on bills and export packing; and a separate credit line of two million dollars (USD 2,000,000) for bills purchase.9

In the meantime, in May 1997, Samuel bought several parcels of land in Cupang, Antipolo, and later entered into a joint venture with Louisville Realty and Development Corporation to develop the properties into a residential subdivision, called Louisville Subdivision.10 These properties in Cupang, Antipolo are the subject properties in the instant case (Antipolo properties) and are covered by Transfer Certificate of Title (TCT) Nos. 329663 to 329511 of the Registry of Deeds of Rizal in Marikina City (RD).11

Throughout 1997, MDEC availed itself of the omnibus credit line granted by Asiatrust on three occasions: ten million pesos (PhP 10,000,000) to mature on July 15, 1997; eleven million pesos (PhP 11,000,000) to mature on February 6, 1998; and another ten million pesos (PhP 10,000,000) to mature on February 20, 1998. In the same year, particularly in August 1997, when MDEC had defaulted in the payment of its loan that matured on July 15, 1997, Asiatrust initiated negotiations with MDEC and required the Lee family to provide additional collateral that would secure the loan. In December 1997, the negotiation was concluded when Asiatrust had agreed to Samuel’s proposition that he would mortgage the subject Antipolo properties to secure the loan, and therefore execute a REM over the properties.12 While the titles of the Antipolo properties had been delivered by Samuel to Asiatrust and the REM had been executed in January 1998, spouses Samuel and Pauline Lee (spouses Lee) were requested to sign a new deed of mortgage on February 23, 1998, and, thus, it was only on that date that the said mortgage was actually notarized, registered, and annotated at the back of the titles.13

Similarly, MDEC and MHI initially had made payments with their CLAs until they defaulted and incurred aggregate obligations to Bangkok Bank in the amount of USD 1,998,554.60 for MDEC and USD 800,000 for MHI.14 Similarly, the Lee corporations defaulted in their obligations with other creditors. For example, Security Bank Corporation (SBC) filed a case against the Lee family for a sum of money resulting from the nonpayment of obligations before the RTC, Branch 132 in Makati City, entitled Security Bank Corporation v. Duty Free Superstore, Inc., Daniel U. Lee, Samuel U. Lee and Jacqueline M. Lee, docketed as Civil Case No. 98-196. On January 30, 1998, the RTC in Civil Case No. 98-196 issued a Writ of Preliminary Attachment in favor of SBC, granting attachment of the defendants’ real and personal properties.15 The writ, however, was neither registered nor annotated on the titles of the subject Antipolo properties at the RD.



On February 16, 1998, MDEC, MHI, and three other corporations owned by the Lee family filed before the Securities and Exchange Commission (SEC) a Consolidated Petition for the Declaration of a State of Suspension of Payments and for Appointment of a Management Committee/Rehabilitation Receiver.16 Said petition acknowledged, among others, MDEC and MHI’s indebtedness with Bangkok Bank, and admitted that matured and maturing obligations could not be met due to liquidity problems. The petition likewise had a list of creditors to whom the corporations remain indebted, which included Asiatrust.17 The petition stated that the Lee family and their corporations had more than sufficient properties to cover all liabilities to their creditors; and presented a list of all their properties including the subject properties located in Antipolo, Rizal. Notably, the list of properties attached to the petition indicated that the subject Antipolo properties of the spouses Lee had already been earmarked, or that they had already served as security, for MDEC’s unpaid obligation with Asiatrust.18

On February 20, 1998, the SEC issued a Suspension Order enjoining the Lee corporations from disposing of their property in any manner except in the ordinary course of business, and from making any payments outside the legitimate expenses of their business during the pendency of the petition.19

On March 12, 1998, Bangkok Bank instituted an action before the RTC, Branch 141 in Makati City to recover the loans extended to MDEC and MHI under the guarantees, docketed as Civil Case No. 98-628.20 Bangkok Bank’s application for the issuance of a writ of preliminary attachment was granted through the Orders dated March 17 and 18, 1998, covering the properties of the Lee family in Antipolo, Cavite, Quezon City, and Baguio, among others.21

While enforcing the writs of preliminary attachment, Bangkok Bank discovered that the spouses Lee had executed a REM over the subject Antipolo properties in favor of Asiatrust; and that the REM had previously been annotated on the titles.22 Thus, the writs of preliminary attachment were also inscribed at the back of the TCTs covering the subject Antipolo properties, next to the annotation of the REM.

With MDEC still unable to make payments on its defaulting loans with Asiatrust, the latter foreclosed the subject mortgaged Antipolo properties. On April 15, 1998, Asiatrust won as the highest bidder at the auction sale, purchasing the said properties for PhP 20,864,735.23 Thereafter, Asiatrust still filed an action against MDEC and the spouses Lee to collect the deficiency amounting to at least PhP 14,800,000. Up until the filing of the memoranda by the parties before this Court, the said action remained pending before the CA.24

Subsequently, the sale was registered on April 21, 1998.25 Believing the REM and the foreclosure sale to be fraudulent, Bangkok Bank did not redeem the subject properties. As there had been no effort to redeem the properties, consequently, the TCTs covering the subject properties were consolidated in the name of Asiatrust on April 30, 1999, and 120 new titles were issued in the name of Asiatrust without the annotation of the writs of preliminary attachment, which were deemed canceled.26

Among the 120 titles foreclosed by Asiatrust in Louisville Subdivision in Antipolo, only 12 properties were sold for a maximum price of PhP 250,000 for a house and lot, and 108 titles remained. Asiatrust was still unable to sell them and convert them into cash. From then on, Asiatrust maintained security services and paid the real estate taxes of the subject Antipolo properties, among others.

On July 20, 1999, Bangkok Bank filed the instant case before the RTC, Branch 73 in Antipolo City, docketed as Civil Case No. 99-5388 for the rescission of the REM over the subject properties, annulment of the April 15, 1998 foreclosure sale, cancellation of the new TCTs issued in favor of Asiatrust, and damages amounting to PhP 600,000. In its action, Bangkok Bank alleged, among others, that the presumption of fraud under Article 1387 of the Civil Code applies, considering that a writ of preliminary attachment was issued in January 1998 in favor of SBC against Samuel. It also claimed that collusion and fraud transpired between the spouses Lee and Asiatrust in the execution of the REM. On August 5, 1999, Bangkok Bank amended its complaint to implead the RD.

Meanwhile, on March 23, 2000, the RTC, Branch 141 in Makati City in Civil Case No. 98-628 rendered a Partial Decision in favor of Bangkok Bank, ordering the Lee family, pursuant to the guarantees, to pay USD 1,998,554.60 for the CLA of MDEC and USD 800,000 for the CLA of MHI, with the corresponding 12% interest per annum from the date of the filing of the complaint, i.e., on March 12, 1998, until fully paid.

But Bangkok Bank had only levied on the execution of the partial decision, some old equipment, office fixtures and furniture, garments, textiles, and other small production equipment with an approximate aggregate value of PhP 600,000.27 Considering the total liabilities of the Lee family to Bangkok Bank, the levied properties were insufficient to satisfy the partial judgment in Civil Case No. 98-628.

The Ruling of the RTC

After due hearing with the parties presenting their evidence, on April 21, 2003, the RTC rendered a Decision dismissing the case, the fallo reading:

WHEREFORE, premises considered, the instant case is hereby dismissed for lack of merit.

No findings as to the counterclaim of the defendants for insufficiency of evidence to support the claim.

SO ORDERED.28

In dismissing the instant case, the trial court found no concrete proof of the alleged fraud committed by the Lee family and Asiatrust, more so, that of a collusion or conspiracy between them. Consequently, it ruled that Art. 1381(3) of the Civil Code does not apply. Moreover, it noted that Bangkok Bank has not proved that it cannot in any manner collect its claims from the Lee family. For one, it held that Bangkok Bank chose not to exercise its right of redemption over the subject properties; for another, the subject properties were not the only properties of the Lee family as admitted by Bangkok Bank’s sole witness, Susan Capalaran.



The RTC explained that a mortgage contract is an onerous undertaking to secure payment of an obligation and cannot be considered as a gratuitous alienation; thus, Art. 1387 of the Civil Code does not apply.29 Finally, it held that neither fraud nor a violation of the SEC suspension order can result from the execution of the REM and the foreclosure of the subject properties, because according to the testimony of Bangkok Bank’s sole witness, the subject properties are not covered by the SEC Suspension Order for which reason Bangkok Bank filed an action to attach them. As the subject properties are not covered by the SEC Suspension Order, the RTC held that there is nothing that precludes the spouses Lee from mortgaging them to Asiatrust.30

The Ruling of the CA

Aggrieved, Bangkok Bank appealed the trial court’s decision before the CA; and on March 15, 2006, the appellate court rendered the assailed decision, which granted the appeal, and reversed and set aside the RTC decision. The decretal portion reads:

WHEREFORE, premises considered, the instant appeal is hereby GRANTED. The assailed Decision dated April 21, 2003 of the trial court is REVERSED and SET ASIDE. A new judgment is rendered ordering the:

1. Rescission of the Real Estate Mortgage over Appellees-spouses Lee’s Antipolo properties in favor of appellee Asiatrust;

2. Annulment of the Foreclosure Sale conducted on April 15, 1998;

3. Cancellation of the Transfer Certificate of Titles in the name of Asiatrust; and

4. Reversion of the titles in favor of appellees-spouses Lee.

No costs.

SO ORDERED.31

In reversing and setting aside the RTC decision, the CA held as crucial the Letter dated April 4, 1998 sent by the counsel of the Midas Group of Companies to the Office of the Clerk of Court and Ex-Officio Sheriff of the trial court relative to the extra-judicial foreclosure of the REM scheduled on April 15, 1998. The letter assailed said proceeding as bereft of legal and factual bases in the light of the February 20, 1998 Suspension Order of the SEC.32 It held that the present counsel of petitioner-spouses Lee cannot take a 360-degree turn as

regards their predecessor’s position, for Bangkok Bank merely adopted petitioners’ earlier stance. Thus, the CA ruled that petitioner-spouses Lee are in estoppel in pais, under Art. 1431 of the Civil Code and Section 2(a) of Rule 131 of the Revised Rules on Evidence.

The CA found that the subject Antipolo properties, though personal assets of the spouses Lee, are covered by the February 20, 1998 Suspension Order of the SEC, since they are included in the list submitted to SEC by the Lee family; and that Samuel is a guarantor of the loans incurred by MDEC and MHI from Bangkok Bank. It ruled that Samuel, being a guarantor, is jointly and severally liable to Bangkok Bank for the corporate debts of MDEC and MHI, as he divested himself from the protection of the limited liability doctrine, which, the CA held, was shown (1) through the inclusion of the said subject Antipolo properties in the list submitted to the SEC; and (2) by Samuel, through the guarantees that he executed, thus voluntarily binding himself to the payment of the loans incurred from Bangkok Bank.

The CA also rejected petitioners’ claim that the subject properties were allotted to Asiatrust. It reasoned that if the subject properties were indeed allotted to Asiatrust, then these would not have been included in the list of properties submitted to the SEC. It added that the absence of any encumbrance annotated on the TCTs or any document appurtenant to it prior to the January 30, 1998 writ of preliminary attachment issued in Civil Case No. 98-196 and the February 20, 1998 Suspension Order further belies petitioners’ claim. The CA held that fraud was perpetrated through the REM executed and registered on February 23, 1998 pursuant to the presumption in the second paragraph of Art. 1387 of the Civil Code, which provides that "alienations by onerous title are also presumed fraudulent when made by persons against whom x x x some writ of attachment has been issued." Consequently, the spouses Lee filed the instant petition.

The Issues

I.

Whether or not Bangkok Bank can maintain an action to rescind the REM on the subject Antipolo properties despite its failure to exhaust all legal remedies to satisfy its claim.

II.

Whether or not properties owned by private individuals should be covered by a suspension order issued by the SEC in an action for suspension of payments.

III.



Whether or not a surety or guarantor is guilty of defrauding creditors for executing a REM in favor of one creditor prior to the filing of a Petition for Suspension of Payments.33

The Court’s Ruling

The core issue is whether the February 23, 1998 REM executed over the subject Antipolo properties and the April 15, 1998 foreclosure sale were committed in fraud of petitioners’ other creditors, and, as a consequence of such fraud, the questioned mortgage could, therefore, be rescinded. Petitioners allege that no fraud exists.

The petition is meritorious.

Prevailing and applicable SEC laws

At the outset, it must be noted that at the time the Consolidated Petition for the Declaration of a State of Suspension of Payments and for Appointment of a Management Committee/Rehabilitation Receiver was filed before the SEC on February 16, 1998 by MDEC, MHI, and three other corporations owned by the Lee family, Batas Pambansa Blg. (BP) 178 or the then Revised Securities Act was the primary governing law along with Presidential Decree No. (PD) 902-A, as amended, and the Corporation Code of the Philippines. Pertinently, among others, the SEC was also covered by the Investment House Law (PD 129), the Financing Company Act under Republic Act. No. (RA) 2626, the Foreign Investments Act (RA 7042), and the Liberalized Foreign Investments Act (RA 8179). And subsequent to the filing of the instant case, the Securitization Act of 2004 (RA 9267) and the Lending Company Regularization Act of 2007 (RA 9474) were also enacted.

PD 902-A,34 however, was further amended by RA 8799 or the Securities Regulation Code, approved on July 19, 2000 by President Joseph Estrada.35 Under Sec. 5.2 of RA 8799,36 the SEC’s original and exclusive jurisdiction over all cases enumerated under Sec. 5 of PD 902-A37 was transferred to the appropriate RTC. RA 8799, Sec. 5.2, however, expressly stated as an exception, that the "[t]he Commission shall retain jurisdiction over pending suspension of payment/rehabilitation cases filed as of 30 June 2000 until finally disposed." Accordingly, the Consolidated Petition for the Declaration of a State of Suspension of Payments and for Appointment of a Management Committee/Rehabilitation Receiver filed on February 16, 1998 by MDEC, MHI and three other corporations owned by the Lee family, remained under the jurisdiction of the SEC until finally disposed of pursuant to the last sentence of Sec. 5.2 of RA 8799.

The subject properties are not under the purview of the SEC Suspension Order

Pivotal to the resolution of the instant case is whether the subject properties owned by the spouses Lee were subject to the February 20, 1998 SEC Suspension Order. On the one hand, the CA held and found these to be subject to the Suspension Order. The RTC, on the other hand, found contrariwise in that the assailed REM and foreclosure sale did not violate the SEC Suspension Order.

A review of the applicable laws and existing jurisprudence would show that the subject properties owned by the spouses Lee were not subject to the February 20, 1998 SEC Suspension Order.

PD 902-A vested the SEC with jurisdiction on petitions for suspension of payments only on corporations, partnerships and associations; not on individual persons

The SEC’s jurisdiction is evident from the statutorily vested power of jurisdiction, supervision and control by the SEC over all corporations, partnerships or associations, which are grantees of primary franchise, license or permit issued by the government to operate in the Philippines, and its then original and exclusive jurisdiction over petitions for suspension of payments of said entities. Secs. 3 and 5 of PD 902-A pertinently provides, thus:

Sec. 3. The Commission shall have absolute jurisdiction, supervision and control over all corporations, partnerships or associations, who are the grantees of primary franchise and/or a license or permit issued by the government to operate in the Philippines; and in the exercise of its authority, it shall have the power to enlist the aid and support of any and all enforcement agencies of the government, civil or military.


x x x x

(d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the corporation, partnership or association possesses sufficient property to cover all its debts but foresees the impossibility of meeting them when they respectively fall due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is under the management of a Rehabilitation Receiver or Management Committee created pursuant to this Decree. (Emphasis Ours.)

It can be clearly gleaned from the above provisions that in cases of petitions for the suspension of payments, the SEC has jurisdiction over corporations, partnerships and associations, which are grantees of primary franchise or license or permit issued by the government to operate in the Philippines, and their properties. And it is indubitably clear from the aforequoted Sec. 5(d) that only corporations, partnerships and associations—NOT private individuals—can file with the SEC, petitions for declaration in a state of suspension of payments. Thus, it logically follows that the SEC does not have jurisdiction to entertain petitions for suspension of payments filed by parties other than corporations, partnerships or associations. Indeed, settled is the rule that it is axiomatic that jurisdiction is the authority to hear and determine a cause, which is conferred by law and not by the policy of any court or agency.38



Private individuals and their privately owned properties cannot be placed under the jurisdiction of the SEC in a petition for suspension of payments

In Chung Ka Bio v. Intermediate Appellate Court,39 this Court resolved in the negative the issue of whether private individuals can file with the SEC petitions for declaration in a state of suspension of payments. We held that Sec. 5(d) of PD 902-A clearly does not allow a mere individual to file the petition, which is limited to "corporations, partnerships or associations." Besides, We pointed out that the SEC, being a mere administrative agency, is a tribunal of limited jurisdiction and, as such, can only exercise those powers, which are specifically granted to them by their enabling statutes. We, thus, concluded that where no authority is granted to hear petitions of individuals for suspension of payments, such petitions are beyond the competence of the SEC. In short, the SEC has no jurisdiction over private individuals relative to any petition for suspension of payments, whether the private individual is a petitioner or a co-petitioner. We have said time and again that the SEC’s "jurisdiction is limited only to corporations and corporate assets;" it has no jurisdiction over the properties of private individuals or natural persons, even if they are the corporation’s officers or sureties.40 We have, thus, consistently applied this ruling to the subsequent Ong v. Philippine Commercial International Bank,41 Modern Paper Products, Inc. v. Court of Appeals,42 and Union Bank of the Philippines v. Court of Appeals.43

Here, it is undisputed that the petition for suspension of payments was collectively filed by the five corporations owned by the Lee family. It is likewise undisputed that together with the consolidated petition is a list of properties, which included the subject Antipolo properties owned by Samuel and Pauline Lee. The fact, however, that the subject properties were included in the list submitted to the SEC does not confer jurisdiction on the SEC over such properties. It is apparent that even if the members of the Lee family are joined as co-petitioners with the five corporations, still, this could not confer jurisdiction on the SEC over the Lee family members—as private individuals—nor could this affect their privately owned properties.

Further, the fact that the debts of MDEC and MHI to Bangkok Bank are secured by the Lee family through the guarantees will not likewise put the Lee family and their privately owned properties under the jurisdiction of the SEC through the consolidated petition for suspension of payments.

Therefore, the February 20, 1998 Suspension Order issued by the SEC did not and could not have included the subject properties. The RTC correctly grasped this point that the disposition of the subject properties did not violate the suspension order.

Bangkok Bank cannot take both opposing stances

Certainly, Bangkok Bank cannot take opposite positions at the same time. On the one hand, it instituted Civil Case No. 98-628 before the RTC, Branch 141 in Makati City on March 12, 1998—almost a month after the filing of the consolidated petition before the SEC and the issuance of the February 20, 1998 Suspension Order in order to recover the loans extended to MDEC and MHI under the guarantees. In it, Bangkok Bank contended that the subject lots were not part of the properties under the jurisdiction of the SEC in the case for suspension

of payments. But, on the other hand, Bangkok Bank claims that the Antipolo properties are subject to the February 20, 1998 SEC Suspension Order, and, therefore, cannot be mortgaged by the spouses Lee to Asiatrust. By saying that the subject Antipolo properties are not under the jurisdiction of the SEC that is hearing the consolidated petition for suspension of payments, it necessarily follows that the same properties could not be subject to the SEC Suspension Order. This admission is also very clear in the statement made by Bangkok Bank’s sole witness, Susan Capalaran:44

Q: In other words, by your filing of an action in Makati on March 12, 1998, you are in effect saying that the properties owned by the individual stockholders are not covered by the Suspension Order of the Securities and Exchange Commission?

Susan Capalaran: Yes.

The allegations of fraud in the instant petition

At the heart of the present controversy is the allegation of fraud by Bangkok Bank against the spouses Lee and Asiatrust. It is in this regard that the issue of fraud shall be examined here in detail. Preliminary matters, such as the applicable laws and their interpretation, shall first be explained. And subsequently, in order to fully appreciate the allegations of fraud by Bangkok Bank, they shall be discussed in three parts: (1) the existence of fraud on the part of the spouses Lee; (2) the existence of fraud on the part of Asiatrust; and separately, (3) the existence of collusion on the part of the spouses Lee and Asiatrust. It is imperative to expound on these points separately in order to illustrate that the mere existence of fraud on the part of one party, i.e., the spouses Lee (against whom some judgment or some writ of attachment has been issued),45 does not necessarily result in the rescission of a supposed alienation, if there is any.

The presumption of fraud under Art. 1387 of the Civil Code does not apply in the present case

Under Art. 1381(3) of the Civil Code, contracts, which were "undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them," are rescissible. Art. 1387 of the Code states when an act is presumed to be fraudulent, thus:

Art. 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered in fraud of creditors, when the donor did not reserve sufficient property to pay all debts contracted before the donation.

Alienations by onerous title are also presumed fraudulent when made by persons against whom some judgment has been rendered in any instance or some writ of attachment has been issued. The decision or attachment need not refer to the property alienated, and need not have been obtained by the party seeking the rescission.



In addition to these presumptions, the design to defraud creditors may be proved in any other manner recognized by the law of evidence.

It is with regard to the foregoing provisions that the CA anchored its ruling of the existence of a presumption of fraud in the instant case. This presumption, however, finds no application to this case.

The presumption of fraud established under Art. 1387 does not apply to registered lands IF "the judgment or attachment made is not also registered."46 In Abaya v. Enriquez,47 Abaya was able to obtain a judgment against Enriquez for a sum of money, and the judgment was partially unsatisfied after Enriquez made a partial payment. The judgment and the writ of execution, however, was never annotated on the titles of the registered lands owned by Enriquez.48 Subsequently, Enriquez sold the said lands. In an action for rescission instituted by Abaya, the Court ruled that the presumption of fraud does not apply as the judgment and the attachment have not been registered and annotated on the title.49 The Court held:

Where the judgment rendered against the defendant x x x has not been entered in the records of the register of deeds, relative to an immovable belonging to the judgment debtor, the subsequent sale of said property by the latter, shall not be rescinded upon the ground of fraud, unless the complicity of the buyer in the fraud imputed to said vendor is established by other means than the presumption of fraud x x x.50

In this case, prior to the annotation of the REM on February 23, 1998, SBC was able to successfully acquire a writ of preliminary attachment in its favor against the spouses Lee on January 30, 1998 in a case for a sum of money for nonpayment of its obligation. Bangkok Bank alleges that because of this, the presumption of fraud under Art. 1387 of the Civil Code applies. But while a judgment was made against the spouses Lee in favor of SBC on January 30, 1998, this, however, was not annotated on the titles of the subject properties. In fact, there is no showing that the judgment has ever been annotated on the titles of the subject properties. As established in the facts, there were only two annotations at the back of the titles of the Antipolo properties: first, the REM executed in favor of Asiatrust on February 23, 1998; and second, the writ of preliminary attachment in favor of Bangkok Bank on March 18, 1998. Considering that the earlier SBC judgment or attachment was not, and in fact never was, annotated on the titles of the subject Antipolo properties, prior to the execution of the REM, the presumption of fraud under Art. 1387 of the Code clearly cannot apply.

Even assuming that Art. 1387 of the Code applies, the execution of a mortgage is not contemplated within the meaning of alienation by onerous title under the said provision

Under Art. 1387 of the Code, fraud is presumed only in alienations by onerous title of a person against whom a judgment or attachment has been issued. The term, alienation, connotes the "transfer of the property and possession of lands, tenements, or other things, from one person to another."51 This term is "particularly applied to absolute conveyances of real property" and must involve a "complete transfer from one person to another."52 A mortgage does not contemplate a transfer or an absolute conveyance of a real property.53 It is "an interest in land created by a written instrument providing security for the performance of a duty or the payment of a debt."54 When a debtor mortgages his property, he "merely subjects it to a lien but ownership thereof is not parted with."55 It is merely a lien that neither

creates a title nor an estate.56 It is, therefore, certainly not the alienation by onerous title that is contemplated in Art. 1387 where fraud is to be presumed.

In this very action, Bangkok Bank claims that when the spouses Lee executed the REM in favor of Asiatrust, the presumption of fraud under Art. 1387 became applicable. We hold in the negative. As We have plainly discussed, a mortgage is not that which is contemplated in the term "alienation" that would make the presumption of fraud under Art. 1387 apply. It requires a full and absolute conveyance or transfer of property from one person to another, such as that in the form of a sale. As elucidated earlier, a mortgage merely creates a lien on the property that would afford the mortgagee/creditor greater security in the obligation of the mortgagor/debtor. This being so, as the REM is not the alienation contemplated in Art. 1387 of the Code, the presumption of fraud cannot apply.

In any case, the application of the presumption of fraud under Art. 1387, if applicable, could only be made to apply to the spouses Lee as the person against whom a judgment or writ of attachment has been issued; not to Asiatrust

A careful reading of Art. 1387 of the Code vis-à-vis its Art. 1385 would plainly show that the presumption of fraud in case of alienations by onerous title only applies to the person who made such alienation, and against whom some judgment has been rendered in any instance or some writ of attachment has been issued. A third person is not and should not be automatically presumed to be in fraud or in collusion with the judgment debtor. In allowing rescission in case of an alienation by onerous title, the third person who received the property conveyed should likewise be a party to the fraud.57 As clarified by Art. 1385(2) of the Code, so long as the person who is in legal possession of the property did not act in bad faith, rescission cannot take place. Thus, in all instances, as to the third person in legal possession of the questioned property, good faith is presumed. Accordingly, it is upon the person who alleges bad faith or fraud that rests the burden of proof.58

Asiatrust, being a third person in good faith, should not be automatically presumed to have acted fraudulently by the mere execution of the REM over the subject Antipolo properties, there being no evidence of fraud or bad faith. Regrettably, in ratiocinating that fraud was committed by both the spouses Lee and Asiatrust, the CA merely anchored its holding on the presumption espoused under Art. 1387 of the Code,59 nothing more.

The alleged fraud on the part of the spouses Lee was not proved and substantiated

It appears that the argument of Bangkok Bank on the existence of fraud on the part of the spouses Lee60 revolves around the application of the presumption of fraud under Art. 1387 of the Code.61 Bangkok Bank failed to substantiate its allegations by presenting clear and convincing proof that the spouses Lee indeed committed fraud in mortgaging the subject properties to Asiatrust, and instead anchored its existence of the presumption under Art. 1387. This cannot stand before this Court.

On the contrary, the spouses Lee proved the absence of fraud on their part. During trial, the spouses Lee and Asiatrust were able to substantially establish that, indeed, a loan agreement has been existing between them since 1996 and that MDEC made use of it on



several occasions in 1997. It has likewise been established that, as MDEC defaulted in its payment of the loan that matured in 1997, the parties began negotiations as to how MDEC could secure the loans. It was concluded in December 1997 upon Samuel’s proposal that his Antipolo properties be used to secure MDEC’s loans by means of a mortgage. This settlement has been agreed upon even before any action was filed against the Lee corporations in 1998. These facts have been established during trial without any controversy.

No deception could have been used by the spouses Lee in including in the list of properties, which they submitted to the SEC, the subject Antipolo properties. First, it is undisputed that the list of properties submitted by the Lee corporations to the SEC clearly indicated that the subject Antipolo properties have already been earmarked, or have already been serving as security, for its loan obligations with Asiatrust. Second, MDEC, through its counsel, truly believed in good faith that the inclusion of the spouses Lee’s private properties in the list submitted to the SEC is valid and regular. As can be seen in the letter sent by the counsel of the Midas Group of Companies to the Office of the Clerk of Court and Ex-Officio Sheriff of the Antipolo RTC on April 4, 1998, at the time when the subject Antipolo properties were being foreclosed by Asiatrust, its counsel vigorously countered the actions of Asiatrust and stated that the subject Antipolo properties cannot be foreclosed pursuant to the SEC Suspension Order.62 And as discussed infra, the alleged collusion between the spouses Lee and Asiatrust appears to be a mere figment of imagination.

In any case, the facts show no presence of fraud on the part of Asiatrust; therefore, the REM was not a sham

Even pushing further to say that the REM was executed by the spouses Lee to defraud creditors, the REM cannot be rescinded and shall, therefore, stand, as Asiatrust—the third party, in favor of which the REM was executed, and which subsequently foreclosed the subject properties—acted in good faith and without any badge of fraud. As a general rule, whether the person, against whom a judgment was made or some writ of attachment was issued, acted with or without fraud, so long as the third person who is in legal possession of the property in question did not act with fraud and in bad faith, an action for rescission cannot prosper. Art. 1385 of the Civil Code explicitly states this, thus:

Art. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore.

Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. (Emphasis Ours.)

As to who or which entity is in legal possession of a property, the registration in the Registry of Deeds of the subject property under the name of a third person indicates the legal possession of that person.63 In this case, Asiatrust is in the legal possession of the subject Antipolo properties after the titles under the name of Spouses Lee have been canceled, and new TCTs have been issued on April 20, 1999, under the name of Asiatrust. What is more, 12 title out of the 120 titles in the Antipolo properties in question have already been sold to different persons, which make them in legal possession of the properties. It is, thus, established that Asiatrust and the 12 other unnamed

persons are in legal possession of the subject Antipolo properties; and it is imperative to prove that they legally took possession of them in good faith and without any badge of fraud.

Now, as to whether Asiatrust acted with fraud or bad faith, Bangkok Bank failed to present any clear and convincing evidence that would ascertain its existence.

Contracts in fraud of creditors are those executed with the intention to prejudice the rights of creditors. They should not be confused with those entered into without such mal-intent, even if, as a direct consequence, a creditor may suffer some damage. More so it is, when the allegation involves not only fraud on the part of the debtor, but also that of another creditor. In determining whether or not a certain conveying contract is fraudulent, what comes to mind first is the question of whether the conveyance was a bona fide transaction or a trick and contrivance to defeat creditors.64 Haste alone in the foreclosure of the mortgage does not constitute the existence of fraud. Considering that the totality of circumstances clearly manifests the want of fraud and bad faith on the part of the parties to the REM in question, consequently, the REM cannot be rescinded.

In this case, it is clearly established that there was a bona fide transaction between the spouses Lee and Asiatrust that necessitated the negotiations resulting from the former’s default in the payment of its obligations; and which brought about the execution of the REM to secure their pre-existing obligations. Particularly on the part of Asiatrust, the testimonies of Shirley Benedicto, its Vice-President, who was part of the bank’s account management group tasked to ensure the proper management of loans from its inception up to its collection, and of Atty. Neriza San Juan, the bank’s former Vice-President, and Head of its Credit Support Services and Legal Services Groups, amply proved the existence of good faith and dismissed the allegation of fraud. Asiatrust was able to establish (1) the existence of a loan agreement through a loan facility/credit line between Asiatrust and MDEC since July 25, 1996, which was guaranteed by the Lee family, including Samuel; (2) the advances made by MDEC throughout 1997, which amounted to an aggregate sum of PhP 31,000,000; (3) the default in payment of MDEC on its maturing loans; and (4) the negotiations, which took place between Asiatrust and Samuel on behalf of MDEC that led, in December 1997, to the agreement for Samuel to mortgage the subject Antipolo properties to secure the defaulting loan and the loans, which were yet to mature.65 And as the last advances made by MDEC matured on February 20, 1998, it was just timely and appropriate for Asiatrust to foreclose the subject properties on April 15, 1998 in order to ensure that it is paid of the obligations, which MDEC owed to it. In this case, Asiatrust was left with only one clear and practicable means by which it could be paid of MDEC’s obligations, i.e., by foreclosing the mortgaged properties. After all, "[t]he only right of a mortgagee in case of non-payment of a debt secured by mortgage would be to foreclose the mortgage and have the encumbered property sold to satisfy the outstanding indebtedness."66

Conversely, Asiatrust did not sleep on its rights as a mortgage creditor of MDEC by foreclosing the mortgage on the spouses Lee’s Antipolo properties. On the contrary, it is odd but worth noting that Bangkok Bank never acted on its rights as creditor at the soonest possible time. It could have asserted it rights as creditor at the time when the Lee family’s corporations started to default in their payments of the loans as early as October 1997.67 When Bangkok Bank finally instituted an action against the Lee family on March 12, 1998 to collect the outstanding obligations of MDEC and MHI, a writ of preliminary attachment was issued by the Makati RTC in the same month covering the properties of the Lee family, including the subject Antipolo properties. And while enforcing the said writ, Bangkok Bank discovered the existing REM that had already been annotated on the titles of the subject Antipolo properties. But Bangkok Bank did nothing upon its knowledge and discovery. Worse, even at the time of the foreclosure and the redemption period, or until April 30, 1999, Bangkok Bank likewise did not act on the alleged fraudulent execution of the REM; nor did it redeem the subject properties. Rather, it was only on July



20, 1999 that Bangkok Bank seems to have belatedly realized that the subject Antipolo properties could properly be another means by which it could be paid of the defaulting obligations of MDEC and MHI. Interestingly, even on the elevation of this case to Us, Bangkok Bank’s counsel had to move for four extensions, totaling to 52 days within which to file a comment on the instant petition, and has been warned for it.68 Asiatrust cannot be faulted for acting with prudence, in good faith, and without any badge of fraud in the creation of the REM and in the foreclosure of the mortgage to ensure the satisfaction of the debts owed to it by MDEC. Bangkok Bank should have likewise done so at the earliest possible opportunity.

Furthermore, Asiatrust, in good faith, conducted the necessary diligence and meticulousness expected of it. During cross-examination, Atty. San Juan established that when the spouses Lee offered the subject Antipolo properties as collateral, Asiatrust had them appraised and required the spouses Lee to submit a photocopy of the titles, location map, and the relevant tax declarations, which was forwarded to its Appraisal Team. She further explained that credit investigation is a continuing annual process since the bank considers the market information in connection with the account of the borrower.69 Indeed:

The mortgagee has a right to rely in good faith on what appears on the certificate of title of the mortgagor to the property given as security and in the absence of anything to excite suspicion, he is under no obligation to look beyond the certificate and investigate the title of the mortgagor appearing on the fact of the certificate. Accordingly, the right or lien of an innocent mortgagee for value upon the mortgaged property must be respected and protected, even if the mortgagor obtained his title through fraud. The remedy of the persons prejudiced is to bring an action for damages against the person who caused the fraud x x x.70

There was no collusion between the spouses Lee and Asiatrust

Besides the fact that individually, fraud was not sufficiently and convincingly established on the part of the spouses Lee and Asiatrust, Bangkok Bank’s allegation of collusion between them was likewise unsubstantiated and therefore untenable.

First, even after the subject Antipolo properties were foreclosed by Asiatrust, Asiatrust sought the recovery of the deficiency amounting to at least PhP 14,800,000. And until the filing of the memoranda by the parties before this Court, the said action remains pending before the CA.71

Second, Asiatrust filed a criminal case against Samuel for violation of BP 22.72 At the time of the filing of the petition for review, the case was still pending before the Metropolitan Trial Court of Quezon City.73 Later, at the time of the filing of the spouses Lee’s Memorandum, it was indicated that it has already been dismissed.

Third, contrary to the CA’s appreciation of the facts,74 the letter sent by Atty. Macam, counsel of the Midas Group of Companies, actually strengthens the proof that no collusion existed between the parties. Acting on the interest of MDEC, Atty. Macam sent a letter to the Clerk of Court and the Ex-Officio Sheriff of the Antipolo RTC, arguing that the subject Antipolo properties cannot be foreclosed as they are the subject of an existing SEC Suspension Order.75 In fact, counsel for MDEC alleged that the foreclosure sale was illegal.76 On the other

hand, when the Ex-Officio Sheriff presented a copy of the letter to Asiatrust and asked the latter to comment, Asiatrust categorically stated that the subject properties could not be made a subject of the SEC Suspension Order, they being properties of the spouses Lee, natural persons outside the jurisdiction of the SEC.77 In fact, it was Bangkok Bank’s sole witness, Capalaran, who firmly agreed that, indeed, the subject properties are not covered by the Suspension Order that is why Bangkok Bank, too, filed an action against the spouses Lee on March 12, 1998 and sought the attachment of the said properties.78

With all the foregoing facts strongly established, We confirm the absence of fraud, bad faith, and collusion between the spouses Lee and Asiatrust.1avvphil

The requisite (1) good faith on the part of the third person and (2) fraud, necessary for an action to rescind under Art. 1381 of the Civil Code, were not complied with

In Siguan v. Lim,79 this Court held that in an action to rescind under Art. 1381, the following requisites must exist:

The action to rescind contracts in fraud of creditors is known as accion pauliana. For this action to prosper, the following requisites must be present: (1) the plaintiff asking for rescission has a credit prior to the alienation, although demandable later; (2) the debtor has made a subsequent contract conveying a patrimonial benefit to a third person; (3) the creditor has no other legal remedy to satisfy his claim; (4) the act being impugned is fraudulent; (5) the third person who received the property conveyed, if it is by onerous title, has been an accomplice in the fraud. (Emphasis Ours; citations omitted.)

Considering the discussions previously expounded, the extant records show that the fourth and fifth requisites enumerated above are absent.

As between Asiatrust and Bangkok Bank, the former has a better right over the subject Antipolo properties, it being the first to annotate its lien on the titles of the properties

It is evidently a well-settled and elementary principle that the rights of the first mortgage creditor or mortgagee over the mortgaged properties are superior to those of a subsequent attaching creditor and other junior mortgagees.80

In this case, it is a fact that the REM was annotated on the titles of the subject Antipolo properties ahead of the writs of preliminary attachment issued in favor of Bangkok Bank. In fact, it was admitted by Bangkok Bank that it only knew of the existing mortgage that has already been annotated at the back of the subject titles when it sought the annotation of the writs of preliminary attachment.81 Therefore, as between Asiatrust as mortgage creditor and Bangkok Bank as attaching creditor, it is apparent that the former has a superior right over the latter.



Besides, "as between two persons who both stand to suffer loss, the possessor of the property should be preferred in that possession, the ownership having been transferred by delivery."82 In this case, Asiatrust, being the entity with legal possession of the subject Antipolo properties, should be preferred in that possession. In addition, 12 of the titles in question have already been sold to 12 different persons, whose identities have not been introduced in the instant case and who have not been impleaded as parties. As these persons have been in legal possession of the said properties and are in good faith, their ownership and possession, should not be disturbed.

The redemption period has already lapsed

Sec. 27, Rule 39 of the Rules of Court states the persons who may redeem a real property sold, thus:

Sec. 27. Who may redeem real property so sold.

Real property sold as provided in the last preceding section, or any part thereof sold separately, may be redeemed in the manner hereinafter provided, by the following persons:

(a) The judgment obligor, or his successor in interest in the whole or any part of the property;

(b) A creditor having a lien by virtue of an attachment, judgment or mortgage on the property sold, or on some part thereof, subsequent to the lien under which the property was sold. Such redeeming creditor is termed a redemptioner. (Emphasis Ours.)

From the foregoing rule, it is clear that Bangkok Bank, as an attaching creditor, has the right to redeem the subject Antipolo properties that were foreclosed by Asiatrust.83

In determining the period within which to redeem the foreclosed Antipolo properties in the present case, RA 337 or the General Banking Act84 finds application. Pertinently, its Sec. 78 states:

Sec. 78. x x x In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is security for any loan granted before the passage of this Act or under the provisions of this Act, the mortgagor or debtor whose real property has been sold at public auction, judicially or extrajudicially, for the full or partial payment of an obligation to any bank, banking, or credit institution, within the purview of this Act, shall have the right, within one year after the sale of the real estate as a result of the foreclosure of the respective mortgage, to redeem the property by paying the amount fixed by the court in the order of execution, with interest thereon at the rate

specified in the mortgage, and all the costs and other judicial expenses incurred by the bank or institution concerned by reason of the execution and sale and as a result of the custody of said property less the income received from the property. However, the purchaser at the auction sale concerned shall have the right to enter upon and take possession of such property immediately after the date of the confirmation of the auction sale and administer the same in accordance with law. (Emphasis Ours.)

In this case, the auction sale took place on April 15, 1998 and was registered with the RD on April 21, 1998. Subsequently, on April 30, 1999, a date already and certainly beyond the one-year redemption period provided by law, new titles were issued in favor of Asiatrust.85 Apparently, Bangkok Bank chose not to exercise its right of redemption over the subject Antipolo properties.

Even as a general rule, "[t]he period of redemption is not tolled by the filing of a complaint or petition for annulment of the mortgage and the foreclosure sale conducted pursuant to the said mortgage,"86 Bangkok Bank, however, filed its action for rescission way beyond the expiration of the said redemption period on July 20, 1999. After the expiration of the redemption period, Asiatrust as purchaser, therefore, became the absolute owner of the subject properties, and whose rights necessarily include the right to be in the legal possession of the properties.87

As a final note, in ruling for Bangkok Bank, the CA strangely did not even delve upon any fact that could have ascertained the allegation of fraud from which Bangkok Bank based its arguments. Quite the opposite, the RTC discussed in detail the facts and testimonies presented by the parties, upon which its finding of the absence of fraud was based. Indeed, factual findings by the trial court are afforded great weight by this Court especially when supported by substantial evidence on record.88

While prejudice to Bangkok Bank ultimately resulted in the series of inopportune events that led to the present case, it cannot be denied that no clear, satisfactory and convincing evidence was presented to show fraud on the part of both the spouses Lee and Asiatrust. Nor was bad faith on the part of Asiatrust and the 12 other subsequent purchasers established. Accordingly, the REM annotated on the titles of the subject Antipolo properties and the subsequent foreclosure of the same properties cannot and should not be rescinded.

Wherefore, premises considered, the petition is hereby GRANTED. Accordingly, the CA’s March 15, 2006 Decision and June 29, 2006 Resolution in CA-G.R. CV No. 79362 are REVERSED and SET ASIDE. The RTC’s April 21, 2003 Decision in Civil Case No. 99-5388 is hereby REINSTATED.

No pronouncement as to costs.\ SO ORDERED.

G.R. No. 149357. March 04, 2005

MOBILIA PRODUCTS, INC., Petitioners,

vs.



HAJIME UMEZAWA, Respondent.

G.R. No. 149403. March 04, 2005

PEOPLE OF THE PHILIPPINES, Petitioners,

vs.

HON. JUDGE RUMOLDO R. FERNANDEZ and HAJIME UMEZAWA, Respondents.

D E C I S I O N

CALLEJO, SR., J.:

Before the Court are two consolidated petitions: a petition for review on certiorari filed by the People of the Philippines, docketed as G.R. No. 149403 of the Resolution1 of the Court of Appeals (CA) in CA-G.R. SP No. 52440 which reversed its decision and granted the petition for certiorari, prohibition and mandamus filed by respondent Hajime Umezawa; and the petition for review on certiorari docketed as G.R. No. 149357 filed by petitioner Mobilia Products, Inc. (MPI), the intervenor in the CA, assailing the same Resolution of the appellate court.

The Antecedents

The antecedents were amply summarized by the Office of the Solicitor General (OSG) in the petition at bar, to wit:

Mobilia Products, Inc. is a corporation engaged in the manufacture and export of quality furniture which caters only to the purchase orders booked and placed through Mobilia Products Japan, the mother company which does all the marketing and booking. After orders from customers are booked at the mother company in Japan, the same are coursed through Mobilia Philippines for implementation and production, after which, the ordered items are shipped to Japan through the mother company.

Mobilia Products Japan sent Hajime Umezawa to the Philippines in order to head Mobilia Products, Inc. as President and General Manager. To qualify him as such and as a Board Director, he was entrusted with one nominal share of stock.

Sometime in the last week of January 1995, Umezawa, then the President and General Manager of Mobilia Products, Inc., organized another company with his wife Kimiko, and his sister, Mitsuyo Yaguchi, to be known as Astem Philippines Corporation, without the knowledge of the Chairman and Chief Executive Officer Susumo Kodaira and the other members of the Board of Directors of Mobilia.

The said company would be engaged in the same business as Mobilia. Spouses Umezawa recruited Justin Legaspi, former Production Manager of Mobilia, to act as Manager and one Yoshikazu Hayano of Phoenix Marble Corporation to serve as investors [sic].

Pending formal organization, Spouses Umezawa, Justin Legaspi and Yoshikazu Hayano wanted to accelerate the market potentials of Astem by participating in the International Furniture Fair 1995 held at the Word Trade Centre of Singapore on March 6 to 10, 1995.

One of the requirements of such Fair was that the furniture exhibits must arrive and be received at Singapore not later than February 23, 1995. Pressed for time, with less than one month to prepare and while Astem had yet no equipment and machinery, no staff and no ready personnel, Umezawa, with grave abuse of the confidence reposed on him as President and General Manager of Mobilia Products, Inc., and in conspiracy with his wife, his sister Mitsuyo Yaguchi, Yoshikazu Hayano and Justin Legaspi, all with intent to gain for themselves and for their company Astem Philippines Corporation, stole prototype furniture from petitioner Mobilia so that the said pieces of furniture would be presented and exhibited as belonging to Astem in the International Furniture Fair ’95 in Singapore.

In order to avoid detection, Umezawa contacted Henry Chua, the owner of Dew Foam, one of the suppliers of Mobilia, for that the latter to load several pieces of prototype furniture into a Dew Foam truck and store them at the Dew Foam warehouse. The first batch of furniture was stolen on February 8, 1995, when Mr. Henry Chua, upon the request of respondent Umezawa, caused to be loaded into his Dew Foam truck two prototype sofa models worth P500,000.00, after which, the same were spirited from the Mobilia compound, then transported and stored in Henry Chua’s warehouse.

Again, on February 18, 1995, Umezawa, with grave abuse of confidence and taking advantage of his position as President and General Manager, unlawfully stole expensive furniture from Mobilia’s factory worth P2,964,875.00. In order to avoid detection, the said furniture were loaded in the truck belonging to Dew Foam, with respondent Umezawa personally supervising the loading, the carting and spiriting away of the said furniture. Thus, taking advantage of his position as General Manager, he managed to have the said furniture taken out of the company premises and passed the company guard without any problem and difficulty.

Further, on February 19, 1995, around 1 o’clock in the afternoon, respondent Umezawa again loaded into his motor vehicle, and took away from company premises under the same irregular and unlawful circumstances, an expensive three-seater sofa worth P255,000.00.

The taking out of the said furniture was effected in violation of the standard procedures established by petitioner corporation which requires that every shipment or taking out of the furniture be checked and reviewed by Mobilia’s Production, Planning, Inventory Costing and Control (PPICC) Division. All the foregoing furniture were transported to and stored at Henry Chua’s warehouse. After sometime, the foregoing furniture were photographed for slide photos at Photo Folio at the Reclamation Area, Cebu City and then finally catalogued for



use in the Singapore Fair for the use of Astem and its supposed owners, namely: spouses Umezawa, Hayano and Legaspi. The foregoing furniture models were finally shipped for exhibition at the International Furniture Fair ’95 in Singapore as furniture belonging to Astem Philippines Corporation.

Sometime in March 1995, based on orders booked for Astem, Umezawa, with unfaithfulness and abuse of confidence reposed on him as the President and General Manager of petitioner Mobilia, ordered and caused the manufacture of eighty-nine (89) pieces of furniture with a total value of P17,108,500.00. The said pieces of furniture were made with Mobilia supplies, materials and machineries, as well as with Mobilia time and personnel, all of which were under the administration and control of Umezawa as President and General Manager. The said materials and supplies, the time and labor, were supposed to be used for the manufacture and production of quality furniture for the EXCLUSIVE USE of Mobilia. However, Umezawa, in violation of his duty to apply the same for the use of Mobilia and the duty to account for the same, converted their use for the benefit of Astem or for the use and benefit of Umezawa, his wife and sister, Yoshikazu Hayano and Legaspi, much to the damage and prejudice of Mobilia Products.

The same furniture could also have been taken out of the company premises by Umezawa and cohorts for shipment and delivery to Astem customers had it not been for the timely discovery of the previous theft. …2

The Board of Directors of MPI, consisting of its Chairman Susumo Kodaira and members Yasushi Kato and Rolando Nonato, approved a Resolution on May 2, 1995 authorizing the filing of a complaint against Umezawa for two counts of qualified theft allegedly committed on February 18 and 19, 1995. Attached to the complaint was the Joint Affidavit of Danilo Lallaban, George del Rio and Yasushi Kato. The case was docketed as I.S. No. 95-275.

On May 15, 1995, the public prosecutor filed an Information for qualified theft against Umezawa with the Regional Trial Court (RTC) of Lapu-Lapu City. The accusatory portion of the Information, docketed as Criminal Case No. 013231-L, reads:

That during or about the period comprised between the 18th and 19th day of February 1995, in the City of Lapu-Lapu, Philippines, within the jurisdiction of this Honorable Court, the accused, while being then the President and General Manager of Mobilia Products, Inc., a corporation engaged in the manufacture and export of furniture, holding office and doing business in the Mactan Export Processing Zone, Lapu-Lapu City, with grave abuse of the confidence reposed upon him by his employer, with intent to gain, did then and there willfully, unlawfully and feloniously take, steal and carry away from the corporation’s factory in Mactan Export Processing Zone, Lapu-Lapu City, expensive pieces of furniture, to wit:

1) 1 set, Model No. 3, 2-seater

German leather sofa, worth - - - - - - - - - - - - - - - - - - P 208,125.00













8) 1 piece, Model Table No. 2,

Italian marble table, worth - - - - - - - - - - - - - - - - - - - - P 93,750.00Caelitus Mihi Vires 97



Italian marble table, worth - - - - - - - - - - - - - - - - - - - - P 105,000.00

10) 2 pieces, Model Pedestal

No. 6, Italian marble pedestal, worth - - - - - - - - - - - - - P 150,000.00

11) 1 piece, Model Column

Standard No. 11, Italian marble worth - - - - - - - - - - - - P 93,750.00



13) 1 piece, Model High Table

No. 10, Italian marble, worth - - - - - - - - - - - - - - - - - - - P 187,500.00



15) 1 piece, Model Table No. 7


16) 1 piece, Model Table No. 5




18) 3-seater sofa, worth- - - - - - - - - - - - - - - - - - P 255,000.00

with an aggregate value of P3,219,875.00, Philippine currency, without the consent of his employer, to the damage and prejudice of Mobilia Products, Inc., in the said amount of P3,219,875.00.

Contrary to law.3

On motion of the prosecution, the trial court issued a writ of preliminary attachment covering the properties of Umezawa.

Umezawa then filed an Omnibus Motion to quash the information filed against him, the discharge of the writ of attachment issued by the trial court, and to set the case for preliminary investigation. MPI, the private complainant therein, opposed the motion.

In the meantime on July 21, 1995, MPI filed another criminal complaint for qualified theft against Umezawa, his wife Kimiko Umezawa, Mitsuyo Yaguchi, Justin Legaspi, Yoshikazu Hayano and Henry Chua allegedly committed in March 1995, with the Office of the City Prosecutor. The case was docketed as I.S. No. 95-442.

On July 25, 1995, the trial court issued an Order in Criminal Case No. 013231-L denying the omnibus motion. On joint motion of Umezawa and the public prosecutor, the trial court ordered a reinvestigation of the case. Conformably, the public prosecutor conducted a reinvestigation of Criminal Case No. 013231-L jointly with I.S. No. 95-442.



On September 25, 1995, Umezawa filed a petition with the Securities and Exchange Commission (SEC), docketed as SEC Case No. 002919, for the nullification of the Resolution issued by the three alleged members of MPI Board of Directors, authorizing the filing of criminal complaints against him in behalf of the corporation.

On January 3, 1996, the public prosecutor issued a Joint Resolution finding probable cause for qualified theft and one count of estafa against Umezawa, and dismissing the case against the other accused. The Prosecutor maintained his finding of probable cause against Umezawa in Criminal Case No. 013231-L.

On February 20, 1996, the public prosecutor filed an Information for qualified theft with the RTC of Lapu-Lapu City against Umezawa, docketed as Criminal Case No. 013423-L. The accusatory portion reads:

That on the 8th day of February 1995, in the City of Lapu-Lapu, Philippines, within the jurisdiction of this Honorable Court, the above-named accused, while being the President and General Manager of Mobilia Products, Inc., a corporation engaged in the manufacture and export of quality furniture, whose principal place of business is at the Mactan Export Processing Zone, Lapu-Lapu City, with intent to gain, without the consent of his employer, and with grave abuse of confidence, did then and there willfully, unlawfully and feloniously take, steal and carry away from the corporation’s factory the following expensive pieces of furniture, to wit:

1) 1 set, Model No. 2, 2-seater German

leather sofa, all valued at . . . . . . . . . . . . . . P 225,000.00

2) 1 set, Model No. 1, 2-seater German

leather sofa, all valued at . . . . . . . . . . . . . . . . P 275,000.00

with an aggregate value of P500,000.00 Philippine Currency, to the damage and prejudice of Mobilia Products, Inc.

CONTRARY TO LAW.4

Another Information for estafa was thereafter filed against the same accused, docketed as Criminal Case No. 013424-L. The accusatory portion reads:

That sometime in March 1995, in the City of Lapu-Lapu, Philippines, within the jurisdiction of this Honorable Court, the above-named accused, by means of unfaithfulness and abuse of confidence reposed upon him as the President and General Manager of Mobilia Products, Inc., did then and there willfully, unlawfully and feloniously misappropriate and convert to his own personal use and benefit the amount of Seventeen Million One Hundred Eight Thousand Five Hundred (P17,108,500.00) Pesos, Philippine Currency, which was the total value of the furnitures ordered and manufactured by the accused or at his instance using Mobilia supplies, materials and machineries, as well as time and personnel which were supposed to be for the exclusive use of Mobilia Products, Inc. but were converted for the use and benefit of the accused and Astem Philippines Corporation, a company or firm engaged in the same business as that of Mobilia Products, Inc., which is, [in] the manufacture and production of quality furniture for export, owned by the accused, to the damage and prejudice of Mobilia Products, Inc.

CONTRARY TO LAW.5

On April 25, 1996, Umezawa filed a motion for the suspension of the proceedings on the ground of the pendency of his petition with the SEC in Case No. 002919. The trial court, however, issued an Order on May 21, 1996, denying the said motion. It held that the filing and the pendency of a petition before the SEC did not warrant a suspension of the criminal cases.

On September 25, 1998, Umezawa was arraigned and pleaded not guilty.

On September 30, 1998, Umezawa filed anew a Joint Motion to Quash the Informations in Criminal Cases Nos. 013231-L and 013423-L, on the ground that the facts alleged therein did not constitute the felony of qualified theft. Umezawa claimed that based on the Joint Affidavit of the witnesses for the prosecution submitted during the preliminary investigation, Yasushi Kato and George del Rio, MPI Vice-President and the head of the Upholstery Department, respectively, the appropriate charge should be estafa and not qualified theft. Umezawa further claimed that for their failure to object to and resist his alleged delictual acts, the said witnesses were as guilty as he was and should have been included in the Information. He also asserted that there was, likewise, no allegation in the Informations as to who was the owner of the articles stolen; hence, there was no offended party. He noted that the Informations merely alleged that MPI was his employer. He further posited that there was no valid charge against him because the resolution authorizing the filing of the cases against him was approved by a mere minority of the members of the MPI Board of Directors.6

Umezawa, likewise, filed a Motion to Quash7 the Information in Criminal Case No. 013424-L on the ground that the facts alleged in the Information did not constitute the felony of estafa. He posited that the Information did not contain any allegation that any demand was made for him to return the goods. Furthermore, the owner of the said articles was not specified. He noted that as gleaned from the Joint Affidavit of the witnesses for the prosecution, there was no lawful private complainant. He reiterated that the MPI board resolution authorizing the filing of the charge against him was not approved by the majority of the members of its board of directors. Umezawa also alleged that the charge for estafa with abuse of confidence was already included in the charge for qualified theft, where it was alleged



that he committed theft with abuse of confidence; hence, the charge for estafa should be quashed, otherwise, he would be placed in double jeopardy. The motion was duly opposed by the prosecution.

On January 29, 1999, the trial court issued a Joint Order8 dismissing the cases for lack of jurisdiction. It held that the dispute between the private complainant and the accused over the ownership of the properties subject of the charges is intra-corporate in nature, and was within the exclusive jurisdiction of the SEC. It ruled that Umezawa, as a member of the board of directors and president of MPI, was also a stockholder thereof. While Umezawa claimed to be the bona fide owner of the properties subject of the Informations which he appropriated for himself, the private complainant disputes the same; hence, according to the trial court, the conflicting claims of the parties should be resolved by the SEC. The private and public prosecutors received their respective copies of the Joint Order on February 2, 1999.

The MPI, through the private prosecutor, filed a motion for reconsideration of the joint order of the court and for the reinstatement of the cases on February 15, 1999. The MPI relied on the following grounds:

a. The Honorable Court has jurisdiction and must exercise it over these cases;

b. The above-entitled case is not an intra-corporate controversy;

and

c. The accused could not claim ownership nor co-ownership of the properties of private complainant corporation.9

The MPI maintained that the trial court had jurisdiction over the cases and cited Section 5 of Presidential Decree (P.D.) No. 902-A, which provides the rules on cases over which the SEC has original and exclusive jurisdiction. A copy of the motion was served on the public prosecutor for his approval. However, the public prosecutor did not affix his conformity to the motion, and instead opted to appear before the trial court during the hearing of the same. During the hearing, both the public and private prosecutors appeared. In support of his motion, the private prosecutor argued that the trial of the case must be done in the presence of and under the control and supervision of the public prosecutor.10

The trial court denied the motion in an Order dated April 19, 1999. It held that the SEC, not the trial court, had jurisdiction over intra-corporate controversies. It also ruled that the motion of the private complainant was pro forma, it appearing that the public prosecutor had not approved the same.

The public prosecutor received a copy of the Order on April 20, 1999. On April 26, 1999, the People of the Philippines, through the OSG, filed a petition for certiorari and mandamus with the CA against Presiding Judge Rumuldo R. Fernandez and Umezawa, docketed as CA-G.R. SP No. 52440. The CA allowed the MPI to intervene as petitioner, and admitted its petition- in-intervention.

The People of the Philippines, as the petitioner therein, raised the following issues:

I

WHETHER OR NOT IT IS THE LEGAL AND MINISTERIAL DUTY OF THE REGIONAL TRIAL COURT TO TAKE COGNIZANCE AND JURISDICTION OF THESE SUBJECT CRIMINAL CASES;

II

WHETHER OR NOT THE SECURITIES AND EXCHANGE COMMISSION HAS JURISDICTION OVER THE CRIMINAL CASES AGAINST RESPONDENT HAJIME UMEZAWA;

III

WHETHER OR NOT RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN DISMISSING THE CRIMINAL CASES AND DENYING PETITIONER’S MOTION FOR RECONSIDERATION.11

The People asserted that the controversy involving the criminal cases was not between Umezawa and the other stockholders of MPI, but one between him as the accused therein and the People of the Philippines. It averred that under Section 20(b) of Batas Pambansa (B.P.) Blg. 129, the RTC has exclusive jurisdiction over the cases against Umezawa. It also alleged that in dismissing the criminal cases against Umezawa on the ground that it had no jurisdiction over the crimes charged, the RTC committed grave abuse of its discretion amounting to excess or lack of jurisdiction.

On September 2, 1999, the CA rendered judgment granting the petition and nullifying the assailed Orders of the RTC. It ruled that the issue of ownership of the properties subject of the Informations was not an intra-corporate dispute. It held that Umezawa, although president and general manager of the MPI and a stockholder thereof, was not a joint owner or co-owner of the personal properties subject of the charges. It also held that the dispute between a private corporation and any of its stockholders relative to the ownership of properties does not ipso facto negate the jurisdiction of the RTC over the criminal cases under B.P. Blg. 129, as amended. It also declared that the material averments of the Informations sufficiently charged qualified theft and estafa.



Umezawa filed a motion for the reconsideration of the decision of the CA. In a complete volte face, the appellate court issued a Resolution on August 8, 2001, granting the motion and reversing its decision. It affirmed the ruling of the RTC that the dispute between Umezawa and the other stockholders and officers over the implementation of the MPI’s standard procedure is intra-corporate in nature; hence, within the exclusive jurisdiction of the SEC. Citing Section 5(a)(b) of P.D. No. 902-A, and the ruling of this Court in Alleje v. Court of Appeals,12 the appellate court ruled that based on the material allegations of the Solicitor General in the petition before the CA, the SEC had exclusive jurisdiction over the conflicting claims of the parties. It likewise affirmed the ruling of the RTC that the absence of any allegation in the Information that the MPI was the owner of the properties subject of the Information is fatal.

The petitioner MPI filed the instant petition for review on certiorari, raising the following issues:

I

WHETHER OR NOT THE SECURITIES AND EXCHANGE COMMISSION HAS JURISDICTION OVER THE CRIMINAL CASES AGAINST UMEZAWA.

II

WHETHER OR NOT ALL THE NECESSARY ELEMENTS OF THE CRIMES OF QUALIFIED THEFT AND ESTAFA ARE SUFFICIENTLY ALLEGED IN THE INFORMATIONS.

III

EVEN ASSUMING ARGUENDO THAT THE FACTS ALLEGED DO NOT CONSTITUTE AN OFFENSE THE CORRECT RULING IS NOT TO DISMISS THE CASE BUT TO ORDER AMENDMENT.

IV

WHETHER OR NOT THE STATE HS LOST ITS RIGHT TO APPEAL.

V

WHETHER OR NOT THE MOTION FOR RECONSIDERATION OF UMEZAWA IS PRO FORMA.13

The People of the Philippines filed a separate petition for review on certiorari, contending that:

1. THE COURT OF APPEALS COMMITTED SERIOUS ERRORS OF LAW AND GRAVE ABUSE OF DISCRETION IN FINDING THAT THE PETITION FOR MANDAMUS, CERTIORARI AND INJUNCTION WAS FILED OUT OF TIME AND THAT PETITIONER HAS LOST ITS RIGHT TO APPEAL;

2. THE COURT OF APEALS COMMITTED SERIOUS ERRORS OF LAW IN RULING THAT NOT ALL THE ELEMENTS OF QUALIFIED THEFT AND ESTAFA ARE PRESENT;

3. THE COURT OF APPEALS COMMITTED BLATANT AND SERIOUS ERRORS OF LAW IN FINDING THAT THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS JURISDICTION OVER THE SUBJECT CRIMINAL CASES;

4. THE COURT OF APPEALS COMMITTED SERIOUS ERRORS OF LAW AND GRAVE ABUSE OF DISCRETION IN GIVING DUE COURSE TO THE PRO-FORMA MOTION FOR RECONSIDERATION OF UMEZAWA.14

The two petitions were consolidated in the Second Division of the Court.

The threshold issues for resolution are the following: (a) whether or not the petition for certiorari of the People of the Philippines in the CA assailing the January 29, 1999 Joint Order of the trial court was time-barred; (b) whether the RTC has jurisdiction over the crimes charged in the said Informations; (c) whether the Informations sufficiently charge the felonies of qualified theft and estafa; and (d) if in the affirmative, whether all the elements of qualified theft and estafa are alleged in the Informations.

On the first issue, the CA held that the Public Prosecutor failed to file a motion for the reconsideration of the trial court’s January 29, 1999 Joint Order dismissing the cases, that is, within fifteen days from receipt of a copy of the said order on February 2, 1999; neither did the People appeal the said Order within the period therefor. Thus, according to the CA, the People filed its petition for certiorari, prohibition and mandamus assailing the January 29, 1999 Joint Order of the trial court only on April 26, 1999, well beyond the 60-day period therefor. The appellate court, likewise, held that the filing of the motion for reconsideration of the said Joint Order by the private prosecutor without the conformity of the Public Prosecutor did not toll the period for the People to file its motion for reconsideration thereof, or to appeal therefrom, or to file a petition for certiorari, prohibition or mandamus. It ruled that, having lost its right to appeal in due course, the People was proscribed from filing a petition for certiorari, prohibition or mandamus. The CA declared that the motion for



reconsideration filed by petitioner MPI of the Joint Order of the RTC is pro forma, the public prosecutor not having signified his written conformity thereto.

On the other hand, the petitioner People of the Philippines insists that while the public prosecutor did not expressly conform to the motion for reconsideration of the January 29, 1999 Joint Order of the trial court filed by the private prosecutor, through the public prosecutor’s presence during the hearing of the said motion, his supervision and control over the private prosecutor during the said hearing, he in effect adopted and conformed to the said motion for reconsideration.

In his comment on the petitions, respondent Umezawa maintains that the motion for reconsideration of the joint order of the trial court filed by the private prosecutor did not interrupt the period within which the People could appeal, citing the ruling of this Court in Cabral v. Puno.15 The respondent posits that the finding of the trial court, which was affirmed by the CA, that the public prosecutor did not conform to the motion for reconsideration of the private prosecutor, is binding on this Court. The respondent also avers that the petitioner has no personality to file the petition. Moreover, he insists that whether the public prosecutor conformed to the private prosecutor’s motion for reconsideration is a question of fact which is not proper in a petition for review on certiorari.

The Court’s Ruling

The contention of the petitioner People of the Philippines is not correct. All criminal actions commenced by complaint or information shall be prosecuted under the direction and control of the public prosecutor.16 When the civil action for civil liability is instituted in the criminal action pursuant to Rule 111 of the Rules on Criminal Procedure, the offended party may intervene, by counsel, in the prosecution of the offense.17 In Ramiscal, Jr. v. Sandiganbayan,18 we held that under Section 16, Rule 110 of the Rules of Criminal Procedure, the offended party may intervene in the criminal action personally or by counsel, who will then act as private prosecutor for the protection of his interests and in the interest of the speedy and inexpensive administration of justice. A separate action for the purpose would only prove to be costly, burdensome and time-consuming for both parties and further delay the final disposition of the case. The multiplicity of suits must be avoided. With the implied institution of the civil action in the criminal action, the two actions are merged into one composite proceeding, with the criminal action predominating the civil. The prime purpose of the criminal action is to punish the offender in order to deter him and others from committing the same or similar offense, to isolate him from society, reform and rehabilitate him or, in general, to maintain social order.19

The intervention of the private offended party, through counsel, and his prosecution of the case shall be under the control and supervision of the public prosecutor until the final termination of the case. A public prosecutor who has been entrusted by law with the prosecution of criminal cases is duty-bound to take charge thereof until its final termination, for under the law, he assumes full responsibility for his failure or success since he is the one more adequately prepared to pursue it to its termination.20 The prosecution of offenses is a public function. Indeed, the sole purpose of the civil action is the resolution, reparation or indemnification of the private offended party for the damage or injury he sustained by reason of the delictual or felonious act of the accused. 21 Under Article 104 of the Revised Penal Code, the following are the civil liabilities of the accused:

ART. 104. What is included in civil liability.— The civil liability established in Articles 100, 101, 102 and 103 of this Code includes:

1. Restitution;

2. Reparation of the damage caused;

3. Indemnification for consequential damages.

Thus, when the offended party, through counsel, has asserted his right to intervene in the proceedings, it is error to consider his appearance merely as a matter of tolerance.22

The public prosecutor may turn over the actual prosecution of the criminal case, in the exercise of his discretion, but he may, at any time, take over the actual conduct of the trial. However, it is necessary that the public prosecutor be present at the trial until the final termination of the case; otherwise, if he is absent, it cannot be gainsaid that the trial is under his supervision and control.23

In a criminal case in which the offended party is the State, the interest of the private complainant or the offended party is limited to the civil liability arising therefrom. Hence, if a criminal case is dismissed by the trial court or if there is an acquittal, a reconsideration of the order of dismissal or acquittal may be undertaken, whenever legally feasible, insofar as the criminal aspect thereof is concerned and may be made only by the public prosecutor; or in the case of an appeal, by the State only, through the OSG. The private complainant or offended party may not undertake such motion for reconsideration or appeal on the criminal aspect of the case.24 However, the offended party or private complainant may file a motion for reconsideration of such dismissal or acquittal or appeal therefrom but only insofar as the civil aspect thereof is concerned.25 In so doing, the private complainant or offended party need not secure the conformity of the public prosecutor. If the court denies his motion for reconsideration, the private complainant or offended party may appeal or file a petition for certiorari or mandamus, if grave abuse amounting to excess or lack of jurisdiction is shown and the aggrieved party has no right of appeal or given an adequate remedy in the ordinary course of law.

The public and private prosecutors are not precluded, whenever feasible, from filing a joint motion for the reconsideration of the dismissal of the case or the acquittal of the accused, on the criminal and civil aspects of the cases.

In the present case, only petitioner MPI, through counsel, filed a motion for the reconsideration of the trial court’s Joint Order dated January 29, 1999, praying for the reinstatement of the cases insofar as the civil aspect thereof is concerned. The public prosecutor did not approve nor conform to the said motion. Although petitioner MPI provided ample space for the said conformity of the public prosecutor, the latter did not do so; he merely appeared during the hearing of the said motion with the private prosecutor when the latter presented his oral arguments in support of the said motion.



The fact that the public prosecutor did not conform to the said motion, however, does not mean that the same is pro forma. It must be stressed that the propriety and efficacy of the motion, insofar as the civil aspect of the cases is concerned, is not dependent upon the conformity of the public prosecutor. Hence, the filing of the joint motion for reconsideration effectively suspended the running of the period for petitioner MPI to assail the joint order in the CA via an appeal or a special civil action for certiorari or mandamus under Rule 65 of the Rules of Court.

However, since the public prosecutor did not file any motion for the reconsideration of the joint order nor conform to the motion of petitioner MPI, insofar as the criminal aspect of the cases is concerned, the period for the State to assail the said joint order was not suspended. Only the motion for reconsideration filed by the public prosecutor of the joint order of dismissal of the cases could have tolled the period within which the State could appeal, insofar as the criminal aspect of the cases was concerned. The bare fact that the public prosecutor appeared for the State during the hearing of the motion for reconsideration of petitioner MPI does not amount to or constitute his adoption of the said motion as that of the State. As ruled by this Court in Cabral v. Puno:26

While it is true that the offended party, Silvino San Diego, through the private prosecutor, filed a motion for reconsideration within the reglementary fifteen-day period, such move did not stop the running of the period for appeal. He did not have the legal personality to appeal or file the motion for reconsideration on his behalf. The prosecution in a criminal case through the private prosecutor is under the direction and control of the Fiscal, and only the motion for reconsideration or appeal filed by the Fiscal could have interrupted the period for appeal.27

We agree with the ruling of the CA that the petition for certiorari filed by the petitioner People of the Philippines with the CA on April 26, 1999 was filed beyond the 60-day period as provided in Section 4, Rule 65 of the Rules of Court,28 it appearing that the public prosecutor received a copy of the joint order of the trial court on February 2, 1999, and, thus, had only until April 3, 1999 within which to file the said petition.

Even then, the Court still holds that the CA erred in dismissing the petition of the People of the Philippines simply because the public prosecutor erred in not himself filing a motion for reconsideration of the joint order of the trial court, on his perception that by being present during the hearing of the motion for reconsideration of petitioner MPI, he thereby adopted the said motion as that of the State’s. The settled rule is that the State is not estopped by the mistakes of its officers and employees. Indeed, in Cruz, Jr. v. Court of Appeals,29 the Court declared:

… Estoppel does not lie against the government because of the supposedly mistaken acts or omissions of its agents. As we declared in People v. Castañeda, "there is the long familiar rule that erroneous application and enforcement of the law by public officers do not block subsequent correct application of the statute and that the government is never estopped by mistake or error on the part of its agents."

The Court also held in Chua v. Court of Appeals:30

… While ordinarily, certiorari is unavailing where the appeal period has lapsed, there are exceptions. Among them are (a) when public welfare and the advancement of public policy dictates; (b) when the broader interest of justice so requires; (c) when the writs issued are null and void; or (d) when the questioned order amounts to an oppressive exercise of judicial authority. …31

On the second issue, the petitioners assert that the CA erred in holding that the dispute between it and the respondent is intra-corporate in nature; hence, within the exclusive jurisdiction of the SEC. As gleaned from the material allegations of the Informations, the RTC had exclusive jurisdiction over the crimes charged. Petitioner MPI further avers that even if there is no allegation in the Informations identifying it as the owner of the personal properties described in the Informations, its ownership of the properties can be inferred from the other allegations. The petitioners maintain that even if the Informations are deficient, the remedy is the amendment of the Informations and not the dismissal of the cases.

For his part, the respondent avers that the assailed Resolution of the CA is correct, and that it is the appellate court’s decision which is erroneous.

We agree with the petitioners.

According to Section 20 of B.P. Blg. 129 –

SEC. 20. Jurisdiction in criminal cases.— Regional Trial Courts shall exercise exclusive original jurisdiction in all criminal cases not within the exclusive jurisdiction of any court, tribunal or body, except those now falling under the exclusive and concurrent jurisdiction of the Sandiganbayan which shall hereafter be exclusively taken cognizance of by the latter.

Section 32 thereof was later amended by Section 2 of Republic Act No. 7691, as follows:

Sec. 32. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in Criminal Cases. – Except in cases falling within the exclusive original jurisdiction of the Regional Trial Court and of the Sandiganbayan, the Metropolitan Trial Courts, and Municipal Circuit Trial Courts shall exercise:

(1) Exclusive original jurisdiction over all violations of city or municipal ordinances committed within their respective territorial jurisdiction; and



(2) Exclusive original jurisdiction over all offenses punishable with imprisonment not exceeding six (6) years irrespective of the amount of fine, and regardless of other imposable accessory or other penalties, including the civil liability arising from such offenses or predicated thereon, irrespective of kind, nature, value or amount thereof: Provided, however, That in offenses involving damage to property through criminal negligence, they shall have exclusive original jurisdiction thereof.

Case law has it that in order to determine the jurisdiction of the court in criminal cases, the complaint or Information must be examined for the purpose of ascertaining whether or not the facts set out therein and the prescribed period provided for by law are within the jurisdiction of the court, and where the said Information or complaint is filed. It is settled that the jurisdiction of the court in criminal cases is determined by the allegations of the complaint or Information and not by the findings based on the evidence of the court after trial.32 Jurisdiction is conferred only by the Constitution or by the law in force at the time of the filing of the Information or complaint. Once jurisdiction is vested in the court, it is retained up to the end of the litigation. Indeed, in People v. Purisima,33 this Court held that:

In criminal prosecutions, it is settled that the jurisdiction of the court is not determined by what may be meted out to the offender after trial or even by the result of the evidence that would be presented at the trial, but by the extent of the penalty which the law imposes for the misdemeanor, crime or violation charged in the complaint. If the facts recited in the complaint and the punishment provided for by law are sufficient to show that the court in which the complaint is presented has jurisdiction, that court must assume jurisdiction.

In Criminal Case No. 013231-L, the value of the properties subject of qualified theft is P3,219,875.00, while in Criminal Case No. 013423-L, the value of the property was pegged at P255,000.00. Under Article 309 of the Revised Penal Code, the penalty for theft when the value of the stolen property exceeds P22,000.00 is as follows:

1. The penalty of prision mayor in its minimum and medium periods, if the value of the thing stolen is more than 12,000 pesos but does not exceed 20,000 pesos; but if the value of the thing stolen exceeds the latter amount, the penalty shall be the maximum period of the one prescribed in this paragraph and one year of each additional ten thousand pesos, but the total of the penalty which may be imposed shall not exceed twenty years. In such cases, and in connection with the accessory penalties which may be imposed and for the purpose of the other provisions of this Code, the penalty shall be termed prision mayor or reclusion temporal, as the case may be.

Article 310 of the Revised Penal Code further provides for the penalty for qualified theft:

Art. 310. Qualified theft. – The crime of theft shall be punished by the penalties next higher by two degrees than those respectively specified in the next preceding article, if committed by a domestic servant, or with grave abuse of confidence, or if the property stolen is motor vehicle, mail matter or large cattle or consists of coconuts taken from the premises of a plantation, fish taken from a fishpond or fishery or if property is taken on the occasion of fire, earthquake, typhoon, volcanic eruption, or any other calamity, vehicular accident or civil disturbance.

On the other hand, in Criminal Case No. 013424-L for estafa, the amount of the fraud involved is P500,000.00, and under Article 315 of the Revised Penal Code, the penalty for such crime is –

1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum period, if the amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos; and if such amount exceeds the latter sum, the penalty provided in this paragraph shall be imposed in its maximum period, adding one year for each additional 10,000 pesos; but the total penalty which may be imposed shall not exceed twenty years. In such cases, and in connection with the accessory penalties which may be imposed and for the purpose of the other provisions of this Code, the penalty shall be termed prision mayor or reclusion temporal, as the case may be.

Patently, then, based on the material allegations of the Informations in the three cases, the court a quo had exclusive jurisdiction over the crimes charged.

The bare fact that the respondent was the president and general manager of the petitioner corporation when the crimes charged were allegedly committed and was then a stockholder thereof does not in itself deprive the court a quo of its exclusive jurisdiction over the crimes charged. The property of the corporation is not the property of the stockholders or members or of its officers who are stockholders. 34 As the Court held in an avuncular case:35

... Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. While shares of stock constitute personal property, they do not represent property of the corporation. The corporation has property of its own which consists chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75; Morrow v. Gould, 145 Iowa, 1, 123 N.W. 743). A share of stock only typifies an aliquot part of the corporation’s property, or the right to share in its proceeds to that extent when distributed according to law and equity (Hall & Faley v. Alabama Terminal, 173 Ala., 398, 56 So. 235), but its holder is not the owner of any part of the capital of the corporation (Bradley v. Bauder, 36 Ohio St., 28). Nor is he entitled to the possession of any definite portion of its property or assets (Gottfried v. Miller, 104 U.S., 521; Jones v. Davis, 35 Ohio St., 474). The stockholder is not a co-owner or tenant in common of the corporate property (Harton v. Johnston, 166 Ala., 317, 51 So., 992) …"36

As early as the case of Fisher v. Trinidad,37 the Court already declared that "[t]he distinction between the title of a corporation, and the interest of its members or stockholders in the property of the corporation, is familiar and well-settled. The ownership of that property is in the corporation, and not in the holders of shares of its stock. The interest of each stockholder consists in the right to a proportionate part of the profits whenever dividends are declared by the corporation, during its existence, under its charter, and to a like proportion of the property remaining, upon the termination or dissolution of the corporation, after payment of its debts."38

We also agree with the ruling of the CA in its decision that the SEC (now the Regional Trial Court) had no jurisdiction over the cases filed in the court a quo. The appellate court’s reliance in the assailed Resolution issued by the Board of Directors of the petitioner corporation, on Section 5(b) of P.D. No. 902, has no factual and legal basis.



Section 5 of P.D. No. 902-A provides that the SEC39 shall have original and exclusive jurisdiction to hear and decide cases involving the following:

(a) devices or schemes employed by, or any acts of, the board of directors, business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, members of association or organizations registered with the Commission, and

(b) controversies arising out of intra-corporate or partnership relations, between and among stockholders, members or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively.

In Fabia v. Court of Appeals,40 the Court explained that Section 5 of P.D. No. 902-A should be taken in conjunction with Section 6 of the law. It then proceeded to explain:

In synthesis, Sec. 5 of PD 902-A mandates that cases involving fraudulent actions and devices which are detrimental to the interest of stockholders, members or associates and directors of the corporation are within the original and exclusive jurisdiction of the SEC. Taken in conjunction with Sec. 6 of the same law, it will be gathered that the fraudulent acts/schemes which the SEC shall exclusively investigate and prosecute are those "in violation of any law or rules and regulations administered and enforced by the Commission" alone. This investigative and prosecutorial powers of the SEC are further "without prejudice to any liability for violation of any provision of The Revised Penal Code."

From the foregoing, it can thus be concluded that the filing of the civil/intra-corporate case before the SEC does not preclude the simultaneous and concomitant filing of a criminal action before the regular courts; such that, a fraudulent act may give rise to liability for violation of the rules and regulations of the SEC cognizable by the SEC itself, as well as criminal liability for violation of the Revised Penal Code cognizable by the regular courts, both charges to be filed and proceeded independently, and may be simultaneously with the other.41

Thus, the filing of a petition in the SEC for the nullification of the Resolution of May 2, 1995 issued by the Chairman and two members of the Board of Directors of petitioner MPI, which authorized the filing of criminal cases against respondent Umezawa, was not a bar to his prosecution for estafa and qualified theft for his alleged fraudulent and delictual acts. The relationship of the party-litigants with each other or the position held by petitioner as a corporate officer in respondent MPI during the time he committed the crime becomes merely incidental and holds no bearing on jurisdiction. What is essential is that the fraudulent acts are likewise of a criminal nature and hence cognizable by the regular courts.42 Thus, notwithstanding the fact that respondent Umezawa was the president and general manager of petitioner MPI and a stockholder thereof, the latter may still be prosecuted for the crimes charged. The alleged fraudulent acts of respondent Umezawa in this case constitute the element of abuse of confidence, deceit or fraudulent means, and damage under Article 315 of the Revised Penal Code on estafa.43

We agree with the encompassing disquisitions of the CA in its decision, to wit:

… A dispute involving the corporation and its stockholders is not necessarily an intra-corporate dispute cognizable only by the Securities and Exchange Commission. Nor does it ipso facto negate the jurisdiction of the Regional Trial Court over the subject cases. The Supreme Court citing the case of Viray v. Court of Appeals (G.R. No. 92481, 191 SCRA 308 [1990]) in Torio v. Court of Appeals (G.R. No. 107293, March 2, 1994, 230 SCRA 626) held:

"It should be obvious that not every conflict between a corporation and its stockholders involves corporate matters that only the SEC can resolve in the exercise of its adjudicatory or quasi-judicial powers."

As the Supreme Court further ruled in the Torio case that "a contrary interpretation would distort the meaning and intent of P.D. 902-A, the law re-organizing the Securities and Exchange Commission. The better policy in determining which body has jurisdiction over a case would be to consider not only the relationship of the parties but also the nature of the questions raised in the subject of the controversy.44

On the last issue, we find and so hold that the Informations state all the essential elements of estafa and qualified theft. It was adequately alleged that respondent Umezawa, being the President and General Manager of petitioner MPI, stole and misappropriated the properties of his employer, more specifically, petitioner MPI. As expostulated by the CA in its decision:

… In any event, the allegations in the informations, if hypothetically admitted, are sufficient to bind Umezawa to the charges of qualified theft and estafa. As aptly ruled by the court a quo in its Order of July 25, 1995, all the elements of the offense of qualified theft are present. There is no basis for claiming otherwise. Furthermore, the private offended party, as well as the subject matter of the felonious taking and the ownership thereof, have been adequately indicated or identified leaving no room for any doubt on these matters. Considering that the motions to quash of September 30, 1998 are fundamentally rehash of the motion to quash filed on May 29, 1995 and the culpable acts subject of the new informations are virtually the same as the first information filed against Umezawa, there is no conceivable reason why the court a quo abandoned its previous stand and controverted itself in regard the sufficiency of the informations.

In our considered view, and as the court a quo had correctly held in its Order of May 26, 1996, "even a SEC ruling voiding the resolution authorizing the filing of criminal charges versus the accused Hajime Umezawa can have no bearing on the validity of the informations filed in these three criminal cases as pointed out by private complainant, the public offenses of qualified theft and estafa can [be] prosecuted de officio." The resolution of the office of the prosecutor on the preliminary investigation as well as the re-investigation conducted on the letter-complaint filed by private complainant company sufficiently established prima facie case against the accused and the legality or illegality of the constitution of the board which authorized the filing of the complaint does not materially affect either the informations



filed against Umezawa or the pending criminal proceedings. As petitioners contend, the action is now between the People of the Philippines and herein private respondent.45

IN LIGHT OF ALL THE FOREGOING, the petitions are GRANTED. The Resolution of the Court of Appeals in CA-G.R. SP No. 52440 dated August 8, 2001 is REVERSED and SET ASIDE. The Decision of the Court of Appeals dated September 2, 1999 is AFFIRMED.

SO ORDERED.

G.R. No. 151438 July 15, 2005

JARDINE DAVIES, INC., Petitioners,

vs.

JRB REALTY, INC., Respondent.

D E C I S I O N

CALLEJO, SR., J.:

Before us is a petition for review of the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 54201 affirming in toto that of the Regional Trial Court (RTC) in Civil Case No. 90-237 for specific performance; and the Resolution dated January 11, 2002 denying the motion for reconsideration thereof.

The facts are as follows:

In 1979-1980, respondent JRB Realty, Inc. built a nine-storey building, named Blanco Center, on its parcel of land located at 119 Alfaro St., Salcedo Village, Makati City. An air conditioning system was needed for the Blanco Law Firm housed at the second floor of the building. On March 13, 1980, the respondent’s Executive Vice-President, Jose R. Blanco, accepted the contract quotation of Mr. A.G. Morrison, President of Aircon and Refrigeration Industries, Inc. (Aircon), for two (2) sets of Fedders Adaptomatic 30,000 kcal (Code: 10-TR) air conditioning equipment with a net total selling price of P99,586.00.2 Thereafter, two (2) brand new packaged air conditioners of 10 tons capacity each to deliver 30,000 kcal or 120,000 BTUH3 were installed by Aircon. When the units with rotary compressors were installed, they could not deliver the desired cooling temperature. Despite several adjustments and corrective measures, the respondent conceded that Fedders Air Conditioning USA’s technology for rotary compressors for big capacity conditioners like those installed at the Blanco Center had not yet been perfected. The parties thereby agreed to replace the units with reciprocating/semi-hermetic compressors

instead. In a Letter dated March 26, 1981,4 Aircon stated that it would be replacing the units currently installed with new ones using rotary compressors, at the earliest possible time. Regrettably, however, it could not specify a date when delivery could be effected.

TempControl Systems, Inc. (a subsidiary of Aircon until 1987) undertook the maintenance of the units, inclusive of parts and services. In October 1987, the respondent learned, through newspaper ads,5 that Maxim Industrial and Merchandising Corporation (Maxim, for short) was the new and exclusive licensee of Fedders Air Conditioning USA in the Philippines for the manufacture, distribution, sale, installation and maintenance of Fedders air conditioners. The respondent requested that Maxim honor the obligation of Aircon, but the latter refused. Considering that the ten-year period of prescription was fast approaching, to expire on March 13, 1990, the respondent then instituted, on January 29, 1990, an action for specific performance with damages against Aircon & Refrigeration Industries, Inc., Fedders Air Conditioning USA, Inc., Maxim Industrial & Merchandising Corporation and petitioner Jardine Davies, Inc.6 The latter was impleaded as defendant, considering that Aircon was a subsidiary of the petitioner. The respondent prayed that judgment be rendered, as follows:

1. Ordering the defendants to jointly and severally at their account and expense deliver, install and place in operation two

brand new units of each 10-tons capacity Fedders unitary packaged air conditioners with Fedders USA’s technology perfected rotary compressors to always deliver 30,000 kcal or 120,000 BTUH to the second floor of the Blanco Center building at 119 Alfaro St., Salcedo Village, Makati, Metro Manila;

2. Ordering defendants to jointly and severally reimburse plaintiff not only the sums of P415,118.95 for unsaved electricity from 21st October 1981 to 7th January 1990 and P99,287.77 for repair costs of the two service units from 7th March 1987 to 11th January 1990, with legal interest thereon from the filing of this Complaint until fully reimbursed, but also like unsaved electricity costs and like repair costs therefrom until Prayer No. 1 above shall have been complied with;

3. Ordering defendants to jointly and severally pay plaintiff’s P150,000.00 attorney’s fees and other costs of litigation, as well as exemplary damages in an amount not less than or equal to Prayer 2 above; and

4. Granting plaintiff such other and further relief as shall be just and equitable in the premises.7

Of the four defendants, only the petitioner filed its Answer. The court did not acquire jurisdiction over Aircon because the latter ceased operations, as its corporate life ended on December 31, 1986.8 Upon motion, defendants Fedders Air Conditioning USA and Maxim were declared in default.9

On May 17, 1996, the RTC rendered its Decision, the dispositive portion of which reads:



WHEREFORE, judgment is hereby rendered ordering defendants Jardine Davies, Inc., Fedders Air Conditioning USA, Inc. and Maxim Industrial and Merchandising Corporation, jointly and severally:

1. To deliver, install and place into operation the two (2) brand new units of Fedders unitary packaged airconditioning units each of 10 tons capacity with rotary compressors to deliver 30,000 kcal or 120,000 BTUH to the second floor of the Blanco Center building, or to pay plaintiff the current price for two such units;

2. To reimburse plaintiff the amount of P556,551.55 as and for the unsaved electricity bills from October 21, 1981 up to April 30, 1995; and another amount of P185,951.67 as and for repair costs;

3. To pay plaintiff P50,000.00 as and for attorney’s fees; and

4. Cost of suit.10

The petitioner filed its notice of appeal with the CA, alleging that the trial court erred in holding it liable because it was not a party to the contract between JRB Realty, Inc. and Aircon, and that it had a personality separate and distinct from that of Aircon.

On March 23, 2000, the CA affirmed the trial court’s ruling in toto; hence, this petition.

The petitioner raises the following assignment of errors:

I.

THE COURT OF APPEALS ERRED IN HOLDING JARDINE LIABLE FOR THE ALLEGED CONTRACTUAL BREACH OF AIRCON SOLELY BECAUSE THE LATTER WAS FORMERLY JARDINE’S SUBSIDIARY.

II.

ASSUMING ARGUENDO THAT AIRCON MAY BE CONSIDERED AS JARDINE’S MERE ALTER EGO, THE COURT OF APPEALS ERRED IN NOT DECLARING AIRCON’S OBLIGATION TO DELIVER THE TWO (2) AIRCONDITIONING UNITS TO JRB AS HAVING BEEN SUBSTANTIALLY COMPLIED WITH IN GOOD FAITH.

III.

ASSUMING ARGUENDO THAT AIRCON MAY BE CONSIDERED AS JARDINE’S MERE ALTER EGO, THE COURT OF APPEALS ERRED IN NOT DECLARING JRB’S CAUSES OF ACTION AS HAVING BEEN BARRED BY LACHES.

IV.

ASSUMING ARGUENDO THAT AIRCON MAY BE CONSIDERED AS JARDINE’S MERE ALTER EGO, THE COURT OF APPEALS ERRED IN FINDING JRB ENTITLED TO RECOVER ALLEGED UNSAVED ELECTRICITY EXPENSES.

V.

THE COURT OF APPEALS ERRED IN HOLDING JARDINE LIABLE TO PAY ATTORNEY’S FEES.

VI.

THE COURT OF APPEALS ERRED IN NOT HOLDING JRB LIABLE TO JARDINE FOR DAMAGES.11

It is the well-settled rule that factual findings of the trial court, as affirmed by the CA, are accorded high respect, even finality at times. However, considering that the factual findings of the CA and the RTC were based on speculation and conjectures, unsupported by substantial evidence, the Court finds that the instant case falls under one of the excepted instances. There is, thus, a need to correct the error.

The trial court ruled that Aircon was a subsidiary of the petitioner, and concluded, thus:



Plaintiff’s documentary evidence shows that at the time it contracted with Aircon on March 13, 1980 (Exhibit "D") and on the date the revised agreement was reached on March 26, 1981, Aircon was a subsidiary of Jardine. The phrase "A subsidiary of Jardine Davies, Inc." was printed on Aircon’s letterhead of its March 13, 1980 contract with plaintiff (Exhibit "D-1"), as well as the Aircon’s letterhead of Jardine’s Director and Senior Vice-President A.G. Morrison and Aircon’s President in his March 26, 1981 letter to plaintiff (Exhibit "J-2") confirming the revised agreement. Aircon’s newspaper ads of April 12 and 26, 1981 and a press release on August 30, 1982 (Exhibits "E," "F" and "L") also show that defendant Jardine publicly represented Aircon to be its subsidiary.

Records from the Securities and Exchange Commission (SEC) also reveal that as per Jardine’s December 31, 1986 and 1985 Financial Statements that "The company acts as general manager of its subsidiaries" (Exhibit "P"). Jardine’s Consolidated Balance Sheet as of December 31, 1979 filed with the SEC listed Aircon as its subsidiary by owning 94.35% of Aircon (Exhibit "P-1"). Also, Aircon’s reportorial General Information Sheet as of April 1980 and April 1981 filed with the SEC show that Jardine was 94.34% owner of Aircon (Exhibits "Q" and "R") and that out of seven members of the Board of Directors of Aircon, four (4) are also of Jardine.

Defendant Jardine’s witness, Atty. Fe delos Santos-Quiaoit admitted that defendant Aircon, renamed Aircon & Refrigeration Industries, Inc. "is one of the subsidiaries of Jardine Davies" (TSN, September 22, 1995, p. 12). She also testified that Jardine nominated, elected, and appointed the controlling majority of the Board of Directors and the highest officers of Aircon (Ibid, pp. 10,13-14).

The foregoing circumstances provide justifiable basis for this Court to disregard the fiction of corporate entity and treat defendant Aircon as part of the instrumentality of co-defendant Jardine.12

The respondent court arrived at the same conclusion basing its ruling on the following documents, to wit:

(a) Contract/Quotation #78-No. 80-1639 dated March 03, 1980 (Exh. D-1);

(b) Newspaper Advertisements (Exhs. E-1 and F-1);

(c) Letter dated March 26, 1981 of A.G. Morrison, President of Aircon, to Atty. J.R. Blanco (Exh. J);

(d) News items of Bulletin Today dated August 30, 1982 (Exh. L);

(e) Balance Sheet of Jardine Davies, Inc. as of December 31, 1979 listing Aircon as one of its subsidiaries (Exh. P);

(f) Financial Statement of Aircon as of December 31, 1982 and 1981 (Exh. S);

(g) Financial Statement of Aircon as of December 31, 1981 (Exh. S-1).13

Applying the doctrine of piercing the veil of corporate fiction, both the respondent and trial courts conveniently held the petitioner liable for the alleged omissions of Aircon, considering that the latter was its instrumentality or corporate alter ego. The petitioner is now before us, reiterating its defense of separateness, and the fact that it is not a party to the contract.

We find merit in the petition.

It is an elementary and fundamental principle of corporation law that a corporation is an artificial being invested by law with a personality separate and distinct from its stockholders and from other corporations to which it may be connected. While a corporation is allowed to exist solely for a lawful purpose, the law will regard it as an association of persons or in case of two corporations, merge them into one, when this corporate legal entity is used as a cloak for fraud or illegality.14 This is the doctrine of piercing the veil of corporate

fiction which applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime.15 The rationale behind piercing a corporation’s identity is to remove the barrier between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain proscribed activities.16

While it is true that Aircon is a subsidiary of the petitioner, it does not necessarily follow that Aircon’s corporate legal existence can just be disregarded. In Velarde v. Lopez, Inc.,17 the Court categorically held that a subsidiary has an independent and separate juridical personality, distinct from that of its parent company; hence, any claim or suit against the latter does not bind the former, and vice versa. In applying the doctrine, the following requisites must be established: (1) control, not merely majority or complete stock control; (2) such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest acts in contravention of plaintiff’s legal rights; and (3) the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.18

The records bear out that Aircon is a subsidiary of the petitioner only because the latter acquired Aircon’s majority of capital stock. It, however, does not exercise complete control over Aircon; nowhere can it be gathered that the petitioner manages the business affairs of Aircon. Indeed, no management agreement exists between the petitioner and Aircon, and the latter is an entirely different entity from the petitioner.19

Jardine Davies, Inc., incorporated as early as June 28, 1946,20 is primarily a financial and trading company. Its Articles of Incorporation states among many others that the purposes for which the said corporation was formed, are as follows:



(a) To carry on the business of merchants, commission merchants, brokers, factors, manufacturers, and agents;

(b) Upon complying with the requirements of law applicable thereto, to act as agents of companies and underwriters doing and engaging in any and all kinds of insurance business.21

On the other hand, Aircon, incorporated on December 27, 1952,22 is a manufacturing firm. Its Articles of Incorporation states that its purpose is mainly -

To carry on the business of manufacturers of commercial and household appliances and accessories of any form, particularly to manufacture, purchase, sell or deal in air conditioning and refrigeration products of every class and description as well as accessories and parts thereof, or other kindred articles; and to erect, or buy, lease, manage, or otherwise acquire manufactories, warehouses, and depots for manufacturing, assemblage, repair and storing, buying, selling, and dealing in the aforesaid appliances, accessories and products. …23

The existence of interlocking directors, corporate officers and shareholders, which the respondent court considered, is not enough justification to pierce the veil of corporate fiction, in the absence of fraud or other public policy considerations.24 But even when there is dominance over the affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction applies only when such fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime.25 To warrant resort to this extraordinary remedy, there must be proof that the corporation is being used as a cloak or cover for fraud or illegality, or to work injustice.26 Any piercing of the corporate veil has to be done with caution.27 The wrongdoing must be clearly and convincingly established. It cannot just be presumed.28

In the instant case, there is no evidence that Aircon was formed or utilized with the intention of defrauding its creditors or evading its contracts and obligations. There was nothing fraudulent in the acts of Aircon in this case. Aircon, as a manufacturing firm of air

conditioners, complied with its obligation of providing two air conditioning units for the second floor of the Blanco Center in good faith, pursuant to its contract with the respondent. Unfortunately, the performance of the air conditioning units did not satisfy the respondent despite several adjustments and corrective measures. In a Letter29 dated October 22, 1980, the respondent even conceded that Fedders Air Conditioning USA has not yet perhaps perfected its technology of rotary compressors, and agreed to change the compressors with the semi-hermetic type. Thus, Aircon substituted the units with serviceable ones which delivered the cooling temperature needed for the law office. After enjoying ten (10) years of its cooling power, respondent cannot now complain about the performance of these units, nor can it demand a replacement thereof.

Moreover, it was reversible error to award the respondent the amount of P556,551.55 representing the alleged 30% unsaved electricity costs and P185,951.67 as maintenance cost without showing any basis for such award. To justify a grant of actual or compensatory damages, it is necessary to prove with a reasonable degree of certainty, premised upon competent proof and on the best evidence obtainable by the injured party, the actual amount of loss.30 The respondent merely based its cause of action on Aircon’s alleged representation that Fedders air conditioners with rotary compressors can save as much as 30% on electricity compared to other brands.

Offered in evidence were newspaper advertisements published on April 12 and 26, 1981. The respondent then recorded its electricity consumption from October 21, 1981 up to April 3, 1995 and computed 30% thereof, which amounted to P556,551.55. The Court rules that this amount is highly speculative and merely hypothetical, and for which the petitioner can not be held accountable.

First. The respondent merely relied on the newspaper advertisements showing the Fedders window-type air conditioners, which are far different from the big capacity air conditioning units installed at Blanco Center.

Second. After such print advertisements, the respondent informed Aircon that it was going to install an electric meter to register its electric consumption so as to determine the electric costs not saved by the presently installed units with semi-hermetic compressors. Contrary to the allegations of the respondent that this was in pursuance to their Revised Agreement, no proof was adduced that Aircon agreed to the respondent’s proposition. It was a unilateral act on the part of the respondent, which Aircon did not oblige or commit itself to pay.

Third. Needless to state, the amounts computed are mere estimates representing the respondent’s self-serving claim of unsaved electricity cost, which is too speculative and conjectural to merit consideration. No other proofs, reports or bases of comparison showing that Fedders Air Conditioning USA could indeed cut down electricity cost by 30% were adduced.

Likewise, there is no basis for the award of P185,951.67 representing maintenance cost. The respondent merely submitted a schedule31 prepared by the respondent’s accountant, listing the alleged repair costs from March 1987 up to June 1994. Such evidence is self-serving and can not also be given probative weight, considering that there are no proofs of receipts, vouchers, etc., which would substantiate the amounts paid for such services. Absent any more convincing proof, the Court finds that the respondent’s claims are without basis, and cannot, therefore, be awarded.

We sustain the petitioner’s separateness from that of Aircon in this case. It bears stressing that the petitioner was never a party to the contract. Privity of contracts take effect only between parties, their successors-in-interest, heirs and assigns.32 The petitioner, which has a

separate and distinct legal personality from that of Aircon, cannot, therefore, be held liable.

IN VIEW OF THE FOREGOING, the petition is GRANTED. The assailed decision of the Court of Appeals, affirming the decision of the Regional Trial Court is REVERSED and SET ASIDE. The complaint of the respondent is DISMISSED. Costs against the respondent.

SO ORDERED.

G.R. No. 140923. September 16, 2005



MANUEL M. MENDOZA and EDGARDO A. YOTOKO, Petitioners,

vs.

BANCO REAL DEVELOPMENT BANK (now LBC Development Bank), Respondent.

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

Before us is a petition for review on certiorari1, assailing the Decision2 of the Court of Appeals dated September 21, 1998 in CA-G.R. No. 41544, entitled "Banco Real Development Bank, plaintiff, versus, Technica Video Inc., et. al., Manuel M. Mendoza, et. al., defendants" and Resolution dated December 3, 1999.

The petition alleges inter alia that on August 7, 1985, the Board of Directors of Technical Video, Inc. (TVI) passed a Resolution authorizing its President, Eduardo A. Yotoko, petitioner, or its General Manager-Secretary-Treasurer, Manuel M. Mendoza, also a petitioner, to apply for and secure a loan from the Pasay City Banco Real Development Bank (now LBC Development Bank), herein respondent.

On September 11, 1985, respondent bank extended a loan of P500,000.00 to TVI. In his capacity as General Manager, petitioner Mendoza executed a promissory note and chattel mortgage over 195 units of Beta video machines and their equipment and accessories belonging to TVI in favor of respondent bank.

On October 3, 1986, TVI and two other video firms, Fox Video and Galactica Video, organized a new corporation named FGT Video Network Inc. (FGT). It was registered with the Securities and Exchange Commission.3 Petitioner Mendoza was the concurrent President of FGT and Operating General Manager of TVI. Thus, the office of TVI had to be transferred to the building of FGT for easier monitoring of the distribution and marketing aspects of the business.

For TVI’s failure to pay its loan upon maturity, respondent bank, on January 26, 1987, filed with the Office of the Clerk of Court of the Regional Trial Court (RTC), Pasay City, a petition for Extra Judicial Foreclosure and Sale of Chattel Mortgage.

However, the Sheriff’s Report/Return4 dated January 27, 1987 shows that TVI is no longer doing business at its given address; that its General Manager, Mr. Manuel M. Mendoza, is presently employed at FGT Video Network with offices at the Philcemcor Bldg., No. 4 Edsa cor. Connecticut St., Greenhills, San Juan, Metro Manila; that when asked about the whereabouts of the video machines, in the presence of the representative of respondent bank and its counsel, Mr. Mendoza denied any knowledge of their whereabouts; and that action on respondent’s petition is indefinitely postponed until further notice from the bank.

Respondent then wrote TVI demanding the surrender of the video machines. In his letter dated February 19, 1987, petitioner Mendoza requested the bank to give him "additional time to enable us to pay our total obligations" and proposed a repayment scheme to start not later than March 10, 1987.5 Still, no payment was received by the bank. TVI simply refused and ignored the demand and kept silent as to the whereabouts of the video machines.

Meanwhile, in a case entitled "Republic of the Philippines, plaintiff vs. FGT Video Network Inc., Manuel Mendoza, Alfredo C. Ongyangco, Eric Apolonio, Susan Yang ang Eduardo A. Yotoko, defendants," the RTC, Branch 167, Pasig City issued a search warrant. The agents of the National Bureau of Investigation (NBI) confiscated at the offices of FGT 638 machines and equipment including the 195 Beta machines mortgaged with respondent bank.

On May 29, 1987, upon motion of FGT and herein petitioners, the same court issued another Order directing the NBI to release and return the said machines to them.

However, Columbia Pictures Inc., Orion Pictures Corp., Paramount Pictures Corp., Universal City Studios Inc., The Walt Disney Company and Warner Bros. filed with this Court a petition for certiorari6 assailing the Order of the lower court.

On June 18, 1987, this Court issued a temporary restraining order enjoining the RTC from enforcing its assailed order. The machines and equipment were left in the custody of the NBI until the petition for certiorari shall have been resolved with finality.

On July 13, 1990, respondent bank filed with the RTC, Branch 110, Pasig City,7 a complaint for collection of a sum of money8 against TVI, FGT and petitioners. Only petitioners filed their joint answer to the complaint.

In their joint answer, petitioners specifically denied the allegations in the complaint, raising the defense that the loan is purely a corporate indebtedness of TVI.

On April 29, 1991, the trial court rendered a Decision, holding that:

"As by these considerations, the Court finds that TVI was the mere alter ego or business conduit of Yotoko and Mendoza, and additionally considering 1) that Mendoza disclaimed knowledge of the whereabouts of the TVI mortgaged property at the time plaintiff’s petition for extrajudicial foreclosure was being effected, and 2) that Mendoza and Yotoko transferred the mortgaged property to FGT without first securing plaintiff’s consent despite their awareness that under the chattel mortgage, such consent was necessary, the doctrine of



corporate entity must be pierced and the two must be held personally liable for TVI’s obligation to plaintiff for said doctrine cannot be used to defeat public convenience, justify wrong, protect fraud or avoid a legal obligation."

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

"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants TECHNICA VIDEO, INC., Mendoza and Yotoko, ordering them,

1) to pay plaintiff the sum of P500,000.00 plus interests, charges and penalties as agreed upon in the promissory note of September 11, 1985, until the same is fully paid;

2) to pay plaintiff the sum equivalent to ten (10%) of the total unpaid obligation as and for attorney’s fees, and

3) to pay the costs.

SO ORDERED."

Upon appeal by herein petitioners, the Court of Appeals rendered its Decision dated September 21, 1998, affirming in toto the Decision of the trial court. Petitioners’ motion for reconsideration was denied in its Resolution dated December 3, 1999.

Hence, the instant petition.

The basic issue for our resolution is whether herein petitioners are personally liable for TVI’s indebtedness of P500,000.00 with respondent bank.

Both the trial court and the Appellate Court found that the petitioners transferred the Beta video machines from TVI to FGT without the consent of respondent bank. Also, upon inquiry of the sheriff, petitioner Mendoza declined knowledge of the whereabouts of the mortgaged video machines. Moreover, the fact that the NBI seized the video machines from FGT glaringly shows that petitioners transferred the same from TVI. More importantly, a comparison of the list of video machines in the Chattel Mortgage Contract and the list of video machines seized by the NBI from FGT shows that they have the same serial numbers.

The courts below also found that TVI is petitioners’ mere alter ego or business conduit. They control the affairs of TVI. Among its stockholders or directors, they were the only ones who became incorporators of FGT. They transferred the assets of TVI to FGT.

The general rule is that obligations incurred by a corporation, acting through its directors, officers or employees, are its sole liabilities. However, the veil with which the law covers and isolates the corporation from its directors, officers or employees will be lifted when the corporation is used by any of them as a cloak or cover for fraud or illegality or injustice.9 Here, the fraud was committed by petitioners to the prejudice of respondent bank. It bears emphasis that as reported by the sheriff, TVI is no longer doing business at its given address and its whereabouts cannot be established as yet.

Both the trial court and the Court of Appeals thus concluded that petitioners succeeded to hide the chattels, preventing the sheriff to foreclose the mortgage. Obviously, they acted in bad faith to defraud respondent bank.

In fine, we hold that the Appellate Court, in affirming the Decision of the trial court, correctly ruled that petitioners, not TVI, are the ones personally liable to respondent bank for the payment of the loan.

WHEREFORE, the petition is DENIED. Costs against petitioners.

SO ORDERED.

G.R. No. 150920 November 25, 2005

CHILD LEARNING CENTER, INC. and SPOUSES EDGARDO L. LIMON and SYLVIA S. LIMON, Petitioners,

vs.

TIMOTHY TAGARIO, assisted by his parents BASILIO TAGORIO and HERMINIA TAGORIO, Respondents.

This petition started with a tort case filed with the Regional Trial Court of Makati by Timothy Tagorio and his parents, Basilio R. Tagorio and Herminia Tagorio, docketed as Civil Case No. 91-1389. The complaint1 alleged that during the school year 1990-1991, Timothy was a Grade IV student at Marymount School, an academic institution operated and maintained by Child Learning Center, Inc. (CLC). In the afternoon of March 5, 1991, between 1 and 2 p.m., Timothy entered the boy’s comfort room at the third floor of the Marymount building to answer the call of nature. He, however, found himself locked inside and unable to get out. Timothy started to panic and so he banged and kicked the door and yelled several times for help. When no help arrived he decided to open the window to call for help. In the process of opening the window, Timothy went right through and fell down three stories. Timothy was hospitalized and given medical treatment for serious multiple physical injuries.



An action under Article 2176 of the Civil Code was filed by respondents against the CLC, the members of its Board of Directors, namely Spouses Edgardo and Sylvia Limon, Alfonso Cruz, Carmelo Narciso and Luningning Salvador, and the Administrative Officer of Marymount School, Ricardo Pilao. In its defense,2 CLC maintained that there was nothing defective about the locking mechanism of the door and that the fall of Timothy was not due to its fault or negligence. CLC further maintained that it had exercised the due care and diligence of a good father of a family to ensure the safety, well-being and convenience of its students.

After trial, the court a quo found in favor of respondents and ordered petitioners CLC and Spouses Limon to pay respondents, jointly and severally, P200,253.12 as actual and compensatory damages, P200,000 as moral damages, P50,000 as exemplary damages, P100,000 as attorney’s fees and the costs of the suit. The trial court disregarded the corporate fiction of CLC and held the Spouses Limon personally liable because they were the ones who actually managed the affairs of the CLC.

Petitioners CLC and the Spouses Limon appealed the decision to the Court of Appeals.

On September 28, 2001, the Court of Appeals3 affirmed the decision in toto. Petitioners elevated the case to this Court under Rule 45 of the Rules of Court, after their motion for reconsideration was denied by Resolution of November 23, 2001.4

Petitioners question several factual findings of the trial court, which were affirmed by the Court of Appeals, namely:5

1. That respondent was allegedly trapped inside the boy’s comfort room located at the third floor of the school building on March 5, 1991;

2. That respondent allegedly banged and kicked the door of said comfort room several times to attract attention and that he allegedly yelled thereat for help which never came;

3. That respondent was allegedly forced to open the window of said comfort room to seek help;

4. That the lock set installed at the boy’s comfort room located in the third floor of the school building on March 5, 1991 was allegedly defective and that the same lock set was involved in previous incidents of alleged malfunctioning;

5. That petitioner Child Learning Center, Inc. allegedly failed to install iron grills in the window of the boy’s comfort room at the third floor of the school building;

6. That petitioner Child Learning Center, Inc. allegedly failed to exercise the due care of a good father of a family in the selection and supervision of its employees;

7. That the proximate cause of respondent’s accident was allegedly not due to his own contributory negligence;

8. That there was an alleged basis to apply the legal principle of "piercing the veil of corporate entity" in resolving the issue of alleged liability of petitioners Edgardo L. Limon and Sylvia S. Limon;

9. That there was alleged basis for petitioners to pay respondent actual, moral and exemplary damages, plus attorney’s fees;

10. That there was an alleged basis in not awarding petitioners’ prayer for moral and exemplary damages, including attorney’s fees.

Generally, factual findings of the trial court, affirmed by the Court of Appeals, are final and conclusive and may not be reviewed on appeal. The established exceptions are: (1) when the inference made is manifestly mistaken, absurd or impossible; (2) when there is grave abuse of discretion; (3) when the findings are grounded entirely on speculations, surmises or conjectures; (4) when the judgment of the Court of Appeals is based on misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings of fact are conclusions without citation of specific evidence on which they are based; (8) 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 (9) when the findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record.6

On the basis of the records of this case, this Court finds no justification to reverse the factual findings and consider this case as an exception to the general rule.

In every tort case filed under Article 2176 of the Civil Code, plaintiff has to prove by a preponderance of evidence: (1) the damages suffered by the plaintiff; (2) the fault or negligence of the defendant or some other person for whose act he must respond; and (3) the connection of cause and effect between the fault or negligence and the damages incurred.7



Fault, in general, signifies a voluntary act or omission which causes damage to the right of another giving rise to an obligation on the part of the actor to repair such damage. Negligence is the failure to observe for the protection of the interest of another person that degree of care, precaution and vigilance which the circumstances justly demand. Fault requires the execution of a positive act which causes damage to another while negligence consists of the omission to do acts which result in damage to another.8

In this tort case, respondents contend that CLC failed to provide precautionary measures to avoid harm and injury to its students in two instances: (1) failure to fix a defective door knob despite having been notified of the problem; and (2) failure to install safety grills on the window where Timothy fell from.

The trial court found that the lock was defective on March 5, 1991:9

The door knob was defective. After the incident of March 5, 1991, said door knob was taken off the door of the toilet where Timothy was in. The architect who testified during the trial declared that although there were standard specifications for door knobs for comfort room[s], and he designed them according to that requirement, he did not investigate whether the door knob specified in his plans during the construction [was] actually put in place. This is so because he did not verify whether the door knob he specified w[as] actually put in place at the particular comfort room where Timothy was barred from getting outside. (TSN, pp. 19-20, December 8, 1994).

The Court of Appeals held that there was no reason to disturb the factual assessment:10

After having perused the records, We fail to see any indication of whim or arbitrariness on the part of the trial magistrate in his assessment of the facts of the case. That said, We deem it not to be within Our business to recast the factual conclusions reached by the court below.

Petitioners would make much of the point that no direct evidence was presented to prove that the door knob was indeed defective on the date in question.

The fact, however, that Timothy fell out through the window shows that the door could not be opened from the inside. That sufficiently points to the fact that something was wrong with the door, if not the door knob, under the principle of res ipsa loquitor. The doctrine of res ipsa loquitor applies where (1) the accident was of such character as to warrant an inference that it would not have happened except for the defendant’s negligence; (2) the accident must have been caused by an agency or instrumentality within the exclusive management or control of the person charged with the negligence complained of; and (3) the accident must not have been due to any voluntary action or contribution on the part of the person injured.11 Petitioners are clearly answerable for failure to see to it that the doors of their school toilets are at all times in working condition. The fact that a student had to go through the window, instead of the door, shows that something was wrong with the door.

As to the absence of grills on the window, petitioners contend that there was no such requirement under the Building Code. Nevertheless, the fact is that such window, as petitioners themselves point out, was approximately 1.5 meters from the floor, so that it was within reach of a student who finds the regular exit, the door, not functioning. Petitioners, with the due diligence of a good father of the family, should have anticipated that a student, locked in the toilet by a non-working door, would attempt to use the window to call for help or even to get out. Considering all the circumstances, therefore, there is sufficient basis to sustain a finding of liability on petitioners’ part.

Petitioners’ argument that CLC exercised the due diligence of a good father of a family in the selection and supervision of its employees is not decisive. Due diligence in the selection and supervision of employees is applicable where the employer is being held responsible for the acts or omissions of others under Article 2180 of the Civil Code.12 In this case, CLC’s liability is under Article 2176 of the Civil Code, premised on the fact of its own negligence in not ensuring that all its doors are properly maintained.

Our pronouncement that Timothy climbed out of the window because he could not get out using the door, negates petitioners’ other contention that the proximate cause of the accident was Timothy’s own negligence. The injuries he sustained from the fall were the product of a natural and continuous sequence, unbroken by any intervening cause, that originated from CLC’s own negligence.

We, however, agree with petitioners that there was no basis to pierce CLC’s separate corporate personality. To disregard the corporate existence, the plaintiff must prove: (1) Control by the individual owners, not mere majority or complete stock ownership, resulting in complete domination not only of finances but of policy and business practice in respect to a transaction so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and unjust act in contravention of the plaintiff’s legal right; and (3) the control and breach of duty must proximately cause the injury or unjust loss complained of. The absence of these elements prevents piercing the corporate veil.13 The evidence on record fails to show that these elements are present, especially given the fact that plaintiffs’ complaint had pleaded that CLC is a corporation duly organized and existing under the laws of the Philippines.

On 9th and 10th points raised concerning the award of damages, the resolution would rest on factual determinations by the trial court, affirmed by the Court of Appeals, and no legal issue warrants our intervention.

WHEREFORE, the petition is partly granted and the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 50961 dated September 28, 2001 and November 23, 2001, respectively, are MODIFIED in that petitioners Spouses Edgardo and Sylvia Limon are absolved from personal liability. The Decision and Resolution are AFFIRMED in all other respects. No pronouncement as to costs.

SO ORDERED.

A.M. No. P-05-2003 December 6, 2010

(Formerly A.M. OCA IPI No. 97-218-P)



GERMAN AGUNDAY, Complainant,

vs.

LEMUEL B. VELASCO, Deputy Sheriff, Office of the Clerk of Court, Regional Trial Court, Virac, Catanduanes, Respondent.

D E C I S I O N

BRION, J.:

We resolve as an administrative matter the affidavit-complaint,1 dated October 21, 1996, of German Agunday (complainant) charging Clerk of Court VI Prospero V. Tablizo, Deputy Sheriff Lemuel B. Velasco, Process Server Valentin Gonzales and Court Aide Isidro Guerrero, all from the Regional Trial Court (RTC) of Virac, Catanduanes, with grave misconduct, gross ignorance of the law, and incompetence.

This case traces its roots from a civil case (for recovery of ownership and possession with damages) filed by Lope Panti, Sr. and Francisca Panti (plaintiffs) before the RTC, Branch 43, Virac, Catanduanes, against the complainant (therein defendant). The RTC decided in favor of the plaintiffs. The dispositive portion of this decision reads:

WHEREFORE, judgment is hereby rendered:

(1) Declaring Transfer Certificate of Title No. 3892 in the name of plaintiff Francisca Panti valid;

(2) Ordering defendant to vacate that portion of subject lot equivalent to 23.1357 square meters of the 56.4737 he actually occupies on Lot C-1 immediately adjoining the area actually occupied by plaintiffs;

(3) Ordering plaintiffs to reconvey to defendant 13.3380 square meters of the land erroneously included in Transfer Certificate of Title No. 3892.

The parties’ mutual claim for damages and attorney’s fees is denied.

Costs against both parties.2

The complainant appealed to the Court of Appeals (CA), with the appeal docketed as CA-G.R. CV No. 37494. The CA, in its decision of August 9, 1995, modified the RTC decision, as follows:

THE FOREGOING CONSIDERED, the appealed decision is hereby modified: plaintiff is directed to reconvey to the defendant/appellant an area measuring 13.38 square meters.3

In his affidavit-complaint, the complainant alleges that Tablizo, as Clerk of Court and Ex-Officio Provincial Sheriff, issued, on July 9, 1996, a writ of execution and possession which varied the terms of the dispositive portion of the CA decision. Pursuant to this writ, Velasco, Gonzales and Guerrero, in conspiracy with the plaintiffs, caused the demolition of his (Agunday’s) house without first notifying him or his brother-in-law, Santos Burce. Velasco, Gonzales and Guerrero allegedly effected the demolition without coordinating with the barangay officials and the Municipal Engineering Office, and without securing a writ of demolition from the RTC. The complainant further claims that Velasco, Gonzales and Guerrero did not prevent the plaintiffs from taking his personal belongings from the demolished house.

The complainant maintains that the 13.38-square meter land subject of the modified CA decision has not been reconveyed to him. Velasco, however, made it appear in the Certificate of Turn-Over of Real Estate Property Ownership dated August 21, 1996, that the 13.38-square meter lot had already been turned over to him (complainant).

Velasco and Gonzales filed their respective comments to the complaint. Guerrero filed a counter-affidavit, while Tablizo filed an answer. They all denied the charges made against them in the affidavit-complaint.

In his reply to the comment, the complainant maintains that the respondent, Tablizo, Guerrero and Gonzales conspired with the plaintiffs in effecting the demolition of his house. He claims they did not do anything to prevent the demolition despite the absence of an order of demolition from the RTC.

In our Resolution dated October 12, 1998,4 we referred the case to Executive Judge Alfredo A. Cabral of the RTC of San Jose, Camarines Sur, for investigation, report and recommendation. Judge Cabral sought a reconsideration of this resolution, citing, among others, his heavy caseload.

In our Resolution dated October 6, 1999,5 we granted Judge Cabral’s request, and referred the case to the Executive Judge of the RTC of Tabaco City, Albay. Executive Judge Cesar Bordeos recommended the dismissal of the case due to the complainant’s failure to appear at the hearing. The Court, in its Resolution of October 17, 2001,6 ordered Judge Bordeos to conduct a more "earnest and exhaustive fact-finding investigation" of the case.



Due to Judge Bordeos’ retirement, we designated Executive Judge Arnulfo B. Cabredo of the RTC, Tabaco City, to continue with the investigation of the case.7 Judge Cabredo, however, was dismissed from the service due to misconduct; thus, we referred the case to Executive Judge Virginia G. Almonte of the RTC, Branch 17, Tabaco City.

In her Investigation Report dated November 27, 2003, Judge Almonte found Velasco to be remiss and negligent in the performance of his duties as sheriff for his failure to implement the writ of execution. She recommended that Velasco be fined P10,000.00 for his infraction. She, however, recommended the dismissal of the charges against Tablizo, Gonzales, and Guerrero for lack of merit.

In our Resolution of January 21, 2004, we noted Judge Almonte’s Investigation Report. We, thereafter, referred the case to the Office of the Court Administrator (OCA) for evaluation, report and recommendation.

The OCA, in its Memorandum dated April 4, 2005, made the following recommendations:

1. this case be RE-DOCKETED as a regular administrative matter;

2. the complaint against respondents Prospero V. Tablizo, Valentin Gonzales and Isidro Guerrero be DISMISSED for lack of merit;

3. respondent Sheriff Lemuel B. Velasco be FOUND GUILTY of Neglect of Duty and be accordingly FINED in the amount of Ten Thousand Pesos (P10,000.00); and

4. the Fiscal Management Office, Office of the Court Administrator, be DIRECTED to IMMEDIATELY RELEASE the withheld amount of P20,000.00 to Valentin Gonzales.

The OCA held that the evidence does not show that Tablizo, Guerrero and Gonzales had a hand in the demolition of the complainant’s house. Lope Panti, Sr., the plaintiff in Civil Case No. 1528, admitted that the demolition of complainant’s house was through his own act and initiative. Tablizo, Guerrero and Gonzales only learned of the demolition from the complainant’s cousin when the demolition was almost complete. The OCA added that Velasco even directed Lope to stop the demolition since the same was illegal. Lope initially complied, but continued with the demolition after the respondent, Tablizo, Guerrero and Gonzales had left.

The OCA, nonetheless, found Velasco liable for neglect of duty for his failure to reconvey the 13.38 square meters of the subject property to the complainant. The OCA reasoned out that for a period of eight years, more or less, the complainant had been deprived of his right to enjoy the 13.38-square meter portion of the subject lot that had been adjudged by the CA to belong to him.

As regards the charge that Tablizo issued a writ of execution and possession that varied the terms of the dispositive portion of the CA decision, the OCA held that the issue is a judicial matter which should have been raised in an appropriate judicial proceeding.

In our Resolution of April 27, 2005, we resolved to adopt the OCA’s recommendations. Accordingly, we dismissed the complaint against Tablizo, Gonzales, and Guerrero for lack of merit. Thereafter, Velasco manifested that he is submitting the case for resolution on the basis of the pleadings/records filed and submitted.

THE COURT’S RULING

We agree with the OCA that Velasco is administratively liable for neglect of duty. We, however, modify the penalty imposed on him.

Velasco not involved in the demolition

We concur with the OCA’s finding that Velasco did not have a hand in the demolition of the complainant’s house. Lope himself admitted in his affidavit, dated March 18, 1997, that he alone ordered the demolition of the complainant’s house. Lope’s court testimony likewise shows that Velasco had no participation in the demolition, thus:

ATTY. DOTE:

Q: Where were you on July 22, 1996 at about 4:00 o’clock (sic) in the afternoon?

WITNESS:

A: At my store.

Q: While at your store[,] what happened, if any?Caelitus Mihi Vires 115


A: On July 22, 1996[,] at about 4:00 o’clock (sic) in the afternoon[,] I was in the store and Mr. Lemuel Velasco came over to that store and told me or asked me if I was already prepared to make the survey and that the survey will be done tomorrow morning.

Q: What did you do after Lemuel Velasco told you that the area is to be surveyed?

A: After that I told my son Leopoldo to prepare and get some workers for the survey, to remove the house of Mr. German Agunday because it will be an obstacle in the survey.

Q: Why did you tell your son to demolish the house which according to you, will be an obstacle to the conduct of the survey?

A: Because Mr. Velasco told me that there will be a survey.

Q: Do you know that the survey that will be conducted is to determine whether the house of Mr. Agunday is encroaching upon your lot?

A: The house is encroaching on my lot.

Q: You mean to say that you know already that the house has encroached upon your lot?

A: Because before we had a case between us. I already procured the services of a private surveyor.

Q: You mean to say that you did not wait for the Sheriff to tell you that the house of Mr. Agunday will be removed because it was occupying part of your lot?

A: No, I did not wait for the Sheriff because I already know that it was encroaching.

x x x x

Q: x x x After the demolition, what happened next?

A: Lemuel Velasco came over.

Q: Who was with him?

A: I do not know the names of those who were with him?

x x x x

Q: When Lemuel Velasco arrived, what did he do, if any?

A: He told us to stop the demolition which we were doing.

Q: And what did you do when you were told to stop?

A: Because the demolition was already about to be finished so we stopped and we took a rest but when Mr. Velasco left, we continued with the demolition.8

These exchanges clearly establish that Velasco was not in any way involved in the demolition of the complainant’s house; Lope alone ordered the demolition of the complainant’s house. Velasco, in fact, only arrived on the scene when the demolition was almost finished. Velasco even ordered Lope and his men to stop the demolition. We, thus, find no basis to support the complainant’s claim that Velasco conspired with the plaintiffs, Tablizo, Guerrero and Gonzales to effect the demolition of his house.

Velasco liable for neglect of duty

We, nonetheless, hold Velasco liable for his failure to reconvey the 13.38 square meters of the subject property to the complainant. We find no merit in his excuse that his failure to implement the writ of execution and possession was due to the complainant’s refusal to sign the Certificate of Turn-Over of Real Estate Property Ownership.



The records disclose that when Velasco received the writ of execution and possession, he saw the need for a relocation survey in order to determine the 13.38 square meters that must be reconveyed to the complainant. He informed Lope of the need for a relocation survey, and left to him the hiring of the surveyor. Lope hired a surveyor and ordered him (surveyor) to conduct a relocation survey. Thereafter, Lope ordered the demolition of the complainant’s house based on the result of the relocation survey that the house was encroaching on.

As the implementing sheriff, it was Velasco’s duty to inform both Lope and the complainant regarding the need for a relocation survey, to ensure that the relocation survey would be witnessed by all the parties concerned. He has to personally supervise the conduct of the relocation survey, and not delegate this duty to one of the interested parties. More importantly, he should have requested the surveyor, during the survey, to point to the complainant the exact metes and bounds of the property to be reconveyed to him. As explained by Judge Almonte in her Investigation Report:

Velasco can not deliver the portion of the lot decreed for Agunday by merely making him sign the Certificate of Turn-Over of Real Estate Property Ownership that he prepared. There should be an actual delivery, pointing to Agunday the metes and bounds of the 13.38 square meters pursuant to the survey plan prepared by the surveyor. Also, the relocation survey should have been conducted in the presence of both parties in Civil Case No. 1528, possibly assisted by their counsel. The particular surveyor should have been the choice of both and not the unilateral preference of one party. Velasco, as the implementing Sheriff had to supervise the conduct of the relocation survey. x x x

It appears, however, that it was only Lope Panti who was informed by the Sheriff about the need for the relocation survey and he left it to the former, the hiring of a surveyor. The survey was then conducted on July 23, 1996[,] right after the house was demolished and this was without the direct supervision of Velasco. Agunday was not present. Yet on the basis of the results of the survey, Velasco prepared the Certificate of Turn-Over of Real Estate Property Ownership (Exh. 1-I). Agunday, however, did not sign the certificate. Thereafter, Velasco filed in Court a Sheriff Partial Return of Writ of Execution, indicating, among others, that Agunday "did not recognize" the survey made by Engr. Fernando Asuncion and the area of 13.38 square meters was not officially reconveyed to him (Exh. 1-H).9

We cannot, therefore, fault the complainant for refusing to recognize the results of the relocation survey. As earlier discussed, he was not informed by Velasco regarding the need for a relocation survey. Neither did he witness the relocation survey. In addition, the surveyor was hired by Lope, and the survey was done at the latter’s instance. These circumstances rendered the integrity of the survey highly suspect.1avvphi1

Velasco also failed to comply with Section 14, Rule 39 of the Rules of Court. Under this Rule, the lifetime of a writ of execution is without limit for as long as the judgment has not been satisfied, but is "returnable to the court issuing it immediately after the judgment has been satisfied in part or in full. If the judgment cannot be satisfied in full within thirty (30) days after his receipt of the writ, the officer shall report to the court and state the reason therefore." The officer is mandated to "make a report to the court every thirty (30) days on the proceedings taken thereon until judgment is satisfied in full, or its effectivity expires."10

In the present case, the RTC issued a writ of execution and possession on July 9, 1996. Velasco submitted the Sheriff’s Partial Return of Writ of Execution on August 23, 1996. However, nothing in the records shows that he made periodic reports to the court, every 30 days, on the proceedings taken thereon, until the judgment was fully satisfied.

A sheriff’s duty in the execution of a writ issued by a court is purely ministerial. When a writ is placed in the hands of a sheriff, it is his duty, in the absence of instructions, to proceed with reasonable celerity and promptness to execute it according to its mandate.11 Sheriffs must exert every effort to see to it that the final stage in the litigation process – the execution of a judgment – is carried out in order to ensure a speedy and efficient administration of justice. A decision left unexecuted or indefinitely delayed due to their inefficiency renders it useless. Worse, the parties prejudiced by the inaction tend to condemn the entire judicial system for the lapse.12

Velasco’s failure to implement the writ of execution and possession, as well as to submit the required periodic report, shows his lack of diligence and zeal in the performance of his duties. By his actuations, Velasco displayed conduct short of the stringent standards required of Court employees. We, thus, find him liable for simple neglect of duty, which has been defined as the failure of an employee to give one’s attention to a task expected of him, signifying a disregard of duty resulting from carelessness or indifference. Under Section 52(B)(1) of the Uniform Rules on Administrative Cases in the Civil Service, simple neglect of duty is a less grave offense punishable by suspension from office for one (1) month and one (1) day to six (6) months for the first offense, and dismissal for the second offense.13

In Pesongco v. Estoya,14 we found the respondent sheriff guilty of neglect of duty and suspended him for one (1) month for his failure to fully implement the writ of execution, and for his failure to make periodic reports to the court. Likewise, in Reyes v. Cabusao,15 we imposed a one-month suspension on the respondent sheriff for his delay in the implementation of the writ of execution.

While the recommended penalty of one-month suspension is reasonable, the same is not practical at this point, considering that Velasco’s work would be left unattended by reason of his absence. Instead of suspension, we impose a fine equivalent to his one-month salary, so that he can finally implement the subject writ and perform the other duties of his office.16

WHEREFORE, respondent Sheriff Lemuel B. Velasco is found guilty of simple neglect of duty and is FINED in an amount equivalent to his salary for one (1) month. He is warned that the commission of the same offense or a similar act in the future will be dealt with more severely. Let a copy of this decision be attached to his personal record.

SO ORDERED.
