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THIRD DIVISION [G.R. Nos. 134963-64. September 27, 2001] ALFRED LNG !"# FEL$% AL&ER$A, pet't'o"ers, (s. L)D$A *ASA, AN+N) SA)EEL$A& !"# )A

E, respo"#e"ts . [G.R. Nos. 13/1/2-/3. September 27, 2001] L$& E *N, +AN N, SE L$& !"# L$ )E SEE,pet't'o"ers, (s. L)D$A *ASA, AN+N) SA)EEL$A&

!"# )A E, respo"#e"ts . [G.R. No. 13713/. September 27, 2001]L$& E *N, +AN N , SE L$& !"# L$ )E SEE,pet't'o"ers, (s. L)D$A *ASA,

AN+N) SA)EEL$A& !"# )A E, respo"#e"ts .D E $ S $ N

SANDAL-G+$ERRE,0.5 These are consolidated cases involving a religious corporation whose Board of Directors had expelledcertain memers thereof on purel! spiritual or religious grounds since the! refused to follow itsteachings and doctrines" The controvers! here centers on the legalit! of the expulsion"The facts# as found ! the $ourt of %ppeals and as culled from the voluminous records of these cases#ma! e stated as follows&In '()*# a religious group +nown as ,The $hurch In -ue.on $it! /$hurch %sseml! Hall0#Incorporated, /,$H1R$H, for revit!0# located at '23 Tala!an St"# Tala!an Village# -ue.on $i t!# wasorgani.ed as ,an entit! of the rotherhood in $hrist",4'5It was registered in the same !ear with the Securities and 6xchange $ommission /S6$0 as a non7stoc+#non7profit religious corporation for the administration of its temporalities or the management of itsproperties"485The %rticles of Incorporation and B!7laws of the $H1R$H decree that its affairs and operation shall emanaged ! a Board of Directors consisting of six /90 memers#4*5 who shall e memers of the$H1R$H"425

%s a ,rotherhood in $hrist#, the $H1R$H emraced the :rinciples of ;aith that ,ever! memer orofficer, thereof shall# without mental reservation# adhere strictl! to the doctrine# teaching and faitheing oserved ! the /$H1R$H0 in proclaiming the <ospel of $hrist# to save lost souls# to lead men inworshipping the true <od# in accordance with the Hol! Bile and to elieve&/a The Old and the New Testaments comprising the Hol! Bile as inspired ! <od=/ The Trinit! of the <od7Head# which is <od the ;ather# <od the Son and <od the Hol! Spirit"/c0 That >esus $hrist# the onl! egotten Son of the ?ivi ng <od# conceived ! the Virgin @ar! through theHol! Spirit# and possessing the nature of oth <od and man# and who died on the cross to saveman+ind# was uried# rose again on the third da!# has ascended up to heaven# and will come ac+ toreign as Aing someda!"/d0 That the onl! wa! to salvation is solel! ! trusting on the shed lood of >esus and the convictionof the Hol! Spirit",45Cealous in upholding and guarding their $hristian faith# and to ensure unit! and uninterrupted exerciseof their religious elief# the memers of the $H1R$H vested upon the Board of Directors the asolutepower ,/to preserve and protect the/ir0 faith,495 and to !#m't4)5and epe45 a memer of the$H1R$H"

%dmission for memership in the $H1R$H is so exacting" Onl! ,persons .ealous of the <ospel# faithful in$hurch wor+ and of sound +nowledge of the Truth# !s t8e *o!r# o D're:tors s8! !#m't tomembers8'p# shall e memers of the /$H1R$H0",4(5The pro:e#;re for the ep;s'o" of an erring or dissident memer is prescried in %rticle VII/paragraph 20 of the $H1R$H B!7laws# which provides that ,If it is bro;<8t to t8e "ot':e o t8e

*o!r# o D're:tors that an! memer 8!s !'e# to obser(e !"= re<;!t'o"s !"# *=-!>s o t8e$"st't;t'o" /$H1R$H0 or t8e :o"#;:t o !"= member 8!s bee" #'s8o"or!be or 'mproper or

ot8er>'se '"?;r'o;s to t8e :8!r!:ter !"# '"terest o t8e $"st't;t'o", the*o!r# o D're:torsm!= b@= reso;t'o" >'t8o;t !ss'<"'"< !"= re!so" t8ereor epe s;:8 member from suchInstitution and he shall then forfeit his interest# rights and privileges in the Institution",

%s earl! as '(# the Board of Directors oserved that certain memers of the $H1R$H# i ncludingpetitioners herein# exhiited ,conduct which was dishonorale# improper and inEurious to the characterand interest of the /$H1R$H0,4'35 ! ,introducing /to the memers0 doctrines and teachings whichwere not ased on the Hol! Bile, and the :rinciples of ;aith emraced ! the $H1R$H"4''5$onfronted with this situation# the respondents# as memers of the Board of Directors# and someresponsile memers of the $H1R$H# advised the petitioners ,to correct their wa!s ,4'85and remindedthem ,that under the B!7laws# this organi.ation is onl! for worshipping the true <od# not to worshipBuddha or men",4'*5 The respondents also >!r"e# them that if the! persist in their highl! improperconduct# the! will e dropped from the memership of the $H1R$H"4'25These exhortations and warnings to the erring memers were made during Sunda! worship gatherings#,in small group meetings and even one7on7one personal tal+ with them",4'5 S'":e 19BB#4'95 thesewarnings were announced ! the memers of the Board ,/s0ometimes once awee+ /when the!0 meettogether",4')5But petitioners ignored these repeated admonitions"

%larmed that petitionersF conduct will continue to undermine the integrit! of the :rinciples of ;aith of the$H1R$H# the Board of Directors# during its %ugust *3# '((* regular meeting4'5 held for the purpose ofreviewing and updating the memership list of the $H1R$H# removed from the said list certain names ofmemers# including the names of herein petitioners >oseph ?im# ?iu Ge+ See# %lfredo ?ong and ;elix

%lmeria"4'(5 The! were removed for espousing doctrines inimical or inEurious to the :rinciples of ;aith ofthe $H1R$H" The Board also updated the list ! removing the names of those who have migrated toother countries# those deceased and those whom the $H1R$H had lost contact with"4835 The resolutionadopted ! the Board in that %ugust *3# '((* meeting reads in part&,Director %nthon! Sa!heeliam announced that the regular meeting i s to review# update and approve thelist of corporate memership" %fter due delieration and upon motion dul! made and seconded# thefollowing resolutions were approved and adopted&,R6SO?V6D# %S IT IS H6R6BG R6SO?V6D# that the list of corporate memership of this Institution asshown on %nnex ,%, is here! reviewed# updated and approved !the Board",R6SO?V6D# ;1RTH6R# %S IT IS H6R6BG ;1RTH6R R6SO?V6D# that the Board approved that those whoare not included in the said lis t of corporate memership of this Institution are no longer considered as acorporate memer of this Institution",R6SO?V6D# ;IN%??G# %S IT IS H6R6BG R6SO?V6D# that an! or all previous l ists of memership arehere! superseded# revo+ed andor rendered null# void and of no effect"",There eing no further usiness and no other matter to transact# the meeting was thereuponadEourned",48'5

%ll the then six /90 memers of the Board# namel!# Directors ?im $he Boon# Tan Hon Aoc /hereinpetitioners0# %nthon! Sa!heeliam# ?eandro Basa# Gao $hec and ?!dia ?" Basa /herein respondents0 ,weredul! informed, of that meeting"4885 However# Directors ?im $he Boon and Tan Hon Aoc did not appear"48*5 Thus# the aove7uoted resolution was signed onl! ! Directors %nthon! Sa!heeliam# ?eandroBasa# Gao $hec and ?!dia ?" Basa who composed the maEorit! of the Board"The updated memership list approved ! the Board on %ugust *3# '((*# together with the minutes ofthe meeting# were dul! filed with the S6$ on Septemer '*# '((*"4825On Septemer 8(# '((*# petitioners ?im $he Boon# Tan Hon Aoc# >oseph ?im# ?iu Ge+ See and othersuestioned their expulsion ! filing with the S6$ Securities Investigation and $learing Department apetition#485 doc+eted as S6$ $ase No" 3(7(*72' /and later a supplemental petition0 against Directors

Gao $he+# ?eandro Basa# ?!dia Basa and %nthon! Sa!heeliam" It sought mainl! the annulment of the %ugust *3# '((* memership list and the reinstatement of the original list o" t8e <ro;"# t8!t t8eep;s'o" >!s m!#e >'t8o;t pr'or "ot':e !"# 8e!r'"< " The case was assigned to S6$ HearingOfficer @anuel :erea /the Cere! :!se C0"The petition also pra!ed for the issuance of a temporar! restraining order /TRO0 and a writ ofpreliminar! inEunction principall! to enEoin the Board of Directors from holding an! election of a new setof directors among the memers named in the %ugust *3# '((* list of corporate memership"

%fter conducting a hearing on the application for a writ of preliminar! inEunction# S6$ Hearing Officer@anuel :erea denied the same in an order dated ;eruar! 88# '((2" 4895 :erea ruled inter alia that theexpulsion was in accordance with the aforeuoted provisions of paragraph 2# %rticle VII of the $H1R$H

B!7laws# reasoning that ,the notice referred to /in par" 20 is notice to the Board of Directors of thegrounds for expulsion enumerated therein and not notice to the /erring0 memers",48)5:ereaFs order further stated& ,It is also clear /from par" 20 that the resolution of expulsion need not statethe reason for expelling a memer",485:etitioners elevated :ereaFs order of ;eruar! 88# '((2 to the S6$ en anc via a pet't'o" or

:ert'or!r'# doc+eted as SE E* !se No. 3B9"48(5 The S6$# in an e" b!": #e:'s'o" dated;= 11,1994#4*35 !'rme# t8e ere! r;'"< !"# C#'sm'sse# or !: o mer'tC the petition"et't'o"ers #'# "ot !ppe! rom t8e #e:'s'o" o t8e SE e" b!": .4*'5Since the said S6$ en anc decision pertains onl! to the preliminar! inEunction incident# the S6$#through a hearing panel# conducted further proceedings to hear and decide the permissive counterclaimand third7part! complaint incorporated in respondentsF supplemental answer# including their pra!er forinEunctive relief to prevent petitioners from interfering and usurping the functions of the Board ofDirectors"4*85:etitioners suseuentl! filed motions to dismissstri+e out the counterclaim and third7part!complaint" But the motions were denied ! the hearing panel in its omnius order dated Octoer 8#'((" The said order also declined to act on respondents third7part! complaints pra!er for inEunctiverelief since there is a case pending efore another Hearing Officer in S6$ $ase No" 2((2 for thedeclaration of nullit! of the general memership meeting held on ;eruar! '8# '(("4**51pon denial of the separate motions for reconsideration of oth parties# the respondents filed with theS6$ en anc a petition for review on certiorari# doc+eted as SE E* !se No. 4B4" % review of therecords show that the issue posed in this case i s also the validit! of the uestioned expulsion alread!resolved ! the S6$ en anc in its decision dated >ul! ''# '((2 in S6$ 6B $ase No" *( which hadattained finalit!"On ;= 31, 1996# the SE e" b!": # ! a vote of two to one# with one $ommissioner astaining#issued an or#er in SE E* !se No. 4B4# setting aside the expulsion of certain memers of the$H1R$H approved ! its Board of Directors on %ugust *3# '((* for eing void and ordering thereinstatement of petitioners as memers of the $H1R$H":romptl!# herein respondents %nthon! Sa!heeliam and ?!dia Basa fil ed a petition for review with the$ourt of %ppeals# doc+eted as $%7<"R" S: No" 2''#4*25 assailing the >ul! *' # '((9 order"Respondent Gao $hec+# for his part# filed a motion for reconsideration of the order of >ul! *'#'((9" 1pon denial of his motion# he also filed with the $ourt of %ppeals a petition for review# doc+etedas $%7<"R" S: No" 2**(" This case was consolidated with $%7<"R" S: No" 2''"4*5On @a! 8(# '((# the $ourt of %ppeals promulgated its now assailed decision granting respondentsconsolidated petitions and reversing the >ul! *'# '((9 order of the S6$ en anc in S6$ 6B $ase No" 22":etitioners filed a motion for reconsideration ut was denied ! the appellate court in a resolution dated

%ugust '# '(("4*95Hence# the present consolidated petitions for review ! $ertiorari /<"R" Nos" '*2(9*792 and <"R" Nos"'*'87*0 under Rule 2 of the '(() Rules of $ivil :rocedure# as amended"The pith issue in the instant cases# as correctl! defined ! the $ourt of %ppeals in its challengeddecision and resolution# is whether the expulsion of petitioners >oseph ?im# ?iu Ge+ See# %lfredo ?ongand ;elix %lmeria from the memership of the $H1R$H ! its Board of Directors through a resolutionissued on %ugust *3# '((* is in accordance with law":etitioners insist that the expulsion is void s ince it was rendered without prior notice to them or# in aconstitutional context# without due process"On the other hand# respondents assert that the expulsion is in accordance with the B!7laws of the$H1R$H"Je rule against the petitioners"It must e emphasi.ed that the issue of the validit! of the expulsion had long een resolved anddeclared valid ! the S6$ en anc in its decision dated >ul! ''# '((2 in S6$ 6B $ase No" *(" Thedecision affirmed the order dated ;eruar! 88# '((2 of S6$ Hearing Officer @anuel :erea in S6$ $aseNo" 3(7(*72'" The petitioners themselves admitted in their present petition that the! did not appealan!more from the >ul! ''# '((2 decision of the S6$ en anc #4*)5 there! rendering the same final andconclusive" %s such# the expulsion order is now inextrical! inding on the parties concerned and can nolonger e modified# much less reversed"Jhat was definitel! resolved in the :erea decision and in S6$ 6B $ase No" *( was the validit! of theexpulsion proceedings conducted ! the Board of Directors in its meeting on %ugust *3# '((* wherein aResolution updating the memership list of the $H1R$H was approved" On the other hand# the S6$hearing panel conducted ;rt8er pro:ee#'"<s onl! to decide the perm'ss'(e:o;"ter:!'m and t8'r#-p!rt= :omp!'"t incorporated in respo"#e"ts s;ppeme"t! !"s>er,'":;#'"< t8e'r pr!=er or '"?;":t'(e re'e to pre(e"t pet't'o"ers rom '"terer'"< !"#;s;rp'"< t8e ;":t'o"s o t8e *o!r# o D're:tors.

Thus# we find accurate the following findings and conclusion of the $ourt of %ppeals on this matter&"It ought to e recalled that >8e" e!r'"< ':er ere! #e"'e# t8e 8ere'" respo"#e"ts @"o>pet't'o"ers pr!=er or '"?;":t'(e re'e in S6$ $ase No" 3(7(*72' to stop t8e 8ere'"pet't'o"ers @"o> respo"#e"ts rom :!'"< ! members8'p meet'"< o" t8e b!s's o t8eep;r<!te# 'st o members8'p #!te# A;<;st 30, 1993 # the! interposed in S6$ 6B $ase No" *(a pet't'o" to re('e> t8e or#er o #e"'!" Then and there# the SE e" b!": re"#ere# 'ts #e:'s'o"#!te# ;= 11, 1994 s;st!'"'"< e!r'"< ':er ere! o" t8e r!t'o:'"!t'o" t8!t t8e ep;s'o"o members ee:te# o" A;<;st 30, 1993 b= t8e bo!r# o #'re:tors >!s (!'# 8!('"< bee"#o"e '" !::or#!":e >'t8 t8e b!=-!>s o t8e R# and al though the herein respondents/now petitioners0 suseuentl! sought the dismissal of S6$ $ase No" 3(7(*72'# t8e or#er o#'sm'ss! ep':'t= st!te# t8!t 't #'# "ot e":omp!ss t8e 8ere'" pet't'o"ers @"o>respo"#e"ts perm'ss'(e :o;"ter:!'m !"# t8'r#-p!rt= :omp!'"t. +8;s, ;rt8er pro:ee#'"<s>ere :o"#;:te# >8':8 :;m'"!te# '" t8e ' ss;!":e o t8e e!r'"< !"es m"'b;s r#ers#!te# :tober 2, 199/ !"# !";!r= 19, 1996, >8':8 >ere ee(!te#, t8's t'me b= t8e 8ere'"pet't'o"ers @"o> respo"#e"ts, to t8e SE e" b!": '" ! pet't'o" or re('e> o" :ert'or!r'#o:ete# !s SE E* !se No. 4B4" It was in this latter case that the S6$ en anc handed down itsassailed order of >ul! *'# '((9 '" ('o!t'o" o t8e !> o t8e :!se t8!t >!s e!r'er !'# #o>">'t8 '"!'t= '" SE E* !se No. 3B9"

x x x x x x x x x+8;s=, t8e ;est'o" o" t8e (!'#'t= o t8e ep;s'o" o some o t8e members o t8eR >!s s;!re= r!'se# !"# ro"t!= reso(e# '" t8e #e:'s'o" re"#ere# '" SE E* !seNo. 3B9"4*5 /6mphasis ours0$learl!# the issuance ! the S6$ en anc of its >ul! *'# '((9 order in S6$ 6B $ase No" 22#which reope"e# the ver! same issue of the validit! of the expulsion proceedings#:ompete=re(ers'"< 'ts '"! !"# ee:;tor= e" b!": #e:'s'o" o ;= 11, 1994 @SE E* !se No. 3B9 # iscertainl! in gross disregard of the rules and asic legal precept that accord finalit! to administrative#uasi7Eudicial and Eudicial determinations"The $ourt of %ppeals is# therefore# correct in voiding the S6$ en anc orders dated >ul! *'# '((9 and>anuar! 8(# '(() in S6$ 6B $ase No" 22# there! upholding the expulsion of petitioners and others !the Board of Directors on %ugust *3# '((*"In this regard# what we said in Fort':8 (s. oro"!, et ! .4*(5 ears repeating& The orderl!administration of Eustice reuires that the Eudgmentsresolutions of a court or uasi7Eudicial od! m;stre!:8 ! po'"t o '"!'t= set b= t8e !>, r;es !"# re<;!t'o"s" The nole purpose is towrite finis to disputes once and for all" +8's 's ! ;"#!me"t! pr'":'pe '" o;r ?;st':e s=stem #without which there would e no end to litigations" tmost respe:t !"# !#8ere":e to t8'spr'":'pe m;st !>!=s be m!'"t!'"e# b= t8ose >8o >'e# t8e po>er o !#?;#':!t'o".A"= !:t>8':8 ('o!tes s;:8 pr'":'pe m;st 'mme#'!te= be str;: #o>".4235?et it not e said that the denial of the present petitions# even on this ground alone# is a meretechnicalit!" In the aforecited case of Fort':8 (s. oro"! # we held that once a case had een resolvedwith finalit!# vested rights were acuired ! the winning part!"42'5 $onseuentl!# the rule on finalit! ofdecisions# orders or resolutions of a Eudicial# uasi7Eudicial or administrative od! is "ot ! ;est'o" ote:8"':!'t= b;t o s;bst!":e !"# mer't ,4285 the underl!ing consideration therefor eing theprotection of the sustantive rights of the winning part!"42*5 In the succinct words of @r" >ustice

%rtemio V" :anganian in the case of '#eo<r!m Re<;!tor= *o!r# (s. o;rt o Appe!s, et ! .,

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4225 >ust as a losing part! has the right to file an appeal within the prescried period# t8e >'""'"<

p!rt= !so 8!s t8e :orre!t'(e r'<8t to e"?o= t8e '"!'t= o t8e reso;t'o" o 8's8er :!se.Be that as it ma!# we find aseless petitioners claim that their expulsion was executed without priornotice or due process"In the first place# the B!7laws of the $H1R$H# which the memers have expressl! adhered to# does notreuire the Board of Directors to give prior notice to the erring or dissident memers in cases ofexpulsion" This is evident from the procedure for expulsion prescried in %rticle VII /paragraph 20 of theB!7laws# which reads&,2" If it is rought to the notice of the Board of Directors that an! memer has failed to oserve an!regulations and B!7laws of the Institution /$H1R$H0 or the conduct of an! memer has eendishonorale or improper or otherwise i nEurious to the character and interest of the Institution #the Board of Directors ma! /!0 resolutionwithout assigning an! reason therefor expel suchmemer from such Institution and he shall then forfeit his interest# rights and privileges in theInstitution", /6mphasis ours0;rom the aove7uoted B!7law provision# the onl! reuirements efore a memer can e expelled orremoved from the memership of the $H1R$H are& @! the Board of Directors has een notified that amemer has failed to oserve an! regulations and B!7laws of the $H1R$H# or the conduct of an!memer has een dishonorale or improper or otherwise inEurious to the character and interest of the$H1R$H# and @b a resolution is passed ! the Board expelling the memer concerned# withoutassigning an! reason therefor"It is thus clear that a memer who commits an! of the causes for expulsion enumerated in paragraph 2of %rticle VII ma! e expelled ! the Board of Directors# through a resolution# without giving that erringmemer an! notice prior to his expulsion" The resolution need not even state the reason for such action"The $H1R$H B!7law provision on expulsion# as phrased# ma! sound unusual and oEectionale topetitioners as there is no reuirement of prior notice to e given to an erring memer efore he can eexpelled" But that is how peculiar the nature of a religious corporation is vis77vis an ordinar! corporationorgani.ed for profit" It must e stressed that the asis of the relationship etween a religiouscorporation and its memers is the latters asolute adherence to a :ommo" re'<'o;s or sp'r't;!be'e " Once this asis ceases# memership in the religious corporation must also cease" Thus#generall!# there is no room for dissension in a religious corporation" %nd where# as here# an! memer ofa religious corporation is expelled from the memership for espousing doctrines and teachings contrar!to that of his church# the estalished doctrine in this Eurisdiction is that such action from the churchauthorities is:o":;s'(e upon the civil courts" %s far ac+ in '('# we held in "'te# St!tes (s.

!"et e 425that&,in matters purel! ecclesiastical the decisions of the proper church triunals areconclusive upon the civiltriunals" % church memer who is expelled from the memership ! the church authorities# or a priestor minister who is ! them deprived of his sacred office# is wi thout remed! in the civil courts# which wil lnot inuire into the correctness of the decisions of the ecclesiastical triunals",4295 /6mphasis ours0Oviousl! recogni.ing the peculiarit! of a religious corporation# the $orporation $ode leaves the matterof ecclesiastical discipline to the religious group concerned"Section (' of the $orporation $ode# which has een made explicitl! applicale to religious corporations! the second paragraph of Section '3( of the same $ode# states&,S6$" ('" Termination of memership "7 @emership shall e terminated in the manner and for thecauses provided in the articles of incorporation or the !7laws"Termination of memership shall have theeffect of extinguishing all rights of a memer in the corporation or in its propert!# unless otherwiseprovided in the articles of incorporation or the !7laws", /6mphasis ours0@oreover# the petitioners reall! have no reason to ewail the lac+ of prior notice in the B!7laws" %scorrectl! oserved ! the $ourt of %ppeals# the! have >!'(e# such notice ! adhering to those B!7laws" The! ecame memers of the $H1R$H (o;"t!r'=. +8e= e"tere# '"to 'ts :o(e"!"t !"#

s;bs:r'be# to 'ts r;es. *= #o'"< so, t8e= !re bo;"# b= t8e'r :o"se"t.42)56ven assuming that petitionersF expulsion falls within the $onstitutional provisions on ,prior notice, or,due process#, still we can not conclude that respondents committed a constitutional infraction" It earsemphasis that petitioners were given more than sufficientnotice of their impending expulsion# as shown! the records"Je have narrated earlier the events which led to the uestioned expulsion" ;rom the undisputedtestimon! of Director %nthon! Sa!heeliam /now respondent0# it is clear that# as earl! as '(# therespondents7Board of Directors patientl! and persistentl! reminded# advised and exhorted the erringmemers# including herein petitioners# to stop espousing doctrines# teachings and religious eliefdiametricall! opposed to the :rinciples of ;aith emraced ! the $H1R$H" The respondents7Board ofDirectors further warned them during Sunda! worship gatherings# in small group meetings and one7on7one tal+# that the! would face disciplinar! action and e dropped from the memership roll should the!continue to exhiit acts inimical and inEurious to the teachings of the Hol! Bile which the $H1R$H so.ealousl! upholds"Jhen the! ignored petitioners exhortations and warnings# the erring memers should not now complainaout their expulsion from the memership of the $H1R$H ! the Board of Directors on %ugust *3#('(*"The $ourt of %ppeals# whose findings of fact is accorded great respect as the same is conclusive on us#made a precise oservation on this matter&"the petitioners /now respondents0 further state that the Board of Directors# efore deciding to purgetheir list of memership# gave the erring memers sufficient warning of their impending ouster" Thus&the records of the instant case indisputal! show that the erring memers of the corporation# includingrespondents /now petitioners0 ?im $he Boon# >oseph ?im# Tan Hon >oc# ?iu Ge+ See# ;elix %lmeria and

%lfredo ?ong# were given more than sufficient notice that the perpetration of acts inimical to andinconsistent with the %rticles of ;aith of the $orporation will e suEect to disciplinar! authorit! of theBoard of Directors&/Testimon! of %nthon! Sa!heeliam# memer of the Board of Directors0-" Gou mentioned that former memers of the $orporation were dropped or expelled due to violationsof the principles of faith under the %rticles of Incorporation and the B!7laws# as well as for conductwhich was dishonorale# improper and inEurious to the character and interest of the corporation" Jhendid the Board first note or oserve these violationsK

%" The Board noticed that since '("-" %s a memer of the Board of Directors# what actions did !ou ta+e after the oard oserved theseviolationsK

%" Je warned them and advised them to correct their wa!s of doing these things"-" %s a memer of the Board of Directors# what did !ou sa! or do in order to convince these formermemers to correct their wa!sK

%" Je told them that under the B!7laws this organi.ation is onl! for worshipping the true <od# not toworship Buddha or men"-" Gou also mentioned that !ou gave warnings to these errant memers" %s a memer of the Board ofDirectors# what did !ou do or sa! to warn these former memers of the conseuences of their actsK

%" 6speciall! to the memers of the organi.ation# the! should ta+e all the conseuences" Otherwise#the! will e dropped"-" These warnings and statements advising them to correct their wa!# on what occasion were thesestatements madeK

%" In a general service# Sunda!# and also in small group meetings and even one7on7one# personall!tal+ing with them"-" How often were these warnings or advise to correct madeK

%" Sometimes once a wee+ we meet together"-" Since whenK

%" Since '(" /TSN# Decemer '# '((*# :erea $ase# pp" (7'80";rom the foregoing testimon! of petitioner /now respondent0 %nthon! Sa!heeliam during the hearing inthe :erea $ase on 3' Decemer '((*# it remains undisputedthat as earl! as '( private respondents/now petitioners0 and their cohorts +new that their acts and conduct would e suEect to disciplinar!action" In fact# private respondents /now petitioners0 never specificall! denied or disputed the testimon!of petitioner /now respondent0 %nthon! Sa!heeliam# whether on the witness stand or in an! pleading inthe :erea $ase or in the other cases etween the parties# that the! have een repeatedl! admonished

! the memers of the Board of Directors that the introduction of teachings and doctrines inconsistentwith the :rinciples of ;aith of the $orporation is punishale with their expulsion /Rollo# $%7<"R" S: No"2''# pp" 2972"Je find the stance of the petitioners /now respondents0 more persuasive as it is more in accord withSection (' of the $orporation $ode which mandates that memership in a no7stoc+ corporation and# forthat matter# in a religious corporation sha ll e terminated in the manner and for the causes enumeratedin the articles of incorporation or !7laws" The respondents /now petitioners0 ma+e no protestation thatthe $H1R$Hs !7law provision on expulsion has not een complied with"425/6mphasis ours0$onseuentl!# the expulsion was not tainted with an! aritrar! treatment from the memers of theBoard of Directors who# since '( up to %ugust *3# '((*# or approximatel! five /0 !ears# havepatientl! exhorted and warned the dissident memers" This long period of time is more than adeuatean opportunit! for the erring memers and their followers to contemplate upon their covenant with the$H1R$H on their dut! to protect and promote its :rinciples of ;aith and not to violate them" It is a well7settled principle in law that what due process contemplates is freedom from aritrariness= what itreuires is fairness and Eustice= sustance# rather than the form# eing paramount" Jhat it prohiits isnot the asence of previous notice ut the asolute asence thereof "42(5 % formal or trial t!pe hearing isnot at all times and in all instances essential"435$learl!# although the B!7laws of the $H1R$H do not reuire the Board of Directors to give notice to thedissident petitioners of their impending expulsion# more than sufficient notice was given to them eforethe! were expelled ! the Board on %ugust *3# '((*":etitioners# however# contend that the expelled memers were not actuall! notified and warned of theirimpending expulsion" In support of this# the! also cited the following testimon! of %nthon! Sa!heeliam&

%TTG" :%1?IT6&. D'# =o; <o t8ro;<8 t8e 'st o"e b= o"eH A. )es.

-" So do !ou rememer how man! were expelled ecause of conduct dishonorale# improper# inEuriousto the corporationK

%" %t the time we did not count the numer" Je Eust tal+ed it one ! one# discussed-" O+e!# Did !ou notif! them of the grounds for their expulsionK

%" No"-" Gou did not" Did !ou give them an opportunit! to defend themselvesK

%" No"4'5 /6mphasis ours0:etitioners interpretation of the aove7uoted testimon! of %nthon! Sa!heeliam was out of context" Theuestion and answer focused on what the Board of Directors did during its meeting on %ugust *3# '((*wherein it evaluated each memers standing and conduct in the light of the grounds for disciplinar!action as provided in the $H1R$H B!7laws" This is plain from the underscored portions of Sa!heeliamstestimon!" Thus# what Sa!heeliam was sa!ing is that on that ver! da! of the expulsion# the Board ofDirectors did not notif! the expelled memers an!more" Oviousl!# such notice was not made ! theBoard of Directors simpl! ecause the B!7laws of the $H1R$H does not reuire the same# as alread!discussed earlier"Incidentall!# during the pendenc! of these cases in this $ourt# petitioners filed an application for aTROwrit of preliminar! inEunction dated Novemer '3# '((# claiming therein that respondents areden!ing them access to the premises of the $H1R$H for purposes of exercising their right ofworship" %cting on the application# this $ourt reuired the respondents to comment thereon" In themeantime# it issued a Special Order on Decemer '# '(( enEoining the respondents from enforcingthe $ourt of %ppeals decision C'"so!r !s pet't'o"ers r'<8ts !"# pr'('e<es !s members o t8eR !re :o":er"e#.C %ccordingl!# petitioners were allowed ,entr! into the $H1R$H uilding ofworship andp!rt':'p!te '" 'ts re'<'o;s !"# so:'! !:t'('t'es.COn >anuar! 8(# '(((# petitioners ?im $he Boon# Tan Hon Aoc# >oseph ?im and ?iu Ge+ See filed apetition to cite respondents in contempt for refusing to compl! with the Special Order of this $ourt" Thiswas doc+eted as <"R" No" '*)'*" :etitioners averred therein that respondents denied them access tothe worship halls for their special conference involving the spiritual training of some '# 33 collegestudents from Regions I to VI"In their comment# respondents opposed the petition# claiming that their refusal to lend the worship hallswas due to the fact that the intended special conference is not a religious serviceactivit! of the$H1R$H and the participants are not memers of the $H1R$H" Thus# respondents assert that the! didnot violate the Special Order of this $ourt"Je agree with the respondents" The Special Order allows petitioners entr! into the $H1R$H uilding toparticipate in worship or other religious activities as memers of the $H1R$H" $learl!# the Special Orderdoes not allow petitioners unlimited or unrestrained access or use of the premises and properties of the$H1R$H" The intended special conference to e conducted ! petitioners is not a $H1R$H activit! andthe participants therein are not memers of the $H1R$H"IEREFRE# the present consolidated petitions are D6NI6D" The assailed decision of the $ourt of

%ppeals dated @a! 8(# '(( and its resolution dated %ugust '# '(( are %;;IR@6D" $osts againstpetitioners"The Special Order dated Decemer '# '(( i ssued ! this $ourt is ?I;T6D"

THIRD DIVISION[G.R. No. 141961. ]

S+A. LARA &EINERS ASS$A+$N t8r; 'ts *o!r# o D're:tors :ompose# o ARNE$LA, L$S SARRSA, EL)N GAR$A, &A. &$LAGRS ARGAS, LREN LASN,ERNES+ $$, D$ND $LAGAN, DAN$L GA&*A R. !"# R$A DE LA RA&AJ SER$+)GARD A$LLJ N DEJ !"# SAN+A LARA ES+A+E, $N.,pet't'o"ers, (s. Spo;ses $+R &A. GAS+N !"# L)D$A GAS+N, respo"#e"ts .

D E $ S $ NANGAN$*AN, 0 .5

% motion to dismiss ased on lac+ of Eurisdiction and lac+ of cause of action h!potheticall! admits thetruth of the allegations in the complaint" It is not dependent on the pleas or the theories set forth in theanswer or the motion to dismiss"@emership in a homeowners association is voluntar! and cannot eunilaterall! forced ! a provision in the associations articles of incorporation or !7laws# which thealleged memer did not agree to e ound to"

St!teme"t o t8e !se

The :etition for Review efore us assails the Decision4'5 and the Resolution485 of the $ourt of %ppeals/$%0 in $%7<R S: No" 2('*3"The decretal portion of the challenged Decision reads as follows&JH6R6;OR6# the petition is DIS@ISS6D for lac+ of merit" The assailed Orders of the trial court are

%;;IR@6D" No costs"4*5The assailed Resolution denied petitioners @otion for Reconsideration"The $%425 affirmed the Orders45 of the Regional Trial $ourt /RT$0 of /Branch 2(0 in $ivil $ase No" (7'38')# which had refused to dismiss herein respondents $omplaint for alleged lac+ of Eurisdiction andlac+ of cause of action"

+8e F!:tsThe factual antecedents of the case are summari.ed ! the $ourt of %ppeals in this wise&On # Spouses Victor @a" <aston and ?!dia @" <aston# private respondents herein# filed a complaint fordamages with preliminar! i nEunctionpreliminar! mandator! inEunction and temporar! restraining orderefore the Regional Trial $ourt in Negros Occidental at against petitioners Santa $lara Homeowners

%ssociation /S$H% for revit!0 thru its Board of Directors# namel!& %rneil $hua# ?uis Sarrosa# >ocel!n<arcia# @a" @il agros Vargas# ?oren.o?acson# 6rnesto :iccio# Dindo Ilagan# Danilo <amoa# >r"# Ri..a dela Rama and Securit! <uard $apillo and >ohn Doe# and Santa $lara 6state# Incorporated" The case wasdoc+eted as $ivil $ase No (7'38') and raffled to RT$7Branch 2(#"The complaint alleged that private respondents herein 4were5 residents of San >ose %venue# Sta" $laraSudivision# @andalagan# Bacolod $it!" The! purchased their lots in the said sudivision sometime in'()2# and at the time of purchase# there was no mention or reuirement of memership in an!homeowners association" ;rom that time on# the! have remained non7memers of S$H%" The! alsostated that an arrangement was made wherein homeowners who 4were5 non7memers of theassociation were issued non7memer gatepass stic+ers for their vehicles for identification ! the securit!











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guards manning the sudivisions entrances and exits" This arrangement remained undistured untilsometime in the middle of @arch# '((# when S$H% disseminated a oard resolution which decreed thatonl! its memers in good standing were to e is sued stic+ers for use in their vehicles" Thereafter# onthree separate incidents# Victor @" <aston# the son of the private respondents herein who lives withthem# was reuired ! the guards on dut! emplo!ed ! S$H% to show his drivers license as aprereuisite to his entrance to the sudivision and to his residence therein despite their +nowing himpersonall! and the exact location of his residence" On # private respondent herein Victor @a" <aston washimself prevented from entering the sudivision and proceeding to his residential aode when petitionerherein securit! guards Roger $apillo and a >ohn Doe lowered the steel ar of the A%@6T%? gate of thesudivision and demanded from him his drivers li cense for identification" The complaint further allegedthat these acts of the petitioners herein done in the presence of other sudivision owners had causedprivate respondents to suffer moral damage"On * %pril '((# during the hearing of the private respondents application for the issuance of atemporar! restraining order efore the lower court# counsel for the petitioners informed the court thathe would e filing a motion to dismiss the case and made assurance that pending the issuance of atemporar! restraining order# the private respondents would e granted unrestricted access to and fromtheir place of residence"On %pril '((# petitioners herein filed a motion to dismiss arguing that the trial court ha4d5 no

Eurisdiction over the case as it involve4d5 an intra7corporate dispute etween S$H% and its memerspursuant to Repulic %ct No" 3# as amended ! 6xecutive Order Nos" * and (3# much 4less5# todeclare as null and void the suEect resolution of the oard of directors of S$H%# the proper forum eingthe Home Insurance /and <uarant!0 $orporation /HI<$0" To support their claim of intra7corporatecontrovers!# petitioners stated that the %rticles of Incorporation of S$H%# which was dul! approved !the Securities and 6xchange $ommission /S6$0 on # provides that the association shall e a non7stoc+corporation with all homeowners of Sta" $lara constituting its memership" %lso# its !7laws contains aprovision that all real estate owners in Sta" $lara Sudivision automaticall! ecome memers of theassociation" The private respondents# having ecome lot owners of Sta" $lara Sudivision in '()2 afterthe approval ! the S6$ of S$H%s articles of incorporation and !7laws# ecame memers automaticall!in '()2 of S$H% argued the petitioners" @oreover# the private respondents allegedl! enEo!ed theprivileges and enefits of memership in and aided ! the rules of the association# and even attendedthe general special meeting of the association memers on " Their non7pa!ment of the association!earl! dues 4did5 not ma+e them non7memers of S$H% continued the petitioners" %nd even grantingthat the private respondents 4were5 not memers of the association# the petitioners opined that theHI<$ still ha4d5 Eurisdiction over the case pursuant to Section ' /a0# Rule II of the Rules of :rocedure ofthe HI<$"On 9 >ul! '((# the lower court# after having received private respondents opposition to petitionersmotion to dismiss and other suseuent pleadings filed ! the parties# resolved to den! petitionersmotion to dismiss# finding that there existed no intra7corporate controvers! since the privaterespondents alleged that the! ha4d5 never Eoined the association= and# thus# the HI<$ had no

Eurisdiction to hear the case" On# petitioners sumitted a @otion for Reconsideration# adding lac+ ofcause of action as ground for the dismissal of the case" This additional ground was anchored on theprinciple of damnum asue inEuria as allegedl! there 4was5 no all egation in the complaint that theprivate respondents were actuall! prevented from entering the sudivision and from having access totheir residential aode" On ') %ugust '((# the court a uo # ta+ing into consideration the comment filed! the private respondents4#5 on petitioners motion for reconsideration and the pleadings thereaftersumitted ! the parties# denied the said motion without however ruling on the additional ground oflac+ of cause of action x x x"x x x x x x x x xOn # petitioners filed a motion to resolve defendants motion to dismiss on ground of lac+ of cause ofaction" On Septemer '((# after the petitioners and the private respondents sumitted theirpleadings in support of or in opposition thereto# as the case ma! e# the trial court issued an orderden!ing the motion# x x x"495On # petitioners elevated the matter to the $ourt of %ppeals via a :etition for $ertiorari "4)5

R;'"< o t8e o;rt o Appe!sThe $ourt of %ppeals dismissed the :etition and ruled that the RT$ had Eurisdiction over the dispute" Itdeun+ed petitioners contention that an intra7corporate controvers! existed etween the S$H% andrespondents" The $% held that the $omplaint had stated a cause of action" It li+ewise opined that

Eurisdiction and cause of action were determined ! the allegations in the complaint and not ! thedefenses and theories set up in the answer or the motion to dismiss"Hence# this :etition"45

$ss;es

In their @emorandum# petitioners raise the following issues for the $ourts consideration&$

Jhether or not Respondent $ourt of %ppeals erred in upholding the Eurisdiction of the court a uo# todeclare as null and void the resolution of the Board of S$H%# decreeing that onl! memers 4in5 goodstanding of the said association# were to e issued stic+ers for use in their vehicles"

$$

Jhether or not private respondents are memers of S$H%"$$$

Jhether or not Respondent $ourt of %ppeals erred in not ordering the dismissal of the $omplaint i n $ivil$ase No" (7'38') for lac+ of cause of action"4(5In sum# the issues oil down to two& /'0 Did the RT$ have Eurisdiction over the $omplaintK and /80 Didthe $omplaint state a cause of actionK

+8's o;rts R;'"<sThe :etition has no merit"

F'rst $ss;e5 0;r's#':t'o" :etitioners contend that the $% erred in upholding the trial courts Eurisdiction to declare as null and voidthe S$H% Resolution decreeing that onl! memers in good standing would e issued vehicle stic+ers"The RT$ did not void the S$H% Resolution= it merel! resolved the @otion to Dismiss filed ! petitioners! holding that it was the RT$# not the Home Insurance and <uarant! $orporation /HI<$0# that had

Eurisdiction over the dispute"$Gs 0;r's#':t'o"HI<$4'35 was created pursuant to Repulic %ct 3"4''5 Originall!# administrative supervision overhomeowners associations was vested ! law in the Securities and 6xchange $ommission /S6$0"4'85:ursuant to 6xecutive Order /6O0 No" *# however#4'*5 the HI<$ assumed the regulator! andadEudicative functions of the S6$ over homeowners associations"6xplicitl! vesting such powers in theHI<$ is paragraph 8 of 6O *# which we uote hereunder&8" In addition to the powers and functions vested under the Home ;inancing %ct# the $orporation# shallhave among others# the following additional powers&/a0 x x x= and exercise all the powers# authorities and responsiilities that are vested in the Securitiesand 6xchange $ommission with respect to home owners associations# the provision of %ct '2(# asamended ! :"D" (387%# to the contrar!nothwithstanding=/0 To regulate and supervise the activities and operations of all houseownersassociations registered inaccordance therewith"@oreover# ! virtue of the aforeuoted provision# the HI<$ also assumed the S6$s original and exclusive

Eurisdiction to hear and decide cases involving controversies arising from i ntra7corporate or partnershiprelations"4'25In Decemer '((2# the HI<$ adopted the Revised Rules of :rocedure in the Hearing of HomeownersDisputes# pertinent portions of which are reproduced elow&

R1?6 IIDisputes Triale ! HI<$Nature of :roceedingsSection '" T!pes of Disputes " 7 The HI<$ or an! person# officer# od!# oard or committee dul!designated or created ! it shall have Eurisdiction to hear and decide cases involving the following&a0 Devices or schemes emplo!ed ! or an! acts of the Board of Directors or officers of the associationamounting to fraud and misrepresentation which ma! e detrimental to the interest of the pulic andorof the memers of the association or the association registered with HI<$

0 $ontroversies arising out of intra7corporate relations etween and among memers of theassociation# etween an! or all of them and the association of which the! are memers= and etweensuch association and the stategeneral pulic or other entit! in so far as it concerns its right to exist as acorporate entit!"x x x x x x x x"The aforesaid powers and responsiilities# which had een vested in the HI<$ with respect tohomeowners associations# were later transferred to the Housing and ?and 1se Regulator! Board/H?1RB0 pursuant to Repulic %ct )9*"4'5 Are r'(!te Respo"#e"ts SA &embersH

In order to determine if the HI<$ has Eurisdiction over the dispute# it is necessar! to resolvepreliminaril! 77 on the asis of the allegations in the $omplaint 77 whether private respondents arememers of the S$H%":etitioners contend that ecause the $omplaint arose from intra7corporate relations etween the S$H%and its memers# the HI<$ therefore has no Eurisdiction over the dispute" To support their contentionthat private respondents are memers of the association# petitioners cite the S$H%s %rticles ofIncorporation4'95 and B!7laws4')5which provide that all landowners of the Sta" $lara Sudivision areautomaticall! memers of the S$H%"Je are not persuaded" The constitutionall! guaranteed freedom of association4'5includes thefreedom not to associate"4'(5 The right to choose with whom one will associate oneself is the ver!foundation and essence of that partnership"4835 It should e noted that the provision guarantees theright to form an association" It does not include the right to compel others to form or Eoi n one"48'5@ore to the point# private respondents cannot e compelled to ecome memers of the S$H% ! thesimple expedient of including them in its %rticles of Incorporation and B!7laws without their express orimplied consent" True# it ma! e to the mutual advantage of lot owners in a sudivision to andthemselves together to promote their common welfare" But that is possile onl ! if the owners voluntaril!agree# directl! or indirectl!# to ecome memers of the association" True also# memerships inhomeowners associations ma! e acuired in various wa!s 77 often through deeds of sale# certificatesor other forms of evidence of propert! ownership" In the present case# however# other than the said

%rticles of Incorporation and B!7laws# there is no showing that private respondents have agreed to eS$H% memers"

%s correctl! oserved ! the $%&x x x" The approval ! the S6$ of the said documents is not an operative act which estowsmemership on the private respondents ecause the right to associate parta+es of the nature offreedom of contract which can e exercised ! and etween the homeowners amongst themselves# thehomeowners association and a homeowner# and the sudivision owner and a homeownerlot u!erx x x"4885No r'('t= o o"tr!:t

$learl! then# no privit! of contract exists etween petitioners and private respondents" %s a general rule#a contract is a meeting of minds etween two persons" 48*5 The $ivil $ode upholds the spirit over theform= thus# it deems an agreement to exist# provided the essential reuisites are present" % contract isupheld as long as there is proof of consent# suEect matter and cause" @oreover# it is generall!oligator! in whatever form it ma! have een entered into" ;rom the moment there is a meeting ofminds etween the parties# it is perfected"4825

%s alread! adverted to# there are cases in which a part! who enters into a contract of sale is also ound! a lien annotated on the certificate of title" Je recogni.ed this in Bel %ir Village %ssociation# Inc"v" Dionisio #485 in which we ruled&There is no dispute that Transfer $ertificate of Title No" ''*9 covering the suEect parcel of land issuedin the name of the petitioner contains an annotation to the effect that the lot owner ecomes anautomatic memer of the respondent Bel7%ir %ssociation and must aide ! such rules and regulationslaid down ! the %ssociation in the interest of the sanitation# securit! and the general welfare of thecommunit!" It is li+ewise not disputed that the provision on automatic memership was expressl!annotated on the petitioners Transfer $ertificate of Title and on the title of his predecessor7in7interest"The uestion# therefore# oils down to whether or not the petitioner is ound ! suchannotation"Section *( of %rt" 2(9 /The ?and Registration %ct0 states&Sec" *(" 6ver! person receiving a certificate of title in pursuance of a decree of registration# and ever!suseuent purchaser of registered land who ta+es a certificate of title for value in good faith shall holdthe same free of all encumrances except those noted on said certificate x x x" /Italics supplied0The aove ruling# however# does not appl! to the case at ar" Jhen private respondents purchased theirpropert! in '()2 and otained Transfer $ertificates of Title Nos" T7'8928 and T7'8)298 for ?ots '' and'8 of Bloc+ *) along in Sta" $lara Sudivision# there was no annotation showing their automaticmemership in the S$H%" Thus# no privit! of contract arising from the title certificate exists etweenpetitioners and private respondents";urther# the records are ereft of an! evidence that would indicate that private respondents intended toecome memers of the S$H%" :rior to the implementation of the aforesaid Resolution# the! and theother homeowners who were not memers of the association were issued non7memer gate passstic+ers for their vehicles" This fact has not een disputed ! petitioners" Thus# the S$H% recogni.edthat there were sudivision landowners who were not memers thereof# notwithstanding the provisionsof its %rticles of Incorporation and B!7laws"0;r's#':t'o" Determ'"e# b= Ae<!t'o"s '" t8e omp!'"t

It is a settled rule that Eurisdiction over the suEect matter is determined ! the allegations in thecomplaint" >urisdiction is not affected ! the pleas or the theories set up ! the defendant in an answeror a motion to dismiss" Otherwise# Eurisdiction would ecome dependent almost entirel! upon the whimsof the defendant"4895The $omplaint does not allege that private respondents are memers of the S$H%" In point of fact# the!den! such memership" Thus# the HI<$ has no Euris diction over the dispute":etitioners li+ewise contend that even if private respondents are not memers of the S$H%# an intra7corporate controvers! under the third t!pe of dispute provided in Section '/0 of Rule II of the HI<$Rules exists" :etitioners posit that private respondents fall within the meaning of general pulic" Je arenot convinced";irst # the third t!pe of dispute refers onl! to cases wherein an associations right to exist as a corporateentit! is at issue" In the present case# the $omplaint filed ! private respondents refers tothe S$H%s acts allegedl! amounting to an impairment of their free access to their place of residenceinside the Sta" $lara Sudivision"48)5 The existence of S$H% as a corporate entit! is clearl! not at issuein the instant case"Second# in 1nited B; Homeowners %ssociation v" B; Homes# Inc"#485 we held that Section '/0# Rule IIof HI<$s Revised Rules of :rocedure in the Hearing of Homeowners Disputes was void" The HI<$ wente!ond its lawful authorit! provided ! law when it promulgated its revised rules of procedure" Therewas a clear attempt to undul! expand the provisions of :residential Decree (387%" %s provided ! thelaw# it is onl! the State 77 not the general pulic or other entit! 77 that can uestion an associationsfranchise or corporate existence"48(5To reiterate# the HI<$ exercises limited Eurisdiction over homeowners disputes"The law confines itsauthorit! to controversies that arise from an! of the following intra7corporate relations& /'0 etween andamong memers of the association= /80 etween an! andor all of them and the association of whichthe! are memers= and /*0 etween the association and the state insofar as the controvers! concernsits right to exist as a corporate entit!"4*35It should e stressed that the $omplaint here is for damages" It does not assert memership in theS$H% as its asis" Rather# it is ased on an alleged violation of their alleged right of access through thesudivision and on the alleged emarrassment and humiliation suffered ! the plaintiffs"

Se:o"# $ss;e5 S;':'e":= o !;se o A:t'o"

:etitioners claim that the $% erred in not ordering the dismissal of the $omplaint for lac+ of cause ofaction" The! argue that there was no allegation therein that private respondents were actuall!prevented from entering the sudivision and gaining access to their residential aode"This contention is untenale" % defendant moving to dismiss a complaint on the ground of lac+ of causeof action is regarded as having h!potheticall! admitted all the factual averments in the complaint" Thetest of the sufficienc! of the allegations constituting the cause of action i s whether# admitting the factsalleged# the court can render a valid Eudgment on the pra!ers"4*'5 This test implies that the issue must
























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e passed upon on the asis of the are allegations in the complaint" The court does not i nuire into thetruth of such allegations and declare them to e false" To do so would constitute a procedural error anda denial of the plaintiffs right to due process"4*85

% complaint states a cause of action when it contains these three essential elements& /'0 the legal rightof the plaintiff# /80 the correlative oligation of the defendant# and /*0 the act or omission of thedefendant in violation of the said l egal right"4**5In the instant case# the records sufficientl! estalish a cause of action" ;irst# the $omplaint alleged that#under the $onstitution# respondents had a right of free access to and from their residentialaode" Second# under the law# petitioners have the oligation to respect this right" Third# such right wasimpaired ! petitioners when private respondents were refused access through the Sta" $laraSudivision# unless the! showed their drivers license for identification"<iven these h!potheticall! admitted facts# the RT$# in the exercise of its original and exclusive

Eurisdiction#4*25 could have rendered Eudgment over the dispute"

Je stress that# in rendering this Decision# this $ourt i s not preEudging the main issue of whether# intruth and in fact# private respondents are entitled to a favorale decision ! the RT$" That will e madeonl! after the proper proceedings therein"?ater on# if it is proven during the trial that the! are indeedmemers of the S$H%# then the case ma! e dismissed on the ground of lac+ of Eurisdiction" Je aremerel! holding that# on the asis of the allegations in the $omplaint# /'0 the RT$ has Eurisdiction overthe controvers! and /80 the $omplaint sufficientl! alleges a cause of action" Therefore# it is not suEectto attac+ ! a motion to dismi ss on these grounds"IEREFRE# the :etition is here! D6NI6D and the assailed Decision %;;IR@6D " $osts againstpetitioners"S RDERED.@elo# /$hairman0# Sandoval7<utierre.# and $arpio# >>"# concur"Vitug# >"# I concur although I might call attention to %rticle 8')2 of the $ivil $ode as and when pertinent"

4'35 The HI<$ was initiall! called Home ;inancing $ommission# thereafter Home ;inancing $orporation# later Home Insurance and <uarant! $orporation# until it finall! ecame the Home <uarant! $orporation"4''5 %n %ct to $reate the Home ;inancing $ommission to Stimulate Home Building and ?and Ownership and to :romote the Development of ?and for that :urpose# :rovide ?ieral ;inancing Through an Insured @ortgageS!stem# and Develop Thrift through the %ccumulation of Savings in Insured Institutions" "4'85 :residential Decree (387% /Section *0"4'*5 %mending the $harter of the Home ;inancing $ommission# Renaming it as Home ;inancing $orporation# 6nlarging its :owers# and for Other :urposes" "4'25 :residential Decree (387%# Section # states& In addition to the regulator! and adEudicative functions of the Securities and 6xchange $ommission over corporations# partnerships and other forms of associa tionsregistered with it as expressl! granted under existing laws and decrees# it shall have original and exclusive Eurisdiction to hear and decide cases involving&x x x x x x x x x/0 $ontroversies arising out of intra7corporate or partnership relations# etween and among stoc+holders# memers# or associates= etween an! or all of them and the corporation# partnership or association of which the!are stoc+holders# memers or associates# respectivel!= and etween such corporation# partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entit!"4'5 %n %ct $onsolidating and %mending Repulic %ct Nos" 3# ')# 2# and )* and 6xecutive Order Nos" * and (3# as the! appl! to the Home Insurance and <uarant! $orporation"4'95 S6$OND" 7 That the association shall e a non7stoc+ corporation with all homeowners of Sta" $lara constituting its memership"4')5 %ll real estate owners in Sta" $lara Sudivision of Bacolod $it!# as defined and ounded in the %rticles of Incorporation %1TO@%TI$%??G ecome memers of the association"4'5 %rt III# Sec" " The right of the people# including those emplo!ed in the pulic and private sectors# to form unions# associations# or societies for purposes not contrar! to law shall not e aridged# '() $onstitution"48'5 Bernas# The $onstitution of the Repulic of the :hilippines& % $ommentar! # /'((9 ed0# p" *23"48*5 %rt" '*3# $ivil $ode"

;IRST DIVISION[G.R. No. 146B07. &!= 9, 2002]

AD& ND&$N$& RRA+$N, pet't'o"er , (s . R+$GAS EN+ER ASS$A+$N,

$N., respo"#e"t .D E $ S $ N

DA$DE, R., .0 .5$hallenged in this case is the *3 >une 8333 decision 4'5 of the $ourt of %ppeals in $%7<"R" $V No"933((# reversing and setting aside the ' Septemer '(() decision 485 of the Regional Trial $ourt of :asig$it!# Branch 892# in $ivil $ase No" 9*3'"4*5:etitioner :adcom $ondominium $orporation /hereafter :%D$O@0 owns and manages the :adilla Office$ondominium Building /:%D$O@ Building0 located at 6merald %venue# Ortigas $enter# :asig $it!" Theland on which the uilding stands was originall! acuired from the Ortigas L $ompan!# ?imited:artnership /O$?:0# ! Tierra Development $orporation /TD$0 under a Deed of Sa le dated 2 Septemer'()2" %mong the terms and conditions i n the deed of sale was the reuirement that the transferee andits successor7in7interest must ecome memers of an association for realt! owners and long7termlessees in the area later +nown as the Ortigas $enter" Suseuentl!# the said lot# together withimprovements thereon# was conve!ed ! TD$ in favor of :%D$O@ in a Deed of Transfer dated 8;eruar! '()"425In '(8# respondent Ortigas $enter %ssociation# Inc" /hereafter the %ssociation0 was organi.ed toadvance the interests and promote the general welfare of the real estate owners and long7term lesseesof lots in the Ortigas $enter" It sought the collection of memership dues in the amount of two thousandseven hundred twent!7four pesos and fort! centavos / :8#)82"230 per month from :%D$O@" Thecorporate oo+s showed that :%D$O@ owed the %ssociation:9*(#(9'"2)# representing memershipdues# interests and penalt! charges from %pril '(* to >une '((*"45 The letters exchanged etweenthe parties through the !ears showed repeated demands for pa!ment# reuests for extensions ofpa!ment# and even a settlement scheme proposed ! :%D$O@ in Septemer '((3"In view of :%D$O@s failure and refusal to pa! its arrears in monthl! dues# including interests andpenalties thereon# the %ssociation filed a complaint for collection of sum of mone! efore the trial courtelow# which was doc+eted as $ivil $ase No" 9*3'" The %ssociation averred that purchasers of landswithin the Ortigas $enter complex from O$?: are oligated under their contracts of sale to ecomememers of the %ssociation" This oligation was allegedl! passed on to :%D$O@ when it ought the lotfrom TD$# its predecessor7in7interest"495In its answer# :%D$O@ contended that it is a non7stoc+# non7profit association# and for it to ecome aspecial memer of the %ssociation# it should first appl! for and e accepted for memership ! thelatters Board of Directors" No automatic memership was apparentl! contemplated in the %ssociationsB!7laws" :%D$O@ added that it could not e compelled to ecome a memer without violating its rightto freedom of association" %nd since it was not a memer of the %ssociation# it was not liale formemership dues# interests and penalties"4)5During the trial# the %ssociation presented its accountant as lone witness to prove that :%D$O@ was#indeed# one of its memers and# as such# did not pa! its memership dues":%D$O@# on the other hand# did not present its evidence= instead it filed a motion to dismiss ! wa! ofdemurrer to evidence" It alleged that the facts estalished ! the %ssociation showed no right to therelief pra!ed for" It claimed that the provisions of the %ssociations B!7laws and the Deed of Transfer didnot contemplate automatic memership" Rather# the owner or long7term lessee ecomes a memer ofthe %ssociation onl! after appl!ing with and eing accepted ! its Board of Directors" %ssuming furtherthat :%D$O@ was a memer of the %ssociation# the latter failed to show that the collection of monthl!dues was a valid corporate act dul! authori.ed ! a proper resolution of the %ssociations Board ofDirectors"45

%fter due consideration of the issues raised in the motion to dismiss# the trial court rendered a decisiondismissing the complaint"4(5The %ssociation appealed the case to the $ourt of %ppeals# which doc+eted the appeal as $%7<"R" $VNo" 933((" In its decision4'35 of *3 >une 8333# the $ourt of %ppeals reversed and set aside the trialcourts dismissal of $ivil $ase No" 9*3'# and decreed as follows&IEREFRE# the appealed decision dated Septemer '# '(() is REERSED andSE+ AS$DE and# inlieu thereof# a new one is entered ordering the appellee /:%D$O@0 to pa! the appellant /the

%ssociation0 the following&'0 :9*(#(9'"2) as and for memership dues in arrears inclusive of earned interests and penalties= and80 :8#333"33 as and for attorne!s fees"$osts against the appellees"S RDERED"The $ourt of %ppeals Eustified its ruling ! declaring that :%D$O@ automaticall! ecame a memer ofthe %ssociation when the land was sold to TD$" The intent to pass the oligation to prospectivetransferees was evident from the annotation of the same clause at the ac+ of the Transfer $ertificate ofTitle covering the lot" Despite disavowal of memership# :%D$O@s memership in the %ssociation wasevident from these facts& /'0 :%D$O@ was included in the %ssociations list of ona fide memers as of*3 @arch '((= /80 Narciso :adilla# :%D$O@s :resident# was one of the %ssociations incorporators= and/*0 having received the demands for pa!ment# :%D$O@ not onl! ac+nowledged them# ut as+ed for andwas granted repeated extensions# and even proposed a scheme for the settlement of its oligation" The$ourt of %ppeals also ruled that :%D$O@ cannot evade pa!ment of its oligation to the %ssociationwithout violating euitale principles underl!ing uasi7contracts" Being covered ! the %ssociationsavowed purpose to promote the interests and welfare of its memers# :%D$O@ cannot e allowed toexpedientl! den! and avoid the oligation aris ing from such memership"Dissatisfied with the adverse Eudgment of the $ourt of %ppeals# :%D$O@ filed the petition for review inthis case" It raises the sole issue of whether it can e compelled to Eoin the association pursuant to the

provision on automatic memership appearing as a condition in the Deed of Sale of 32 Septemer '()2and the annotation thereof on Transfer $ertificate of Title No" 2)*3":%D$O@ contends that it cannot e compelled to e a memer of the %ssociation solel! ! virtue of theautomatic memership clause that appears on the title of the propert! and the Deed of Transfer" In'()# when it ought the land# the %ssociation was still inexistent"Therefore# the provision on automaticmemership was anticipator! in nature# suEect to the actual formation of the %ssociation and thesuseuent formulation of its implementing rules":%D$O@ li+ewise maintains that the %ssociations B!7laws reuires an application for memership" Sinceit never sought memership# the $ourt of %ppeals erred in concluding that it was a memer of the

%ssociation ! implication" %side from the lac+ of evidence proving such memership# the %ssociationhas no asis to collect monthl! dues since there is no oard resolution defining and prescriing howmuch should e paid";or its part# the %ssociation claims that the Deed of Sale etween O$?: and TD$ clearl! stipulatesautomatic memership for the owners of lots in the Ortigas $enter# including their successors7in7interest" The filing of applications and acceptance thereof ! the Board of Directors of the %ssociationare# therefore# mere formalities that can e dispensed with or waived" The provisions of the %ssociationsB!7laws cannot in an! manner alter or modif! the automatic memership clause imposed on a propert!owner ! virtue of an annotation of encumrance on his title"The %ssociation li+ewise asserts that memership therein reuires the pa!ment of certain amounts forits operations and activities# as ma! e authori.ed ! its Board of Directors" The memership dues arefor the common expenses of the homeowners for necessar! services"

%fter a careful examination of the records of this case# the $ourt sees no reason to distur the assaileddecision" The petition should e denied"Section 22 of :residential Decree No" '8(4''5 mandates that&S6$" 22" Statutor! liens affecting title " 6ver! registered owner receiving a certificate of title in pursuanceof a decree of registration# and ever! suseuent purchaser of registered land ta+ing a certificate of titlefor value and in good faith# shall hold the same free from al l encumrances except those noted on saidcertificate and an! of the following encumrances which ma! e susisting# namel!& xxx1nder the Torrens s!stem of registration# claims and liens of whatever character# except thosementioned ! law# existing against the land inds the holder of the title and the whole world"4'85It is undisputed that when the land in uestion was ought ! :%D$O@s predecessor7in7interest# TD$#from O$?:# the sale ound TD$ to compl! with paragraph /<0 of the covenants# conditions andrestrictions of the Deed of Sale# which reads as follows&4'*5<" %1TO@%TI$ @6@B6RSHI: JITH TH6 %SSO$I%TION&The owner of this lot# its successor7in7interest here! inds himself to ecome a memer of the

%SSO$I%TION which will e formed ! and among purchasers# full! paid up ?ot B1G6RS# BuildingOwners and the $O@:%NG in respect to $O@:%NG OJN6D ?OTS"The OJN6R of this lot shall aide ! such rules and regulations that shall e laid down ! the

%SSO$I%TION in the interest of securit!# maintenance# eautification and general welfare of the O;;I$6B1I?DIN< .one" The %SSO$I%TION when organi.ed shall also# among others# provide for and collectassessments which shall constitute a lien on the propert!# Eunior onl! to liens of the <overnment fortaxes"6videntl!# it was agreed ! the parties that dues shall e collected from an automatic memer and suchfees or assessments shall e a lien on the propert!"This stipulation was li+ewise annotated at the ac+ of Transfer $ertificate of Title No" 2)*3 issued toTD$"4'25 %nd when the latter sold the lot to :%D$O@ on 8 ;eruar! '()# the Deed of Transferexpressl! stated&4'5NOJ# TH6R6;OR6# for and in consideration of the foregoing premises# the D6V6?O:6R# ! thesepresents# cedes# transfers and conve!s unto the $OR:OR%TION the aove7descried parcel of landevidenced ! Transfer $ertificate of Title No" 2)*3# as well as the $ommon and ?imited $ommon

%reas of the $ondominium proEect mentioned and descried in the @aster Deed with Declaration ofRestrictions /%nnex % hereof0# free from all liens and encumrances# except those alread! annotated atthe ac+ of said Transfer $ertificate of Title No" 2)*3# xxxThis is so ecause an! lien annotated on previous certificates of title should e i ncorporated in or carriedover to the new transfer certificates of title" Such lien is inseparale from the propert! as it is a right inrem # a urden on the propert! whoever its owner ma! e" It susists notwithstanding a change inownership= in short# the personalit! of the owner is disregarded"4'95 %s emphasi.ed earlier# theprovision on automatic memership was annotated in the $ertificate of Title and made a condition in theDeed of Transfer in favor of :%D$O@"$onseuentl!# it is ound ! and must compl! with the covenant"@oreover# %rticle '*'' of the $ivil $ode provides that contracts ta+e effect etween the parties# theirassigns and heirs" Since :%D$O@ is the successor7in7interest of TD$# it follows that the stipulation onautomatic memership with the %ssociation is a lso inding on the former"Je are not persuaded ! :%D$O@s contention that the B!7laws of the %ssociation reuires applicationfor memership and acceptance thereof ! the Board of Directors" Section 8 of the B!7laws4')5 reads&Section 8" Regular @emers" 1pon acceptance ! the Board of Directors of Ortigas $enter %ssociation#Inc"# all real estate owners# or l ong7term lessees of lots within the oundaries of the %ssociation asdefined in the %rticles of Incorporation ecome regular memers# provided# however that the long7termlessees of a lot or lots in said area shall e considered as the regular memers in lieu of the owners ofthe same" ?i+ewise# regular memership in the %ssocia tion automaticall! ceases upon the cessation of amemer to e an owner or long7term lessee of real estate in the area"

% lessee shall e considered a long7term lessee if his lease is in writing and for a period of two /80 !earsor more" @emership of a long7term lessee in the %ssociation shall e co7terminus with his legalpossession /or his l ease0 of the lots in the area"1pon the lessees cessation of memership in the

%ssociation# the owner shall automaticall! succeed the lessee as memer thereat" %s lot owner# :%D$O@ is a regular memer of the %ssociation" No application for memership isnecessar!" If at all# acceptance ! the Board of Directors is a ministerial function considering that




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http://sc.judiciary.gov.ph/jurisprudence/2002/may2002/146807.htm#_edn1


















































:%D$O@ is deemed to e a regular memer upon the acuisition of the lot pursuant to the automaticmemership clause annotated in the $ertificate of Title of the propert! and the Deed of Transfer"Neither are we convinced ! :%D$O@s contention that the automatic memership clause is a violationof its freedom of association" :%D$O@ was never forced to Eoin the association"It could have avoidedsuch memership ! not u!ing the land from TD$" Nood! forced it to u! the land when it ought theuilding with the annotation of the condition or lien on the $ertificate of Title thereof and accepted theDeed" :%D$O@ voluntaril! agreed to e ound ! and respect the condition# and thus to Eoin the

%ssociation"In addition# under the principle of estoppel# :%D$O@ is arred from disclaiming memership in the

%ssociation" In estoppel# a person# who ! his act or conduct has induced another to act in a particularmanner# is arred from adopting an inconsistent position# attitude or course of conduct that there!causes loss or inEur! to another"4'5Je agree with the $ourt of %ppeals conclusion from the facts or circumstances it enumerated in itsdecision and enumerated aove that :%D$O@ is# indeed# a regular memer of the %ssociation" Thesefacts and circumstances are sufficient grounds to appl! the doctrine of estoppel against :%D$O@"Having ruled that :%D$O@ is a memer of the %ssociation# it is oligated to pa! its dues incidentalthereto" %rticle ''( of the $ivil $ode mandates&

%rt" ''(" Oligations arising from contracts have the force of law etween the contracting parties andshould e complied with in good faith"

%ssuming in gratis argumenti that :%D$O@ is not a memer of the %ssociation# it cannot evadepa!ment without violating the euitale principles underl!ing uasi7contracts" %rticle 8'28 of the $ivil$ode provides&

%rt" 8'28" $ertain lawful# voluntar! and unilateral acts give rise to the Euridical relation of uasi7contractto the end that no one shall e unEustl! enriched or enefited at the expense of another"<enerall!# it ma! e said that a uasi7contract is ased on the presumed will or intent of the oligordictated ! euit! and ! the principles of asolute Eustice" 6xamples of these principles are& /'0 it ispresumed that a person agrees to that which will enefit him= /80 nood! wants to enrich himselfunEustl! at the expense of another= or /*0 one must do unto others what he would want others to dounto him under the same circumstances"4'(5

%s resident and lot owner in the Ortigas area# :%D$O@ was definitel! enefited ! the %ssociations actsand activities to promote the interests and welfare of those who acuire propert! therein or enefit fromthe acts or activities of the %ssociation";inall!# :%D$O@s argument that the collection of monthl! dues has no asis since there was no oardresolution defining how much fees are to e imposed deserves scant consideration" Suffice it is to sa!that :%D$O@ never protested upon receipt of the earlier demands for pa!ment of memership dues" Infact# ! proposing a scheme to pa! its oligation# :%D$O@ cannot elatedl! uestion the %ssociationsauthorit! to assess and collect the fees in accordance with the total land area owned or occupied ! thememers# which finds support in a resolution dated 9 Novemer '(8 of the %ssociations incorporatingdirectors4835 and Section 8 of its B!7laws"48'5IEREFRE# the petition is here! D6NI6D for lac+ of merit"$osts against petitioner"S RDERED.:uno# Aapunan# Gnares7Santiago#and %ustria7@artine.# >>"# concur"

;IRST DIVISIONAL LEE +AN, ANDREI G.R. No. 1/346B L$SN, ES+ER ING, S+EEN , A&ES

+AN, :resent&D$+ +AN, ERNES+

+AN$ R., EDI$N NG, :%N<%NIB%N# $>"#$hairperson# $RG$N$A , SA*$N GN%R6S7S%NTI%<O#AD$LLA R., EDARD . %1STRI%7@%RTIN6C#

L$ARES !"# GRAE $%??6>O# SR"# and , $HI$O7N%C%RIO# >>"

:etitioners#7 versus 7

AL S)$ !"# &ERR$++L$&, :romulgated&

Respondents" A;<;st 17, 2006 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --

D6$ISIONANGAN$*AN, 0 .5

;or stoc+ corporations# the uorum referred to in Section 8 of the $orporation $ode is ased on the numerof outstanding voting stoc+s";or nonstoc+ corporations# onl! those who are actual# living memers with votingrights shall e counted in determining the existence of a uorum during memers meetings" Dead memersshall not e counted"

The $ase

The present :etition for Review on $ertiorari4'5

under Rule 2 of the Rules of $ourt see+s the reversalof the >anuar! 8*485 and @a! )# 8338#4*5 Resolutions of the $ourt of %ppeals /$%0 in $%7<R S: No"9838" The first assailed Resolution dismissed the appeal filed ! petitioners with the $%" %llegedl!#without the proper authori.ation of the other petitioners# the Verification and $ertification of Non7;orumShopping were signed ! onl! one of them 77 %tt!" Saino :adilla >r"The second Resolution deniedreconsideration"

+8e F!:ts /<$HS0 is a nonstoc+# non7profit educational corporation with fifteen /'0 regular memers# who also

constitute the oard of trustees"425

During the annual memers meeting held on %pril 9# '((# there

were onl! eleven /''045

living memer7trustees# as four /20 had alread! died" Out of the eleven# seven/)0495 attended the meeting through their respective proxies" The meeting was convened and chaired !

%tt!" Saino :adilla >r" over the oEection of %tt!" %ntonio $" :acis# who argued that there was nouorum"4)5 In the meeting# :etitioners 6rnesto Tanchi# 6dwin Ngo# Virginia Ahoo# and >udith Tan werevoted to replace the four deceased memer7trustees"Jhen the controvers! reached the Securities and 6xchange $ommission /S6$0# petitioners maintainedthat the deceased memer7trustees should not e counted in the computation of the uorum ecause#upon their death# memers automaticall! lost all their rights /including the right to vote0 and interests in

the corporation"S6$ Hearing Officer @althie <" @ilitar declared the meeting null and void for lac+ of uorum" She heldthat the asis for determining the uorum in a meeting of memers should e their numer as specifiedin the articles of incorporation# not simpl! the numer of living memers"45 She explained that theualif!ing phrase entitled to vote in Section 824(5 of the $orporation $ode# which provided the asis fordetermining a uorum for the election of directors or trustees# should e read together with Section ("4'35The hearing officer also opined that %rticle III /8 04''5 of the B!7?aws of <$HS# insofar as it prescriedthe mode of filling vacancies in the oard of trustees# must e interpreted in conEunction with Section8(4'85 of the $orporation $ode" The S6$ en anc denied the appeal of petitioners and affirmed theDecision of the hearing officer in toto"4'*5It found to e untenale their contention that the wordmemers# as used in Section 8 4'25 of the $orporation $ode# referred onl! to the living memers of anonstoc+ corporation"4'5

%s earlier stated# the $% dismissed the appeal of petitioners# ecause the Verification and $ertification ofNon7;orum Shopping had een signed onl! ! %tt!" Saino :adilla >r" No Special :ower of % ttorne! hadeen attached to show his authorit! to sign for the rest of the petitioners"Hence# this :etition"4'95

Issues:etitioners state the issues as follows&

:etitioners principall! pra! for the resolution of the legal uestion of whether or not in NON7STO$Acorporations# dead memers should still e counted in determination of uorum for purposed ofconducting the %nnual @emers @eeting":etitioners have maintained efore the courts elow that the D6%D memers should no longer ecounted in computing uorum primaril! on the ground that memers rights are personal and non7 transferale as provided in Sections (3 and (' of the $orporation $ode of the :hilippines"The S6$ ruled against the petitioners solel! on the asis of a '(( S6$ Opinion that did not eveninvolve a non7stoc+ corporation as petitioner <$HS"The Honorale $ourt of %ppeals on the other hand simpl! refused to resolve this uestion and insteaddismissed the petition for review on a technicalit! the failure to timel! sumit an S:% from thepetitioners authori.ing their co7petitioner :adilla# their counsel and also a petitioner efore the $ourt of

%ppeals# to sign the petition on ehalf of the rest of the petitioners":etitioners huml! sumit that the action of oth the S6$ and the $ourt of %ppeals are not in accordwith law particularl! the pronouncements of this Honorale $ourt in 6scorpi.o v" 1niversit! ofBaguio /*39 S$R% 2()0# Roern Development $orporation v" -uitain /*' S$R% '3#0 and@$6ngineering# Inc" v" N?R$ # /*93 S$R% '*0" Due course should have een given the petition elow andthe merits of the case decided in petitioners favor"4')5In sum# the issues ma! e stated simpl! in this wise& '0 whether the $% erred in den!ing the :etitionelow# on the asis of a defective Verification and $ertification= and 80 whether dead memers shouldstill e counted in the determination of the uorum# for purposes of conducting the annual memersmeeting"

The $ourts RulingThe present :etition is partl! meritorious"

ro:e#;r! $ss;e5er'':!t'o" !"# ert'':!t'o"

o No"-For;m S8opp'"< The :etition efore the $% was initiall! flawed# ecause the Verification and $ertification of Non7;orumShopping were signed ! onl! one# not ! all # of the petitioners= further# it failed to show proof that thesignator! was authori.ed to sign on ehalf of all of them"Suseuentl!# however# petitioners sumitted aSpecial :ower of %ttorne!# attesting that %tt!" :adilla was authori.ed to file the action on their ehalf"4'5In the interest of sustantial Eustice# this initial procedural lapse ma! e excused" 4'(5 There appears toe no intention to circumvent the need for proper verification and certification# which are aimed atassuring the truthfulness and correctness of the allegations in the :etition for Review and atdiscouraging forum shopping"4835 @ore important# the sustantial merits of petitioners case and thepurel! legal uestion involved in the :etition should e considered special circumstances48'5 orcompelling reasons that Eustif! an exception to the strict reuirements of the verification and thecertification of non7forum shopping"4885

&!'" $ss;e5

*!s's or ;or;m <enerall!# stoc+holders or memers meetings are called for the purpose of electing directors ortrustees48*5 and transacting some other usiness calling for or reuiring the action or consent of theshareholders or memers#4825 such as the amendment of the articles of incorporation and !laws# saleor disposition of all or sustantiall! all corporate assets# consolidation and merger and the li+e# or an!other usiness that ma! properl! come efore the meeting"1nder the $orporation $ode# stoc+holders or memers periodicall! elect the oard of directors ortrustees# who are charged with t he management of the corporation" 485 The oard# in turn# periodicall!elects officers to carr! out management functions on a da!7to7da! asis" %s owners# though# thestoc+holders or memers have residual powers over fundamental and maEor corporate changes"Jhile stoc+holders and memers /in some instances0 are entitled to receive profits# the managementand direction of the corporation are lodged with their representatives and agents 77 the oard ofdirectors or trustees"4895 In other words# acts of management pertain to the oard= and those ofownership# to the stoc+holders or memers" In the latter case# the oard cannot act alone# ut mustsee+ approval of the stoc+holders or memers"48)5$onformal! with the foregoing principles# one of the most important rights of a ualified shareholder ormemer is the right to vote 77 either personall! or ! prox! 77 for the directors or trustees who are tomanage the corporate affairs"485 The right to choose the persons who will direct# manage and operatethe corporation is significant# ecause it is the main wa! in which a stoc+holder can have a voice in themanagement of corporate affairs# or in which a memer in a nonstoc+ corporation can have a sa! onhow the purposes and goals of the corporation ma! e achieved"48(5 Once the directors or trustees areelected# the stoc+holders or memers relinuish corporate powers to the oard in accordance with law"In the asence of an express charter or statutor! provision to the contrar!# the general rule is that ever!memer of a nonstoc+ corporation# and ever! legal owner of shares in a stoc+ corporation# has a rightto e present and to vote in all co rporate meetings" $onversel!# those who are not stoc+holders ormemers have no right to vote"4*35 Voting ma! e expressed personall!# or through proxies who vote intheir representative capacities"4*'5 <enerall!# the right to e present and to vote in a meeting isdetermined ! the time in which the meeting is held"4*85Section 8 of the $orporation $ode states&Section 8" -uorum in @eetings" 1nless otherwise provided for in this $ode or in the !7laws# a uorumshall consist of the stoc+holders representing a maEorit! of the outstanding capital stoc+ or a maEorit! ofthe memers in the case of non7stoc+ corporations"In stoc+ corporations# the presence of a uorum is ascertained and counted on the asis ofthe outstanding capital stoc+ # as defined ! the $ode thus&S6$TION '*)" Outstanding capital stoc+ defined " The term outstanding capital stoc+ as used in this$ode# means the total shares of stoc+ issued under inding suscription agreements to suscriers orstoc+holders# whether or not full! or partiall! paid# except treasur! shares" /1nderscoring supplied0+8e R'<8t to ote '" Sto: orpor!t'o"s The right to vote is inherent in and incidental to the ownership of corporate stoc+s"4**5 It is settled thatunissued stoc+s ma! not e voted or considered in determining whether a uorum is present in astoc+holders meeting# or whether a reuisite proportion of the stoc+ of the corporation is voted to adopta certain measure or act" Onl! stoc+ actuall! issued and outstanding ma! e voted"4*25 1nder Section 9of the $orporation $ode# each share of stoc+ i s entitled to vote# unless otherwise provided in the articlesof incorporation or declared delinuent4*5 under Section 9) of the $ode"Neither the stoc+holders nor the corporation can vote or represent shares that have never passed to theownership of stoc+holders= or# having so passed# have again een purchased ! the corporation"4*95These shares are not to e ta+en into consideration in determining maEorities" Jhen the law spea+sof a given proportion of the stoc+# it must e construed to mean the shares that have passed from thecorporation# and that ma! e voted"4*)5Section 9 of the $orporation $ode# in part# provides&Section 9" $lassification of shares " The shares of stoc+ of stoc+ corporations ma! e divided into classesor series of shares# or oth# an! of which classes or series of shares ma! have such rights# privileges orrestrictions as ma! e stated in the articles of incorporation& :rovided # That no share ma! e deprived ofvoting rights except those classified and issued as preferred or redeemale shares# unless otherwiseprovided in this $ode& :rovided# further # that there shall alwa!s e a class or series of shares which havecomplete voting rights"x x x x x x x x xJhere the articles of incorporation provide for non7voting shares in the cases allowed ! this $ode# theholders of such shares shal l nevertheless e entitled to vote on the following matters&'" %mendment of the articles of incorporation=8" %doption and amendment of !7laws=*" # lease# exchange# mortgage# pledge or other disposition of all or sustantiall! all of thecorporation propert!=2" Incurring# creating or increasing onded indetedness=" Increase or decrease of capital stoc+=9" @erger or consolidation of the corporation with another corporation or other corporations=





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)" Investment of corporate funds in another corporation or usiness in accordance with this $ode=and" Dissolution of the corporation"6xcept as provided in the immediatel! preceding paragraph# the vote necessar! to approve a particularcorporate act as provided in this $ode shall e deemed to refer onl! to stoc+s with voting rights"Ta+en in conEunction with Section '*)# the last paragraph of Section 9 shows that the intention of thelawma+ers was to ase the uorum mentioned in Section 8 on the numerof outstanding voting stoc+s"4*5+8e R'<8t to ote '"

No"sto: orpor!t'o"s In nonstoc+ corporations# the voting rights attach to memership"4*(5@emers vote as persons# inaccordance with the law and the !laws of the corporation" 6ach memer shall e entitled to one voteunless so limited# roadened# or denied in the articles of incorporation or !laws"4235 Je hold that whenthe principle for determining the uorum for stoc+ corporations is applied ! analog! to nonstoc+corporations# onl! those who are actual memers with voting rights should e counted"1nder Section 8 of the $orporation $ode# the maEorit! of the memers representing the actual numerof voting rights# not the numer or numerical constant that ma! originall! e specified in the articles ofincorporation# constitutes the uorum"42'5The @arch *# '(9 S6$ Opinion4285 cited ! the hearing officer uses the phrase maEorit! vote of thememers= li+ewise Section 2 of the $orporation $ode refers to 3 percent of (2 /the numer ofregistered memers of the association mentioned therein0 plus one" The est evidence of who arethe present memers of the corporation is the memership oo+= in the case of stoc+ corporations# it isthe stoc+ and transfer oo+ "42*5 Section 8 of the $ode specificall! provides that a maEorit! ofthedirectors or trustees# as fixed in the articles of incorporation# shall constitute a uorum for thetransaction of corporate usiness /unless the articles of incorporation or the !laws provide for a greatermaEorit!0" If the intention of the lawma+ers was to ase the uorum in the meetings of stoc+holders ormemers on their asolute numer as fixed in the articles of incorporation # it would have expressl!specified so" Otherwise# the onl! logical conclusion is that the legislature did not have that intention"Ee:t o t8e De!t8

o ! &ember or S8!re8o#er Having thus determined that the uorum in a memers meeting is to e rec+oned as the actual numerof memers of the corporation# the next uestion to resolve is what happens in the event of the deathof one of them"In stoc+ corporations# shareholders ma! generall! transfer their shares"Thus# on the death of ashareholder# the executor or administrator dul! appointed ! the $ourt is vested with the legal title tothe stoc+ and entitled to vote it" 1ntil a settlement and division of the estate is effected# the stoc+s ofthe decedent are held ! the administrator or executor"4225On the other hand# memership in and all rights arising from a nonstoc+ corporation are personal andnon7transferale# unless the articles of incorporation or the !laws of the corporation provide otherwise"425 In other words# the determination of whether or not dead memers are entitled to exercise theirvoting rights /through their executor or administrator0# depends on those articles of incorporation or!laws"

1nder the B!7?aws of <$HS# memership in the corporation shall# among others# e terminated ! thedeath of the memer"4295 Section (' of the $orporation $ode further provides that terminationextinguishes all the rights of a memer of the corporation# unless otherwise provided in the articles ofincorporation or the !laws"

%ppl!ing Section (' to the present case# we hold that dead memers who are dropped from thememership roster in the manner and for the cause provided for in the B!7?aws of <$HS are not to ecounted in determining the reuisite vote in corporate matters or the reuisite uorum for the annualmemers meeting" Jith '' remaining memers# the uorum in the present case should e 9" Therefore#there eing a uorum# the annual memers meeting# conducted with six42)5memers present# wasvalid"!:!":= '" t8e

*o!r# o +r;stees %s regards the filling of vacancies in the oard of trustees# Section 8( of the $orporation $ode provides&S6$TION 8(" Vacancies in the office of director or trustee " 77 %n! vacanc! occurring in the oard ofdirectors or trustees other than ! removal ! the stoc+holders or memers or ! expiration of term#ma! e filled ! the vote of at least a maEorit! of the remaining directors or trustees# if still constitutinga uorum = otherwise# said vacancies must e filled ! the stoc+holders in a regular or special meetingcalled for that purpose" % director or trustee so elected to fill a vacanc! shall e elected onl! for theunexpired term of his predecessor in office"1ndoutedl!# trustees ma! fill vacancies in the oard# provided that those remaining still constitute auorum" The phrase ma! e filled in Section 8( shows that the filling of vacancies in the oard ! theremaining directors or trustees constituting a uorum is merel! permissive# not mandator!"425 $orporations# therefore# ma! choose how vacancies in their respective oards ma! e filled up 77either ! the remaining directors constituting a uorum# or ! the stoc+holders or memers in a regularor special meeting called for the purpose"42(5The B!7?aws of <$HS prescried the specific mode of filling up existing vacancies in its oard ofdirectors= that is# ! a maEorit! vote of the remaining memers of the oard"435Jhile a maEorit! of the remaining corporate memers were present# however# the election of the fourtrustees cannot e legall! upheld for the ovious reason that it was held in an annual meeting of thememers# not of the oard of trustees" Je are not unmindful of the fact that the memers of <$HSthemselves also constitute the trustees# ut we cannot ignore the <$HS !law provision# whichspecificall! prescries that vacancies in the oard must e filled up ! the remaining trustees" In otherwords# these remaining memer7trusteesmust sit as a oard in order to validl! elect the new ones"Indeed# there is a well7defined distinction etween a corporate act to e done ! the oard and that !the constituent memers of the corporation" The oard of trustees must act# not individuall! orseparatel!# ut as a od! in a lawful meeting" On the other hand# in their annual meeting# the memersma! e represented ! their respective proxies# as in the contested annual memers meeting of <$HS"JH6R6;OR6# the :etition is partl! GRAN+ED " The assailed Resolutions of the $ourt of %ppeals arehere! REERSED AND SE+ AS$DE. The remaining memers of the oard of trustees of <race$hristian High School /<$HS0 ma! convene and fill up the vacancies in the oard# in accordance withthis Decision" No pronouncement as to costs in this instance"

425 %rt" II /'0# %mended B!7?aws of <$HS# provides&'" Numer The regular memers of the $orporation shall e fifteen /'0 in numer and the! shall constitute the Board of Trustees" %ssociate# non7voting memers ma! e admitted upon such terms as the Board ofTrustees ma! determine"/@emorandum for petitioners# p" 8= rollo # p" (8"04(5 Section 82" 6lection of directors or trustees" %t all elections of directors or trustees# there must e present# either in person or ! representative authori.ed to act ! written prox!# the owners of a maEorit! of theoutstanding capital stoc+# or if there e no capital stoc+# a maEorit! of the memers entitled to vote" x x x" %n! meeting of the stoc+holders or memers called for an election ma! adEourn from da! to da! or from time totime ut not sine die or indefinitel! if# for an! reason# no election is held# or if there are not present or represented ! prox!# at the meeting# the owners of a maEorit! of the outstanding capital stoc+# or if there e nocapital stoc+# a maEorit! of the memer entitled to vote" /1nderscoring supplied04'35 Section (" Right to vote " The right of the memers of an! class or classes to vote ma! e limited# roadened or denied to the extent specified in the articles of incorporation or the !7laws" 1nless so limited#roadened or denied# each memer# regardless of class# shall e entitled to one vote"1nless otherwise provided in the articles of incorporation or the !7laws# a memer ma! vote ! prox! in accordance with the provisions of this $ode"

Voting ! mail or other similar means ! memers of non7stoc+ corporations ma! e authori.ed ! the !7laws of non7stoc+ corporations with the approval of# and under such conditions which ma! e prescried !# theSecurities and 6xchange $ommission"4''5 %rticle III /80" Vacancies %n! vacanc! in the Board of Trustees shall e filled ! a maEorit! vote of the remaining memers of the Board" /$ited in Decision# S6$ $ase No" 37(7939# p" 9= rollo # p" 2*"04'85 Section 8(" Vacancies in the office of director or trustee" %n! vacanc! occurring in the oard of directors or trustees other than ! removal ! the stoc+holders or memers or ! expiration of term# ma! e filled !the vote of at least a maEorit! of the remaining directors or trustees# if still constituting a uorum= otherwise# said vacancies must e filled ! the stoc+holders in a regular or special meeting called for that purpose" x x x"/1nderscoring supplied04'*5 See S6$ Order dated # %nnex D of :etition= rollo # pp" 297'"4'25 Section 8" -uorum in meetings" 1nless otherwise provided for in this $ode or in the !7laws# a uorum shall consi st of the stoc+holders representing a maEorit! of the outstanding capital stoc+ or a maEorit! of thememers in the case of non7stoc+ corporations" /1nderscoring supplied04'5 S6$ Order dated # p" *= rollo # p" 2"4'95 To resolve old cases# the $ourt created the $ommittee on Cero Bac+log of $ases on " $onseuentl!# the $ourt resolved to prioriti.e the adEudication of l ong7pending cases ! redistriuting them among all the

Eustices"This case was recentl! re7raffled and assigned to the undersigned ponente for stud! and report"4')5 :etitioners @emorandum# pp" 97)= rollo # pp" (97()"48'5 In certain exceptional circumstances# the $ourt has allowed the relaxation of the rule reuiring verification and certification of non7forum shopping" ?D: @ar+eting# Inc"# v" @onter # <R No" '(9*# >anuar! 8# 8339citing 1! v" ?and Ban+ of the :hilippines # **9 S$R% 2'(# >ul! 82# 8333# Roadwa! 6xpress# Inc" v" $ourt of %ppeals# et al "# 892 S$R% 9(9# Novemer 8'# '((9# and ?o!ola v" $ourt of %ppeals# et al "# 82 S$R% 2))# >une 8(#'((= %teneo De Naga 1niversit! v" @analo # 2 S$R% *8# @a! (# 833"














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4885 1! v" ?and Ban+ of the :hilippines # supra"48*5 $OR:OR%TION $OD6# Sec" 82"4825 See $OR:OR%TION $OD6# Secs" 9# '9# 82# 87*3# *8# *2# *# 23# 28722# 29# 2# ))# ''7'83"485 $OR:OR%TION $OD6# Sec" 8*"4*5 Section )'" 6ffect of delinuenc! " No delinuent stoc+ shall e voted for or e entitled to vote or to representation at an! stoc+holders meeting" x x x"4*95 Section (" Treasur! shares " Treasur! shares are shares of stoc+ which have een issued and full! paid for ut suseuentl! reacuired ! the issuing corporation ! purchase# redemption# donation or through someother lawful means" x x x"Section )" Voting right for treasur! shares" Treasur! shares shall have no voting right as l ong as such stoc+ remains i n the Treasur!"4235 $OR:OR%TION $OD6# Sec" ("42'5 In Noremac# Inc" v" $entre Hill $ourt# Inc"# /') S6 ))# @arch '2# '(*0 the management and control of the corporation were vested in lot owners who were memers of the corporation# ! virtue of their ownership=and the !laws provided that a uorum should consist of memers representing a maEorit! of the lots# numered from ' to *3# inclusive= ut the numer of lots was later reduced to 8( so the $ourt said that the maEorit!of memers representing actual numer of lots was a uorum"The landmar+ case %velino v" $uenca /* :hil" ')# 0 can e used ! analog!" In that case# the Supreme $ourt said that 4t5here is a difference etween a maEorit! of all the memers of the House and a maEorit! of theHouse# which reuires less numer than the first"In this case# the law refers to the maEorit! of the memers and not the maEorit! of all the memers" Thus# we can use the same reasoning that the maEorit! of the memers reuires a lesser numer than the maEorit! ofall the memers"4285 See the Decision dated # S6$ $ase No" 37(7939# pp" *72= rollo # pp" 2'728"4225 S6$ ?etter7Opinion to @s" Rosevelinda 6" $alingasan# et al "# /R" ?ope.0 = $OR:OR%TION $OD6# Sec" "425 $OR:OR%TION $OD6# Sec" (3"

G.R. No. 91BB9 A;<;st 27, 1993&ANEL R. DLA) EN+ERR$SES, $N., $RG$L$ E. DLA) AND NE&EN

REDAN, petitioners#vs"+E NRA*LE R+ F AEALS, EDGARD D. A*ALAN, &ANEL A. +RRES, R.,&AR$A +ERESA . ELS AND AS+RENSE . ELS, respondents"Virgilio 6" Dula! for petitioners"Torres# Toias# %.ura L >ocson for private respondents"NN, 0.5 This is a petition for review on certiorari to annul and set aside the decision 1 of the $ourt of %ppealsaffirming the decision 2 of the Regional Trial $ourt of :asa!# Branch ''2 $ivil $ases Nos" '(7:# and837:# the dispositive portion of which reads# as follows&Jherefore# in view of all the foregoing considerations# in this $ourt here! renders Eudgment# asfollows&In $ivil $ase No" 837:# the petition filed ! @anuel R" Dula! 6nterprises# Inc" and Virgilio 6" Dula! forannulment or declaration of nullit! of the decision of the @etropolitan Trial $ourt# Branch 29# :asa! $it!#in its $ivil $ase No" *7' entitled ,6dgardo D" :aalan# et al"# vs" Spouses ;lorentino @analastas# et al "#,is dismissed for lac+ of merits=In $ivil $ase No" 8)7:# the complaint filed ! @anuel R" Dula! 6nterprises# Inc" for cancellation of titleof @anuel %" Torres# >r" /T$T No" 82)(( of the Register of Deeds of :asa! $it!0 and reconve!ance# isdismissed for lac+ or merit# and#In $ivil $ase No" '(7:# defendants @anuel R" Dula! 6nterprises# Inc" and Virgilio 6" Dula! are orderedto surrender and deliver possession of the parcel of land# together with all the improvements thereon#descried in Transfer $ertificate of Title No" 82)(( of the Register of Deeds of :asa! $it!# in favor oftherein plaintiffs @anuel %" Torres# >r" as owner and 6dgardo D" :aalan as real estate administrator ofsaid @anuel %" Torres# >r"= to account for and return to said plaintiffs the rentals from dwelling unit No"7% of the apartment uilding /Dula! %partment0 from >une '(3 up to the present# to indemnif!plaintiffs# Eointl! and severall!# expenses of litigation in the amount of :2#333"33 and attorne!Fs fees inthe sum of :9#333"33# for all the three /*0 cases" $o7defendant Nepomuceno Redovan is ordered to pa!the current and suseuent rentals on the premises leased ! him to plaintiffs"The counterclaim of defendants Virgilio 6" Dula! and @anuel R" Dula! 6nterprises# Inc" and N" Redovan#dismissed for lac+ of merit" Jith costs against the three /*0 aforenamed defendants" 3

The facts as found ! the trial court are as follows&:etitioner @anuel R" Dula! 6nterprises# Inc# a domestic corporation with the following as memers of itsBoard of Directors& @anuel R" Dula! with '(#(93 shares and designated as president# treasurer andgeneral manager# %tt!" Virgilio 6" Dula! with '3 shares and designated as vi ce7president= ?inda 6" Dula!with '3 shares= $elia [email protected] with '3 shares= and %tt!" :laridel $" >ose with '3 shares anddesignated as secretar!# owned a propert! covered ! T$T No" ')3 4 and +nown as Dula! %partmentconsisting of sixteen /'90 apartment units on a six hundred eight!7nine /9(0 suare meters lot# more orless# located at Seventh Street /now Buendia 6xtension0 and ;"B" Harrison Street# :asa! $it!":etitioner corporation through its president# @anuel Dula!# otained various loans for the construction ofits hotel proEect# Dula! $ontinental Hotel /now ;rederic+ Hotel0" It even had to orrow mone! frompetitioner Virgilio Dula! to e ale to continue the hotel proEect" %s a result of said loan# petitioner

Virgilio Dula! occupied one of the unit apartments of the suEect propert! since propert! s ince '()*while at the same time managing the Dula! %partment at his shareholdings in the corporation wassuseuentl! increased ! his father" /

On Decemer 8*# '()9# @anuel Dul a! ! v irtue of Board ResolutionNo ' 6 of petitioner corporation sold the suEect propert! to private respondents spouses @ariaTheresa and $astrense Veloso in the amount of :*33#333"33 as evidenced ! the Deed of %soluteSale" 7 Thereafter# T$T No" ')3 was cancelled and T$T No" 8*88 was issued to private respondent@aria Theresa Veloso" B Suseuentl!# @anuel Dula! and private respondents spouses Veloso executeda @emorandum to the Deed of %solute Sale of Decemer 8*# '()9 9 dated Decemer (# '()) giving@anuel Dula! within /80 !ears or until Decemer (# '()( to repurchase the suEect propert! for:833#333"33 which was# however# not annotated either in T$T No" ')3 or T$T No" 8*88"On Decemer 82# '()9# private respondent @aria Veloso# without the +nowledge of @anuel Dula!#mortgaged the suEect propert! to private respondent @anuel %" Torres for a loan of :83#333"33 whichwas dul! annotated as 6ntr! No" 9'*( in T$T No" 8*88" 101pon the failure of private respondent @aria Veloso to pa! private respondent Torres# the suEectpropert! was sold on %pril # '() to private respondent Torres as the highest idder in an extraEudicialforeclosure sale as evidenced ! the $ertificate of SheriffFs Sale 11 issued on %pril 83# '()"On >ul! 83# '()# private respondent @aria Veloso executed a Deed of %solute %ssignment of the Rightto Redeem 12 in favor of @anuel Dula! assigning her right to repurchase the suEect propert! fromprivate respondent Torres as a result of the extra sale held on %pril 8# '()"

%s neither private respondent @aria Veloso nor her assignee @anuel Dula! was ale to redeem thesuEect propert! within the one !ear statutor! period for redemption# private respondent Torres filed an

%ffidavit of $onsolidation of Ownership 13 with the Registr! of Deeds of :asa! $it! and T$T No"82)(( 14 was suseuentl! issued to private respondent @anuel Torres on %pril 8*# '()("On Octoer '# '()(# private respondent Torres filed a petition for the issuance of a writ of possessionagainst private respondents spouses Veloso and @anuel Dula! in ?R$ $ase No" ')287:" However# whenpetitioner Virgilio Dula! was never authori.ed ! the petitioner corporation to sell or mortgage thesuEect propert!# the trial court ordered private respondent Torres to implead petitioner corporation asan indispensale part! ut the latter moved for the dismissal of his petition which was granted in anOrder dated %pril # '(3"On >une 83# '(3# private respondent Torres and 6dgardo :aalan# real estate administrator of Torres#filed an action against petitioner corporation# Virgilio Dula! and Nepomuceno Redovan# a tenant of Dula!

%partment 1nit No" 7% for the recover! of possession# sum of mone! and damages with preliminar!inEunction in $ivil $ase# No" '(7: with the then $ourt of ;irst Instance of Ri.al"On >ul! 8'# '(3# petitioner corporation filed an action against private respondents spouses Veloso andTorres for the cancellation of the $ertificate of SheriffFs Sale and T$T No" 82)(( in $ivil $ase No" 8)7:with the then $ourt of ;irst Instance of Ri.al"On >anuar! 8(# '('# private respondents :aalan and Torres filed an action against spouses ;lorentinoand 6lvira @analastas# a tenant of Dula! %partment 1nit No" )7B# with petitioner corporation as

intervenor for eEectment in $ivil $ase No" *7' with the @etropolitan Trial $ourt of :asa! $it! whichrendered a decision on %pril 8# '(# dispositive portion of which reads# as follows&Jherefore# Eudgment is here! rendered in favor of the plaintiff /herein private respondents0 andagainst the defendants&'" Ordering the defendants and all persons claiming possession under them to vacate the premises"8" Ordering the defendants to pa! the rents in the sum of :33"333 a month from @a!# '()( until the!shall have vacated the premises with interest at the legal rate=*" Ordering the defendants to pa! attorne!Fs fees in the sum of :8#333"33 and :'#333"33 as otherexpenses of litigation and for them to pa! the costs of the suit" 1/

Thereafter or on @a! ')# '(# petitioner corporation and Virgilio Dula! filed an action against thepresiding Eudge of the @etropolitan Trial $ourt of :asa! $it!# private respondents :aalan and Torres forthe annulment of said decision with the Regional Trial $ourt of :asa! in $ivil $ase No" 837:"Thereafter# the three /*0 cases were Eointl! tried and the trial court rendered a decision in favor ofprivate respondents"Not satisfied with said decision# petitioners appealed to the $ourt of %ppeals which rendered a decisionon Octoer 8*# '((# the dispositive portion of which reads# as follows&:R6@IS6S $ONSID6R6D# the decision eing appealed should e as it is here! %;;IR@6D in full" 16

On Novemer # '((# petitioners filed a @otion for Reconsideration which was denied on >anuar! 89#'((3"Hence# this petition"During the pendenc! of this petition# private respondent Torres died on %pril *# '((' as shown in hisdeath certificate 17 and named Torres7:aalan Realt! L Development $orporation as his heir in hisholographic will 1B dated Octoer *'# '(9":etitioners contend that the respondent court had acted with grave ause of discretion when it appliedthe doctrine of piercing the veil of corporate entit! in the instant case considering that the sale of thesuEect propert! etween private respondents spouses Veloso and @anuel Dula! has no inding effecton petitioner corporation as Board Resolution No" ' which authori.ed the sale of the suEect propert!was resolved without the approval of all the memers of the oard of directors and said BoardResolution was prepared ! a person not designated ! the corporation to e its secretar!"Je do not agree"Section '3' of the $orporation $ode of the :hilippines provides&Sec" '3'" Jhen oard meeting is unnecessar! or improperl! held" 1nless the !7laws provide otherwise#an! action ! the directors of a close corporation without a meeting shall nevertheless e deemed validif&'" Before or after such action i s ta+en# written consent thereto is signed ! all the directors# or8" %ll the stoc+holders have actual or implied +nowledge of the action and ma+e no prompt oEectionthereto in writing= or*" The directors are accustomed to ta+e informal action with the express or implied acuiese of all thestoc+holders# or2" %ll the directors have express or implied +nowledge of the action in uestion and none of them ma+esprompt oEection thereto in writing"If a directorsF meeting is held without call or notice# an action ta+en therein within the corporate powersis deemed ratified ! a director who failed to attend# unless he promptl! files his written oEection withthe secretar! of the corporation after having +nowledge thereof"In the instant case# petitioner corporation is classified as a close corporation and conseuentl! a oardresolution authori.ing the sale or mortgage of the suEect propert! is not necessar! to ind thecorporation for the action of its president" %t an! rate# corporate action ta+en at a oard meetingwithout proper call or notice in a close corporation is deemed ratified ! the asent director unless thelatter promptl! files his written oEection with the secretar! of the corporation after having +nowledge ofthe meeting which# in his case# petitioner Virgilio Dula! failed to do"It is relevant to note that although a corporation is an entit! which has a personalit! distinct andseparate from its individual stoc+holders or memers# 19 the veil of corporate fiction ma! e piercedwhen it is used to defeat pulic convenience Eustif! wrong# protect fraud or defend crime" 20 Theprivilege of eing treated as an entit! distinct and separate from its stoc+holder or memers is thereforeconfined to its legitimate uses and is suEect to certain limitations to prevent the commission of fraud orother illegal or unfair act" Jhen the corporation is used merel! as an alter ego or usiness conduit of aperson# the law will regard the corporation as the act of that person" 21 The Supreme $ourt hadrepeatedl! disregarded the separate personalit! of the corporation where the corporate entit! was usedto annul a valid contract executed ! one of its memers":etitionersF claim that the sale of the suEect propert! ! its president# @anuel Dula!# to privaterespondents spouses Veloso is null and void as the alleged Board Resolution No" ' was passed withoutthe +nowledge and consent of the other memers of the oard of directors cannot e sustained" %scorrectl! pointed out ! the respondent $ourt of %ppeals&

%ppellant Virgilio 6" Dula!Fs protestations of complete innocence to the effect that he never participatednor was even aware of an! meeting or resolution authori.ing the mortgage or sale of the suEectpremises /see par" # affidavit of Virgilio 6" Dula!# dated @a! *'# '(2# p" '2# 6xh" ,8',0 is difficult toelieve" On the contrar!# he is ver! much priv! to the transactions involved" To egin with# he is aincorporator and one of the oard of directors designated at the time of the organi.ation of @anuel R"Dula! 6nterprise# Inc" In ordinar! parlance# the said entit! is loosel! referred to as a ,famil!corporation," The nomenclature# if imprecise# however# fairl! reflects the cohesiveness of a group andthe parochial instincts of the individual memers of such an aggrupation of which @anuel R" Dula!6nterprises# Inc" is t!pical& four7fifths of its incorporators eing close relatives namel!# three /*0 childrenand their father whose name identifies their corporation /%rticles of Incorporation of @anuel R" Dula!6nterprises# Inc" 6xh" ,*'7%,0" 22Besides# the fact that petitioner Virgilio Dula! on >une 82# '() executed an affidavit 23 that he was asignator! witness to the execution of the post7dated Deed of %solute Sale of the suEect propert! infavor of private respondent Torres indicates that he was aware of the transaction executed etween hisfather and private respondents and had# therefore# adeuate +nowledge aout the sale of the suEectpropert! to private respondents"$onseuentl!# petitioner corporation is liale for the act of @anuel Dula! and the sale of the suEectpropert! to private respondents ! @anuel Dula! is valid and inding" %s stated ! the trial court&" " " the sale etween @anuel R" Dula! 6nterprises# Inc" and the spouses @aria Theresa V" Veloso and$astrense $" Veloso# was a corporate act of the former and not a personal transaction of @anuel R"Dula!" This is so ecause @anuel R" Dula! was not onl! president and treasurer ut also the generalmanager of the corporation" The corporation was a closed famil! corporation and the onl! non7relativein the oard of directors was %tt!" :laridel $" >ose who appeared on paper as the secretar!" There is noden!ing the fact# however# that @aria Socorro R" Dula! at times acted as secretar!" " " "# the $ourt cannot lose sight of the fact that the @anuel R" Dula! 6nterprises# Inc" is a closed famil! corporation where

























the incorporators and directors elong to one single famil!" It cannot e concealed that @anuel R" Dula!as president# treasurer and general manager almost had asolute control over the usiness and affairsof the corporation" 24

@oreover# the appellate courts will not distur the findings of the trial Eudge unless he has plainl!overloo+ed certain facts of sustance and value that# if considered# might affect the result of thecase# 2/ which is not present in the instant case":etitionersF contention that private respondent Torres never acuired ownership over the suEectpropert! since the latter was never in actual possession o f the suEect propert! nor was the propert!ever delivered to him is also without merit":aragraph '# %rticle '2( of the New $ivil $ode provides&Jhen the sale is made through a pulic instrument# the execution thereof shall e euivalent to thedeliver! of the thing which is the oEect of the contract# if from the deed the contrar! do not appear orcannot clearl! e inferred"1nder the aforementioned article# the mere execution of the deed of sale in a pulic document iseuivalent to the deliver! of the propert!" ?i+ewise# this $ourt had held that&It is settled that the u!er in a foreclosure sale ecomes the asolute owner of the propert! purchasedif it is not redeemed during the period of one !ear after the registration of the sale" %s such# he isentitled to the possession of the said propert! and can demand it at an! time following the consolidationof ownership in his name and the issuance to him of a new transfer certificate of title" The u!er can infact demand possession of the land even during the redemption period except that he has to post aond in accordance with Section ) of %ct No" *'** as amended" No such ond is reuired after theredemption period if the propert! is not redeemed" :ossession of the land then ecomes an asoluteright of the purchaser as confirmed owner" 26

Therefore# prior ph!sical deliver! or possession is not legall! reuired since the execution of the Deed ofSale in deemed euivalent to deliver!";inall!# we hold that the respondent appellate court did not err in den!ing petitionerFs motion forreconsideration despite the fact that private respondents failed to sumit their comment to said motionas reuired ! the respondent appellate court from resolving petitionersF motion for reconsiderationwithout the comment of the private respondent which was reuired merel! to aid the court in thedisposition of the motion" The courts are as much interested as the parties in the earl! disposition ofcases efore them" To reuire otherwise would unnecessaril! clog the courtsF doc+ets"JH6R6;OR6# the petition is D6NI6D and the decision appealed from is here! %;;IR@6D"SO ORD6R6D"

;IRST DIVISION[G.R. No. 1294/9. September 29, 199B]

SAN AN S+R+RAL AND S+EEL FA*R$A+RS, $N., pet't'o"er, (s. R+ F

AEALS, &+R$ SALES RRA+$N, NEN$+A LEE GREN*ERG, AL DEEL&EN+R. !"# N& REAL+) AND DEEL&EN+ R., respo"#e"ts.

D E $ S $ NANGAN$*AN, 0 .

@a! a corporate treasurer# ! herself and without an! authori.ation from the oard of directors# validl!sell a parcel of land owned ! the corporationK @a! the veil of corporate fiction e pierced on the mereground that almost all of the shares of stoc+ of the corporation are owned ! said treasurer and herhusandK

+8e !seThese uestions are answered in the negative ! this $ourt in resolving the :etition for Review on$ertiorari efore us# assailing the @arch '# '(() Decision4'5 of the $ourt of %ppeals485 in $% <R $VNo" 293' which# in turn# modified the >ul! '# '((2 Decision of the Regional Trial $ourt of @a+ati#@etro @anila# Branch 9*4*5 in $ivil $ase No" (7*''" The RT$ dismissed oth the $omplaint and the$ounterclaim filed ! the parties" On the other hand# the $ourt of %ppeals ruled&JH6R6;OR6# premises considered# the appealed decision is %;;IR@6D JITH @ODI;I$%TION orderingdefendant7appellee Nenita ?ee <ruenerg to R6;1ND or return to plaintiff7appellant the downpa!mentof :'33#333"33 which she received from plaintiff7appellant" There is no pronouncement as to costs"425The petition also challenges the >une '3# '(() $% Resolution den!ing reconsideration"45

+8e F!:tsThe facts as found ! the $ourt of %ppeals a re as follows&:laintiff7appellant San >uan Structural and Steel ;aricators# Inc"s amended complaint alleged that on '2;eruar! '((# plaintiff7appellant entered into an agreement with defendant7appellee @otorich Sales$orporation for the transfer to it of a parcel of land identified as ?ot *3# B loc+ ' of the %cropolis <reensSudivision located in the District of @urph!# -ue.on $it!# @etro @anila# containing an area of ;ourHundred ;ourteen /2'20 suare meters# covered ! T$T No" /*98(3(0 8)9= that as stipulated in the

%greement of '2 ;eruar! '((# plaintiff7appellant paid the down pa!ment in the sum of One HundredThousand /:'33#333"330 :esos# the alance to e paid on or efore @arch 8# '((= that on @arch '#'((# @r" %ndres T" $o# president of plaintiff7appellant corporation# wrote a letter to defendant7appellee@otorich Sales $orporation reuesting for a computation of the alance to e paid= that said letter wascoursed through defendant7appellees ro+er# ?inda %duca# who wrote the computation of the alance=that on @arch 8# '((# plaintiff7appellant was read! with the amount corresponding to the alance#covered ! @etroan+ $ashiers $hec+ No" 33288*# pa!ale to defendant7appellee @otorich Sales$orporation= that plaintiff7appellant and defendant7appellee @otorich Sales $orporation were supposedto meet in the office of plaintiff7appellant ut defendant7appellees treasurer# Nenita ?ee <ruenerg# didnot appear= that defendant7appellee @otorich Sales $orporation despite repeated demands and in utterdisregard of its commitments had refused to execute the Transfer of RightsDeed of %ssignment which isnecessar! to transfer the certificate of title= that defendant %$? Development $orp" is impleaded as anecessar! part! since Transfer $ertificate of Title No" /*98(3(0 8)9 is still in the name of sa iddefendant= while defendant >N@ Realt! L Development $orp" is li +ewise impleaded as a necessar! part!in view of the fact that i t is the transferor of right in favor of defendant7appellee @otorich Sales$orporation= that on %pril 9# '((# defendant %$? Development $orporation and @otorich Sales$orporation entered into a Deed of %solute Sale where! the former transferred to the l atter thesuEect propert!= that ! reason of said transfer# the Registr! of Deeds of -ue.on $it! issued a new titlein the name of @otorich Sales $orporation# represented ! defendant7appellee Nenita ?ee <ruenergand Re!naldo ?" <ruenerg# under Transfer $ertificate of Title No" *)'= that as a result of defendants7appellees Nenita ?ee <ruenerg and @otorich Sales $orporations ad faith in refusing to execute aformal Transfer of RightsDeed of %ssignment# plaintiff7appellant suffered moral and nominal damageswhich ma! e assessed against defendants7appellees in the sum of ;ive Hundred Thousand/33#333"330 :esos= that as a result of defendants7appellees Nenita ?ee <ruenerg and @otorich Sales$orporations unEustified and unwarranted failure to execute the reuired Transfer of RightsDeed of

%ssignment or formal deed of sale in favor of plaintiff7appellant# defendants7appellees should eassessed exemplar! damages in the sum of One Hundred Thousand /:'33#333"330 :esos= that !reason of defendants7appellees ad faith in refusing to execute a Transfer of RightsDeed of %ss ignmentin favor of plaintiff7appellant# the latter lost the opportunit! to construct a residential uilding in the sumof One Hundred Thousand /:'33#333"330 :esos= and that as a conseuence of defendants7appelleesNenita ?ee <ruenerg and @otorich Sales $orporations ad faith in refusing to execute a deed of sale infavor of plaintiff7appellant# it has een constrained to otain the services of counsel a t an agreed fee ofOne Hundred Thousand /:'33#333"330 :esos plus appearance fee for ever! appearance in courthearings"In its answer# defendants7appellees @otorich Sales $orporation and Nenita ?ee <ruenerg interposed asaffirmative defense that the :resident and $hairman of @otorich did not sign the agreement adverted toin par" * of the amended complaint= that @rs" <ruenergs signature on the agreement /ref& par" * of

%mended $omplaint0 is inadeuate to ind @otorich" The other signature# that of @r" Re!naldo<ruenerg# :resident and $hairman of @otorich# is reuired= that plaintiff +new this from the ver!eginning as it was presented a cop! of the Transfer of Rights /%nnex B of amended complaint0 at thetime the %greement /%nnex B of amended complaint0 was signed= that plaintiff7appellant itself draftedthe %greement and insisted that @rs" <ruenerg accept the :'33#333"33 as earnest mone!= thatgranting# without admitting# the enforceailit! of the agreement# plaintiff7appellant nonetheless failed topa! in legal tender within the stipulated period /up to @arch 8# '((0= that it was the understanding

etween @rs" <ruenerg and plaintiff7appellant that the Transfer of RightsDeed of %ssignment will esigned onl! upon receipt of cash pa!ment= thus the! agreed that if the pa!ment e in chec+# the! willmeet at a an+ designated ! plaintiff7appellant where the! will encash the chec+ and sign the Transferof RightsDeed" However# plaintiff7appellant informed @rs" <ruenerg of the alleged availailit! of thechec+# ! phone# onl! after an+ing hours"On the asis of the evidence# the court a uo rendered the Eudgment appealed from4#5 dismissingplaintiff7appellants complaint# ruling that&FThe issue to e resolved is& whether plaintiff had the right to compel defendants to execute a deed ofasolute sale in accordance with the agreement of ;eruar! '2# '((= and if so# whether plaintiff isentitled to damages"

%s to the first uestion# there is no evidence to show that defendant Nenita ?ee <ruenerg was indeedauthori.ed ! defendant corporation# @otorich Sales# to dispose of that propert! covered ! T"$"T" No"/*98(3(0 8)9" Since the propert! is clearl! owned ! the corporation# @otorich Sales# then itsdisposition should e governed ! the reuirement laid down in Sec" 23# of the $orporation $ode of the:hilippines# to wit&Sec" 23# Sale or other disposition of assets" SuEect to the provisions of existing laws on illegalcomination and monopolies# a corporation ma! ! a maEorit! vote of its oard of directors xxx sell#lease# exchange# mortgage# pledge or otherwise dispose of all or sustantiall! all of its propert! andassets# including its goodwill xxx when authori.ed ! the vote of the stoc+holders representing at leasttwo third /8*0 of the outstanding capital stoc+ x x x"No such vote was otained ! defendant Nenita ?ee <ruenerg for that proposed sale4=5 neither wasthere evidence to show that the supposed transaction was ratified ! the corporation" :laintiff shouldhave een on the loo+ out under these circumstances" @ore so# plaintiff himself 4owns5 severalcorporations /tsn dated %ugust '9# '((*# p" *0 whi ch ma+es him +nowledgeale on corporation matters"Regarding the uestion of damages# the $ourt li+ewise# does not find sustantial evidence to holddefendant Nenita ?ee <ruenerg liale considering that she did not in an!wa! misrepresent herself to eauthori.ed ! the corporation to sell the propert! to plaintiff /tsn dated Septemer 8)# '(('# p" 0"In the light of the foregoing# the $ourt here! renders Eudgment DIS@ISSIN< the complaint a t instancefor lac+ of merit"Defendants counterclaim is also DIS@ISS6D for lac+ of asis"/Decision# pp" )7= Rollo # pp" *27*0;or clarit!# the %greement dated ;eruar! '2# '(( is reproduced hereunder&

%<R66@6NTANOJ %?? @6N BG TH6S6 :R6S6NTS&This %greement# made and entered into ! and etween&@OTORI$H S%?6S $OR:OR%TION# a corporation dul! organi.ed and existing under and ! virtue of:hilippine ?aws# with principal office address at '3 South Super Hi7wa! cor" Balderama St"# :io del:ilar# @a+ati# @etro @anila# represented herein ! its Treasurer# N6NIT% ?66 <R16NB6R<# hereinafterreferred to as the TR%NS;6ROR=

7 and 77S%N >1%N STR1$T1R%? L ST66? ;%BRI$%TORS# a corporation dul! organi.ed and existing under and! virtue of the laws of the :hilippines# with principal office address at Sumulong Highwa!# Barrio@amungan# %ntipolo# Ri.al# represented herein ! its :resident# %NDR6S T" $O# hereinafter referred toas the TR%NS;6R66"

JITN6SS6TH# That&JH6R6%S# the TR%NS;6ROR is the owner of a parcel of land identified as ?ot *3 Bloc+ ' of the

%$RO:O?IS <R66NS S1BDIVISION located at the District of @urph!# -ue.on $it!# @etro @anila#containing an area of ;O1R H1NDR6D ;O1RT66N /2'20 S-1%R6 @6T6RS# covered ! a TR%NS;6R O;RI<HTS etween >N@ Realt! L Dev" $orp" as the Transferor and @otorich Sales $orp" as the Transferee=NOJ# TH6R6;OR6# for and in consideration of the foregoing premises# the parties have agreed asfollows&'" That the purchase price shall e at ;IV6 THO1S%ND TJO H1NDR6D :6SOS /:#833"330 per suaremeter= suEect to the following terms&a" 6arnest mone! amounting to ON6 H1NDR6D THO1S%ND :6SOS /:'33#333"330# w ill e paid upon theexecution of this agreement and shall form part of the total purchase price=" Balance shall e pa!ale on or efore @arch 8# '((=8" That the monthl! amorti.ation for the month of ;eruar! '(( shall e for the account of theTransferor= and that the monthl! amorti.ation starting @arch 8'# '(( shall e for the account of theTransferee=The transferor warrants that he 4sic5 is the lawful owner of the aove7descried propert! and that there4are5 no existing liens andor encumrances of whatsoever nature=In case of failure ! the Transferee to pa! the alance on the date specified on '" /0# the earnestmone! shall e forfeited in favor of the Transferor"That upon full pa!ment of the alance# the TR%NS;6ROR agrees to execute a TR%NS;6R O;RI<HTSD66D O; %SSI<N@6NT in favor of the TR%NS;6R66"IN JITN6SS JH6R6O;# the parties have hereunto set their hands this '2th da! of ;eruar!# '(( at<reenhills# San >uan# @etro @anila# :hilippines"@OTORI$H S%?6S $OR:OR%TION S%N STR1$T1R%? L TR%NS;6ROR ST66? ;%BRI$%TORSTR%NS;6R664S<D"5 4S<D"5B!& N6NIT% ?66 <R16NB6R< B!& %NDR6S T" $OTreasurer :resident

Signed in the presence of&4S<D"5 4S<D"5

MMMMMMMMMMMMMMMMMMMMMMMMM MMMMMMMMMMMMMMMMMMMMM 495In its recourse efore the $ourt of %ppeals# petitioner insisted&'" %ppellant is entitled to compel the appellees to execute a Deed of %solute Sale in accordance withthe %greement of ;eruar! '2# '((#8" :laintiff is entitled to damages"4)5

%s stated earlier# the $ourt of %ppeals deun+ed petitioners arguments and affirmed the Decision of theRT$ with the modification that Respondent Nenita ?ee <ruenerg was ordered to refund :'33#333 topetitioner# the amount remitted as downpa!ment or earnest mone!"Hence# this petition efore us"45

+8e $ss;es

Before this $ourt# petitioner raises the following issues&I" Jhether or not the doctrine of piercing the veil of corporate fiction is applicale in the instant caseII" Jhether or not the appellate court ma! consider matters which the parties failed to rais e in the lowercourtIII" Jhether or not there is a valid and enforceale contract etween the petitioner and the respondentcorporationIV" Jhether or not the $ourt of %ppeals erred in holding that there is a valid correctionsustitution ofanswer in the transcript of stenographic note4s5

V" Jhether or not respondents are liale for damages and attorne!s fees4(5The $ourt s!nthesi.ed the foregoing and will thus discuss them seriatim as follows&'" Jas there a valid contract of sal e etween petitioner and @otorichK8" @a! the doctrine of piercing the veil of corporate fiction e applied to @otorichK*" Is the alleged alteration of <ruenergs testimon! as recorded in the transcript of stenographic notesmaterial to the disposition of this caseK2" %re respondents liale for damages and attorne!s feesK

+8e o;rts R;'"<

The petition is devoid of merit"F'rst $ss;e5 !'#'t= o A<reeme"t

:etitioner San >uan Structural and Steel ;aricators# Inc" alleges that on ;eruar! '2# '((# it enteredthrough its president# %ndres $o# into the disputed %greement with Respondent @otorich Sales$orporation# which was in turn allegedl! represented ! its treasurer# Nenita ?ee <ruenerg" :etitionerinsists that 4w5hen <ruenerg and $o affixed their signatures on the contract the! oth consented to e

http://sc.judiciary.gov.ph/jurisprudence/1998/sep1998/129459.htm#_edn1




















ound ! the terms thereof" 6rgo# petitioner contends that the contract is inding on the twocorporations" Je do not agree"True# <ruenerg and $o signed on ;eruar! '2# '((# the %greement according to which a lot owned !@otorich Sales $orporation was purportedl! sold" Such contract# however# cannot ind @otorich#ecause it never authori.ed or ratified such sale"

% corporation is a Euridical person separate and distinct from its stoc+holders or memers"%ccordingl!#the propert! of the corporation is not the propert! of its stoc+holders or memers and ma! not e sold! the stoc+holders or memers without express authori.ation from the corporations oard of directors"4'35 Section 8* of B: 9# otherwise +nown as the $orporation $ode of the :hilippines# provides&S6$" 8*" The Board of Directors or Trustees " 77 1nless otherwise provided in this $ode# the corporatepowers of all corporations formed under this $ode shall e exercised# all usiness conducted and allpropert! of such corporations controlled and held ! the oard of directors or trustees to e electedfrom among the holders of stoc+s# or where there is no stoc+# from among the memers of thecorporation# who shall hold office for one /'0 !ear and until their successors are elected and ualified"Induital!# a corporation ma! act onl! through its oard of directors# or# when authori.ed either ! its!laws or ! its oard resolution# through its officers or agents in the normal course of usiness" Thegeneral principles of agenc! govern the relation etween the corporation and its officers or agents#suEect to the articles of incorporation# !laws# or relevant provisions of law "4''5 Thus# this $ourt hasheld that a corporate officer or agent ma! represent and ind the corporation in transactions with thirdpersons to the extent that the authorit! to do so has een conferred upon him# and this includes powerswhich have een intentionall! conferred# and also such powers as# i n the usual course of the particularusiness# are incidental to# or ma! e implied from# the powers intentionall! conferred# powers added !custom and usage# as usuall! pertaining to the particular officer or agent# and such apparent powers asthe corporation has caused persons dealing with the officer or agent to elieve that it has conferred"4'85;urthermore# the $ourt has also recogni.ed the rule that persons dealing with an assumed agent#whether the assumed agenc! e a general or special one# are ound at their peril# if the! would hold theprincipal liale# to ascertain not onl! the fact of agenc! ut also the nature and extent of authorit!# andin case either is controverted# the urden of proof is upon them to estalish it /Harr! Aeeler v"Rodrigue.# 2 :hil" '(0"4'*5 1nless dul! authori.ed# a treasurer# whose powers are limited# cannot indthe corporation in a sale of its assets"4'25In the case at ar# Respondent @otorich categoricall! denies that it ever authori.ed Nenita <ruenerg#its treasurer# to sell the suEect parcel of land" 4'5 $onseuentl!# petitioner had the urden of provingthat Nenita <ruenerg was in fact authori.ed to represent and ind @otorich in thetransaction" :etitioner failed to discharge this urden" Its offer of evidence efore the trial courtcontained no proof of such authorit!"4'95 It has not shown an! provision of said respondents articles ofincorporation# !laws or oard resolution to prove that Nenita <ruenerg possessed such power"That Nenita <ruenerg is the treasurer of @otorich does not free petitioner from the responsiilit! ofascertaining the extent of her authorit! to represent the corporation" :etitioner cannot assume that she#! virtue of her position# was authori.ed to sell the propert! of the corporation" Selling is oviousl!foreign to a corporate treasurers function# which generall! has een descried as to receive and +eepthe funds of the corporation# and to disurse them in accordance with the authorit! given him ! theoard or the properl! authori.ed officers"4')5Neither was such real estate sale shown to e a normal usiness activit! of @otorich" The primar!purpose of @otorich is mar+eting# distriution# export and import in relation to a general merchandisingusiness"4'5 1nmista+al!# its treasurer is not cloa+ed with actual or apparent authorit! to u! or sellreal propert!# an activit! which fal ls wa! e!ond the s cope of her general authorit!"

%rticles ')2 and ') of the $ivil $ode of the :hilippines provides& %RT" ')2" Jhen a sale of a piece of land or an! interest therein is through an agent# the authorit! ofthe latter shall e in writing= otherwise# the sale shall e void"

%RT" ') Special powers of attorne! are necessar! in the following case&x x x x x x x x x

/0 To enter an! contract ! which the ownership of an immovale is transmitted or acuired eithergratuitousl! or for a valuale consideration=

x x x x x x x x x":etitioner further contends that Respondent @otorich has ratified said contract of sale ecause of itsacceptance of enefits# as evidenced ! the receipt issued ! Respondent <ruenerg"4'(5 :etitioner isclutching at straws"

%s a general rule# the acts of corporate officers within the scope of their authorit! are inding on thecorporation" But when these officers exceed their authorit!# their actions cannot ind the corporation#unless it has ratified such acts or is estopped from disclaiming them"4835In this case# there is a clear asence of proof that @otorich ever authori.ed Nenita <ruenerg# or madeit appear to an! third person that she had the authorit!# to sell its land or to receive the earnestmone!" Neither was there an! proof that @otorich ratified# expressl! or impliedl!# the contract" :etitionerrests its argument on the receipt# which# however# does not prove the fact of ratification" The documentis a hand7written one# not a corporate receipt# and it ears onl! Nenita <ruenergs signature" $ertainl!#this document alone does not prove that her acts were authori.ed or ratified ! @otorich"

%rticle '*' of the $ivil $ode lists the reuisites of a valid and perfected contract& /'0 consent of thecontracting parties= /80 oEect certain which is the suEect matter of the contract=/*0 cause of theoligation which is estalished" %s found ! the trial court 48'5 and affirmed ! the $ourt of %ppeals#4885 there is no evidence that <ruenerg was authori.ed to enter into the contract of sale# or that thesaid contract was ratified ! @otorich" This factual finding of the two courts is inding on this $ourt"48*5 %s the consent of the seller was not otained# no contract to ind the oligor wasperfected" Therefore# there can e no valid contract of sale etween petitioner and @otorich"Because @otorich had never given a written authori.ation to Respondent <ruenerg to sell its parcel ofland# we hold that the ;eruar! '2# '(( %greement entered into ! the latter with petitioner is voidunder %rticle ')2 of the $ivil $ode" Being inexistent and void from the eginning# said contract cannote ratified"4825

Se:o"# $ss;e5'er:'"< t8e orpor!te e' Not 0;st''e#

:etitioner also argues that the veil of corporate fiction of @otorich should e pierced# ecause the latteris a close corporation" Since Spouses Re!naldo ?" <ruenerg and Nenita R" <ruenerg owned all oralmost all or (("99 to e accurate# of the suscried capital stoc+ 485 of @otorich# petitioner arguesthat <ruenerg needed no authori.ation from the oard to enter into the suEect contract "4895 It addsthat# eing solel! owned ! the Spouses <ruenerg# the compan! can e treated as a close corporationwhich can e ound ! the acts of its principal stoc+holder who needs no specific authorit!" The $ourt isnot persuaded";irst # petitioner itself concedes having raised the issue elatedl!#48)5 not having done so during the trial#ut onl! when it filed its sur7reEoinder efore the $ourt of %ppeals"485 Thus# this $ourt cannot entertainsaid issue at this late stage of the proceedings" It is well7settled that points of law# theories andarguments not rought to the attention of the trial court need not e# and ordinaril! will not e#considered ! a reviewing court# as the! cannot e raised for the first time on appeal" 48(5 %llowingpetitioner to change horses in midstream# as it were# is to run roughshod over the asic principles of fairpla!# Eustice and due process"Second # even if the aove7mentioned argument were to e addressed at this time# the $ourt still findsno reason to uphold it" True# one of the advantages of a corporate form of usiness organi.ation is thelimitation of an investors liailit! to the amount of the investment" 4*35 This feature flows from the legaltheor! that a corporate entit! is separate and distinct from its stoc+holders" However# the statutoril!granted privilege of a corporate veil ma! e used onl! for legitimate purposes"4*'5 On euitaleconsiderations# the veil can e disregarded when it is utili.ed as a shield to commit fraud# illegalit! orineuit!= defeat pulic convenience= confuse legitimate issues= or serve as a mere alter ego or usinessconduit of a person or an instrumentalit!# agenc! or adEunct of another corporation"4*85Thus# the $ourt has consistentl! ruled that 4w5hen the fiction is used as a means of perpetrating a fraudor an illegal act or as a vehicle for the evasion of an existing oligation# the circumvention of statutes#the achievement or perfection of a monopol! or generall! the perpetration of +naver! or crime# the veilwith which the law covers and isolates the corporation from the memers or stoc+holders who composeit will e lifted to allow for its consideration merel! as an aggregation of individuals"4**5

Je stress that the corporate fiction should e set aside when it ecomes a shield against liailit! forfraud# illegalit! or ineuit! committed on third persons" The uestion of piercing the veil of corporatefiction is essentiall!# then# a matter of proof" In the present case# however# the $ourt finds no reason topierce the corporate veil of Respondent @otorich" :etitioner utterl! failed to estalish that saidcorporation was formed# or that it is operated# for the purpose of shielding an! alleged fraudulent orillegal activities of its officers or stoc+holders= or that the said veil was used to conceal fraud# illegalit! orineuit! at the expense of third persons# li+e petitioner":etitioner claims that @otorich is a close corporation" Je rule that it is not" Section (9 of the$orporation $ode defines a close corporation as follows&S6$" (9" Definition and %pplicailit! of Title " 77 % close corporation# within the meaning of this $ode# isone whose articles of incorporation provide that& /'0%ll of the corporations issued stoc+ of all classes#exclusive of treasur! shares# shal l e held of record ! not more than a specified numer of persons#not exceeding twent! /830= /80 %ll of the issued stoc+ of all classes shall e suEect to one or morespecified restrictions on transfer permitted ! this Title= and /*0 The corporation shall not list in an!stoc+ exchange or ma+e an! pulic offering of an! of its stoc+ of an! class " Notwithstanding theforegoing# a corporation shall e deemed not a close corporation when at least two7thirds /8*0 of itsvoting stoc+ or voting rights is owned or controlled ! another corporation which is not a closecorporation within the meaning of this $ode" xxx"The articles of incorporation4*25 of @otorich Sales $orporation does not contain an! provision statingthat /'0 the numer of stoc+holders shall not exceed 83# or /80 a preemption of shares is restricted infavor of an! stoc+holder or of the corporation# or /*0 listing its stoc+s in an! stoc+ exchange or ma+ing apulic offering of such stoc+s is prohiited" ;rom its articles# it is clear that Respondent @otorich is not aclose corporation"4*5 @otorich does not ecome one either# Eust ecause Spouses Re!naldo and Nenita<ruenerg owned (("99 of its suscried capital stoc+" The 4m5ere ownership ! a singlestoc+holder or ! another corporation of all or nearl! all of the capital stoc+ of a corporation is not ofitself sufficient ground for disregarding the separate corporate personalities"4*95 So too# a narrowdistriution of ownership does not# ! itself# ma+e a close corporation":etitioner cites @anuel R" Dula! 6nterprises# Inc" v" $ourt of %ppeal s 4*)5 wherein the $ourt ruled thatxxx petitioner corporation is classified as a close corporation and# conseuentl!# a oard resolutionauthori.ing the sale or mortgage of the suEect propert! is not necessar! to ind the corporation for theaction of its president"4*5 But the factual milieu inDula! is not on all fours with the presentcase" In Dula! # the sale of real propert! was contracted ! the president of a close corporation with the+nowledge and acuiescence of its oard of directors" 4*(5 In the present case# @otorich is not a closecorporation# as previousl! discussed# and the agreement was entered into ! the corporate treasurerwithout the +nowledge of the oard of directors"The $ourt is not unaware that there are exceptional cases where an action ! a director# who singl! isthe controlling stoc+holder# ma! e considered as a inding corporate act and a oard action as nothingmore than a mere formalit!"4235 The present case# however# is not one of them"

%s stated ! petitioner# Spouses Re!naldo and Nenita <ruenerg own almost (("99 of Respondent@otorich"42'5 Since Nenita is not the sole controlling stoc+holder of @otorich# the aforementionedexception does not appl!" <ranting arguendo that the corporate veil of @otorich is to e disregarded# thesuEect parcel of land would then e treated as conEugal propert! of Spouses <ruenerg# ecause thesame was acuired during their marriage" There eing no indication that said spouses# who appear tohave een married efore the effectivit! of the ;amil! $ode# have agreed to a different propert! regime#their propert! relations would e governed ! conEugal partnership of gains" 4285 %s a conseuence#Nenita <ruenerg could not have effected a sale of the suEect lot ecause 4t5here is no co7ownershipetween the spouses in the properties of the conEugal partnership of gains" Hence# neither spousecan alienate in favor of another his or her interest in the partnership or in an! propert! elonging to it=neither spouse can as+ for a partition of the properties efore the partnership has een legall!dissolved"42*5

%ssuming further# for the sa+e of argument# that the spouses propert! regime is the asolute communit!of propert!# the sale would still e invalid" 1nder this regime# alienation of communit! propert! musthave the written consent of the other spouse or the authorit! of the court without which the dispositionor encumrance is void "4225 Both reuirements are manifestl! asent in the instant case"

+8'r# $ss;e5 8!e"<e# ort'o" o +SN $mm!ter'!

:etitioner calls our attention to the following excerpt of the transcript of stenographic notes/TSN0&- Did !ou ever represent to @r" $o that !ou were authori.ed ! the corporation to sell the propert!K

% Ges# sir"425:etitioner claims that the answer Ges was crossed out# and# in its place was written a No with an initialscriled aove it"4295 This# however# is insufficient to prove that Nenita <ruenerg was authori.ed torepresent Respondent @otorich in the sale of its immovale propert!" Said excerpt should e understoodin the context of her whole testimon!" During her cross7examination# Respondent <ruenerg testified&- So# !ou signed in !our capacit! as the treasurerK4%5 Ges# sir"- 6ven then !ou +n4e5w all a long that !ou 4were5 not authori.edK

% Ges# sir"- Gou stated on direct examination that !ou did not represent that !ou were authori.ed to sell thepropert!K

% Ges# sir"- But !ou also did not sa! that !ou were not authori.ed to sell the propert!# !ou did not tell that to @r"$o# is that correctK

% That was not as+ed of me"- Ges# Eust answer it"

% I Eust told them that I was the treasurer of the corporation and it 4was5 also the president who 4was5also authori.ed to sign on ehalf of the corporation"- Gou did not sa! that !ou were not authori.ed nor did !ou sa! that !ou were authori.edK

% @r" $o was ver! interested to purchase the propert! and he offered to put up a:'33#333"33 earnestmone! at that time" That was our first meeting"42)5$learl! then# Nenita <ruenerg did not testif! that @otorich had authori.ed her to sell its propert!" Onthe other hand# her testimon! demonstrates that the president of :etitioner $orporation# in his greatdesire to u! the propert!# threw caution to the wind ! offering and pa!ing the earnest mone! withoutfirst verif!ing <ruenergs authorit! to sell the lot"

Fo;rt8 $ss;e5D!m!<es !"# Attor"e=s Fees

;inall!# petitioner pra!s for damages and attorne!s fees# alleging that 4i5n an utter displa! of malice andad faith# 4r5espondents attempted and succeeded in impressing on the trial court and 4the5 $ourt of

%ppeals that <ruenerg did not represent herself a s authori.ed ! Respondent @otorich despite thereceipt issued ! the former specificall! indicating that she was signing on ehalf of @o torich Sales$orporation" Respondent @otorich li+ewise acted in ad faith when it claimed it did not authori.eRespondent <ruenerg and that the contract 4was5 not inding# 4insofar5 as it 4was5 concerned# despitereceipt and enEo!ment of the proceeds of <ruenergs act" 425 %ssuming that Respondent @otorich wasnot a part! to the alleged fraud# petitioner maintains that Respondent <ruenerg should e held lialeecause she acted fraudulentl! and in ad faith 4in5 representing herself as dul! authori.ed !4R5espondent 4$5orporation"42(5

%s alread! stated# we sustain the findings of oth the trial and the appellate courts that the foregoingallegations lac+ factual ases" Hence# an award of damages or attorne!s fees cannot e Eustified" Theamount paid as earnest mone! was not proven to have redounded to the enefit of Respondent@otorich" :etitioner claims that said amount was deposited to the account of Respondent @otorich#ecause it was deposited with the account of %ren $ommercial co @otorich Sales $orporation"435 Respondent <ruenerg# however# disputes the allegations of petitioner" She testified as foll ows&- Gou voluntaril! accepted the :'33#333"33# as a matter of fact# that was encashed# the chec+ wasencashed"

% Ges# sir# the chec+ was paid in m! name and I deposit4ed5 it " " "- In !our accountK

% Ges# sir" 4'5


























































































In an! event# <ruenerg offered to return the amount to petitioner xxx since the sale did not pushthrough"485@oreover# we note that %ndres $o is not a neoph!te in the world of corporate usiness" He has een thepresident of :etitioner $orporation for more than ten !ears and has also served as chief executive of twoother corporate entities"4*5 $o cannot feign ignorance of the scope of the authorit! of a corporatetreasurer such as <ruenerg" Neither can he e olivious to his dut! to ascertain the scope of<ruenergs authori.ation to enter into a contract to sell a parcel of land elonging to @otorich"Indeed# petitioners claim of fraud and ad faith is unsustantiated and fails to persuade the$ourt" Induital!# petitioner appears to e the victim of its own officers negligence in entering into acontract with and pa!ing an unauthori.ed officer of another corporation"

%s correctl! ruled ! the $ourt of %ppeals# however# Nenita <ruenerg should e ordered to return topetitioner the amount she received as earnest mone!# as no one shall enrich himself at the expense ofanother#425 a principle emodied in %rticle 8'2 of the $ivil $ode"45 %lthough there was no indingrelation etween them# petitioner paid <ruenerg on the mista+en elief that she had the authorit! tosell the propert! of @otorich"495 %rticle 8' of the $ivil $ode provides that 4p5a!ment ! reason of amista+e in the construction or application of a difficult uestion of law ma! come within the scope of thepreceding article"IEREFRE# the petition is here! D6NI6D and the assailed Decision is %;;IR@6D "S RDERED.

45 This case was deemed sumitted for resolution on @a! '# '(( upon receipt ! this $ourt of the @emorandum for the Respondents" :etitioners @emorandum was received earlier# on @a! )# '(("

45 %rt" 8'2" If something is received when there is no right to demand it# and it was undul! delivered

through mista+e# the oligation to return it arises"

Repulic of the :hilippinesSRE&E R+

@anila;IRST DIVISION

G.R. No. L-390/0 Febr;!r= 24, 19B1ARLS GELAN !"# G$LLER&$NA &ENDA DE GELAN, petitioners#vs"+E NRA*LE R+ F AEALS !"# $NSLAR SAI&$LL, $N., respondents" DE AS+R, 0.5

:rivate respondent Insular Sawmill# Inc" is a corporation organi.ed on Septemer ')# '(2 with acorporate life of fift! /30 !ears# or up to Septemer ')# '((# with the primar! purpose of carr!ing on ageneral lumer and sawmill usiness" To carr! on this usiness# private respondent leased theparaphernal propert! of petitioner7wife <uillermina @" <elano at the corner of $anonigo and Otis# :aco#@anila for :'#833"33 a month" It was while private respondent was leasing the aforesaid propert! thatits officers and directors had come to +now petitioner7husand $arlos <elano who received from thecorporation cash advances on account of rentals to e paid ! the corporation on the l and"Between Novemer '(# '(2) to Decemer 89# '(3 petitioner $arlos <elano otained from privaterespondent cash advances of :8#(3"33" The said sum was ta+en and received ! petitioner $arlos<elano on the agreement that private respondent could deduct the same from the monthl! rentals ofthe leased premises until said cash advances are full! paid" Out of the aforementioned cash advances in

the total sum of :8#(3"33# petitioner $arlos <elano was ale to pa! onl! :#(3"33 there! leaving anunpaid alance of :83#333"33 which he refused to pa! despite repeated demands ! privaterespondent" :etitioner <uillermina @" <elano refused to pa! on the ground that said amount was for thepersonal account of her husand as+ed for !# and given to him# without her +nowledge and consentand did not enefit the famil!"On various occasions from @a! 2# '(2 to Septemer ''# '(2( petitioners husand and wife also madecredit purchases of lumer materials from private respondent with a total price of :'#'83"29 inconnection with the repair and improvement of petitionersF residence" On Novemer (# '(2( partialpa!ment was made ! petitioners in the amount of :('"33 and in view of the cash discount in favor ofpetitioners in the amount of :*"33# the amount due private respondent on account of credit purchasesof lumer materials is :(29"29 which petitioners failed to pa!"On >ul! '2# '(8# i n order to accommodate and help petitioners renew previous loans otained ! themfrom the $hina Ban+ing $orporation# private respondent# through >oseph Tan Goc Su# executed a Eointand several promissor! note with $arlos <elano in favor of said an+ in the amount of :#333"33pa!ale in sixt! /930 da!s" ;or failure of $arlos <elano to pa! the promissor! note upon maturit!# thean+ collected from the respondent corporation the amount of :(#'39"33 including interests# ! deitingit from the corporationFs current account with the an+" :etitioner $arlos <elano was ale to pa! privaterespondent the amount of :#333"33 ut the alance of :2#'39"33 remained unsettled" <uillermina @"<elano refused to pa! on the ground that she had no +nowledge aout the accommodation made ! thecorporation in favor of her husand"On @a! 8(# '(( the corporation# thru %tt!" <erman ?ee# filed a complaint for collection against hereinpetitioners efore the $ourt of ;irst Instance of @anila" Trial was held and when the case was at thestage of sumitting memorandum# %tt!" ?ee retired from a ctive law practice and %tt!" 6duardo ;" 6li.alde

too+ over and prepared the memorandum"In the meantime# private respondent amended its %rticles of Incorporation to shorten its term ofexistence up to Decemer *'# '(93 onl!" The amended %rticles of Incorporation was filed with# andapproved ! the Securities and 6xchange $ommission# ut the trial court was not notified of theamendment shortening the corporate existence and no sustitution of part! was ever made" OnNovemer 83# '(92 and almost four /20 !ears after the dissolution of the corporation# the trial courtrendered a decision in favor of private respondent the dispositive portion of which reads as follows&JH6R6;OR6# Eudgment is rendered# ordering&'" Defendant $arlos <elano to pa! plaintiff the sum of&/a0 :'(#93"33 with interest thereon at the legal rate from the date of the filing of the complaint on @a!8(# '((# until said sum is full! paid=/0 :2#'39"33# with interest thereon at the legal rate from the date of the filing of the complaint untilsaid sum is full! paid=8" Defendants $arlos <elano and <uill ermina @endo.a to pa! Eointl! and severall! the sum of&/a0 :(29"29# with interest thereon# at the agreed rate of '8 per annum from Octoer 9# '(29# untilsaid sum is full! paid=/0 :3"33# with interest thereon at the legal rate from the date of the filing of the complaint until thesaid sum is full! paid=/c0 $osts of the suit= and*" Defendant $arlos <elano to pa! the plaintiff the sum of :8#333"33 attorne!Fs fees"The $ountered of defendants are dismissed"SO ORD6R6D" 1

Both parties appealed to the $ourt of %ppeals# private respondent also appealing ecause it insisted that

oth $arlos <elano and <uillermina <elano should e held liale for the sustantial portion of the claim"On %ugust 8*# '()*# the $ourt of %ppeals rendered a decision modif!ing the Eudgment of the trial court! holding petitioner spouses Eointl! and severall! liale on private respondentFs claim and i ncreasing theaward of :2#'39"33" The dispositive portion of the decision reads as follows&JH6R6;OR6# modified in the sense that the amount of :2#'93"33 under paragraph ' /0 is raised to:#'93"33 and the clarification that the conEugal partnership of the spouses is Eointl! and severall! lialefor the oligations adEudged against defendant $arlos <elano# the Eudgment appealed from is affirmedin all other respects" 2

%fter petitioners received a cop! of the decision on %ugust 82# '()*# the! came to +now that the InsularSawmill Inc" was dissolved wa! ac+ on Decemer *'# '(93" Hence# petitioners filed a motion to dismissthe case andor reconsideration of the decision of the $ourt of %ppeals on grounds that the case wasprosecuted even after dissolution of private respondent as a corporation and that a defunct corporationcannot maintain an! suit for or against it without first compl!ing with the reuirements of the windingup of the affairs of the corporation and the assignment of its propert! rights within the reuired period"Incidentall!# after receipt of petitionersF motion to dismiss andor reconsideration or on Octoer 8#'()*# private respondent thru its former directors filed a :etition for Receivership efore the $ourt of;irst Instance of @anila# doc+eted as Special :roceedings No" (8*3*# 3 which petition is still pendingefore said court"On Novemer # '()*# private respondent filed comment on the motion to dismiss and orreconsideration and after the parties have filed repl! and reEoinder# the $ourt of %ppeals on >ul! # '()2issued a resolution 4 den!ing the aforesaid motion"

Hence# the present petition for review# petitioners assigning the following errors&ITH6 ,R6S:OND6NT $O1RT, 6RR6D IN D6NGIN< :6TlTION6RS @OTION TO DIS@ISS THIS $%S6D6S:IT6 TH6 $?6%R ;INDIN< TH%T ,R6S:OND6NT, H%D %?R6%DG $6%S6D TO 6IST %S %

$OR:OR%TION SIN$6 D6$6@B6R *'# '(93 G6T"IITH6 ,R6S:OND6NT $O1RT, 6RR6D IN NOT HO?DIN< TH%T %$TIONS :6NDIN< ;OR OR %<%INST %D6;1N$T $OR:OR%TION %R6 D66@6D %B%T6D"IIITH6 ,R6S:OND6NT $O1RT, 6RR6D IN HO?DIN< INST6%D TH%T 6V6N I; TH6R6 J%S NO$O@:?I%N$6 JITH S6$TIONS )) %ND ) O; TH6 $OR:OR%TION ?%J ;OR TH6 JINDIN< 1: O; TH6

%;;%IRS O; TH6 $OR:OR%TION BG TH6 $ONV6G%N$6 O; $OR:OR%T6 :RO:6RTG %ND :RO:6RTGRI<HTS TO %N %SSI<N66# OR TR1ST66 OR TH6 %::OINT@6NT O; % R6$6IV6R JITHIN THR66 G6%RS;RO@ TH6 DISSO?1TION O; S1$H $OR:OR%TION# %NG ?ITI<%TION ;I?6D BG OR %<%INST TH6DISSO?V6D $OR:OR%TION# INSTIT1T6D JITHIN THR66 G6%RS %;T6R S1$H DISSO?1TION B1TJHI$H $O1?D NOT B6 T6R@IN%T6D JITHIN S%ID :6RIOD# @%G STI?? B6 $ONTIN16D %S IT IS NOTD66@6D %B%T6D"IVTH6 ,R6S:OND6NT $O1RT, 6RR6D IN TH6 %::?I$%TION TO THIS $%S6 O; ITS R1?IN< IN :%S%G$R6DIT %ND ;IN%N$6 $OR:OR%TION# V6RS1S ?%C%RO# 6T %?"# 29 O"<" /''0 8# %ND INOV6R?OOAIN< TH6 DISTIN$TION ?%ID DOJN BG THIS HONOR%B?6 $O1RT IN N1@6RO1S D6$ID6D$%S6S TH%T ON?G $%S6S ;I?6D IN TH6 N%@6 O; %SSI<N66S# TR1ST66S OR R6$6IV6RS /;OR %D6;1N$T $OR:OR%TION0# %I0:OINT6D JITHIN THR66 G6%RS ;RO@ ITS DISSO?1TION# @%G B6:ROS6$1T6D B6GOND TH6 S%ID THR66 G6%R :6RIOD# %ND TH%T# %?? OTH6RS %R6 D66@6D %B%T6D"

VTH6 ,R6S:OND6NT $O1RT, 6RR6D IN HO?DIN< TH%T JITH TH6 ;I?IN< O; S:6$I%? :RO$66DIN<SNO" (8*3* IN TH6 $O1RT O; ;IRST INST%N$6 O; @%NI?% BG ;OR@6R DIR6$TORS O; ,:RIV%T6

R6S:OND6NT, ON O$TOB6R 8*#'()*# OR# THIRT66N G6%RS %;T6R ITS DISSO?1TION# % ?6<%?#:6RSON%?ITG JI?? B6 %::OINT6D TO R6:R6S6NT TH6 $OR:OR%TION"

VITH6 ,R6S:OND6NT $O1RT, 6RR6D IN :R%$TI$%??G R1?IN< TH%T TH6 THR667G6%R :6RIOD:ROVID6D ;OR BG TH6 $OR:OR%TION ?%J JITHIN JHI$H %SSI<N66S# TR1ST66S ;OR R6$6IV6RS@%G B6 %::OINT6D @%G B6 6T6ND6D"

VIITH6 ,R6S:OND6NT $O1RT, 6RR6D IN NOT HO?DIN< TH%T TH6 ;%I?1R6 O; ,:RIV%T6 R6S:OND6NT,OR ITS %1THORIC6D $O1NS6? TO NOTI;G TH6 TRI%? $O1RT O; ITS DISSO?1TION OR O; ITS ,$IVI?D6%TH, @%G B6 $ONSID6R6D %S %N %B%NDON@6NT O; ITS $%1S6 O; %$TION %@O1NTIN< TO %;%I?1R6 TO :ROS6$1T6 %ND R6S1?TIN< IN TH6 %B%T6@6NT O; TH6 S1IT"

VIIITH6 ,R6S:OND6NT $O1RT, 6RR6D IN R6$O<NICIN< TH6 :6RSON%?ITG O; $O1NS6? %::6%RIN<;OR :RIV%T6 R6S:OND6NTF D6S:IT6 HIS %D@ISSION TH%T H6 DO6S NOT ANOJ TH6 ,:RIV%T6R6S:OND6NT, NOR H%S H6 @6T %NG O; ITS DIR6$TORS %ND O;;I$6RS"ITH6 ,R6S:OND6NT $O1RT, 6RR6D IN %;;IR@IN< TH6 D6$ISION O; TH6 TRI%? $O1RT HO?DIN< IN;%VOR O; ,:RIV%T6 R6S:OND6NT,"TH6 ,R6S:OND6NT $O1RT, 6RR6D IN @ODI;GIN< TH6 TRI%? $O1RTFS D6$ISION %ND HO?DIN<6V6N TH6 $ON>1<%? :%RTN6RSHI: O; :6TITION6RS >OINT?G %ND S6V6R%??G ?I%B?6 ;OR TH6OB?I<%TION %D>1D<6D %<%INST :6TITION6R7H1SB%ND# $%R?OS <6?%NO"The main issue raised ! petitioner is whether a corporation# whose corporate life had ceased ! the

expiration of its term of existence# could still continue prosecuting and defending suits after itsdissolution and e!ond the period of three !ears provided for under %ct No" '2(# otherwise +nown asthe $orporation law# to wind up its affairs# without having underta+en an! step to transfer its assets to atrustee or assignee"The complaint in this case was filed on @a! 8(# '(( when private respondent Insular Sawmill# Inc" wasstill existing" Jhile the case was eing tried# the stoc+holders amended its %rticles of Incorporation !shortening the term of its existence from Decemer *'# '(( to Decemer *'# '(93# which wasapproved ! the Securities and 6xchange $ommission"In %merican corporate law# upon which our $orporation ?aw was patterned# it is well settled that# unlessthe statutes otherwise provide# all pending suits and actions ! and against a corporation are aated !a dissolution of the corporation" / Section )) of the $orporation ?aw provides that the corporation shall,e continued as a od! corporate for three /*0 !ears after the time when it would have een """dissolved# for the purpose of prosecuting and defending suits B! or against it """#, so that# thereafter# itshall no longer enEo! corporate existence for such purpose" ;or this reason# Section ) of the same lawauthori.es the corporation# ,at an! time during said three !ears """ to conve! all of its propert! totrustees for the enefit of memers# Stoc+holders# creditors and other interested#, evidentl! for thepurpose# among others# of enaling said trustees to prosecute and defend suits ! or against thecorporation egun efore the expiration of said period" 6$ommenting on said sections# >ustice ;ishersaid&It is to e noted that the time during which the corporation# through its own officers# ma! conduct theliuidation of its assets and sue and e sued as a corporation is limited to three !ears from the time theperiod of dissolution commences= ut that there is no time limited within which the trustees mustcomplete a liuidation placed in their hands" It is provided onl! /$orp" ?aw# Sec" )0 that the

conve!ance to the trustees must e made within the three7!ear period" It ma! e found impossile tocomplete the wor+ of liuidation within the three7!ear period or to reduce disputed claims to Eudgment"The authorities are to the effect that suits ! or against a corporation aate when it ceased to e anentit! capale of suing or eing sued /) R"$"?" $orps"# :ar" )30= ut trustees to whom the corporateassets have een conve!ed pursuant to the authorit! of Section ) ma! sue and e sued as such in allmatters connected with the liuidation" B! the terms of the statute the effect of the conve!ance is toma+e the trustees the legal owners of the propert! conve!ed# suEect to the eneficial interest thereinof creditors and stoc+holders" 7Jhen Insular Sawmill# Inc" was dissolved on Decemer *'# '(93# under Section )) of the $orporation?aw# it stin has the right until Decemer *'# '(9* to prosecute in its name the present case" %fter theexpiration of said period# the corporation ceased to exist for all purposes and it can no longer sue or esued" BHowever# a corporation that has a pending action and which cannot e terminated within the three7!earperiod after its dissolution is authori.ed under Section ) to conve! all its propert! to trustees to enaleit to prosecute and defend suits ! or against the corporation e!ond the Three7!ear period althoughprivate respondent /did not appoint an! trustee# !et the counsel who prosecuted and defended theinterest of the corporation in the instant case and who in fact appeared in ehalf of the corporation ma!e considered a trustee of the corporation at least with respect to the matter in litigation onl!" Saidcounsel had een handling the case when the same was pending efore the trial court until it wasappealed efore the $ourt of %ppeals and finall! to this $ourt" Je therefore hold that there was asustantial compliance with Section ) of the $orporation ?aw and as such# private respondent Insular






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Sawmill# Inc" could still continue prosecuting the present case even e!ond the period of three /*0 !earsfrom the time of its dissolution";rom the aove uoted commentar! of >ustice ;isher# the trustee ma! commence a suit which canproceed to final Eudgment even e!ond the three7!ear period" No reason can e conceived wh! a suitalread! commenced B! the corporation itself during its existence# not ! a mere trustee who# ! fiction#merel! continues the legal personalit! of the dissolved corporation should not e accorded similartreatment allowed P to proceed to final Eudgment and execution thereof"The word ,trustee, as sued in the corporation statute must e understood in its general concept whichcould include the counsel to whom was entrusted in the instant case# the prosecution of the suit filed !the corporation" The purpose in the transfer of the assets of the corporation to a trustee upon itsdissolution is more for the protection of its creditor and stoc+holders" Detors li+e the petitioners hereinma! not ta+e advantage of the failure of the corporation to transfer its assets to a trustee# assuming ithas an! to transfer which petitioner has failed to show# in the first place" To sustain petitionersFcontention would e to allow them to enrich themselves at the expense of another# which all enlightenedlegal s!stems condemn"The oservation of the $ourt of %ppeals on the issue now efore 1s that&1nder Section )) of the $orporation ?aw# when the corporate existence is terminated in an! legalmanner# the corporation shall nevertheless continue as a od! corporate for three /*0 !ears after thetime when it would have een dissolved# for the purpose of prosecuting and defending suits ! oragainst it" %ccording to authorities# the corporation ,ecomes incapale of ma+ing contracts or receivinga grant" It does not# however# cease to e a od! corporate for all purposes", In the case of :asa! $reditand ;inance $orp" vs" Isidro ?a.aro and others# 29 O< /''0 8# this $ourt held that ,a corporationma! continue a pending Flitigation even after the lapse of the *7!ear period granted ! Section )) of %ct'2( to corporation suseuent to their dissolution to continue its corporate existence for the purposeof winding up their affairs and settling all the claims ! and against same", Je note that the plaintiffInsular Sawmill# Inc" ceased as a corporation on Decemer *3# '(93 ut the case at ar was institutedon @a! 8(# '((# during the time when the corporation was still ver! much alive" %ccordingl!# it is ourview that ,an! litigation filed ! or against it instituted within the period# ut which could not eterminated# must necessaril! prolong that period until the final termination of said litigation as otherwisecorporations in liuidation would lose what should Eustl! elong to them or would e exempt from thepa!ment of Eust oligations through a mere technicalit!# something that courts should prevent,/:hilippine $ommercial ?aws ! @artin# '(98 6d"# Vol" 8# p" ')'90"merits the approval of this $ourt"The last two assigned errors refer to the disposition of the main case" :etitioners contend that theoligations contracted ! petitioner $arlos <elano from Novemer '(# '(2) until %ugust '# '(3/efore the effectivit! of the New $ivil $ode0 and from Decemer 89# '(3 until >ul! '2# '(8 /duringthe effectivit! of the New $ivil $ode0 were his personal oligations# hence# petitioners should not eheld Eointl! and severall! liale" %s regards the said issues# suffice it to sa! that with the findings of the$ourt of %ppeals that the oligation contracted ! petitioner7husand $arlos <elano redounded to theenefit of the famil!# the inevitale conclusion is that the conEugal propert! is l iale for his det pursuantto paragraph '# %rticle '23# $ivil $ode of '( 9 which provision incidentall! can still e found inparagraph '# %rticle '9' of the New $ivil $ode" 10 Onl! the conEugal partnership is liale# not Eoint andseveral as erroneousl! descried ! the $ourt of %ppeals# the conEugal partnership eing onl! a singleentit!"JH6R6;OR6# with the modification that onl! the conEugal partnership is liale# the appealed decision ishere! affirmed in all other respects" Jithout pronouncement as to costs"SO ORD6R6D"@a+asiar# ;ernande.# and <uerrero# >>"# concur"Teehan+ee# >"# concur in the result"@r" >ustice de $astro was designated to sit with the ;irst Division under Special Order No" 88" Foot"otes( ,%rt" '23" The conEugal partnership shall e liale for&,'" %ll the dets and oligations contracted during the marriage ! the husand# and also for thosecontradicted ! the wife in cases in which she can legall! ind the courtship",'3 ,%rt" '9' The conEugal partnership shall e liale for&,'" %ll dets and oligations contracted ! the husand for the enefit of the conEugal partnership# andthose contracted ! the wife# also for the same purpose# in cases where she ma! legall! ind thepartnership",

;IRST DIVISION[G.R. No. 142924. De:ember /, 2001]

+EDR *. ESAGAS, !"# I$LFRED D. AS$S, pet't'o"ers , (s . +8e o"or!be R+ F AEALS !"# DELF$N RAN$EL !"# ELENDA RAN$EL, respo"#e"ts .

D E $ S $ NN, 0 .5Before us is the instant :etition for Review on $ertiorari assailing the Decision# dated >ul! *3# '(((# ofthe $ourt of %ppeals in $%7<"R" S: No" ''(# as well as its Resolution# dated @arch '9# 8333# whichdenied petitioners @otion for Reconsideration"The respondent spouses Delfino and Helenda Raniel are memers in good standing of the ?u. VillageTennis $lu# Inc" /clu0" The! alleged that petitioner Teodoro B" Vesagas# who claims to e the clusdul! elected president# in conspirac! with petitioner Jilfred D" %sis# who# in turn# claims to e its dul!elected vice7president and legal counsel# summaril! stripped them of their lawful memership# withoutdue process of law" Thereafter# respondent spouses filed a $omplaint with the Securities and 6xchange$ommission /S6$0 on @arch 89# '(() against the petitioners" It was doc+eted as S6$ $ase No" 3*7()7("4'5 In this case# respondents as+ed the $ommission to declare as illegal their expulsion from theclu as it was allegedl! done in utter disregard of the provisions of its !7laws as well as thereuirements of due process" The! li+ewise sought the annulment of the amendments to the !7lawsmade on Decemer # '((9# changing the annual meeting of the clu from the last Sunda! of >anuar!to Novemer and increasing the numer of trustees from nine to fifteen" ;inall!# the! pra!ed for theissuance of a Temporar! Restraining Order and Jrit of :reliminar! InEunction" The application for TROwas denied ! S6$ Hearing Officer Soller in an Order dated %pril 8(# '(()"Before the hearing officer could start proceeding with the case# however# petitioners filed a motion todismiss on the ground that the S6$ lac+s Eurisdiction over the suEect matter of the case" The motionwas denied on %ugust # '(()" Their suseuent move to have the ruling reconsidered was li+ewisedenied" 1npertured# the! filed a petition for certiorari with the S6$ 6n Banc see+ing a review of thehearing officers orders" The petition was again denied for lac+ of merit# and so was the motion for itsreconsideration in separate orders# dated >ul! '2# '(( and Novemer ')# '((#respectivel!" Dissatisfied with the verdict# petitioners promptl! sought relief with the $ourt of %ppealscontesting the ruling of the $ommission en anc " The appellate court# however# dismissed the petitionfor lac+ of merit in a Decision promulgated on >ul! *3# '(((" Then# in a resolution rendered on @arch'9# 8333# it similarl! denied their motion for reconsideration"Hence# the present course of action where the petitioners raise the following grounds&$"'" The respondent $ourt of %ppeals committed a reversile error when it determined that the S6$ has

Eurisdiction in 3*7()7("485$"8" The respondent $ourt of %ppeals committed a reversile error when it merel! upheld the theoreticalpower of the S6$ Hearing Officer to issue a supoena and to cite a person in contempt /actuall! a non7issue of the petition0 while it shunted awa! the issue of whether that hearing officer ma! hold a personin contempt for not oe!ing a supoena where his residence is e!ond fift! /30 +ilometers from theplace of hearing and no transportation expense was tendered to him"4*5In support of their first assignment of error# petitioners contend that since its inception in the '()3s# theclu in practice has not een a corporation" The! add that it was onl! the respondent spouses#motivated ! their own personal agenda to ma+e mone! from the clu# who surreptitiousl! caused itsregistration with the S6$" The! then assert that# at an! rate# the clu has alread! ceased to e a

corporate od!" Therefore# no intra7corporate relations can arise as etween the respondent spousesand the clu or an! of its memers" Stretching their argument further# petitioners insist that since theclu# ! their rec+oning is not a corporation# the S6$ does not have the power or authorit! to inuireinto the validit! of the expulsion of the respondent spouses" $onseuentl!# it is not the correct forum toreview the challenged act" In conclusion# petitioners put respondent spouses to tas+ for their failure toimplead the clu as a necessar! or indispensale part! to the case"These arguments cannot pass Eudicial muster":etitioners attempt to impress upon this court that the clu has never een a corporation is devoid ofmerit" It must fail in the face of the $ommissions explicit finding that the clu was dul! registered and acertificate of incorporation was issued in its favor# thus&Je agree with the hearing officer that the grounds raised ! petitioner in their motion to dismiss arefactual issues# the veracit! of which can onl! e ascertained in a full lown hearing" Re:or#s s8o>t8!t t8e !sso:'!t'o" 's #;= re<'stere# >'t8 t8e !sso:'!t'o" !"# ! :ert'':!te o '":orpor!t'o"

>!s 'ss;e#. e!r=, t8e omm'ss'o" 8!s ?;r's#':t'o" o(er t8e s!'# !sso:'!t'o". %s topetitioners allegation that the registration of the clu was done without the +nowledge of the memers#this is a circumstance which was not dul! proven ! the petitioner /sic 0 in his /sic 0 motion to dismiss"425It ought to e rememered that the uestion of whether the clu was indeed registered and issued acertification or not is one which necessitates a factual inuir!" On this score# the finding of the$ommission# as the administrative agenc! tas+ed with among others the function of registering andadministering corporations# is given great weight and accorded high respect"Je therefore have noreason to distur this factual finding relating to the clus registration and incorporation"@oreover# ! their own admission contained in the various pleadings which the! have filed in thedifferent stages of this case# petitioners themselves have considered the clu as a co rporation" Thisadmission# under the rules of evidence# inds them and ma! e ta+en or used against them" 45 Sincethe admission was made in the course of the proceedings in the same case# i t does not reuire proof#and actuall! ma! e contradicted onl! ! showing that it was made through palpale mista+e or that nosuch admission was made"495 Noteworth! is the @inute of the ;irst Board @eeting4)5 held on >anuar! #'(()# which contained the following pertinent portions&''" "!"'mo;s= !ppro(e# b= t8e *o!r# ! Reso;t'o" to D'sso(e t8e :orpor!te str;:t;re o

L+ >8':8 's 'e# >'t8 t8e SE. Such resolution will e formulated ! %tt!" ;red %sis to e read!on or efore the third wee+ of >anuar! '(()"@eanwhile# the operational structure of the ?VT$ willhenceforth e reverted to its former status as an ordinar! clu%ssociation"45Similarl!# petitioners @otion to Dismiss4(5 alleged&'" This $ommission has no Eurisdiction over the ?u. Village Tennis $lu not onl! ecause it was notimpleaded ut be:!;se s'":e / !";!r= 1997, 't 8!# !re!#= r'# 'tse, !s 't 8!# to '" or#er to

m!'"t!'" respe:t !"# #e:e":= !mo"< 'ts members, o t8e ;"ort;"!te eper'e":e o be'"< !:orpor!te bo#=. +8;s !t t8e t'me o t8e ''"< o t8e :omp!'"t, t8e :;b 8!# !re!#=

#'sso(e# 'ts :orpor!te e'ste":eand has functioned as a mere as sociation of respectale andrespecting individual memers who have associated themselves since the '()3s x x x4'35The necessar! implication of all these is that petitioners recogni.ed and ac+nowledged the corporatepersonalit! of the clu" Otherwise# there is no cogenc! in spearheading the move for itsdissolution" :etitioners were therefore well aware of the incorporation of the clu and even agreed toget elected and serve as i ts responsile officers efore the! reconsidered dissolving its corporate form"This rings us to petitioners next point" The! claim in gratia argumenti that while the clu ma! haveeen considered a corporation during a rief spell# still# at the time of the institution of this case with theS6$# the clu was alread! dissolved ! virtue of a Board resolution"

%gain# the argument wil l not carr! the da! for the petitioner" The $orporation $ode estalishes theprocedure and other formal reuirements a corporation needs to follow in case it elects to dissolve andterminate its structure voluntaril! and where no rights of creditors ma! possil! e preEudiced# thus&Sec" ''" Voluntar! dissolution where no creditors are affected"7 If dissolution of a corporation does notpreEudice the rights of an! creditor having a claim against i t# the dissolution ma! e effected ! maEorit!vote of the oard of directors or trustees and ! a resolution dul! adopted ! the affirmative vote of thestoc+holders owning at least two7thirds /8*0 of the outstanding capital stoc+ or at least two7thirds /8*0of the memers at a meeting to e held upon call of the directors or trustees after pulication of thenotice of time# place and oEect of the meeting for three /*0 consecutive wee+s in a newspaperpulished in the place where the principal office of said corporation is located= and if no newspaper ispulished in such place# then in a newspaper of general circulation in the :hilippines# after sending suchnotice to each stoc+holder or memer either ! registered mail or ! personal deliver! at least *3 da!sprior to said meeting" % cop! of the resolution authori.ing the dissolution shall e certified ! a maEorit!of the oard of directors or trustees and countersigned ! the secretar! of the corporation" TheSecurities and 6xchange $ommission shall thereupon issue the certificate of dissolution"4''5Je note that to sustantiate their claim of dissolution# petitioners sumitted onl! two relevantdocuments& the @inutes of the ;irst Board @eeting held on >anuar! # '(()# and the oard resolutionissued on %pril '2# '(() which declared to continue to consider the clu as a non7registered or a non7corporate entit! and Eust a social association of respectale and respecting individual memers whohave associated themselves# since the '()3s# for the purpose of pla!ing the sports of tennis x x x"4'85 Oviousl!# these two documents will not suffice" The reuirements mandated ! the $orporation$ode should have een strictl! complied with ! the memers of the clu" The records reveal that noproof was offered ! the petitioners with regard to the notice and pulication reuirements" Similarl!wanting is the proof of the oard memers certification" ?astl!# and most important of all# the S6$ Orderof Dissolution was never sumitted as evidence"Je now resolve whether the dispute etween the respondents and petitioners is a corporate matterwithin the exclusive competence of the S6$ to decide" In order that the commission can ta+e cogni.anceof a case# the controvers! must pertain to an! of the following relationships& a0 etween thecorporation# partnership or association and the pulic= 0 etween the corporation# partnership orassociation and its stoc+holders# partners# memers# or officers= c0 etween the corporation#partnership# or association and the state as far as its franchise# permit or license to operate isconcerned= and d0 among the stoc+holders# partners or associates themselves"4'*5 The fact that theparties involved in the controvers! are all stoc+holders or that the parties involved are the stoc+holdersand the corporation# does not necessaril! place the dispute within the loop of Eurisdiction of the S6$"4'25 >urisdiction should e determined ! considering not onl! the status or relationship of the partiesut also the nature of the uestion that is the suEect of their controvers!"4'5Je rule that the present dispute is intra7corporate in character" In the first place# the parties hereinvolved are officers and memers of the clu" Respondents claim to e memers of good standing ofthe clu until the! were purportedl! stripped of their memership in illegal fashion" :etitioners# on theother hand# are its :resident and Vice7:resident# respectivel!" @ore significantl!# the present conflictrelates to# and in fact arose from# this relation etween the parties" The suEect of the complaint#namel!# the legalit! of the expulsion from memership of the respondents and the validit! of theamendments in the clus !7laws are# furthermore# within the $ommissions Eurisdiction"Jell to underscore is the date when the original complaint was filed at the S6$# which was @arch 89#'(()" On that date# the S6$ still exercised uasi7Eudicial functions over this t!pe of suits" It is axiomaticthat Eurisdiction is conferred ! the $onstitution and ! the laws in force at the time of thecommencement of the action"4'95 In particular# the $ommission was thereupon empowered# under Sec" of :"D" (387%# to hear and decide cases involving intra7corporate disputes# thus&S6$" " In addition to the regulator! and adEudicative functions of the Securities and 6xchange$ommission over corporations# partnerships and other forms of as sociation registered with it asexpressl! granted under existing laws and decrees# 't s8! 8!(e or'<'"! !"# e:;s'(e ?;r's#':t'o"to 8e!r !"# #e:'#e :!ses '"(o('"<5x x x0 $ontroversies arising out of intra7corporate or partnership relations# etween and amongstoc+holders# memers or associates= etween an! or all of them and the corporation# partnership orassociation of which the! are the stoc+holders# memers or associates# respectivel!= and etween suchcorporation# partnership or association and the state insofar as it concerns their individual franchise orright to exist as such entit!=x x x"4')5

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The enactment of R"%" )((# otherwise +nown as the Securities Regulation $ode# however# transferredthe Eurisdiction to resolve intra7corporate controversies to courts of general Eurisdiction or theappropriate Regional Trial $ourts# thus&"8" +8e omm'ss'o"s ?;r's#':t'o" o(er ! :!ses e";mer!te# ;"#er Se:t'o" / o res'#e"t'!De:ree No. 902-A 's 8ereb= tr!"serre# to t8e o;rts o <e"er! ?;r's#':t'o" or t8e

!ppropr'!te Re<'o"! +r'! o;rt5 :rovided# that the Supreme $ourt in the exercise of its authorit!ma! designate the Regional trial $ourt ranches that shall exercise Eurisdiction over these cases" The$ommission shall retain Eurisdiction over pending cases involving intra7corporate disputes sumitted forfinal resolution which should e resolved within one /'0 !ear from the enactment of this $ode" The$ommission shall retain Eurisdiction over pending suspension of pa!mentsrehailitation cases filed as of*3 >une 8333 until finall! disposed"4'5On %ugust 88# 8333# we issued a resolution# in %"@" No" 3377'37S$# wherein we DIR6$T/ed0 the $ourt

%dministrator and the Securities and 6xchange $ommission to cause the actual transfer of the records ofsuch cases and all other S6$ cases affected ! R"%" No" )(( to the appropriate Regional Trial $ourts xx x"4'(5 Je also issued another resolution designating certain ranches of the Regional Trial $ourt to tr!and decide cases formerl! cogni.ale ! the S6$"4835 $onseuentl!# the case at ar should now ereferred to the appropriate Regional Trial $ourt"Before we finall! write finis to the instant petition# however# we will dispose of the two other issuesraised ! the petitioners";irst is the alleged failure of the respondents to implead the clu as a necessar! or indispensalepart!" :etitioners contend that the original complaint should e dismissed for not including the clu asone of the respondents therein" Dismissal is not the remed! for non7Eoinder of parties" 1nder the Rules#the remed! is to implead the non7part!# claimed to e necessar! or indispensale# in the action# thus&S6$" ''" @isEoinder and non7Eoinder of parties" Neither misEoinder nor non7Eoinder of parties i s a groundfor dismissal of an action" :arties ma! e dropped or added ! order of the court on motion of an! part!

or on its own initiative at an! stage of the action and on such terms as are Eust" %n! claim against amisEoined part! ma! e severed and proceeded with separatel!"48'5The other issue is wi th regard to the alleged oppressive supoenas and orders issued ! Hearing OfficerSoller# purportedl! without or in excess of authorit!" In light of :D (387%s repeal# the need to rule on theuestion of the extent of the contempt powers of an S6$ hearing officer relative to his authorit! to issuesupoenas and orders to parties involved in intra7corporate cases# or potential witnesses therein haseen rendered academic" The enactment of R% )(( mooted this issue as S6$ hearing officers# nowereft of an! power to resolve disputes# are li+ewise stripped of their power to i ssue supoenas andcontempt orders incidental to the exercise of their uasi7Eudicial powers"

%t an! rate# it taxes our credulit! wh! the petitioners insist in raising this issue in the case at ar" Theso7called oppressive supoenas and orders were not directed to them" The! were issued to the clussecretar!# :urita 6scoar# directing her to appear efore the $ommission and ring certain documents ofthe clu# that were supposedl! under her possession or control" It is ovious that the petitioners are notthe proper parties to assail the oppressiveness of the supoenas or the orders# and impugn theirvalidit!" 6lementar! is the principle that onl! those who expect to e adversel! affected ! an order cancomplain against it" It is their addressee# :urita 6scoar# who can assail their allegedoppressiveness" :etitioners protestation has therefore no legal leg to stand on"$N $EI IEREF# finding no cogent reason to distur the assailed Decision# the petition isD6NI6D" In conformit! with R"%" )((# S6$ $ase No" 3*7()7(# entitled Delfino Raniel and HelendaRaniel v" Teodoro B" Vesagas and Jilfred D" %sis is referred to the Regional Trial $ourt of the Ninth>udicial Region# Branch **4885 located in %gusan del Norte /Butuan $it!0# one of the designated specialcommercial courts pursuant to %"@" No" 337''73*7S$"S RDERED.

45 S6$" 89" %dmissions of a part! " The act# declaration or omissi on of a part! as to relevant fact ma! e given in evidence against him" /Section 89# Rule '*3# Rules of $ourt"0495 S6$" 2" >udicial admissions" %n admission# veral or written# made ! a part! in the course of the proceedings in the same case# does not reuire proof" The admission ma! e contradicted onl! ! showing that it wasmade through palpale mista+e or that no such admission was made" /Section 2# Rule '8(# Rules of $ourt"04)5 %ttached as an annex of the herein petition and as annex of their petition filed with $ourt of %ppeals"45 @inutes of the ;irst Board @eeting# %nnex '# :etition# p" '= Rollo # p" )'"4''5 Section ''# Batas :amansa Blg" 9# $orporation $ode of the :hilippines"4')5 Section # :"D" No" (387%"4'5 Section "8# R"%" )((# Securities Regulation $ode"4'(5 %"@" No" 3377'37S$" 77 In Re& Transfer of $ases from the Securities and 6xchange $ommission to the Regular $ourts :ursuant to R"%" No" )((# %ugust 88# 8333"4835 %"@" No" 337''73*7S$" 77 Resolution Designating $ertain Branches of Regional Trial $ourts to Tr! and Decide $ases ;ormerl! $ogni.ale ! the Securities and 6xchange $ommission"48'5 Section ''# Rule *# '(() Rules of $ivil :rocedure"

;IRST DIVISION4<"R" No" '3*92Q" >une 8# 833'5

$L$$NE E+ERANS *AN E&L)EES N$N-N..*.E. !"# ERFE+ .FERNANDE, pet't'o"ers, (s. NRA*LE *ENA&$N EGA, res'#'"< ;#<e o *r!":8 39 o

t8e REG$NAL +R$AL R+ o &!"'!, t8e EN+RAL *AN F +E $L$$NES !"# +EL$$DA+R F +E $L$$NE E+ERANS *AN, respo"#e"ts

D E $ S $ NANAN, 0.5

@a! a liuidation court continue with liuidation proceedings of the :hilippine Veterans Ban+ /:VB0when $ongress had mandated its rehailitation and reopeningKThis is the sole issue raised in the instant :etition for :rohiition with :etition for :reliminar! InEunctionand application for 6x :arte Temporar! Restraining Order"The antecedent facts of the case are as follows&Sometime in '(# the $entral Ban+ of the :hilippines /$entral Ban+# for revit!0 filed with Branch *( ofthe Regional Trial $ourt of @anila a :etition for %ssistance in the ?iuidation of the :hilippine VeteransBan+# the same doc+eted as $ase No" S:7*8*''"Thereafter# the :hilipppine Veterans Ban+ 6mplo!ees1nion7N"1"B"6"# herein petitioner# represented ! petitioner :erfecto V" ;ernande.# f iled claims foraccrued and unpaid emplo!ee wages and enefits with said court in S:7*8*''"4'5

%fter length! proceedings# partial pa!ment of the sums due to the emplo!ees were made"However# dueto the piecemeal hearings on the enefits# man! remain unpaid"485On @arch # '(('# petitioners moved to disualif! the respondent Eudge from hearing the aove case ongrounds of ias and hostilit! towards petitioners"4*5On >anuar! 8# '((8# the $ongress enacted Repulic %ct No" )'9( providing for the rehailitation of the:hilippine Veterans Ban+ "425Thereafter# petitioners filed with the laor triunals their residual claims for enefits and forreinstatement upon reopening of the an+"45Sometime in @a! '((8# the $entral Ban+ issued a certificate of authorit! allowing the :VB to reopen"495Despite the legislative mandate for rehailitation and reopening of :VB# respondent Eudgecontinued withthe liuidation proceedings of the an+" @oreover# petitioners learned that respondents were set toorder the pa!ment and release of emplo!ee enefits upon motion of another law!er# while petitionersclaims have een fro.en to their preEudice"Hence# the instant petition":etitioners argue that with the passage of R"%" )'9(# the liuidation court ecame functus officio # andno longer had the authorit! to continue with liuidation proceedings"In a Resolution# dated >une # '((8# the Supreme $ourt resolved to issue a Temporar! RestrainingOrder enEoining the trial court from further proceeding with the case"On >une 88# '((8# VO: Securit! L Detective %genc! /VO:SD%0 and its '98 securit! guards filed a@otion for Intervention with pra!er that the! e excluded from the operation of the Temporar!Restraining Order issued ! the $ourt" The! alleged that the! had filed a motion efore Branch *( of theRT$ of @anila# in S:7No" *8*''# pra!ing that said court order :VB to pa! their ac+wages and salar!differentials ! authorit! of R"%" No 9)8)# Jage Orders No" N$R73' and N$R73'7%d and Jage OrdersNo" N$R738 and N$R7387%= and# that said court# in an Order dated >une # '((8# approved thereinmovants case and directed the an+ liuidator or :VB itself to pa! the ac+wages and differentials inaccordance with the computation incorporated in the order" Said intervenors li+ewise manifested thatthere was an error in the computation of the monetar! enefits due them"On %ugust '# '((8# petitioners# pursuant to the Resolution of this $ourt# dated >ul! 9# '((8# filed their$omment opposing the @otion for ?eave to ;ile Intervention and for exclusion from the operation of theT"R"O" on the grounds that the movants have no legal interest in the suEect matter of the pendingaction= that allowing intervention would onl! cause dela! in the proceedings= and that the motion toexclude the movants from the T"R"O" is without legal asis and would render moot the relief soughtin the petition"On Septemer *# '((8# the :VB filed a :etition7In7Intervention pra!ing for the issuance of the writs ofcertiorari and prohiition under Rule 9 of the Rules of $ourt in connection with the issuance !respondent Eudge of several orders involving acts of liuidation of :VB even after the effectivit! of R"%"No" )'9(" :VB further alleges that respondent Eudge clearl! acted in excess of or without Eurisdictionwhen he issued the uestioned orders"

Je find for the petitioners"Repulic %ct No" )'9( entitled %n %ct To Rehailitate The :hilippine Veterans Ban+ $reated 1nderRepulic %ct No" *'# :roviding The @echanisms Therefor# %nd ;or Other :urposes# which was signedinto law ! :resident $ora.on $" %uino on >anuar! 8# '((8 and which was pulished in the Official<a.ette on ;eruar! 82# '((8# provides in part for the reopening of the :hilippine Veterans Ban+together with all its ranches within the period of three /*0 !ears from the date of the reopening of thehead office"4)5 The law li+ewise provides for the creation of a rehailitation committee in order tofacilitate the implementation of the provisions of the same"45:ursuant to said R"%" No" )'9(# the Rehailitation $ommittee sumitted the proposed Rehailitation :lanof the :VB to the @onetar! Board for its approval" @eanwhile# :VB filed a @otion to Terminate?iuidation of :hilippine Veterans Ban+ dated @arch '*# '((8 with the respondent Eudge pra!ing thatthe liuidation proceedings e immediatel! terminated in view of the passage of R"%" No" )'9("On %pril '3# '((8# the @onetar! Board issued @onetar! Board Resolution No" *2 which approved theRehailitation :lan sumitted ! the Rehailitaion $ommittee"Thereafter# the @onetar! Board issued a $ertificate of %uthorit! allowing :VB to reopen"On >une *# '((8# the liuidator filed % @otion for the Termination of the ?iuidation :roceedings of the:hilippine Veterans Ban+ with the respondent Eudge"

%s stated aove# the $ourt# in a Resolution dated >une # '((8# issued a temporar! restraining order inthe instant case restraining respondent Eudge from further proceeding with the liuidation of :VB"On %ugust *# '((8# the :hilippine Veterans Ban+ opened its doors to the pulic and started regularan+ing operations"$learl!# the enactment of Repulic %ct No" )'9(# as well as the suseuent developments has renderedthe liuidation court functus officio" $onseuentl!# respondent Eudge has een stripped of the authorit!to issue orders involving acts of liuidation"?iuidation# in corporation law# connotes a winding up or settling with creditors and detors"4(5 It is thewinding up of a corporation so that assets are distriuted to those entitled to receive them" It is theprocess of reducing assets to cash# discharging liailities and dividing surplus or loss"On the opposite end of the spectrum is rehailitation which connotes a reopening orreorgani.ation" Rehailitation contemplates a continuance of corporate life and activities in an effort torestore and reinstate the corporation to its former position of successful operation and solvenc!"4'35It is cr!stal clear that the concept of liuidation is diametricall! opposed or contrar! to the concept ofrehailitation# such that oth cannot e underta+en at the same time" To allow the liuidationproceedings to continue would seriousl! hinder the rehailitation of the suEect an+"

%nent the claim of respondents $entral Ban+ and ?iuidator of :VB that R"%" No" )'9( ecame effectiveonl! on @arch '3# '((8 or fifteen /'0 da!s after its pulication in the Official <a.ette= and# thecontention of intervenors VO: Securit!# et" al" that the effectivit! of said law is conditioned on theapproval of a rehailitation plan ! the @onetar! Board# among others# the $ourt is of the view thatoth contentions are ereft of merit"Jhile as a rule# laws ta+e effect after fifteen /'0 da!s following the completion of their pulication inthe Official <a.ette or in a newspaper of general circulation in the :hilippines# the legislature has theauthorit! to provide for exceptions# as indicated in the clause unless otherwise provided"In the case at ar# Section '3 of R"%" No" )'9( provides&Sec" '3" 6ffectivit! " 7 This %ct shall ta+e effect upon its approval"Hence# it is clear that the legislature intended to ma+e the law effective immediatel! upon itsapproval" It is undisputed that R"%" No" )'9( was signed into law ! :resident $ora.on $" %uino on>anuar! 8# '((8" Therefore# said law ecame effective on said date"

%ssuming for the sa+e of argument that pulication is necessar! for the effectivit! of R"%" No" )'9(#then it ecame legall! effective on ;eruar! 82# '((8# the date when the same was pulished in theOfficial <a.ette# and not on @arch '3# '((8# as erroneousl! claimed ! respondents $entral Ban+ and?iuidator"IEREFRE# in view of the foregoing# the instant petition is here! <IV6ND16$O1RS6 and <R%NT6D" Respondent >udge is here! :6R@%N6NT?G 6N>OIN6D from furtherproceeding with $ivil $ase No" S:7 *8*''"S RDERED.Davide# >r"# $">"# /$hairman0# :uno# :ardo# and Gnares7Santiago# >>"# concur"

Q This case was transferred to the ponente pursuant to the resolution in %@ No" 337(73*7S$" Re& $reation of Special $ommittee on $ase Bac+log dated ;eruar! 8)# 833'"4)5 Sec" # Repulic %ct No" )'9(# Official <a.ette# ;eruar! 82# '((8# p" (9*"45 Sec" )# Iid "<"R" No" ?7')) %pril 8*# '(98+AN +$NG *$, E+ AL., petitioners#vs"&&$SS$NER F $N+ERNAL REENE, respondent"S!cip# Sala.ar and %ssociates for petitioners"Office of the Solicitor <eneral for respondent"*A+$S+A ANGEL, 0.5

On Octoer '(# '(29# the $entral S!ndicate# a corporation organi.ed under the laws of the :hilippines#thru its <eneral @anager# David S!cip# sent a l etter to the $ollector of Internal Revenue advising thelatter that it purchased from Dee Hong ?ue the entire stoc+ of surplus properties which the said Dee

Hong ?ue had ought from the ;oreign ?iuidation $ommission and that as it assumed Dee Hong ?ueFsoligation to pa! the *7'8 sales tax on said surplus goods# it was remitting the sum of :2*#)3"33 inhis ehalf as deposit to answer for the pa!ment of said sales tax with the understanding that it wouldlater e adEusted after the determination of the exact consideration of the sale"On >anuar! *'# '(2# the s!ndicate again wrote the $ollector reuesting the refund of :'#'3*"8representing alleged excess pa!ment of sales tax due to the adEustment and reduction of the purchaseprice in the amount of :*'#88"'" Said letter was referred to an agent for verification and report" OnSeptemer '# '('# after a thorough investigation of the facts and circumstances surrounding thetransaction# the agent reported /'0 that Dee Hong ?ue purchased the surplus goods as trustee for the$entral S!ndicate which was in the process of organi.ation at the time of the idding= /80 that it was the






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representatives of the $entral S!ndicate that removed the surplus goods from their ase at ?e!te on;eruar! 8'# '(2)= /*0 that the s!ndicate must have reali.ed a gross profit of '" from its salesthereof= and /20 that if the sales tax were to e assessed on its gross sales it would still e liale for theamount of :**#)()" as deficienc! sales tax and surcharge in addition to the amount of :2*#)3"33which the corporation had deposited in the name of Dee Hong ?ue as estimated sales tax due from thelatter"Based on the aove findings of the agent in charge of the investigation# the $ollector decided that the$entral S!ndicate was the importer and original seller of the surplus goods in uestion and# therefore#the one liale to pa! the sales tax" %ccordingl!# on >anuar! 2# '(8# the $ollector assessed against thes!ndicate the amount of :**#)()" and :*33"33 as deficienc! sales tax# inclusive of the 8 surchargeand compromise penalt!# respectivel!# and on the same date# in a separate letter# he denied the reuestof the s!ndicate for the refund of the sum of :'#'3*"8"On Septemer # '(2# the $entral S!ndicate elevated the case to the $ourt of Tax %ppeals uestioningthe ruling of the $ollector which denies its claim for refund as well as the assessment made against it ofthe sum of :**#)()"# plus the sum of :*33"33 as compromise penalt!# as stated aove" The $ollectorfiled his answer thereto wherein he reiterated his ruling and pra!ed that the $entral S!ndicate eordered to pa! the deficienc! sales tax and surcharge as demanded in his letters dated >anuar! 2# '(8and %ugust # '(2" On Octoer 8# '(2# the s!ndicate filed a motion reuesting that the issue ofprescription it has raised against the collection of the tax e first determined as a preliminar! uestion#ut action thereon was deferred ! the $ourt of Tax %ppeals until after the trial of the case on themerits"On Novemer # '(2# the $ollector filed a motion reuiring the s!ndicate to file a ond to guaranteethe pa!ment of the tax assessed against it which motion was denied ! the $ourt of Tax %ppeals on theground that cannot e legall! done it appearing that the s!ndicate is alread! a non7existing entit! due tothe expiration of its corporate existence" In view of this development# the $ollector filed a motion todismiss the appeal on the ground of lac+ of personalit! on the part of the s!ndicate# which met anopposition on the part of the latter# ut on >anuar! 8# '(# the $ourt of Tax %ppeals issued aresolution dismissing the appeal primaril! on the ground that the $entral S!ndicate has no personalit! tomaintain the action then pending efore it" ;rom this order the s!ndicate appealed to the Supreme$ourt wherein it intimated that the appeal should not e dismissed ecause it could e sustituted ! itssuccessors7in7interest# to wit& Tan Tiong Bio# Gu Ahe Thai# % lfonso S!cip# Dee Hong ?ue# ?im Shui T!# S!Seng Tong# S! 6n# $o <iap and David S!cip" %nd ta+ing cue from this suggestion# this $ourt ruledagainst the dismissal and held& ,The resolution appealed from is s et aside and the respondent court isordered to permit the sustitution of the officers and directors of the defunct $entral S!ndicate asappellants# and to proceed with the hearing of the appeal upon its merits", In permitting thesustitution# this $ourt laored under the premise that said officers and directors ,ma! e heldpersonall! liale for the unpaid deficienc! assessments made ! the $ollector of Internal Revenueagainst the defunct s!ndicate",

%fter trial# the $ourt of Tax %ppeals rendered decision the dispositive part of which reads as follows&JH6R6;OR6# in view of the foregoing considerations# the decision of the $ollector of Internal Revenueappealed from is here! affirmed# except with regard to the imposition of the compromise penalt! of:*33"33 the collection of which is unauthori.ed and illegal in the asence of a compromise agreementetween the parties" /$ollector of Internal Revenue vs" 1niversit! of Sto" Tomas# <" R" No" ?7''8)2#Novemer 8# '(= $ollector of Internal Revenue vs" Bautista L Tan# <"R" No" ?7'883# @a! 8)#'(("0 "The petitioners Tan Tiong Bio# Gu Ahe Thai# ?im Shui T!# %lfonso S!cip# S! 6n alias S! Seng Sui# DeeHong ?ue# and S! Seng Tong# who appear in the %rticles of Incorporation of the $entral S!ndicate %nnex

% /pp" 93799# $T% rec"0 as incorporators and directors of the corporation# the second named eing inaddition its :resident and the seventh its Treasurer# are here! ordered to pa! Eointl! and severall!# tothe $ollector of Internal Revenue# the sum of :**#)()" as deficienc! sales tax and surcharge on thesurplus goods purchased ! them from the ;oreign ?iuidation $ommission on >ul! # '(29# from whichthe! reali.ed an estimated gross sales of :'#22)#'"9# with costs" "":etitioners interposed the present appeal"The important issues to e determined in this appeal a re& /'0 whether the importer of the surplus goodsin uestion the sale of which is suEect to the present tax liailit! is Dee Hong ?ue or the $entralS!ndicate who has een sustituted ! the present petitioners= /80 whether the deficienc! sales taxwhich is now sought to e collected has alread! prescried= and /*0 the $entral S!ndicate havingalread! een dissolved ecause of the expiration of its corporate existence# whether the sales tax inuestion can e enforced against its successors7in7interest who are the present petitioners"'" :etitioners contend that the $entral S!ndicate cannot e held liale for the deficienc! sal es tax inuestion ecause it is not the importer of the surplus goods purchased from the ;oreign ?iuidation$ommission for the reason that said surplus goods were purchased ! Dee Hong ?ue as shown ! thecontract executed etween him and the ;oreign ?iuidation $ommission and the fact that the $entralS!ndicate onl! purchased the same from Dee Hong ?ue and not from the ;oreign ?iuidation$ommission as shown ! 6xhiit '*"This contention cannot e sustained" %s correctl! oserved ! the $ourt of Tax %ppeals# theoverwhelming evidence presented ! the $ollector points to the conclusion that Dee Hong ?uepurchased the surplus goods in uestion not for himself ut for the $entral S!ndicate which was then inthe process of incorporation such that the deed of sale 6xhiit '* which purports to show that Dee Hong?ue sold said goods to the s!ndicate for a consideration of :'#83#333"33 /the same amount paid !Dee Hong ?ue to the ;oreign ?iuidation $ommission0 ,is ut a ruse to evade pa!ment of a greateramount of percentage tax", The aforesaid conclusion of the lower court was arrived at after a thoroughanal!sis of the evidence on record# pertinent portion of which we uote hereunder with approval&6xhiit ,*7%, for the respondent /p" ')# BIR rec"0 shows that as earl! as >ul! 8*# '(29# or efore theorgani.ation and incorporation of $entral S!ndicate# @r" David S!cip# who was suseuentl! appointed<eneral @anager of the corporation# together with @essrs" S! 6n alias S! Seng Sui /one of theincorporators of $entral S!ndicate0# Serge <ordeof and $hin Siu Bun /an emplo!ee of the samecorporation0# for and in the name of $entral S!ndicate then in the process of organi.ation# went to ?e!teto ta+e over the surplus properties sold ! the ;?$ to Dee Hong ?ue# which the latter held in trust forthe corporation" 6xhiit *7%# which is a certificate issued ! no less than David S!cip himself who wassuseuentl! appointed <eneral @anager of the corporation admits in express terms the following ,"""the surplus propert! sold ! the ;oreign ?iuidation $ommission to Dee Hong ?ue / and held in trust !the latter for the S!ndicate """", /6mphasis ours"0 Je give full weight and credence to the adverseadmissions made ! David S!cip against the petitioners as appearing in his certificate 6xhiit *7% /p"')# BIR rec"0 considering that at the time he made them# he was a person Eointl! interested with thepetitioners in the transaction over which there was !et no controvers! over an! sales tax liailit!" /Secs"'' and **# Rule '8*# Rules of $ourt= $lem vs" ;oreso# Tex" $ir %pp" '3 S"J" 8d 88*= Street vs"@asterson# Tex" $ir" %pp" 8)) S"J" 23)"0 "6xhiit F*(F for the respondent /pp" '27')# BIR rec"0 which is a letter of @r" Gu Ahe Thai :resident#Director and iggest stoc+holder of $entral S!ndicate /6xhiit %# pp" 9379# $T% rec"0 dated Septemer')# '(29 and addressed to the $ommanding <eneral %;J6S:%$# @anila# contains the followingcategorical admissions which corroorate the admissions made ! David S!cip= that the so7called ?e!teF@!ster! :ileF surplus properties were owned ! $entral S!ndicate ! virtue of a purchase from the;?$# effected in the name of Dee Hong ?ue on >ul! # '(29# inasmuch as $entral S!ndicate was thenstill in the process of organi.ation= that Dee Hong ?ue held the said surplus properties in trust until themere formal turnover to the corporation on %ugust 83# '(29# when the corporation had alread! eenorgani.ed and incorporated under the laws of the :hilippines= and that on >ul! 8*# '(29 vi."# twent!7two/880 da!s efore the incorporation of $entral S!ndicate on %ugust '# '(29 Four <eneral @anager# @r"David S!cip accompanied ! one of our directors# @r" S! 6n# arrived in ?e!te to ta+e over the properties"FBefore passing on to the rest of the evidence supporting the finding of respondent# we would li+e to callattention to this significant detail" It is stated in the letter# 6xhiit *( /pp" '27')# BIR rec"0 of @r" GuAhe Thai that Fon >ul! 8*# '(29# our <eneral @anager# @r" David S!cip# accompanied ! one of ourdirectors# @r" S! 6n# arrived in ?e!te to ta+e over the properties#F Je as+& Jh! was there such a hurr!on the part of the promoters of $entral S!ndicate in ta+ing over the surplus properties when the formalagreement# 6xhiit '* /p" 99# BIR rec"0# purporting to e a contract of sale of the F@!ster! :ileF etweenDee Hong ?ue as vendor# and the $entral S!ndicate# as vendee# for the amount of :'#83#333"33# was

effected twent!7eight /80 da!s later vi."# on %ugust 83# '(29K Is this not another clear andunmista+ale indication that from the ver! start# as is the theor! of the respondent# the real purchasersof the F@!ster! :ileF from the ;?$ and as such the FimportersF of the goods# were the $entral S!ndicateandor the group of ig financiers composing it efore said corporation was incorporated on %ugust '#'(29= and# that Dee Hong ?ue acted merel! as agent of these persons when he purchased the pile fromthe ;?$K %s a general rule# one does not exercise all the acts of ownership over a propert! especiall! ifit involves a ig amount until after the documents evidencing such ownership are full! accomplished"@oreover# it appears that on Octoer *# '(29# Dee Hong ?ue was investigated ! @aEor :rimitivo San

%gustin# >r"# <78 of the :hilippine %rm!# ecause of the discover! of some gun parts found in hisshipment of surplus material from :alo# ?e!te"In his sworn statement# 6xhiit '9 /pp" '**7'*(# BIR rec"0 efore said officer# Dee Hong ?ue admittedthe following& That he paid the ;?$ the amount of :'#83#333"33 ,with the chec+s of Gu Ahe Thai#ma!e also %lfonso S!cip and m! chec+s with man! others,= that ,at the eginning I was tr!ing to u!the pile for m!self without telling other people and other friends of mine", ,Jat+ins came to me and heid for me for :933#333 or :)33#333# ut later on when the price went up to :'#83#333# I tal+ed to m!friends who said I could get mone!", ,So# I ought it with their chec+s and mine, /6xhiit '97B# p" '*#BIR rec"0 and# that after u!ing the ,@!ster! :ile,# he /Dee Hong ?ue0 never inspected the samepersonall!" /p" '2'# BIR rec"0In his affidavit# 6xhiit ' /p" '22# BIR rec"0 Dee Hong ?ue admitted that of the amount of:'#83#333"33 which he paid in two i nstallments sometime in >ul!# '(29# to the ;?$# :'#''#83"33/should e :'#''#333"330 of the amount came from the following& Gu Ahe Thai who advanced to him:83#333"33= S! Seng Tong P :*)#333"33= %lfonso C" S!cip 7 :*)#333"33= Tan Tiong Bio 7:'8#333"33= Roert Dee Se Jee P :8#333"33= and# >ose S" ?im P :*'#333"33 that his understandingwith these persons was that should the! eventuall! Eoin him in $entral S!ndicate# such advances woulde adEusted to constitute their investments= and# that soon after the ,@!ster! :ile, was purchased fromthe ;?$# all the aove7named persons with the exception of Roert Dee Se Jee and >ose S" ?im# formedthe $entral S!ndicate and a re7allocation of shares was made corresponding to the amounts advanced! them"

%dded to these# we have efore us other documentar! evidence for the respondent consisting of6xhiits '# '(# 83# 8'# 8*# 82# 8# 89# 8)# 8 and 8( /pp" # # (87(9# ((7'3*# '')7'8 # ''(7'83#'8'7'8# BIR rec"0 all tending to prove the same thing 7 that the $entral S!ndicate andor the group ofig financiers composing it and not Dee Hong ?ue was the real purchaser /importer0 of the ,@!ster!:ile, from the ;?$= that in the contract of sale etween Dee Hong ?ue and the ;?$ the former actedprincipall! as agent /%rticle '(*3# New $ivil $ode0 of the petitioners Gu Ahe Thai# S! Seng Tong# %lfonsoC" S!cip and Tan Tiong Bio who advanced the purchased price of :'#'8#333"33 out of the:'#83#333"33 paid to the ;?$# Dee Hong ?ue eing the purchaser in his own right onl! with respect tothe amount of :9(#333"33= and# that the deed# 6xhiit '* /p" ))# BIR rec"0 purporting to show that DeeHong ?ue sold the ,@!ster! :ile, to the $entral S!ndicate for consideration of :'#83"333"33 is ut aruse to evade pa!ment of a greater amount of percentage tax" 'wph'"UtTo our mind# the deed of sale# 6xhiit '* /p" 99# BIR rec"0 as well as the circumstances surrounding theincorporation of the $entral S!ndicate# are shrouded with as much m!ster! as the so7called ,@!ster!:ile, suEect of the transaction" But# as oil is to water# the truth and underl!ing motives ehind thesetransactions have to surface in the end" :etitioners would want us to elieve that Dee Hong ?ue oughtin his own right and for himself the surplus goods in uestion for :'#83#333"33 from the ;?$ and then#! virtue of a valid contract of s ale# 6xhiit '* /p" 99# BIR rec"0 transferred and conve!ed the same tothe $entral S!ndicate at cost" If this e so# what need was there for Dee Hong ?ue to agree in theimmediate organi.ation and incorporation of the $entral S!ndicate with six other capitalists when hecould ver! well have disposed of the surplus goods to the pulic in his individual capacit! and +eep allthe profits to himself without sharing ('3th of it to the other six incorporators and stoc+holders of thenewl! incorporated S!ndicate"It appears that Dee Hong ?ue ,sold, the pile to the $entral S!ndicate for exactl! the same price arel!fort!7six /290 da!s after acuiring it from ;?$ and exactl! five /0 da!s after the S!ndicate wasregistered with the Securities and 6xchange $ommission on %ugust '(# '(29" This is indeed mostunusual for a usinessman li+e Dee Hong ?ue who# it is to e presumed# was out to ma+e a +illing whenhe acuired the surplus goods from the ;?$ for the staggering amount of :'#)3#333"33 i n cash"

%gain# wh! did Dee Hong ?ue waste all his time and effort not to sa! his good connections with the ;?$! acuiring the goods from that agenc! onl! to sell i t for the same amount to the $entral S!ndicateKThis would have een understandale if Dee Hong ?ue were the iggest and controlling stoc+holder ofthe S!ndicate" He could perhaps reason out to himself# ,the profits which I am sacrificing now in thissale to the S!ndicate# I will get it an!wa! in the form of dividends from it after it shall have disposed ofall the ,@!ster! :ile, to the pulic"F But then# how could this e possile when Dee Hong ?ue was thesmallest suscrier to the capital stoc+ of the S!ndicateK It appears from the %rticles of Incorporationthat of the authori.ed capital stoc+ of the corporation in the amount of :33#333"33# Dee Hong ?uesuscries to onl! :83#333"33 or '8th of the capital stoc+ authori.ed and of this amount onl!:#333"33 was paid ! him at the time of incorporation" So here is an experienced usinessman li+e DeeHong ?ue who# following the theor! of petitionersF counsel# ought the ,F@!ster! :ile, for himself for:'#83#333"33 in cash# and after a few da!s sold the same at cost to a corporation wherein he ownedonl! '8th of the authori.ed capital stoc+ and wherein he was not even an officer# thus doling out tothe other six incorporators and stoc+holders net profits in the sum conservativel! estimated ! therespondent to e :839#''9"2 out of a total of :88(#3)*"* which normall! could all go to him" Je ta+e

Eudicial notice of the fact that as a result of our immense losses in propert! throughout the archipelagothe during the >apanese occupation# either through destruction or s!stematic commandering ! theenem! and our forces# surplus properties commanded a ver! good price in the open mar+et after thelieration and that uite a numer of surplus dealers made immense fortunes out of it" Je elieve therespondent was uite charitale if not more than fair to the $entral S!ndicate in computing the profitsreali.ed ! it in the resale of the ,@!ster! :ile, to the pulic at onl! '" of the acuisition price"Now# from the side of the $entral S!ndicate" This corporation# as its articles of i ncorporation# 6xhiit %/pp" 93799# $T% rec"0 will show# was incorporated on %ugust '# '(29 with an authori.ed capital stoc+ of:33#333"33 of which :833#333"33 worth was suscried ! seven /)0 persons and :3#333"33 paid7upin cash at the time of incorporation" ;ive /0 da!s a fter its incorporation# as the Deed of Sale# 6xhiit '*/p" 99# BIR rec"0 purports to show# the said corporation ought from Dee Hong ?ue the ,@!ster! :ile,for :'#83#333"33 in cash" This is indeed uite phenomenal and fantastic not to sa! the utmost degreeof finance considering that the corporation had a suscried capital stoc+ of onl! :833#333"33 of whichonl! :3#333"33 was paid7up at the time of incorporation and with not the least proof showing that itnever orrowed mone! in its own name from outside source to raise the enormous amount allegedl!paid to Dee Hong ?ue nor evidence to show that it had ! then in so short a time is five /0 da!saccumulated a sustantial reserve to meet Dee Hong ?ueFs selling price";urthermore# at first lush it would seem uite difficult to understand wh! the seven /)0 incorporatorsand stoc+holders of the $entral S!ndicate formed a corporation with a suscried capital stoc+ of onl!:833#333"33# and with cash on hand of onl! :3#333"33 +nowing full! well that there was a transactionawaiting the newl! registered corporation involving an outla! of :'#83#333"33 in cash" Je elieve thiswas done after mature delieration and for some ulterior motive" %s we see it# the onl! logical answer isthat the incorporator wanted to limit whatever civil liailit! that might arise in favor of third persons# asthe present tax liailit! has now arisen# up to the amount of their suscriptions# although the surplusdeal the! transacted and which we elieve was the onl! purpose in the incorporation of the $entralS!ndicate# was ver! much over and aove their authori.ed capital" @oreover# ! limiting its capital# thecorporation was also ale to save on incidental expenses# such as attorne!Fs fee and the filing fee paidto the Securities and 6xchange $ommission# which were ased on the amount of the authori.ed capitalstoc+"

%nother m!ster! worth unravelling is what happened to the :'#''#823"33 /should e :'#''#333"330which Dee Hong ?ue in his affidavit# 6xhiit ' /p" '22# BIR rec"0 claims to have received from @essrs"1! Ahe Thai# S! Seng Tong# %lfonso C" S!cip# Tan Tiong Bio /all incorporators of the S!ndicate0 and twoothers as FadvancesF with which to pa! the ;?$" There is no evidence on record to show that Dee Hong?ue ever returned this amount to those six /90 persons after he supposedl! received :'#83#333"33 fromthe newl! incorporated S!ndicate ! virtue of the Deed of Sale# 6xhiit '*" This is the explanation thatDee Hong ?ue gave in this regard as appearing in his affidavit# 6xhiit '& ,That soon after the aove7



mentioned propert! was purchased# the aove parties# with the exception of Roert Dee Se Jee and>ose S" ?im decided to Eoin the proposed $entral S!ndicate and a re7allocation of shares was made forthe reason that some of the aove parties in turn had to get advances from third parties", If this weretrue# wh! was it that @essrs" Gu Ahe Thai# S! Seng Tong# %lfonso C" S!cip and Tan Tiong Bio whoadvanced :83#333"33= :*)#333"33 and :'8#333"33 to Dee Hong ?ue were made to appear in the

%rticles of incorporation of the $entral S!ndicate as having suscried to shares worth onl! :23#333"33=:*3#333"33= :*3#333"33 and :83#333"33 and of having paid onl! :'3#333"33# :)#33"33# :)#33"33# and:#333"33 on their suscriptions# respectivel!K Jould it not e more in +eeping with corporate practice#following the explanation of Dee Hong ?ue# to Eust credit those four /20 persons in the corporation withshares worth the amount advanced ! them to Dee Hong ?ueKOn the asis of the aove figures# the re7allocation of shares in favor of the four /20 incorporators whoadvanced enormous sums for the S!ndicate seems at first glance to e totall! disproportionate andunfair to them" However# in the final anal!sis it is not so as we will now show" Immediatel! after theincorporation of the S!ndicate# as the evidence shows# Dee Hong ?ue was made to execute a deed oftransfer under the guise of a contract of sale# conve!ing full and complete ownership of the ,@!ster!:ile, to the newl! organi.ed corporation" So we have# on the face of the %rticles of Incorporation and6xhiit '*# a corporation with assets worth onl! :3#333"33 cash owning properties worth over a millionpesos" Oviousl!# the incorporators of the S!ndicate# particularl! those four who advanced enormoussums to Dee Hong ?ue# are not ordinar! usinessmen who could easil! e ta+en for a ride" Jith theprecipitated execution of the ,Deed of Sale, ! Dee Hong ?ue in favor of the S!ndicate# transferring andconve!ing ownership over the entire pile to the latter# the recoupment of their advances from the newl!acuired assets of the corporation was sufficientl! secured# and at the same time# ! ma+ing thedocument appear to e a deed of sale instead of a deed of transfer as it should e under %rticle '(' ofthe New $ivil $ode# the! have reduced /at least attempted to0 their sales tax l iailit! with the argumentthat Dee Hong ?ue was the original ,purchaser, or ,importer, of the goods and therefore the taxalesale was that one made ! him to the S!ndicate and not the sales made ! the latter to the pulic" %ftergoing over the %rticles of Incorporation of the $entral S!ndicate and the other circumstances of thiscase# we draw the conclusion that it was organi.ed Eust for this particular transaction that its life spanwas expressl! limited to two /80 !ears from and after the date of incorporation Eust to give it time todispose of the ,@!ster! :ile, to the pulic and then liuidate all its assets among the sevenincorporators7stoc+holders as in fact it was done on %ugust '# '(2= that from the ver! start# the seven/)0 incorporators had intended it to e a closed corporation without the least intention of ever selling toother persons the remaining authori.ed capital stoc+ of :*33#333"33 still unsuscried= and# that uponits liuidation# the seven /)0 incorporators composing it got much more than their investments includingthose who advanced :'#''#333"33 to the ;?$ for the corporation":etitioners would dispute the finding that Dee Hong ?ue merel! acted as a trustee of the $entralS!ndicate when he purchased the surplus goods in uestion from the ;oreign ?iuidation $ommission on>ul! # '(29 considering that on that date the s!ndicate has not !et een incorporated on the theor!that no legal relation ma! exist etween parties one of whom has !et no legal existence" Technicall! thisma! e true# ut the fact remains that it cannot e denied that Dee Hong ?ue purchased the goods onehalf of those who advanced the mone! for the purchase thereof who later ecame the incorporatorsand onl! stoc+holders of the s!ndicate with the understanding that the amounts the! had respectivel!advanced would e their investment and would represent their interest in the corporation" %nd this isfurther evidenced ! the fact that this purchase made ! Dee Hong ?ue was later approved and adoptedas the act of the $entral S!ndicate itself as can e gleaned from the certificate executed ! David S!cip#general manager of said s!ndicate# on Septemer '9# '(29# wherein he emphasi.ed that the personsnamed therein /from whom Dee Hong ?ue otained the mone!0 merel! acted on ehalf of the s!ndicateand in fact were the ones who went to ?e!te to ta+e over the aforesaid surplus goods" In an! event#even if Dee Hong ?ue ma! e deemed as the purchaser of the surplus goods in his own right#nevertheless# the corporation still ma! e regarded as the importer of the same goods for the reasonthat Dee Hong ?ue transferred to it all his rights and interests in the contract with the ;oreign?iuidation $ommission# and it was sai d corporation that too+ deliver! thereof from the place wherethe! were stored in ?e!te as ma! e seen from the letter of Dee Hong ?ue to the ;oreign ?iuidation$ommission dated Septemer 8# '(29 and the letter of the $entral S!ndicate to the said $ommissionearing the same date" 1nder these facts# it is clear that the $entral S!ndicate is the importer of thesurplus goods as correctl! oserved ! >udge 1mali in his concurring opinion# from which we uote& "It is now well settled that a person who ought surplus goods from the ;oreign ?iuidation $ommissionand who removed the goods ought from the 1"S" militar! ases in the :hilippines is considered animporter of such goods and is suEect to the sales tax or compensating tax# as the case ma! e" /<o$heng Tee v" @eer# 2) O"<" 89(= Saura Import and 6xport v" @eer# <"R" No" ?78(8)# >an" 89# '('=:"@":" Navigation v" @eer# <"R" No" ?7298'# @arch 82# '(*= Soriano ! $ia v" $oll" of Int" Rev"# ' O"<"22"0 In this case it appearing that the $entral S!ndicate was the owner of the F@!ster! :ileF efore itsremoval from Base A and that i t was the one which actuall! too+ deliver! thereof and removed the samefrom the 1"S" militar! ase# it is the importer within the meaning of Section '9 of the Revenue $ode#as it stood efore the enactment of Repulic %ct No" (2# and its sales of the surplus goods are theoriginal sales taxale under said section and not the sale to it ! Dee Hong ?ue"8" Since the $entral S!ndicate# as we have alread! pointed out# was the importer of the surplus goods inuestion# it was its dut! under Section '* of the Internal Revenue $ode to file a return of its grosssales within 83 da!s a fter the end of each uarter in order that the office of the internal revenue ma!assess the sales tax that ma! e due thereon# ut# as the record shows# the $entral S!ndicate failed tofile an! return of its uarterl! sales on the pretext that it was Dee Hong ?ue who imported the surplusgoods and it merel! purchased them from said importer" This is in fact what the s!ndicate intended toimpress upon the $ollector when it wrote to him its letter of Octoer '(# '(29 informing him that itpurchased from Dee Hong ?ue the entire stoc+ of the surplus goods which the latter had ought fromthe ;oreign ?iuidation $ommission and was therefore depositing in his name the sum of :2*#)3"33 toanswer for his sales tax liailit!# ut this letter certainl! cannot e considered as a return that ma! set inoperation the application of the prescriptive period provided for in Section **' of the Tax $ode# for#evidentl!# said letter if at all could onl! e considered as such in ehalf of Dee Hong ?ue and not inehalf of the $entral S!ndicate ecause such is the onl! nature and import of the letter" Besides# howcan such letter e considered as a return of the sales of the $entral S!ndicate when it was onl! on;eruar! 8'# '(2) when it removed the surplus goods in uestion from their ase at ?e!teK How cansuch return inure to the enefit of the s!ndicate when the same surplus goods which were removed onsaid date could not have een sold ! the corporation earlier than the aforesaid dateK It is ovious thatthe letter of Octoer '(# '(29 cannot possil! e considered as a return filed ! the s!ndicate and socannot serve as asis for the computation of the prescriptive period of five !ears prescried ! law"Nor can the fact that the $ollector did not include in the assessment a surcharge of 3 serve as anargument that a return had alread! een filed# for such failure can onl! mean that an oversight hadeen committed in the non7inclusion of said surcharge" The s!ndicate having failed to file its uarterl!returns as reuired ! Section '* of the Tax $ode# the period that has to e rec+oned with is thatemodied in Section **8 of the same $ode which provides that in case of failure to file the return thetax ma! e assessed within '3 !ears after discover! of the falsit!# fraud or omission of the pa!ment ofthe proper tax" Since it appears that the $ollector discovered the failure of the s!ndicate to file thereturn onl! on Septemer '8# '(' he has therefore up to Septemer '# '(9' within which to assessor collect the deficienc! tax in uestion" $onseuentl! the assessment made on >anuar! 2# '(8 wasmade within the prescried period"*" :etitioners argue /'0 that the $ourt of Tax %ppeals acted in excess of its Eurisdiction in holding themliale as officers or directors of the defunct $entral S!ndicate for the tax liailit! of the latter= /80 thatpetitioners cannot e held liale for said tax liailit! there eing no statutor! provision in this Eurisdictionauthori.ing the government to proceed against the stoc+holders of a defunct corporation as transfereesof the corporate assets upon liuidation= /*0 that assuming that the stoc+holders can e held so liale#the! are onl! liale to the extent of the enefits derived ! them from the corporation and there is noevidence showing that petitioners had een the eneficiaries of the defunct s!ndicate= /20 thatconsidering that the $ollector instituted the present action on Septemer 8*# '(2 when he filed hisanswer to the appeal of petitioners# said action was alread! arred ! prescription pursuant to Sections)) and ) of the $orporation ?aw which allows corporations to continue as a od! corporate onl! for

three !ears from its dissolution= and /0 that assuming that petitioners are liale to pa! the tax# theirliailit! is not solidar!# ut onl! limited to the enefits derived ! them from the corporation"It should e stated at the outset that it was petitioners themselves who caused their sustitution asparties in the present case# eing the successors7in7interest of the defunct s!ndicate# when the!appealed this case to the Supreme $ourt for which reason the latter $ourt declared that ,the respondent$ourt of Tax %ppeals should have allowed the sustitution of its former officers and directors is parties7appellants# since the! are proper parties in interest insofar as the! ma! e /and in fact are0 heldpersonall! liale for the unpaid deficienc! assessments made ! the $ollector of Internal Revenueagainst the defunct S!ndicate", In fact# ecause of this directive their sustitution was effected" The!cannot# therefore# e now heard to complain if the! are made responsile for the tax liailit! of thedefunct s!ndicate whose representation the! assumed and whose assets were distriuted among them"In the second place# there is good authorit! to the effect that the creditor of a dissolved corporationma! follow its assets once the! passed into the hands of the stoc+holders" Thus# recogni.ed are thefollowing rules in %merican Eurisprudence& The dissolution of a corporation does not extinguish the detsdue or owing to it /Bacon v" Roertson# ' How" 23# ' ?" 6d"# 239= $urron v" State# '9 How" *32# '2 ?"6d"# )30" % creditor of a dissolve corporation ma! follow its assets# as in the nature of a trust fund# intothe hands of its stoc+holders /@acJilliams v" 6xcelsier $oal $o" 4'(825 8( ;ed" *20" %n indetednessof a corporation to the federal government for income and excess profit taxes is not extinguished ! thedissolution of the corporation /-uinn v" @c?eudon# '8 %r+" 8)'# 8* S"J"# *80" %nd it has een stated#with reference to the effect of dissolution upon taxes due from a corporation# ,that the hands of thegovernment cannot# of course# collect taxes from a defunct corporation# it loses there! none of itsrights to assess taxes which had een due from the corporation# and to collect them from persons# who! reason of transactions with the corporation# hold propert! against which the tax can e enforced andthat the legal death of the corporation no more prevents such action than would the ph!sical death ofan individual prevent the government from assessing taxes against him and collecting them from hisadministrator# who holds the propert! which the decedent had formerl! possessed, /Jonder Ba+eries$o" v" 1"S" 4'(*25 $t" $l" 9 ;" Supp" 80" Bearing in mind that our corporation law is of %merican origin#the foregoing authorities have persuasive effect in considering similar cases in this Eurisdiction" Thismust have een ta+en into account when in <"R" No" ?733 this $ourt said that petitioners could eheld personall! liale for the taxes in uestion as successors7in7interest of the defunct corporation"$onsidering that the $entral S!ndicate reali.ed from the sale of the surplus goods a net profit of:88(#3)*"*# and that the sale of said goods was the onl! transaction underta+en ! said s!ndicate#there eing no evidence to the contrar!# the conclusion is that sai d net profit remained intact and wasdistriuted among the stoc+holders when the corporation liuidated and distriuted its assets on %ugust'# '(2# immediatel! after the sa le of the said surplus goods" :etitioners are therefore the eneficiariesof the defunct corporation and as such should e held liale to pa! the taxes in uestion" However#there eing no express provision reuiring the stoc+holders of the corporation to e solidaril! liale forits dets which liailit! must e express and cannot e presumed# petitioners should e held to e lialefor the tax in uestion onl! in proportion to their shares in the distriution of the assets of the defunctcorporation" The decision of the trial court should e modified accordingl!"JH6R6;OR6# with the aove modification# we here! affirm the decision appealed from# with costsagainst petitioners"Beng.on# $">"# :adilla# ?arador# $oncepcion# Re!es" >"B"?"# :aredes and Di.on# >>"# concur"Barrera# >"# too+ no part"


@anilaTHIRD DIVISION

G.R. No. B1123 Febr;!r= 2B, 19B9R$SS+& RE*LL$D, FERNAND ALEN$A !"# EDI$N RE*LL$D, petitionersvs"NRA*LE R+ F AEALS !"# ES$, $N., respondents"6rlinda S" $arolino for petitioners"

%caan# $orvera# Del $astillo for private respondents" G+$ERRE, 0R., 0.5

The issues raised in this petition for review on certiorari in an action for damages arising from avehicular accident are lac+ of Eurisdiction over the defendant and asence of due process"On %ugust )# '(2# the petitioners filed $ivil $ase No" ''* for damages against :epsi $ola Bottling$ompan! of the :hilippines# Inc" /hereinafter referred to as :epsi $ola0 and %lerto %lva efore theRegional Trial $ourt of @a+ati"The case arose out of a vehicular accident on @arch '# '(2# involving a @a.da @inius used as aschoolus with :late Numer NJA7** owned and driven ! petitioners $risostomo Reollido and;ernando Valencia# respectivel! and a truc+ trailer with :late Numer NRH788 owned at that time !:epsi $ola and driven ! %lerto %lva" /p" *)# Rollo0On Septemer 8'# '(2# the sheriff of the lower court served the summons addressed to thedefendants" It was received ! one Nanette Sison who represented herself to e the authori.ed personreceiving court processes as she was the secretar! of the legal department of :epsi $ola" /pp" **# )#Rollo0:epsi $ola failed to file an answer and was later declared in default" The lower court heard the case ex7parte and adEudged the defendants Eointl! and severall! liale for damages in a decision rendered on>une 82# '(" FThe dispositive portion of the decision reads&JH6R6;OR6# Eudgment is rendered in favor of plaintiffs# ordering defendants :epsi $ola Bottling$ompan! of the :hilippines# Inc"# and its driver ;ernando /should e %lerto0 <" %lva to Eointl! andseverall! pa! plaintiffs the following amounts&l0 : '8#'89"'3#for the hospitali.ation and medical expenses of plaintiff ;ernando Valencia=80 : *89"* as expenses for the medical treatment of plaintiff 6dwin Reollido=*0 : (#(88"33# for the repair of and cost of replacement parts of the @a.da @inius elonging to plaintiff$risostomo Reollido=20 : '9#833"33# for the expenses incurred ! plaintiff $risostomo Reollido in hiring another vehicle totransport school pupils=0 : '38#89'"(3# as unreali.ed monthl! net income due plaintiff from >une '(2 to @arch *3# '(=90 : '3#33"33# representing the unpaid salaries of plaintiff ;ernando Valencia for the period from @archto Decemer '(2=F)0 : 83#333"33# as moral damages due plaintiff ;ernando Valencia=0 : 83#333"33# as moral damages due plaintiff $risostomo Reollido=(0 % sum euivalent to ten /'30 per cent of the total amount due# as and for attorne!Fs fees= and'30 The costs of suit" /pp" *7*(# Rollo0On %ugust # '(# when the default Eudgment ecame final and executor!# the petitioners filed amotion for execution# a cop! of whi ch was received no longer ! the defendant :epsi $ola ut ! privaterespondent :6:SI$O# Inc"# on %ugust 9# '(" %t that time# the private respondent was alread!occup!ing the place of usiness of :epsi $ola at Ricogen Building# %guirre Street# ?egaspi Village#@a+ati# @etro @anila" :rivate respondent# a foreign corporation organi.ed under the laws of the State ofDelaware# 1S%# held offices here for the purpose# among others# of settling :epsi $olaFs dets# liailitiesand oligations which it assumed in a written underta+ing executed on >une ''# '(*# preparator! tothe expected dissolution of :epsi $ola"The dissolution of :epsi $ola as approved ! the Securities and 6xchange $ommission materiali.ed on@arch 8#'(2# one da! after the accident occurred" /p" 2# Rollo0"6arlier or in >une '(*# the Board of Directors and the stoc+holders of :epsi $ola adopted its amendedarticles of incorporation to shorten its corporate term in accordance with Section '83 of the $orporation$ode following the procedure laid down ! Section *) /power to extend or shorten the corporate term0and Section '9 /amendment of the articles of incorporation0 of the same $ode" Immediatel! after suchamendment or on >une '9# 8* and *3# '(*# :epsi $ola cause the pulication of a notice of dissolutionand the assumption of liailities ! the private respondent in a newspaper of general circulation" /p" ))#Rollo0



Reali.ing that the Eudgment of the lower court would eventuall! e executed against it# respondent:6:SI$O# Inc"# opposed the motion for execution and moved to vacate the Eudgment on the ground oflac+ of Eurisdiction" The private respondent uestioned the validit! of the service of summons to a merecler+" It invo+ed Section '*# Rule '2 of the Rules of $ourt on the manner of service upon a privatedomestic corporation and Section '2 of the same rule on service upon a private foreign corporation" /p"8# Rollo0On %ugust '2# '(# the lower court denied the motion of the private respondent holding that despitethe dissolution and the assumption of liailities ! the private respondent# there was proper service ofsummons upon defendant :epsi $ola" The lower court said that under Section '88 of the $orporation$ode# the defendant continued its corporate existence for three /*0 !ears from the date of dissolution"/p" )# Rollo0On %ugust 8)# '(# the private respondent filed a special civil action for certiorari and prohiition withthe respondent court to annul and set aside the Eudgment of the lower court and its order den!ing themotion to vacate the Eudgment# for having een issued without Eurisdiction"On Decemer 8(# '(9# the $ourt of %ppeals granted the petition on the ground of lac+ of Eurisdictionruling that there was no valid service of summons" The appellate court stated that an! Eudgmentrendered against :epsi $ola after its dissolution is a ,liailit!, of the private respondent within thecontemplation of the underta+ing# ut service of summons should e made upon the private respondentitself in accordance with Section '2# Rule '2 of the Rules of $ourt" It remanded the case to the lowercourt and ordered that the private respondent e summoned and e given its da! i n court"On Novemer 8)# '()# a motion for reconsideration was denied"Hence# this petition"The issues raised are two7fold& /'0 whether or not :epsi $ola# the dissolved corporation# is the real part!in interest to whom summons should e served in the civil case for damages= and /80 whether or notthere was valid service of summons through Nanette Sison# allegedl! the secretar! of the legaldepartment of :epsi $ola" If there was valid service of summons upon :epsi $ola# the issue arises as towhether or not such service validl! vested Eurisdiction on the lower court over the person of therespondent corporation"On the first issue# the petitioner maintain that it is :epsi $ola which is the real part! in the case eforethe trial court ecause when the accident happened on @arch '# '(2 or one da! efore the date oflegal dissolution# :epsi $ola was still the registered owner of the truc+ involved" Being solidaril! lialewith its driver for damages under %rticles 8')9 and 8'3 of the $ivil $ode# there appears to e nouestion that the complaint and summons were correctl! filed and served on :epsi $ola"Section 8# Rule * of the Revised Rules of $ourt mandates that&:arties in interest 7 6ver! action must e prosecuted and defended in the name of the real part! ininterest" """ "The $ourt has defined the real part!7in7interest in the recent case of Samahan ng mga Nangungupahansa %.carraga Textile @ar+et# Inc"# et al" u" $ourt of %ppeals /<"R" No" 9*)# Septemer 89# '(0# asfollows&The real part!7in7interest is the part! who stands to e enefited or inEured ! the Eudgment or thepart! entitled to the avails of the suit" FInterestF within the meaning of the rule means material interest#an interest in issue and to e affected ! the decree# as distinguished from mere interest in the uestioninvolved# or a mere incidental interest" """ /;rancisco# the Revised Rules of $ourt in the :hil"# Vol" I# p"'89 cited in House International Building Tenants %ssociation# Inc" v" Intermediate %ppellate $ourt# ''S$R% )30";urthermore# the $ourt in Jalter %scona ?ee# et al" v" Hon" @anuel Romillo# >r"# et al" /<"R" No" 93(*)#@a! 8# '(0 said&xxx xxx xxx""" % real part! in interest7plaintiff is one who has a legal right while a real part! in interest7defendant isone who has a correlative legal oligation whose act or omission violates the legal rights of the former"/6mphasis supplied0";or purposes of valid summons# the dissolved :epsi $ola was the real part! in interest7defendant in thecivil case filed ! the petitioners not onl! ecause it is the registered owner of the truc+ involved utalso ecause# when the cause of action accrued# :epsi $ola still existed as a corporation and was thepart! involved in the acts violative of the legal right of another"The petitioners had a valid cause of action for damages against :epsi $ola# % cause of action is definedas ,an act or omission of one part! in violation of the legal right or rights of the other= and its essentialelements are a legal right of the plaintiff# correlative oligation of the defendants and an act or omissionof the defendant in violation of said legal right", /Santos v" Intermediate %ppellate $ourt# '2 S$R% 824'(95 citing @a7ao Sugar $entral $o" v" Barrios# et al"# )( :hil" 999 4'(2)5= See also Repulic :lantersBan+ v" Intermediate %ppellate $ourt# '*' S$R% 9*' 4'(250"The law provides that a corporation whose corporate term has ceased can still e made a part! to asuit" 1nder paragraph '# Section '88 of the $orporation $ode# a dissolved corporation&xxx xxx xxx"""shall nevertheless e continued as a od! corporate for three /*0 !ears after the time when it wouldhave een so dissolved# for the purpose of prosecuting and defending suits ! or against it and enalingit to settle and close its affairs# to dispose of and conve! its propert! and to distriute its assets# ut notfor the purpose of continuing the usiness for which it was estalished"In %merican Eurisprudence# a similar provision in the $orporate %ct of '(9 was construed with respectto the +inds of suits that can e prosecuted against dissolved corporations&xxx xxx xxx""" The words Fdefending suits against them mean suits at law or in euit!# in contract or tort# or of whatnature soever# and whether egun efore or after dissolution" /Hould v" >ohn :" Suire and $o" 4'(''5' N>? '3*# )( % 880"The rationale for extending the period of existence of a dissolved corporation is explained in $astleFs

%dministrator v" %crogen $oal# $o" /'2 A! ('#'23 SJ '3*2 4'(''50 as follows&This continuance of its legal existence for the purpose of enaling it to close up its usiness is necessar!to enale the corporation to collect the demands due it as well an to allow its creditors to assert thedemands against it" If this were not so# then a corporation that ecame involved in liailities mightescape the pa!ment of its Eust oligations ! merel! surrendering its charter# and thus defeat itscreditors or greatl! hinder and dela! them in the collection of their demand" This course of conduct onthe part of corporations the law in Eustice to persons dealing with them does not permit" The personwho has a valid claim against a corporation# whether it arises in contract or tort should not e deprivedof the right to prosecute an action for the enforcement of his demands ! the action of the stoc+holdersof the corporation in agreeing to its dissolution" The dissolution of a corporation does not extinguisholigations or liailities due ! or to it" /6mphasis supplied0In the case at ar# the right of action of the petitioners against :epsi $ola and its driver arose not at thetime when the complaint was filed ut when the acts or omission constituting the cause of actionaccrued /Deter v" $it! of Delta 8)' p" 9)# )* $olo (# Aeister v" Aeister# (9 S6 *' '8* Va ')# %?R2*(0# i"e" on @arch '# '(2 which is the date of the accident and when :epsi $ola allegedl! committedthe wrong"On the second and main issue of whether or not the service of summons through @s" Nanette $" Sison#upon :epsi $ola operates to vest Eurisdiction upon private respondent# it is important to +now thecircumstances surrounding the service" %t the time of the issuance and receipt of the summons# :epsi$ola was alread! dissolved" The $ourt is of the opinion that service is allowed in such a situation" In the

%merican case of $rawford v" Refiners $ooperative %ssociation# Incorporation /)' N@ '# *) p 8d 8'84'(9850# it was held that a ,defendant corporation is suEect to suit and service of process even thoughdissolved",Nowhere in the $orporation $ode is there an! special provision on how process shall e served upon adissolved defendant corporation" The asence of an! such provision# however# should not leavepetitioners without an! remed!# unale to pursue recover! for wrongs committed ! the corporationefore its dissolution" Since our law recogni.es the liailit! of a dissolved corporation to an aggrievedcreditor# it is ut logical for the law to al low service of process upon a dissolved corporation" Otherwise#sustantive rights would e lost ! the mere lac+ of explicit technical rules"The Rules of $ourt on service of summons upon a private domestic corporation is also applicale to acorporation which is no longer a going concern"

Section '*# Rule '2 mandates&Service upon private domestic corporation or partnership " 7 If the defendant is a corporation organi.edunder the laws of the :hilippines or a partnership dul! registered# service ma! e made on thepresident# manager# secretar! # cashier# agent or an! of its directors"The case of $astleFs %dministrator v" %crogen $oal $o" /supra0 # is illustrative of the manner ! whichservice can nevertheless e made despite the death of the entit!&4J5hen an action that might have een instituted against a foreign or domestic corporation while it wasa going concern is instituted after its dissolution# process in the action ma! e served upon the sameperson upon whom the process could e served efore the dissolution" /:" '3*90Therefore# service upon a dissolved corporation ma! e made through an! of the persons enumerated inSection '*# Rule '2"To e sure# this $ourt has ruled that service on a mere emplo!ee or cler+ of a corporation is notsufficient" /Delta @otor Sales $orp" v" @angosing# )3 S$R% ( 4'()95= %T@ Truc+ing# Inc" v"Buencamino# '82 S$R% 2*2 4'(*5= ;iloil @ar+eting $orp" v" @arine Development $orp" of the :hil"# '')S$R% 9 4'(850" The persons who should receive the summons should e those named in the statute=otherwise# those who have charge or control of the operations of the compan! or who ma! e reliedupon to deliver the papers served upon them" /Villa Re! Transit# Inc" v" ;ar 6ast @otor $orp"# ' S$R%8( 4'()5= and Summit Trading and Development $orp" v" %vendano# '* S$R% *() 4'(50"

% lieral interpretation of Section '*# Rule '2 has een adopted in the case of < L < Trading$orporation v" $ourt of %ppeals /' S$R% 299 4'(50&

%lthough it ma!e true that the service of summons was made on a person not authori.ed to receivethe same """# nevertheless since it appears that the summons and complaint were in fact received ! thecorporation through its said cler+# the $ourt finds that there was sustantial compliance# with the ruleon service of summons" Indeed the purpose of said rule as aove stated to assure service of summonson the corporation had there! een attained" The need for &seed! Eustice must prevail over atechnicalit!"F /at p" 29(= 6mphasis supplied0"The rationale for the rule on service of summons upon a defendant corporation as explained in Delta@otors Sales v" @angosing /supra0# is as follows&The purpose is to render it reasonal! certain that the corporation will receive prompt and proper noticein an action against it or to insure that the summons e served on a representative so integrated withthe corporation that such person will +now what to do with the legal papers served on him" In otherwords# Fto ring home to the corporation notice of the filing of the actionF" /*% $">"S" 8 c iting >en+insv" ?!+es Bros" S"S" $o"# 2 ;" Supp" 2= @ac$arth! v" ?angston# D"$" ;la"# 8* ;"R"D" 82(0" /at p" 93*0The fact that the summons was received through @iss Sison is not disputed ! the parties" ;or whichcorporation was she actions" %fter the dissolution and during the pendenc! of the case elow# privaterespondent :6:SI$O held office at the same address of :epsi $ola where @iss Sison was wor+ing" Thepetitioners argue that summons was served through the secretar! of the legal department who acted asagent of :epsi $ola" On the other hand# it is contended ! private respondent :6:SI$O that @iss Sisonwor+s for its legal department and not of :epsi $ola" So the"# private respondent avers# there was novalid service upon :epsi $ola since uss Sison acted in :6:SI$OFs ehalf" /p" 92# Rollo0 6ven assumingthis contention to e true# the private respondent had the oligation to act upon the summons receivedand to defend :epsi $ola pursuant to the underta+ing it executed on >une ''# '(*"Jhomsoever @iss Sison was acting for in receiving the summons there is no uestion that the notice ofthe action was promptl! delivered either to :epsi $ola or :6:SI$O with whom she is admittedl!connected" Je rule# as in < L < Trading $orporation v" $ourt of %ppeals /supra0# that there wassustantial compliance with Section '*# Rule '2 ecause the purpose of notice was satisfied" $ontrar! tothe decision of the $ourt of %ppeals# we therefore# hold that there was proper service of summons toind :epsi $ola and that the decision of the lower court against :epsi $ola rendered on >une 82# '( isvalid and enforceale against the private respondent"

%ccording to the underta+ing executed in favor of :epsi $ola# private respondent assumed&xxx xxx xxx""" 4%5ll the dets# liailities and oligations /collectivel!# the F?iailitiesF0 of :B$ whether firm orcontingent# contractual or otherwise# express or implied# wherever located# and of whatever nature anddescription /including# ut without limiting the generalit! of the foregoing# liailities for damages andtaxes0# here! agrees and underta+es /i0 to pa! or cause to e paid or otherwise discharge or cause toe discharged all of the ?iailities of :B$ which ?iailities ma! e enforced against the $orporation tothe same extent as if the said ?iailities had een incurred or contracted originall! ! the$orporation """and /iv0 not to preEudice in an! wa! the rights of creditors of :B$ /p" 29# Rollo= Italicssupplied0It is clear that private respondent is aware that the liailities of :epsi $ola are enforceale against itupon the dissolution of :epsi $ola" %s correctl! stated ! the $ourt of %ppeals# ! virtue of theassumption of the dets# liailities and oligations of :epsi $ola# ,an! Eudgment rendered against :epsi$ola after its dissolution is a Fliailit!F of :6:SI$O# Inc"# within the contemplation of the underta+ing",Hence it was incument upon respondent :6:SI$O# Inc"# to have defended the civil suit against thecorporation whose liailities it had assumed" ;ailure to do so after it received the notice ! wa! ofsummons amounts to gross negligence and ad faith" The private respondent cannot now invo+e atechnical defect involving improper service upon :epsi $ola and alleged asence of service of summonsupon it" There is the sustantive right of the petitioners to e considered over and aove the attempt ofthe private respondent to avoid the Eurisdiction of the lower court"6ven assuming that Eurisdiction over the private respondent can e acuired onl! ! wa! of service ofsummons in literal compliance with Section '2# Rule '2# the petitioners cannot e faulted for havingrought the case naming :epsi $ola as one of the defendants so that the summons was addressed onl!to the defendants named therein and not to the private respondent" %t the time of the commencementof the suit elow# the petitioners had no +nowledge of the legal dissolution and the underta+ingassumed ! :6:SI$O" The pulication of the notice of dissolution and the assumption of liailities# donein >une '(* or eight months efore the vehicular accident# cannot serve as a notice to the petitionerswho were not !et creditors having a claim upon a uasi7delict"In view of the aove# the valid service of summons upon :epsi $ola operated as a sufficient service ofsummons upon the private respondent" The lower court can enforce Eudgment against the privaterespondent"Therefore# we rule that the private respondent is ound to satisf! the Eudgment ! default which hasecome final and executor!" The lower court did not ause its discretion in den!ing the motion of theprivate respondent to vacate Eudgment"JH6R6;OR6# the petition is here! <R%NT6D" The decision of the $ourt of %ppeals is R6V6RS6D andS6T %SID6" The Eudgment of the lower court and its order den!ing the motion to vacate Eudgment areR6INST%T6D"SO ORD6R6D";ernan# $">"# ;eliciano# Bidin and $ortes# >>"# concur"

THIRD DIVISION[G.R. No. 14B372. ;"e 27, 200/]

LAR$N R$N+$NG SE, $N., !"# ELG$ )+$NG,pet't'o"ers , (s . +ENRA*LE NA+$NAL LA*R RELA+$NS &&$SS$N @+8'r# D'('s'o" !"# &$ELLE&$LA+, respo"#e"ts .

D E $ S $ NAR$-&RALES,0.5Respondent @ichelle @iclat /@iclat0 was emplo!ed on %pril 8'# '(() on a proationar! asis asmar+eting assistant with a monthl! salar! of :9#33"33 ! petitioner $larion :rinting House /$?%RION0owned ! its co7petitioner 6ulogio Gutingco" %t the time of her emplo!ment# she was not informed ofthe standards that would ualif! her as a regular emplo!ee"On Septemer '9# '(()# the 6G$O <roup of $ompanies of which $?%RION formed part filed with theSecurities and 6xchange $ommission /S6$0 a :etition for the Declaration of Suspension of :a!ment#;ormation and %ppointment of Rehailitation Receiver $ommittee# %pproval of Rehailitation :lan with

%lternative :ra!er for ?i uidation and Dissolution of $orporation4'5 the pertinent allegations of whichread&

x x x





" The situation was that since all these companies were sister companies and were operating under aunified and centrali.ed management team# the financial reuirements of one compan! would normall!e ac+ed up or supported ! one of the availale fundings from the other companies"9" The expansion exhausted the cash availailit! of Ni+on# NAI# and 8333 ecause those fundings wereasored ! the reuirements of N:I and 6G$O :roperties# Inc" which were placed on real estateinvestments" However# at the time that those investments and expansions were made# there was nocause for alarm ecause the mar+et situation was ver! right and ver! promising# hence# the decision ofthe management to implement the expansion")" The situation resulted in the cash position eing spread thin" However# despite the thin cashpositioning# the management still was ver! positive and saw a ver! viale proposition since theexpansion and the additional investments would result in a igger real estate ase which would e ver!credile collateral for further expansions" It was envisioned that in the end# there would e igger cashprocurement which would result in greater volume of production# profitailit! and other good resultsased on the expectations and proEections of the team itself"" 1nfortunatel!# factors e!ond the control and anticipation of the management came into pla! whichcaught the petitioners flat7footed# such as&a0 The <;t '" t8e re! est!te m!ret which has resulted in the ule econom! for the real estatedemand which right now has resulted in a severe slow down in the sales of properties=0 +8e e:o"om': '"terp!= :o"s'st'"< o t8e '"!t'o" !"# t8e err!t'::8!"<es '" t8e peso-

#o!r e:8!"<e r!te which precipitated a soaring an+ing interest"c0 L!bor probems that has precipitated adverse compan! effect on the media and in the financialcircuit"d0 L'ber!'K!t'o" o t8e '"#;str= /GA++0 which has resulted in fl ooding the mar+et with importedgoods=e0 Other related adverse matters"(" The inailit! of the 6G$O <roup of $ompanies to meet the oligations as the! fall due on theschedule agreed with the an+ has now ecome a star+ realit!" The situation therefore is that s ince theoligations would not e met within the scheduled due date# complications and prolems woulddefinitel! arise that would impair and!e:t t8e oper!t'o"s of the entire conglomerate comprising the6G$O <roup of $ompanies"

x x x'8" B! virtue of this development# there is a need for suspension of all accounts o4r5 oligations incurred! the petitioners in their separate and comined capacities in the meantime that the! are wor+ing forthe rehailitation of the companies that would eventuall! redound to the enefit of these creditors"'*" The foregoing notwithstanding# however# the present comined financial condition of the petitionersclearl! indicates that their assets are more than enough to pa! off the credits"x x x /6mphasis and underscoring supplied0485On Septemer '(# '(()# the S6$ issued an Order4*5 the pertinent portions of which read&

x x xIt appearing that the petition is sufficient in form andsustance# the corporatepetitioners pra!er for the creation of management or receivership committee andcreditors approval of the proposed Rehailitation :lan is here! set for hearing onOctoer 88# '(() at8&33 ocloc+ in the afternoon at the SI$D# S6$ Bldg"# 6DS%# <reenhills# @andalu!ong $it!"

x x x;inall!# the petitioners are here! enEoined from disposing an! and all of their properties in an! manner#whatsoever# except in the ordinar! course of usiness and from ma+ing an! pa!ment outside of thelegitimate usiness expenses during the pendenc! of the proceedings and as a conseuence of the filingof the :etition# all actions# claims and proceedings against herein petitioners pending efore an! court#triunal# office oard andor commission are deemed S1S:6ND6D until further orders from this Hearing:anel pursuant to the rulings of the Supreme $ourt in the cases of R$B$ v" I%$ et al"# 8'* S$R% *3 andB:I v" $%# 88( S$R% 88*" /1nderscoring supplied0

%nd on Septemer *3# '(()# the S6$ issued an Order425 approving the creation of an interim receiverfor the 6G$O <roup of $ompanies"On Octoer '3# '(()# the 6G$O <roup of $ompanies issued to its emplo!ees the following@emorandum&45This is to formall ! announce the entr! of the Interim Receiver <roup represented ! S<V from toda!until Octoer 88# '(() or until further formal notice from the S6$"This interim receiver groups function is to ma+e sure that all assets of the compan! are secured andaccounted for oth for the protection of us and our creditors"Their function will involve famili ari.ation with the different processes and controls in our organi.ation L+eeping ph!sical trac+ of our assets li+e i nventories and machineries"

%n!thing that would e reuired from !ou would need to e in writing and dul! approved ! the topmanagement in order for us to maintain a clear line"Je trust that this temporar! inconvenience will enefit all of us in the spirit of goodwill" ?ets extend ourfull cooperation to them"Than+ !ou" /1nderscoring supplied0On Octoer 88# '(()# the %ssistant :ersonnel @anager of $?%RION informed @iclat ! telephone thather emplo!ment contract had een terminated effective Octoer 8*# '(()" No reason was given for thetermination"The following da! or on Octoer 8*# '(()# on reporting for wor+# @iclat was informed ! the <eneralSales @anager that her termination was part of $?%RIONs cost7cutting measures"On Novemer ')# '(()# @iclat filed a complaint495 for illegal dismissal against $?%RION and Gutingco/petitioners0 efore the National ?aor Relations $ommission /N?R$0"In the meantime# or on >anuar! )# '((# the 6G$O <roup of $ompanies issued a@emorandum4)5 addressed to compan! managers advising them of a temporar! partial shutdown ofsome operations of the $ompan! commencing on >anuar! '8# '(( up to ;eruar! 8# '((&In view of the numerous external factors such as slowdown in usiness and consumer demand andconsistent with %rt" 89 of the Revised ?aor $ode of the :hilippines# we are constrained to go on atemporar! partial shutdown of some operations of the $ompan!"To implement this measure# please sumit to m! office through !our local HR%D the li st of those whom!ou will reuire to report for wor+ and their specific schedules" 1pon revalidation and approval of thislist# all those not in the list will not receive an! pa! nor will it e credited against their V?":lease sumit the listing no later than the morning of ;rida!# >anuar! 3(# '(("Shutdown shall commence on >anuar! '8# '(( up to ;eruar! 8# '((# unless otherwise recalled atan earlier date"Implementation of th4ese5 directives will e done through !our HR%D departments" /1nderscoringsupplied0In her :osition :aper45 dated @arch *# '(( filed efore the laor ariter# @iclat claimed that she wasnever informed of the standards which would ualif! her as a regular emplo!ee" She asserted# however#that she ualified as a regular emplo!ee since her immediate supervisor even sumitted a writtenrecommendation in her favor efore she was terminated without Eust or authori.ed cause"Respecting the alleged financial losses cited ! petitioners as asis for her termination# @iclat disputedthe same# she contending that as mar+eting assistant tas+ed to receive sal es calls# produce sales reportsand conduct mar+et surve!s# a credile assessment on production and sales showed otherwise"In an! event# @iclat claimed that assuming that her termination was necessar!# the manner in which itwas carried out was i llegal# no written notice thereof having een served on her# and she merel! learnedof it onl! a da! efore it ecame effective"

%dditionall!# @iclat claimed that she did not receive separation pa!# '* th month pa! and salaries forOctoer 8'# 88 and 8*# '(()"On the other hand# petitioners claimed that the! could not e faulted for retrenching some of itsemplo!ees including @iclat# the! drawing attention to the 6G$O <roup of $ompanies eing placed underreceivership# notice of which was sent to its supervisors and ran+ and file emplo!ees via a @emorandumof >ul! 8'# '(()= that in the same memorandum# the 6G$O <roup of $ompanies advised them of ascheme for voluntar! separation from emplo!ment with pa!ment of severance pa!= and that $?%RIONwas onl! adopting the ?%ST IN# ;IRST O1T :RIN$I:?6 when it terminated @iclat who was relativel!new in the compan!"

$ontending that @iclats termination was made with due process# petitioners referred to the 6G$O <roupof $ompanies aovesaid >ul! 8'# '(() @emorandum which# so the! claimed# sustantiall! complied withthe notice reuirement# it having een issued more than one month efore @iclat was terminated onOctoer 8*# '(()"B! Decision4(5 of Novemer 8*# '((# the laor ariter found that @iclat wasillegall!dismissed and directed her reinstatement" The dispositive portion of the decision reads&JH6R6;OR6# in view of the foregoing premises# Eudgment is here! rendered ordering the respondentto re'"st!te complainant to her former or euivalent position without los s of seniorit! rights andenefits and to p!= her ac+wages# from the time of dismis sal to actual reinstatement#

proportionate '*th month pa! and two /80 da!ssalar! computed as follows&a"'0 Bac+wages '38*() to ''*3(:9#33"33 x '*"8 months :9#'8"33

a"80 :roportionate '*th month pa!''8 of :9#'8 )#'))"3

0 '*th month pa! 7 '(():9#33 x (") months'8 #8'"8

c0 Two da!s salar!:9#3389 x 8 da!s 33"33TOT%? : ((#3*"**/6mphasis and underscoring supplied0"Before the National ?aor Relations $ommission /N?R$0 to which petitioners appealed# the! arguedthat&4'35'" 4$?%RION5 was placed under receivership there! evidencing the fact that it sustained usinesslosses to warrant the termination of 4@iclat5 from her emplo!ment"8" The dismissal of 4@iclat5 from her emplo!ment having een effected in accordance with the law and

in good faith# 4@iclat5 does not deserve to e reinstated and paid ac+wages# '* th month pa! and two/80 da!s salar!"

%nd petitioners pointed out that $?%RION had expressed its decision to shutdown i ts operations !@emorandum4''5 of >anuar! )# '(( to i ts compan! managers"

%ppended to petitioners appeal efore the N?R$ were photocopies of their alance sheets from '(() toNovemer '(( which the! claimed to unanimousl! show that x x x 4petitioner5 compan! experiencedusiness reverses which were made the asis x x x in retrenching x x x "4'85B! Resolution4'*5 of >une ')# '(((# the N?R$ affirmed the laor ariters decision" The pertinent portionof the N?R$ Resolution reads&There are three /*0 valid reuisites for valid retrenchment& /'0 the retrenchment is necessar! to preventlosses and such losses are proven= /80 written notices to the emplo!ees and to the Department of ?aorand 6mplo!ment at least one /'0 month prior to the i ntended date of retrenchment= and /*0 pa!ment ofseparation pa! euivalent to one /'0 month pa! or at least month pa! for ever! !ear of service#whichever is higher" The two notices are mandator!" If the notice to the wor+ers is later than the noticessent to DO?6# the date of termination should e at l east one month from the date of notice to thewor+ers"In ?ope. Sugar $orporation v" ;ederation of ;ree Jor+ers :hilippine ?aor 1nion %ssociation /:?1%7N%$1SI:0 and National ?aor Relations $ommissi on# the Supreme $ourt had the occasion to setforth four standards which would Eustif! retrenchment# eing# firstl!# 7 the losses expected should esustantial and not merel! de minimis in extent" If the loss purportedl! sought to e forestalled !retrenchment is clearl! shown to e insustantial and inconseuential in character# the ona fide natureof the retrenchment would appear to e seriousl! in uestion= secondl!# 7 the sustantial lossapprehended must e reasonal! imminent# as such imminence can e perceived oEectivel! and ingood faith ! the emplo!er" There should# in other words# e a certain degree of urgenc! for theretrenchment# which is after all a drastic course with serious conseuences for the livelihood of theemplo!ees retired or otherwise laid7off= thirdl!# 7 ecause of the conseuential nature of retrenchment#it must e reasonal! necessar! and li+el! to effectivel! prevent the expected losses" The emplo!ershould have ta+en other measures prior or parallel to retrenchment to forestall losses# i"e"# cut other costthan laor costs= and lastl!# 7 the al leged losses if alread! reali.ed and the expected imminent lossessought to e forestalled# must e proven ! sufficient and convincing evidence"The records show that these reuirements were not sustantiall! complied with" %ndproofs presented !respondents7appellants were short of eing sufficient and convincing to Eustif! valid retrenchment" Theirposition must therefore fail" The reason is simple" 6vidences on record presented fall short of thereuirement of sustantial# sufficient and convincing evidence to persuade this $ommission to declarethe validit! of retrenchment espoused ! respondents7appellants" The petition efore the Securit4ies5and 6xchange $ommission for suspension of pa!ment does not prove an!thing to come within theounds of Eustif!ing retrenchment" In fact# the petition itself lends credence to the fact thatretrenchment was not actuall! reinstated under the circumstances prevailing when it stated# Theforegoing notwithstanding# however# the present comined financial condition of the petitioners clearl!indicates that their assets are more than enough to pa! off the credits " Veril!# reading further into thepetition# Je are not read! to disregard the fact that the petition merel! see+s to suspend pa!ments oftheir oligation from creditor an+s and other financing institutions# and not ecause of imminentsustantial financial loss " On this account# Je ta+e note of paragraph ) of the petition whichstated& The situation resulted in cash position eing spread thin" However# despite the thin cashpositioning# the management was ver! positive and saw a ver! viale proposition since the expansionand the additional investments would result in a igger real estate ase which would e a ver! credilecollateral for further expansions" It was envisioned that in the end# there would a igger cashprocurement which would result in greater volume of production# profitailit! and other good resultsased on the expectations and proEections of the team itself" %dmittedl!# this does not create a pictureof retrenchale usiness atmosphere pursuant to %rticle 8* of the ?aor $ode"Je cannot disregard the fact that respondent7appellants failed in almost al l of the criteria set ! law and

Eurisprudence in Eustif!ing valid retrenchment" The two /80 mandator! notices were violated" Thesupposed notice to the DO?6 /%nnex 2# ?ist of 6mplo!ees on Shutdown0 is of no moment# the samehaving no earing in this case" Herein complainant7appellee was not even listed therein and the date ofreceipt ! DO?6# that is# >anuar! '# '(((# was wa! out of time in relation to this case" %nd no proofwas adduced to evidence cost cutting measures# to sa! the least" Nor was there proof shown thatseparation pa! had een awarded to complainant7appellee"JH6R6;OR6# premises considered# and finding no grave ause of discretion on the findings of ?aor

%riter Nieves V" De $astro# the appeal is D6NI6D for lac+ of merit"The decision appealed from is %;;IR@6D in toto" /Italics in the original= underscoring supplied= citationsomitted0:etitioners @otion for Reconsideration of the N?R$ resolution having een denied ! Resolution 4'25 of>ul! 8(# '(((# petitioners filed a petition for certiorar i 4'5 efore the $ourt of %ppeals /$%0 raising thefollowing arguments&'" :6TITION6R $?%RION J%S :?%$6D 1ND6R R6$6IV6RSHI: TH6R6BG 6VID6N$IN< TH6 ;%$T TH%TIT S1ST%IN6D B1SIN6SS ?OSS6S TO J%RR%NT TH6 T6R@IN%TION O; :RIV%T6 R6S:OND6NT@I$?%T ;RO@ H6R 6@:?OG@6NT"8" TH6 DIS@ISS%? O; :RIV%T6 R6S:OND6NT @I$?%T ;RO@ H6R 6@:?OG@6NT H%VIN<B66N 6;;6$T6D IN %$$ORD%N$6 JITH TH6 ?%J %ND IN <OOD ;%ITH# :RIV%T6 R6S:OND6NT DO6S

NOT D6S6RV6 TO B6 R6INST%T6D %ND :%ID B%$AJ%<6S# '*TH @ONTH :%G %ND TJO /80 D%GSS%?%RG" /1nderscoring supplied0B! Decision4'95 of Novemer 82# 8333# the $% sustained the resolutions of the N?R$ in this wise&In the instant case# $larion !'e# to pro(e its ground for retrenchment as well as compliance with themandated procedure of furnishing the emplo!ee and the Department of ?aor and 6mplo!ment/hereafter# DO?60 with one /'0 month written notice and pa!ment of separation pa! to theemplo!ee" $larions failure to discharge its urden of proof i s evident from the following instances&;irst# $larion presented no evidence whatsoever efore the ?aor %riter" To prove serious usinesslosses# $larion presented its '(() and '(( financial statements and the S6$ Order for the $reation ofan Interim Receiver# for the 'rst t'me o"!ppe! beore t8e NLR" The Supreme $ourt hasconsistentl! disallowed such practice unless the part! ma+ing the elated sumission of evidence had


































satisfactoril! explained the dela!" In the instant case# said financial statements are not admissile inevidence due to $larions failure to explain the dela!"Second# even if such financial statements were admitted in evidence# the! would not alter the outcomeof the case as statements have wea+ proative value" The reuired method of proof in such case is thepresentation of financial statements prepared ! independent auditors and not merel! ! compan!accountants" %gain# petitioner failed in this regard"Third# even audited financial statements are not enough" The emplo!er must present the statement forthe !ear immediatel! preceding the !ear the emplo!ee was retrenched# which $larion failed to do in theinstant case# to prove not onl! the fact of usiness losses ut more importantl!# the fact that such losseswere sustantial# continuing and without immediate prospect of aatement" Hence# neither the N?R$nor the courts must lindl! accept such audited financial statements" The! must examine and ma+einferences from the data presented to estalish usiness losses" ;urthermore# the! must e cautioned! the fact that sliding incomes or decreasing gross revenues alone are not necessaril! usinesslosses within the meaning of %rt" 8* since in the nature of things# the possiilit! of incurring losses isconstantl! present in usiness operations"?ast# even if usiness l osses were indeed sufficientl! proven# the emplo!er must stillprove thatretrenchment was resorted to onl! after less drastic measures such as the reduction of othmanagement and ran+7and7file onuses and salaries# going on reduced time# improving manufacturingefficienc!# reduction of mar+eting and advertising costs# faster collection of customer accounts#reduction of raw materials investment and others# have een tried and found wanting" %gain# petitionerfailed to prove the exhaustion of less drastic measures short of retrenchment as it had failed with theother reuisites"It is interesting to note that @iclat started as a proationar! emplo!ee on 8' %pril '(()" There eing nostipulation to the contrar!# her proation period had a duration of six /90 months from her date ofemplo!ment" Thus# after the end of the proation period on 88 Octoer '(()# she ecame a regularemplo!ee as of 8* Octoer '(()since she was allowed to wor+ after the end of s aid period " It is alsoclear that her proationar! emplo!ment was not terminated at the end of the proation period on theground that the emplo!ee failed to ualif! in accordance with reasonale standards made +nown to herat the time of engagement"However# 8* Octoer '(() was a lso the da! of @iclats termination from emplo!ment on the ground ofretrenchment" Thus# we have a i.arre situation when the first da! of an emplo!ees regular emplo!mentwas also the da! of her termination" However# this is entirel! possile# as had in fact happened in theinstant case# where the emplo!ers asis for termination is %rt" 8# instead of %rt" 8' of the ?aor$ode" If petitioner terminated @iclat with %rt" 8' in mind# it would have een too late to present suchtheor! at this stage and it would have een euall! devastating for petitioner had it done so ecause noevidence exists to show that @iclat failed to ualif! with petitioners standards for regulari.ation" ;ailureto discharge its urden of proof would still e petitioners undoing"Jhichever wa! Je examine the case# the conclusion is the same @i clat was illegall!dismissed"$onseuentl!# reinstatement without loss of seniorit! rights and full ac+wages from date of dismissalon 8* Octoer '(() until actual reinstatement is in order"JH6R6;OR6# the instant petition is here! DIS@ISS6D and the 8( >ul! '((( and ) >une '(((resolutions of the N?R$ are S1ST%IN6D" /6mphasis and underscoring supplied0B! Resolution4')5 of @a! 8*# 833'# the $% denied petitioners motion for reconsideration of the decision"Hence# the present petition for review on certiorari # petitioners contending that&JITH %?? D16 R6S:6$T# TH6 HONOR%B?6 $O1RT O; %::6%?S <R%V6?G 6RR6D IN S1ST%ININ< TH6

%SS%I?6D D6$ISIONS O; HONOR%B?6 :1B?I$ R6S:OND6NT $O@@ISSION& %" HO?DIN< TH%T :RIV%T6 R6S:OND6NT @I$?%T J%S I??6<%??G DIS@ISS6D= andB" ORD6RIN< TH6 R6INST%T6@6NT O; :RIV%T6 R6S:OND6NT @I$?%T TO H6R ;OR@6R OR6-1IV%?6NT :OSITION JITHO1T ?OSS O; S6NIORITG RI<HTS %ND B6N6;ITS %ND :%G@6NT O;

B%$AJ%<6S# '4*5TH

@ONTH :%G %ND TJO /80 D%GS S%?%RG "4'5:etitioners argue that the conclusion of the $% that no sufficient proof of financial losses on the part of$?%RION was adduced is patentl! erroneous# given the serious usiness reverses it had gravel! sufferedas reflected in its financial statementsalance sheets# there! leaving as its onl! option theretrenchment of its emplo!ees including @iclat"4'(5:etitioners further argue that when a compan! is under receivership and a receiver is appointed to ta+econtrol of its management and corporate affairs# one of the evident reasons is to prevent further lossesof said compan! and protect its remaining assets from eing dissipated= and that the sumission offinancial reportsstatements prepared ! independent auditors had een rendered moot and academic#the compan! having shutdown its operations and having een placed under receivership ! the S6$ dueto its inailit! to pa! or compl! with its oligations"4835Respecting the $%s holding that the financial statements $?%RION sumitted for the first time onappeal efore the N?R$ are inadmissile in evidence due to its failure to explain the dela! in the

sumission thereof# petitioners lament the $%s failure to consider that technical rules on evidenceprevailing in the courts are not controlling in proceedings efore the N?R$ which ma! consider evidencesuch as documents and affidavits sumitted ! the parties for the first time on appeal"48'5

%s to the $%s holding that $?%RION failed to prove the exhaustion of l ess drastic measures short ofretrenching# petitioners advance that prior to the termination of @iclat# $?%RION# together with theother companies under the 6G$O <roup of $ompanies# was placed under receivership during whichdrastic measures to continue usiness operations of the compan! and eventuall! rehailitate itself wereimplemented"4885Den!ing @iclats entitlement to ac+wages# petitioners proffer that her dismissal rested upon a valid and

authori.ed cause" %nd petitioners assail as grossl! erroneous the award of '*th month pa! to @iclat# shenot having sought it and# therefore# there was no Eurisdiction to award the same"48*5The petition is partl! meritorious"$ontrar! to the $%s ruling# petitioners could present evidence for the first time on appeal to the N?R$" I tis well7settled that the N?R$ is not precluded from receiving evidence# even for the first time on appeal#ecause technical rules of procedure are not inding in laor cases"The settled rule is that the N?R$ is not precluded from receiving evidence on appeal as technical rules ofevidence are not inding in laor cases" In fact# laor officials are mandated ! the ?aor $ode to useever! and all reasonale means to ascertain the facts in each case speedil! and oEectivel!# withoutregard to technicalities of law or procedure# all in the interest of due process" Thus# in ?awin Securit!Services v" N?R$ # and Bristol ?aoratories 6mplo!ees %ssociation7D;% v" N?R$ # we held that even if theevidence was not sumitted to the laor ariter# the fact that it was dul! introduced on appeal to theN?R$ is enough asis for the latter to e more Eudicious in admitting the same# i nstead of falling ac+on the mere technicalit! that said evidence can no longer e considered on appeal" $ertainl!# the firstcourse of action would e more consistent with euit! and the asic notions of fairness" /Italics in theoriginal= citations omitted04825It is li+ewise well7settled that for retrenchment to e Eustified# an! claim of actual or potential usinesslosses must satisf! the following standards& /'0 the losses are sustantial and notde minimis = /80 thelosses are actual or reasonal! imminent= /*0 the retrenchment is reasonal! necessar! and is li+el! toe effective in preventing expected losses= and /20 the alleged losses# if alread! incurred# or theexpected imminent losses sought to e forestalled# are proven ! sufficient and convincing evidence"485 %nd it is the emplo!er who has the onus of proving the presence of these standards"Sections and 9 of :residential Decree No" (387% /:"D" (387%0 /R6OR<%NIC%TION O; TH6 S6$1RITI6S

%ND 6$H%N<6 $O@@ISSION JITH %DDITION%? :OJ6RS %ND :?%$IN< S%ID %<6N$G 1ND6R TH6 %D@INISTR%TIV6 S1:6RVISION O; TH6 O;;I$6 O; TH6 :R6SID6NT0#4895 as amended# read&S6$" In addition to the regulator! and adEudicative functions of TH6 S6$1RITI6S %ND 6$H%N<6$O@@ISSION over corporations# partnerships and other forms of associations registered with it asexpressl! granted under existing laws and decrees#it shall have original and exclusive Eurisdiction to hearand decide cases involving&

x x x/d0 et't'o"s o :orpor!t'o"s, p!rt"ers8'ps or !sso:'!t'o"s #e:!re# '" t8e st!te os;spe"s'o" o p!=me"ts '" :!ses >8ere t8e :orpor!t'o", p!rt"ers8'p or !sso:'!t'o"possesses s;':'e"t propert= to :o(er ! #ebts b;t oresees t8e 'mposs'b''t= o meet'"<t8em >8e" t8e= respe:t'(e= ! #;e or '" :!ses >8ere t8e :orpor!t'o", p!rt"ers8'p,

!sso:'!t'o" 8!s "o s;':'e"t !ssets to :o(er 'ts '!b''t'es, b;t 's ;"#er t8e m!"!<eme"t o !

Re8!b''t!t'o" Re:e'(er or &!"!<eme"t omm'ttee :re!te# p;rs;!"t to t8's De:ree.S6$" 9" In order to effectivel! exercise such Eurisdiction# the $ommission shall possess the foll owingpowers&

x x x/c0 +o !ppo'"t o"e or more re:e'(ers of the propert!# real and personal# which is the suEect of theaction pending efore the $ommission in accordance with the provisions of the Rul es of $ourt in suchother cases whenever necessar! in order to preserve the rights of the parties7litigants andor prote:tt8e '"terest o t8e '"(est'"< p;b': !"# :re#'tors5 ro('#e#, 8o>e(er, +8!t t8e omm'ss'o"

m!= '" !ppropr'!te :!ses, !ppo'"t ! re8!b''t!t'o" re:e'(er o :orpor!t'o"s, p!rt"ers8'ps orot8er !sso:'!t'o"s "ot s;per('se# or re<;!te# b= ot8er <o(er"me"t !<e":'es >8o s8!

8!(e, '" !##'t'o" to po>ers o t8e re<;!r re:e'(er ;"#er t8e pro('s'o"s o t8e R;es oo;rt, s;:8 ;":t'o"s !"# po>ers !s !re pro('#e# or '" t8e s;::ee#'"< p!r!<r!p8 @#

8ereo5 x x x/d0 To create and appoint a management committee# oard or od! upon petition or motu propio tounderta+e the management of corporations# partnership or other associations not supervised orregulated ! other government agencies in appropriate cases >8e" t8ere 's 'mm'"e"t #!"<er o

#'ss'p!t'o", oss, >!st!<e or #estr;:t'o" o !ssets or ot8er propert'es or p!r!'K!t'o" ob;s'"ess oper!t'o"s o s;:8 :orpor!t'o"s or e"t't'es >8':8 m!= be pre?;#':'! to t8e

'"terest o m'"or't= sto:8o#ers, p!rt'es-'t'<!"ts o t8e <e"er! p;b':5 x x x /6mphasis andunderscoring supplied0";rom the aove7uoted provisions of :"D" No" (387%# as amended# the appointment of a receiver ormanagement committee ! the S6$ presupposes a finding that# inter alia # a compan! possessessufficient propert! to cover all its dets ut foresees the impossiilit! of meeting them when the!respectivel! fall due and there is imminent danger of dissipation# loss# wastage or destruction of assetsof other properties or parali.ation of usiness operations"That the S6$# mandated ! law to have regulator! functions over corporations# partnerships orassociations#48)5 appointed an interim receiver for the 6G$O <roup of $ompanies on its petition in lightof# as uoted aove# the therein enumerated factors e!ond the control and anticipation of themanagement rendering it unale to meet its oligation as the! fall due# and thus resulting tocomplications and prolems " " " to arise that would impair and affect 4its5 operations " " " shows that$?%RION# together with the other memer7companies of the 6G$O <roup of $ompanies# was sufferingusiness reverses Eustif!ing# among other things# the retrenchment of its emplo!ees"This $ourt in fact ta+es Eudicial notice of the Decision485 of the $ourt of %ppeals dated >une ''# 8333in $%7<"R" S: No" 83# Ni+on Industrial $orp"# Ni+olite Industrial $orp"# et !. ['":;#'"<

LAR$N], otherwise +nown as the 6G$O <roup of $ompanies v" :hilippine National Ban+# Solidan+$orporation# et al"# collectivel! +nown and referred as the $onsortium of $reditor Ban+s # which waselevated to this $ourt via :etition for $ertiorari and doc+eted as G.R. No. 14/977# ut which petitionthis $ourt dismissed ! Resolution dated @a! *# 833 &$onsidering the Eoint manifestation and motion to dismiss of petitioners and respondents dated ;eruar!82# 833*# stating that the parties have reached a final and comprehensive settlement of all the claimsand counterclaims suEect matter of the case and accordingl!# agreed to the dismissal of the petitionfor certiorari # the $ourt Resolved to DIS@ISS the petition for certiorari /1nderscoring supplied0"The parties in G.R. No. 14/977 having sought# and this $ourt having granted# the dismissal of theappeal of the therein petitioners including $?%RION# the $% decision which affirmed in toto theSeptemer '2# '((( Order of the S6$# the dispositive portion of which S6$ Order reads&JH6R6;OR6# premises considered# the appeal is as it is here!# granted and the Order dated 'Decemer '(( is set aside" The :etition to e Declared in State ofSuspension of pa!ments ishere! #'s!ppro(e# and the S%$ :lan terminated" $onseuentl!# all committee# conservator receiverscreated pursuant to said Order are dissolved and discharged and all acts and orders issued therein arevacated"+8e omm'ss'o", 'e>'se, or#ers t8e ';'#!t'o" !"# #'sso;t'o" o t8e !ppeee:orpor!t'o"s. The case is here! remanded to the hearing panel elow for that purpose"

x x x /6mphasis and underscoring supplied0#has now ecome final and executor!" 6rgo # the S6$s disapproval of the 6G$O <roup of $ompanies:etition for the Declaration of Suspension of :a!ment " " " and the order for the liuidation anddissolution of these companies including $?%RION# must e deemed to have een unassailed"That Eudicial notice can e ta+en of the aove7said case of Ni+on Industrial $orp" et al" v" :NB etal"# there should e no dout"

%s provided in Section '# Rule '8( of the Rules of $ourt&S6$TION '" >udicial notice# when mandator! " % court shall ta+e Eudicial notice# without the introductionof evidence# of the existence and territorial extent of states# their political hi stor!# forms of governmentand s!mols of nationali t!# the law of nations# the admiralt! and mari time courts of the world and theirseals# the political constitution and hi stor! of the :hilippines# the o':'! !:ts o t8e legislative#executive and ?;#':'! departments of the :hilippines# the laws of nature# the measure of time# and thegeographical divisions" /6mphasis and underscoring supplied0which @r" >ustice 6dgardo ?" :aras interpreted as follows& A :o;rt >' t!e ?;#':'! "ot':e o its own acts and records in the same case# of facts estalished inprior proceedings in the same case# of the authenticit! of i ts own records of another case etween thesame parties# of the 'es o re!te# :!ses '" t8e s!me :o;rt, !"# o p;b': re:or#s o" 'e '" t8es!me :o;rt. In addition Eudicial notice will e ta+en of the record# pleadings or Eudgment of a case inanother court etween the same parties or involving one of the same parties# as well as of the record ofanother case etween different parties in the same court" >udicial notice will al so e ta+en of courtpersonnel" /6mphasis and underscoring supplied048(5In fine# $?%RIONs claim that at the time it terminated @iclat it was experiencing usiness reverses gainsmore light from the S6$s disapproval of the 6G$O <roup of $ompanies petition to e declared in stateof suspension of pa!ment# 'e# beore &':!ts term'"!t'o", and of the S6$s conseuent order forthe group of companies dissolution and liuidation"This $ourts finding that @iclats termination was Eustified notwithstanding# since at the time she washired on proationar! asis she was not informed of the standards that would ualif! her as a regularemplo!ee# under Section 9# Rule I of the Implementing Rules of Boo+ VI of the ?aor $ode which reads&S6$" 9" :roationar! emplo!ment" There is proationar! emplo!ment where the emplo!ee# upon hisengagement# is made to undergo a trial period during which the emplo!er determines his fitness toualif! for regular emplo!ment# ased on reasonale standards made +nown to him at the time ofengagement":roationar! emplo!ment shall e governed ! the following rules&

x x x/d0 $" ! :!ses o prob!t'o"!r= empo=me"t, t8e empo=er s8! m!e "o>" to t8eempo=ee t8e st!"#!r#s ;"#er >8':8 8e >' ;!'= !s ! re<;!r empo=ee !t t8e t'me o 8'se"<!<eme"t. Jhere no standards are made +nown to the emplo!ee at that time# he shall e deemeda regular emplo!ee /6mphasis and underscoring supplied0#she was deemed to have een hired from da! one as a regular emplo!ee"4*35$?%RION# however# failed to compl! with the notice reuirement provided for in %rticle 8* of the ?aor$ode# to wit&

%RT" 8*" $?OS1R6 O; 6ST%B?ISH@6NT %ND R6D1$TION O; :6RSONN6?" The emplo!er ma! alsoterminate the emplo!ment of an! emplo!ee due to the installation of laor s aving devices#redundanc!# retrenchment to prevent losses or the closing or cessation of operation of the estalishmentor underta+ing unless the closing is for the purpose of circumventing the provisions of this Title# b=ser('"< ! >r'tte" "ot':e o" t8e >orer !"# t8e &'"'str= o L!bor !"# Empo=me"t !t e!sto"e @1 mo"t8 beore t8e '"te"#e# #!te t8ereo. x x x /6mphasis and underscoring supplied0This $ourt thus deems it proper to award the amount euivalent to @iclats one /'0 month salar!of :9#33"33 as nominal damages to deter emplo!ers from future violations of the statutor! due processrights of emplo!ees"4*'5Since %rticle 8* of the ?aor $ode also provides that 4i5n case of retrenchment to prevent losses# " " "the separation pa! shall e euivalent to one /'0 month pa! or at least one7half /'80 month pa! ore(er= =e!r o ser(':e# whichever is higher" " " # 4a5 fraction of at least six /90 months 4eing5

































considered one /'0 whole !ear# this $ourt holds that @iclat is entitled to separation pa! euivalent toone /'0 month salar!"

%s to @icla ts entitlement to '*th month pa!# paragraph 9 of the Revised <uidelines on the '* th @onth:a! ?aw provides&

9" '*th @onth :a! of Resigned or Separated 6mplo!ee %n emplo!ee x x x whose services were terminated an! time efore the time for pa!ment of the

'*th month pa! is entitled to this monetar! enefit in proportion to the length of time he wor+ed duringthe calendar !ear up to the time of his resignation or termination from the service" Thus if he wor+ed

onl! from >anuar! up to Septemer his proportionate '*th month pa! shall e euivalent to ''8 of histotal asic salar! he earned during that period"

x x x

Having wor+ed at $?%RION for six months# @iclats '*th month pa! should e computed as follows&

/@onthl! Salar! x 9 0 '8 :roportionate '*th month pa!/:9#33"33 x 90 '8 :*#83"33Jith the appointment of a management receiver in Septemer '(()# however# all claims and

proceedings against $?%RION# including laor claims#4*85 were deemed suspended during the existenceof the receivership"4**5 The laor ariter# the N?R$# as well as the $% should not have proceeded toresolve respondents complaint for illegal dismissal and should instead have directed respondent to lodgeher claim efore the then dul!7appointed receiver of $?%RION" To still reuire respondent# however# atthis time to refile her laor claim against $?%RION under the peculiar circumstances of the case that !ears have lapsed since her termination and that all the arguments and defenses of oth parties were

alread! ventilated efore the laor ariter# N?R$ and the $%= and that $?%RION is alread! in the courseof liuidation this $ourt deems it most expedient and advantageous for oth parties that $?%RIONsliailit! e determined with finalit!# instead of still reuiring respondent to lodge her claim at this timeefore the liuidators of $?%RION which would Eust entail a mere reiteration of what has een alread!argued and pleaded" ;urthermore# it would e in the est interest of the other creditors of $?%RIONthat claims against the compan! e finall! settled and determined so as to further expedite theliuidation proceedings" ;or the lesser numer of claims to e proved# the sooner the claims of allcreditors of $?%RION are processed and settled"IEREFRE# the $ourt of %ppeals Novemer 82# 8333 Decision# together with its @a! 8*# 833'Resolution# is S6T %SID6 and another rendered declaring the legalit! of the dismissal of respondent#@ichelle @iclat" :etitioners are ORD6R6D# however# to :%G her the following in accordance with theforegoing discussions&'0 :9#33"33 as nominal damages for non7compliance with statutor! due process=80 :9#33"33 as separation pa!= and

*0 :*#83"33 as '*th month pa!"?et a cop! of this Decision e furnished the S6$ Hearing :anel charged with the liuidation and

dissolution of petitioner corporation for inclusion# in the list of claims of its creditors# respondent @ichelle@iclats claims# to e satisfied in accordance with %rticle ''3 of the ?aor $ode in relation to the $ivil$ode provisions on $oncurrence and :reference of $redits"$osts against petitioners"S RDERED.:anganian# /$hairman0# Sandoval7<utierre.# $orona# and <arcia# >>"# concur"

4895 Now amended ! the Securities Regulation $ode /SR$0 which too+ effect on %ugust # 8333" Sec" "8 of the SR$ provides that the S6$s Eurisdiction over all cases enumerated under Section of :D (387% istransferred to the appropriate Regional Trial $ourt ut shall retain Eurisdiction over pending suspension of pa!ments rehailitation cases filed as of >une *3# 8333 until finall! disposed"48)5 Sec" * of :D (387% provides that the S6$ shall have asolute Eurisdiction# supervision and control over all corporations# partnerships or associations# who are the grantees of primar! franchises and or license orpermit issued ! the government to operate in the :hilippines= x x x" The SR$ retained said power of the S6$ over corporations" :aragraph /a0 of Sec" of said law provides that the S6$ has Eurisdiction and supervisionover all corporations# partnerships or associations who are the grantees of primar! franchises and or li cense or permit issued ! the <overnment"4**5 :res" Decree No" (387% /'()90# sec" 9"

;IRST DIVISIONL$NGD &ANGGAGAIA SA R**ERIRLD, AD$DAS-ANGL, 'ts o':ers!"# members !s represe"te# b= SN$A ESERANA,et't'o"ers,- (ers;s -R**ERIRLD @$LS. $N. !"# AN+N$ )ANG, LA)A &ANANGA)ASALGAD ., As @$" 'ts :!p!:'t= !s ';'#!tor o R;bber>or# @8's.,$":.,Respo"#e"ts.

G.R. No. 1/3BB2

:resent&:1NO# $">"# $hairperson#S%NDOV%?7<1TI6RR6C##

%C$1N%# and<%R$I%# >>":romulgated&

x777777777777777777777777777777777777777777777777777777777777777777777777777777777777777777xD E $ S $ N

GAR$A, 0 .5

%ssailed and sought to e set aside in this petition for review under Rule 2 of the Rules of $ourt is theDecision4'5 dated >anuar! '# 8338 of the $ourt of %ppeals /$%0 in $%7<"R" S: No" **9 # as reiteratedin its Resolution485 of >une # 8338# den!ing the petitioners motion for reconsideration" The assailed $%decision annulled and set aside an earlier decision of the ?aor %riter# as well as theresolutionorder and writ of execution issued ! the National ?aor Relations$ommission /N?R$0 in alaor dispute etween the petitioners and the respondents over which a suspension order had eenissued ! the Securities and 6xchange $ommission /S6$0":etitioner ?ing+od @anggagawa sa Ruerworld # %didas7%nglo is a legitimate laor union whosememers were emplo!ees of the principal respondent#Ruerworld :hilippines# Inc"/Ruerworld# forshort0# a domestic corporation engaged in the manufacture of footwear# ags and garments"The facts&On # Ruerworld filed with the Department of ?aor and 6mplo!ment /DO?60 a Notice of Temporar!:artial Shutdown due to severe financial crisis # therein announcing the formal actual compan! shutdownto ta+e effect on " % cop! of said notice was served on there:o<"'Ke# laor union ofRuerworld# the Bisig :ag+a+aisa7N%;?1 # the unionwith which the corporation had a collectiveargaining agreement"On # Bisig :ag+a+aisa7N%;?1 staged a stri+e" It set up a pic+et line in front of the premises ofRuerworld and even welded its gate" %s a result# RuerworldFs premises closed prematurel! evenefore the date set for thestart of its temporar! partial shutdown"On Septemer (# '((2# herein petitioner union# the ?ing+od @anggagawa Sa Ruerworld# %didas7

%nglo /?ing+od# for revit!0# represented ! its :resident# Sonia 6speran.a# filed a complaint againstRuerworld and its Vice $hairperson# @r" %ntonio Gang# for unfair laor practice /1?:0# ill egalshutdown# and non7pa!ment of sal aries and separation pa!" In i ts complaint#doc+eted as N?R$7N$R7$ase No" 3373(7399*) /hereinafter referred to as 1?: $ase# for revit!0# petitioner union all eged that ithad filed a petition forcertification election during the freedom period# which petition was granted ! theDO?6 Regional Director" In the same complaint# petitioner union claimedthat the stri+e staged ! Bisig:ag+a+aisa7N%;?1 was compan!7instigatedsupported" The sai d complaint was referred to ?aor %riter6rnesto Dinopol for appropriate action"On # while the aforementioned complaint was pending with ?aor %riter Dinopol# Ruerworldfiled with the S6$ a :etition for Declaration of a State of Suspension of :a!ments with :roposedRehailitation :lan " The petition# doc+eted as S6$ $ase No" ''7(272(83# was granted ! theS6$ in its r#er4*5 #!te# # to wit&

%ccordingl!# with the creation of the @anagement $ommittee# all actions for claims against Ruerworld:hilippines# Inc" pending efore an! court# triunal# office# oard# od!# $ommission or sheriff arehere! deemed S1S:6ND6D"$onseuentl!# all pending incidents for preliminar! inEunctions# writ of attachments# foreclosures and theli+e are here! rendered moot and academic"SO ORD6R6D"Notwithstanding the S6$Fs aforementioned suspension order and despiteRuerworldFs sumissionon of a @otion to Suspend :roceedings #425 ?aor %riter Dinopol went ahead with the 1?: case andrendered his decision45 thereon on # sa!ing in part# thus&x x x 4I5t is cr!stal clear that the S6$ Order notwithstanding# ?aor %riters and the National ?aorRelations $ommission should not adicate the Eurisdiction which %rticle 8') of the ?aor $ode has

conferred upon them suEect to the condition that awards# if an!# should e presented to the@anagement $ommittee for processing and pa!ment#and disposing as follows&JH6R6;OR6# decision is here! rendered&'0 den!ing respondents motion to suspend proceedings=80 declaring respondent Ruerworld :hils"# Inc" to have committed unfair laor practice=*0 declaring the temporar! shutdown to have een officiall! ended as of =20 ordering respondent Ruerworld :hils"# Inc" to reinstate complainant71nionFs memerswho indicate their intention to e so reinstated within one month from the receipt of this decision !complainantsF counsel=0 ordering respondent Ruerworld :hils"# Inc" to pa! the memers of the complainant71nion their ac+wages computed from and separation pa! if reinstatement is no longer possile plus'3 of the total award of attorne!Fs";or purposes of uantif!ing the ac+wages and separation pa!# and identif!ing the recipients thereof#@r" Ricardo %tien.a of the Research and Information 1nit of this $ommission i s here! directed toproceed to the office of the respondent Ruerworld whose responsile officers are ordered to a llow @r"

%tien.a or his representative access to such records as ma! e necessar! and render a report thereonwithin *3 da!s from his receipt of this Decision";or purposes of an! appeal# the appeal ond is tentativel! set at :33#333"33"SO ORD6R6D"

On # Ruerworld went on appeal to the N?R$# postingtherefor a temporar! appeal ond in the amountof :33#333"33 as tentativel! fixed ! the ?aor %riter" @eanwhile# on # Ricardo %tien.a ofthe N?R$s Research and Information 1nit sumitted his report on the computation of the monetar!awards# as ordered ! the ?aor %riter" He came out with the total amount of Twent! Seven @illion;ive Hundred Six Thousandand Two Hundred ;ift!7;ive :esos and )3'33 /:8)#39#8")30"DespiteRuerworlds vigorous opposition# the ;irst Divis ion of the N?R$# in itsr#er495 o # reuiredthe corporation to post an appeal ond in an amount euivalent to @r" %tien.ascomputation# with a warning that failure to do so shall result in the dismissal of its appeal for non7perfection# thus&

%ccordingl!# respondents7appellants are here! directed to upgrade or complete their %ppeal Bond in

the amount euivalent to Twent! Seven @illion ;ive Hundred Six Thousand Two Hundred ;ift!7;ive:esos and )3'33 /:8)#39#8")30 pursuant to the award as computed ! Ricardo O" %tien.a withinten /'30 da!s from receipt of this Order";ailure of the respondents7appellants to compl! with this directive will give this $ommissi on no choiceut to dismiss their appeal for non7perfection thereof"Its motion for reconsideration of the same Order having een denied ! the N?R$ inits Resolution4)5 of @arch 8(# '((9# Ruerworld directl! went to this $ourt on a :etition for $ertiorari #45 interposing the sole issue of whether or not the N?R$ acted without or in excess of Eurisdiction orwith grave ause of discretion amounting to lac+ or excess of Eurisdiction in reuiring the corporationtopost the upgraded appeal ond of :8)#39#8")3 ased on the computation of@r" %tien.a"@eanwhile# on account of Ruerworlds failure to upgrade or complete its appeal ond as indicatedin the N?R$s >anuar! 88# '((9 Order# the $ommission# i n a decision4(5 dated >une 8# '((9# did dismissRuerworlds appeal" Owing to this development# Ruerworld filed with the $ourt a Supplemental:etition for$ertiorari #4'35 therein incorporating its challenge to the said dismissal order of the N?R$#contending that the laor triunal acted without or in excess of Eurisdiction"On # the S6$ issued an Order4''5 declaring Ruerworld as dissolved and lifting its earlier suspensionorder# to wit&;inding that the continuance in usiness 4of Ruerworld5 would neither e feasileprofitale nor wor+to the est of interest of the stoc+holders# parties7litigants# creditors# or the generalpulic# xxx Ruerworld :hilippines# Inc" is here! D$SSLED under Section 9/d0 of :"D" (387

%" %ccordingl!# the suspension Order is L$F+ED.

The ?a!a @anangha!a Salgado L $o"# $:%s is here! appointed as liuidator to effect the dissolution ofthe petitioner"

SO ORD6R6D"On # a writ of execution4'85 was issued ! the N?R$ in favor ofthe petitioner union with a cop!thereof served on the respondent corporation";aced with this dilemma# Ruerworld filed with the$ourt an 1rgent Omnius @otion to declare null and void the executiongarnishment made pursuant tothe same writ" The motion# however# was denied ! the $ourt in its Resolution of"On # Ruerworld filed with the $ourt a @otion to %dmit its %mended :etition for $ertiorar i [13] and itsSupplement#4'25 alleging therein thatpursuant to the S6$ Order dated # supra # the proceedings eforethe ?aor %riter should have een suspended" Hence# since the ?aor %riter disregardedthe S6$s suspension order# the suseuent proceedingsefore it were null and void"$onsistent with its ruling in St" @artin ;uneral Homes v" N?R$ #4'5 the $ourt# in its Resolution of #referred Ruerworlds amended petition for certiorari and its supplement to the $% for appropriateaction# whereat it was doc+eted as <"R" S: No" **9 ";or its part# the $%# in its Resolution4'95 of # over the vehement opposition of the petitioner union#resolved to admit Ruerworldsaforementioned amended petition and the supplement thereto in theinterest of Eustice"6ventuall!# in the herein assailed Decision4')5 dated >anuar! '# 8338# the $%granted Ruerworlds petition in $%<"R" S:" No" **9 on the finding that the?aor %riter had indeedcommitted grave ause of discretion when it proceeded with the 1?: case despite the S6$s suspensionorder of Decemer 8# '((2# andaccordingl! declared the proceedings efore it# including thesuseuent orders ! the N?R$ dismissing Ruerworlds appeal and the writ of execution# null and void"Jith their motion for reconsideration having een denied in the $% in itsResolution4'5 of # petitionersare now with the $ourt via the instant recourse# raising the following issues&'0 Jhether the $% had committed grave ause of discretion amounting to lac+ of Eurisdiction or an

excess in the exercise thereof when it gave due course to the petition filed ! Ruerworld /:hils"0# Inc"and annulled and set aside the decisions rendered ! the laor ariter a uo and the N?R$# when thesaid decisions had ecome final and executor! warranting the outright dismissal of the aforesaidpetition=80 Jhether the $% had committed grave ause of discretion and reversile error when it applied Section/d0 and Section 9 /c0 of :"D" No" (387%# as amended# to the case at ar=*0 Jhether the $% had committed reversile error when it adopted and applied the rulings in the casesof Ruerworld /:hils"0# Inc"# or >ulie Gap Ong v" N?R$ # @aril!n ;" %rellano# et" al "[19] and Ruerworld/:hils"0# Inc" and >ulie G" Ong v" N?R$# %uino @agsalin# et" al "4835 to the case at ar"Je DEN) "It is the petitioners sumission that the decision of the ?aor %riter# theaffirmator! decision of theN?R$ and the latters dismissal of Ruerworlds appeal# as well the writ of execution suseuentl!issued# can no longer e annulled and set a side# the same having all ecome final andexecutor!"%dditionall!# petitioners argue that no appeal from the decision of the ?aor %riter was everperfected due to RuerworldFs failure to upgrade or post additional ond as ordered ! the N?R$"Hence# the! sumit that the $% acted in grave ause of discretion in even giving due courseto Ruerworlds petition in$%7<"R" S: No" **9 # let alone rendering a decision thereon annulling andsetting aside the proceedings efore the ?aor %riter and the N?R$s dismissalof Ruerworlds appeal and the writ of execution issued following the dismissal of s aid appeal"The $ourt disagrees"






http://sc.judiciary.gov.ph/jurisprudence/2007/jan2007/153882.htm#_ftn1





















































Jhile posting an appeal ond is indeed a reuirement for the perfection of an appeal from the decisionof the ?aor %riter to the N?R$# Ruerworlds failure to upgrade its appeal ond cannot ar# in thisparticular instance# the review ! the $% of the l ower court proceedings"<iven the factual milieu otaining in this case# it cannot e said that the decisionof the ?aor %riter# orthe decisiondismissal order and writ of execution issued ! the N?R$# could ever attain final andexecutor! status" The ?aor %riter completel! disregarded and violated Section 9/c0 of :residentialDecree (387%#as amended# which categoricall! mandates the suspension of all actions for claims againsta corporation placed under a management committee ! the S6$" Thus# the proceedings eforethe ?aor %riter and the order and writsuseuentl! issued ! the N?R$ are all null and void for havingeen underta+en or issued in violation of the S6$ suspension Order dated " %s such# the ?aor

%riters decision# including the dismissal ! the N?R$ of Ruerworls appeal# could not have achieveda final and executor! status"

%cts executed against the provisions of mandator! or prohiitor! laws shall e void# except when thelaw itself authori.es their validit!"48'5 The ?aor %riterFs decision in this case i s void a initio# andtherefore# non7existent"4885 % void Eudgment is in effect no Eudgment at all" No rights are divested ! itnor otained from it" Being worthless in itself# all proceedings upon which the Eudgment isfounded areeuall! worthless" It neither inds nor ars an!one" %ll acts performed under it and all claims flowingout of it are void"48*5 In other words# a void Eudgment is regarded as a nullit!# and the situation is thesame as it would e if there were no Eudgment" It accordingl! leaves the part!7litigants in the sameposition the! were in efore the trial"4825In fact# it is immaterial whether an appeal from the ?aor %riterFs decision was perfected or not# sincea Eudgment void a initio is non7existent and cannot acuire finalit!"485 The Eudgment is vulnerale toattac+ even when no appeal has een ta+en" Hence# such Eudgment does not ecome final in the senseof depriving a part! of his right to uestion its validit!"4895 Hence# no grave ause of discretion attendedthe $%Fs ta+ing cogni.ance of the petition in $%7<"R" S: No" **9 "Besides# the ?aor %riter# ! simultaneousl! ruling in his decision of on oth the merits ofthe 1?: case and the motion of Ruerworld to suspend the proceedings thereon# effectivel! reuiredthe respondent corporationto post a suret! ond efore the same respondent could have uestioned theariters action in not suspending the proceedings efore him" % ond is onl! mandator! from an appealof the decision itself on the merits ofthe laorersF mone! claims to ensure pa!ment thereof" Hadthe ?aor %riter ta+en heed of Ruerworlds motion to suspend proceedings when that motionwasfiled# and ruled upon it separatel!# no ond would have een reuired for areviewof his resolution thereon" %s it were# the ?aor %riter chose to continue to decide the main case#then to incorporate in his decision the denial ofRuerworlds motion to suspendproceedings# there! effectivel! reuiring a ond on a uestion which would not have ordinaril! reuiredone"Je shall now address the more sustantial i ssue in this case# namel!# the applicailit! of the provisionsof Section /d0 and Section 9 /c0 of :"D" No" (387%# as amended# reorgani.ing the S6$# vesting it withadditional powers and placing it under the Office of the :resident# which respectivel! read&Section " In addition to the regulator! adEudicative functions of the Securities and 6xchange$ommission over corporations# partnerships and other forms of as sociations registered with it asexpressl! granted under existing laws and decrees# it shall have original and exclusive Eurisdiction tohear and decide cases involving&

xxx xxx xxxd0 :etitions of corporations# partnerships or associations to e declared in the state of suspension ofpa!ments in cases where the corporation# partnership or association possesses sufficient propert! tocover all its dets ut foresees the impossiilit! of meeting them when the! respectivel! fall due or incases where the corporation# partnership or association has no sufficient assets to cover its li ailities#ut is under the management of a rehailitation receiver or management committee created pursuant tothis Decree"Section 9" In order to effectivel! exercise such Eurisdiction# the $ommission shall possess the followingpowers&

xxx xxx xxxc0 To appoint one or more receivers of the propert!# real or personal# which is the suEect of the actionpending efore the $ommission in accordance with the pertinent provisions of the Rules of $ourt i n suchother cases whenever necessar! in order to preserve the rights of the parties7litigants andor protect theinterest of the investing pulic and creditors& x x x :rovided# finall!# That ;po" !ppo'"tme"t o !

m!"!<eme"t :omm'ttee, t8e re8!b''t!t'o" re:e'(er, bo!r# or bo#=, p;rs;!"t to t8'sDe:ree, ! !:t'o"s or :!'ms !<!'"st :orpor!t'o"s, p!rt"ers8'ps, or !sso:'!t'o"s ;"#erm!"!<eme"t or re:e'(ers8'p pe"#'"< beore !"= :o;rt, tr'b;"!, bo!r# or bo#= s8! bes;spe"#e# !::or#'"<=.46mphasis supplied5

%s correctl! ruled ! the $%# the issue of applicailit! in laor cases of theaforeuoted provisions of :D(387%# as amended# had alread! een resolved ! this $ourt in its earlier decisions in Ruerworld/:hils"0# Inc"# or >ulie Gap Ong v" N?R$ # @aril!n ;" %rellano# et" al "[27] and Ruerworld /:hils"0# Inc"and >ulie G" Ong v" N?R$# %uino# @agsalin# et" al #485 supra"In the first Ruerworld case# the $ourt upheld the applicailit! of :D (387% to l aor cases pursuant toSection /d0 and Section 9/c0 thereof# with the following pronouncements&It is plain from the foregoing provisions of the law that upon the appointment 4! the S6$5 of amanagement committee or a rehailitation receiver# all actions for claims against the corporationpending efore an! court# triunal or oard shall ipso Eure e suspended" The Eustification for theautomatic sta! of all pending actions for claims is to enale the management committee or therehailitation receiver to effectivel! exercise itshis powers free from an! Eudicial or extra7Eudicialinterference that might undul! hinder or prevent the rescue of the detor compan!" To allow such otheractions to continue would onl! add to the urden of the management committee or rehailitationreceiver# whose time# effort and resources would e wasted in defending claims against the corporationinstead of eing directed toward its restructuring and rehailitation"48(5

xxx xxx xxxx x x +8e !> 's :e!r5 ;po" t8e :re!t'o" o ! m!"!<eme"t :omm'ttee or t8e !ppo'"tme"t o! re8!b''t!t'o" re:e'(er, ! :!'ms or !:t'o"s s8! be s;spe"#e# !::or#'"<=. No e:ept'o"'" !(or o !bor :!'ms 's me"t'o"e# '" t8e !>. S'":e t8e !> m!es "o #'st'":t'o" oreempt'o"s, "e't8er s8o;# t8's o;rt. b' e6 "o" #'st'"<;'t "e: "os #'st'"<;ere#ebemos. %llowing laor cases to proceed clearl! defeats the purpose of the automatic sta! andseverel! encumers the management committeeFs time and resources" The said committee would needto defend against these suits# to the detriment of its primar! and urgent dut! to wor+ towardsrehailitating the corporation and ma+ing it viale again" To rule otherwise would open the floodgates toother similarl! situated claimants and forestall if not defeat the rescue efforts" Besides# even if the N?R$awards the claims of private respondents# its ruling could not e enforced as long as the petitioner isunder the management committee"4*35In $hua v" National ?aor Relations $ommission# we ruled that laor claims cannot proceedindependentl! of a an+ruptc! liuidation proceeding# since these claims would spawn needlesscontrovers!# dela!s# and confusion"4*'5Jith more reason# allowing laor claims to continue in spite of aS6$ suspension order in a rehailitation case would merel! lead to such results"

xxx xxx xxx %rticle 8') of the ?aor $ode should e construed not in isolation ut in harmon! with :D (387%#according to the asic rule in statutor! construction that implied repeals are not favored"4*85 Indeed# itis axiomatic that each and ever! statute must e construed in a wa! that would avoid conflict withexisting laws" +r;e, t8e NLR 8!s t8e po>er to 8e!r !"# #e:'#e !bor #'sp;tes, b;t s;:8!;t8or't= 's #eeme# s;spe"#e# >8e" D 902-A 's p;t '"to ee:t b= t8e Se:;r't'es !"#E:8!"<e omm'ss'o". 46mphasis supplied5The second Ruerworld case reiterates the aove pronouncements of the $ourt&:residential Decree No" (387% is clear that all actions for claims agains t corporations# partnerships orassociations under management or receivership pending efore an! court# triunal# oard or od! shalle suspended accordingl!" The law did not ma+e an! exception in favor of laor claims "

xxx xxx xxx+8;s, >8e" NLR pro:ee#e# to #e:'#e t8e :!se #esp'te t8e SE s;spe"s'o" or#er, t8e NLR!:te# >'t8o;t or '" e:ess o 'ts ?;r's#':t'o" to 8e!r !"# #e:'#e :!ses. As ! :o"se;e":e,

!"= reso;t'o", #e:'s'o" or or#er t8!t 't re"#ere# or 'ss;e# >'t8o;t ?;r's#':t'o" 's !

";'t=" 46mphasis supplied5:etitioners argue# however# that the doctrines laid down in the two aforecitedcases cannot e made toappl! to the instant controvers! ecause the S6$ ordertherein onl! mandates that all pe"#'"< casesagainst Ruerworld :hilippines# Inc" should e deemed suspended" :etitioners contend that thedecision of the?aor %riter in the present case# as well the order of dismissal and writ of executionissued ! N?R$# have ecome final and executor! ! reason ofRuerworlds failure to perfect its appeal! not upgrading or completing the reuired cash or suret! ond as ordained ! theN?R$" :etitioners thus conclude that the doctrine of stare decisis cannot appl! to the instant case":etitioners are in error"It is incontrovertile that the denial of Ruerworlds motion to suspend proceedings in the principalcase was '":orpor!te# in the decision of the ?aor%riter" Oviousl!# then# the ?aor %riters decisionof wasrendered at a time when ?ing+ods complaint against Ruerworld in N?R$7N$R7$ase No" 3373(7399*)7(2 ought to have een suspended"In short# at the time the S6$ is sued its suspension Order of # the proceedings efore the ?aor %riterwere still ver! much pending" %s such#no fi nal and executor! decision could have validl!emanated therefrom" ?i+e the $%# we do not see an! reason wh! the doctrine of stare decisis will notappl! to this case";or eing well7grounded in fact and law# the assailed $% decision and resolutionin $%7<"R" S: No"**9 cannot e said to have een tainted with grave ause of discretion or issued in excess or want of

Eurisdiction" Je find no reason to overturn such rulings"IEREFRE# the instant petition is DEN$ED and the assailed decision and resolution ofthe $% are AFF$R&ED.

$osts against the petitioner"S RDERED.


@anilaS6$OND DIVISION

G.R. No. 164B/6 A;<;st 29, 2007AN$+ A. GAR$A !"# AL*ER+ . D&AG, :etitioners#vs"$L$$NE A$RL$NES, $N., Respondent"

D 6 $ I S I O N$S&*$NG, 0.5

This petition for review assails oth the Decision' dated Decemer # 833* and the Resolution8 dated %pril '9# 8332 of the $ourt of %ppeals in $%7<"R" S: No" 9(23# which had annulled theResolutions* dated Novemer 89# 833' and >anuar! 8# 8338 of the National ?aor Relations$ommission /N?R$0 in N?R$ InEunction $ase No" 333'3*73'# and also denied the motion forreconsideration# respectivel!"The antecedent facts of the case are as follows&:etitioners %lerto >" Dumago and >uanito %" <arcia were emplo!ed ! respondent :hilippine %irlines#Inc" /:%?0 as %ircraft ;urnishers @aster ,$, and %ircraft Inspector# respectivel!" The! were assigned inthe :%? Technical $enter"On >ul! 82# '((# a comined team of the :%? Securit! and National Bureau of Investigation /NBI0Narcotics Operatives raided the Toolroom Section W :lant 6uipment @aintenance Division /:6@D0 of the:%? Technical $enter" The! found petitioners# with four others# near the said section at that time" Jhenthe :%? Securit! searched the section# the! found shau paraphernalia inside the compan!7issued loc+erof Ronaldo Broas who was also within the vicinit!" The six emplo!ees were later rought to the NBI foroo+ing and proper investigation"On >ul! 89# '((# a Notice of %dministrative $harge 2 was served on petitioners" The! were allegedl!,caught in the act of sniffing shau inside the Toolroom Section#, then placed under preventivesuspension and reuired to sumit their written explanation within ten da!s from receipt of the notice":etitioners vehementl! denied the allegations and challenged :%? to show proof that the! were indeed,caught in the act of sniffing shau", Dumago claimed that he was in the Toolroom Section to reuestfor an allen wrench to fix the needles of the sewing and .ig.agger machines" <arcia averred he was inthe Toolroom Section to inuire where he could ta+e the Trac+sterXs tire for vulcani.ing"On Octoer (# '((# petitioners were dismissed for violation of $hapter II# Section 9# %rticle 29/Violation of ?aw<overnment Regulations0 and $hapter II# Section 9# %rticle 2 /:rohiited Drugs0 ofthe :%? $ode of Discipline" Both simultaneousl! filed a case for illegal dismissal and damages"In the meantime# the Securities and 6xchange $ommission /S6$0 placed :%? under an InterimRehailitation Receiver due to severe financial losses"On >anuar! ''# '(((# the ?aor %riter rendered a decision9 in petitionersX favor&JH6R6;OR6# conformal! with the foregoing# Eudgment is here! rendered finding the respondentsguilt! of illegal suspension and illegal dismissal and ordering them to reinstate complainants to theirformer position without loss of seniorit! rights and other privileges" Respondents are here! furtherordered to pa! Eointl! and severall! unto the complainants the following&

%lerto >" Dumago 7 :23(#33"33 ac+wages as of ''3((*2#'8"33 for '*th month pa!>uanito %" <arcia 7 :'#8(3#)22"33 ac+wages as of ''3(('3)#98"33 for '*th month pa!The amounts of :'33#333"33 and :3#333"33 to each complainant as and ! wa! of moral andexemplar! damages= andThe sum euivalent to ten percent /'30 of the total award as and for attorne!s fees"Respondents are directed to immediatel! compl! with the reinstatement aspect of this Decision"However# in the event that reinstatement is no longer feasile# respondent4s5 are here! ordered# in lieuthereof# to pa! unto the complainants their separation pa! computed at one month for 4e5ver! !ear ofservice"SO ORD6R6D")@eanwhile# the S6$ replaced the Interim Rehailitation Receiver with a :ermanent RehailitationReceiver"On appeal# the N?R$ reversed the ?aor %riterXs decision and dismissed the case for lac+ ofmerit"Reconsideration having een denied# an 6ntr! of >udgment( was issued on >ul! '*# 8333"On Octoer # 8333# the ?aor %riter issued a Jrit of 6xecution'3 commanding the sheriff to proceed&x x x x'" To the Office of respondent :%? Building I# ?egaspi St"# ?egaspi Village# @a+ati $it! or to an! of itsOffices in the :hilippines and cause reinstatement of complainants to their former position and to causethe collection of the amount of 4:52(#*3("93 from respondent :%? representing the ac+wages of saidcomplainants on the reinstatement aspect=8" In case !ou cannot collect from respondent :%? for an! reason# !ou shall lev! on the officeeuipment and other movales and garnish its deposits with an! an+ in the :hilippines# suEect to thelimitation that euivalent amount of such levied movales andor the amount garnished in !our own

Eudgment# shall e euivalent to 4:52(#*3("93" If still insufficient# lev! against immovale properties of:%? not otherwise exempt from execution"x x x x''

%lthough :%? filed an 1rgent @otion to -uash Jrit of 6xecution# the ?aor %riter issued a Notice of<arnishment'8 addressed to the :resident@anager of the %llied Ban+ Head Office in @a+ati $it! for theamount of:2(#*3("93":%? moved to lift the Notice of <arnishment while petitioners moved for the release of the garnishedamount" :%? opposed petitionersX motion" It also filed an 1rgent :etition for InEunction which the N?R$resolved as follows&JH6R6;OR6# premises considered# the :etition is partiall! <R%NT6D" %ccordingl!# the Jrit of 6xecutiondated Octoer # 8333 and related 4N5otice of <arnishment 4dated Octoer 8# 83335 are D6$?%R6D















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valid" However# the instant action is S1S:6ND6D and R6;6RR6D to the Receiver of :etitioner :%? forappropriate action"SO ORD6R6D"'*:%? appealed to the $ourt of %ppeals on the grounds that& /'0 ! declaring the writ of execution andthe notice of garnishment valid# the N?R$ gave petitioners undue advantage and preference over :%?Xsother creditors and hampered the tas+ of the :ermanent Rehailitation Receiver= and /80 there was nolonger an! legal or factual asis to reinstate petitioners as a result of the reversal ! the N?R$ of the?aor %riterXs decision"The appellate court ruled that the ?aor %riter issued the writ of execution and the notice ofgarnishment without Eurisdiction" Hence# the N?R$ erred in upholding its validit!" Since :%? was underreceivership# it could not have possil! reinstated petitioners due to retrenchment and cash7flowconstraints" The appellate court declared that a sta! of execution ma! e warranted ! the fact that :%?was under rehailitation receivership" The dispositive portion of the decision reads&JH6R6;OR6# premises considered and in view of the foregoing# the instant petition is here! G$ENDE RSE" The assailed Novemer 89# 833' Resolution# as well as the >anuar! 8# 8338 Resolutionof pulic respondent National ?aor Relations $ommission is here! ANNLLED and SE+ AS$DE forhaving een issued with grave ause of discretion amounting to lac+ or excess of Eurisdiction"$onseuentl!# the Jrit of 6xecution and the Notice of <arnishment issued ! the ?aor %riter arehere! li+ewise ANNLLED and SE+ AS$DE"SO ORD6R6D"'2Hence# the instant petition raising a single issue as follows&JH6TH6R OR NOT TH6 $O1RT O; %::6%?S 6RR6D IN NOT HO?DIN< TH%T TH6 :6TITION6RS %R66NTIT?6D TO TH6IR %$$R16D J%<6S D1RIN< TH6 :6ND6N$G O; :%?XS %::6%?"'Simpl! put# however# there are reall! two issues for our consideration& /'0 %re petitioners entitled totheir wages during the pendenc! of :%?Xs appeal to the N?R$K and /80 In the light of new developmentsconcerning :%?Xs rehailitation# are petitioners entitled to execution of the ?aor %riterXs order ofreinstatement even if :%? is under receivershipKJe shall first resolve the issue of whether the execution of the ?aor %riterXs order is legall! possileeven if :%? is under receivership"Je note that during the pendenc! of this case# :%? was placed ! the S6$ first# under an InterimRehailitation Receiver and finall!# under a :ermanent Rehailitation Receiver" The pertinent law on thismatter# Section /d0 of :residential Decree /:"D"0 No" (387%# as amended# provides that&S6$TION " In addition to the regulator! and adEudicative functions of the Securities and 6xchange$ommission over corporations# partnerships and other forms of associations registered with it asexpressl! granted under existing laws and decrees# it shall have original and exclusive Eurisdiction tohear and decide cases involving&x x x xd0 :etitions of corporations# partnerships or associations to e declared in the state of suspension ofpa!ments in cases where the corporation# partnership or association possesses propert! to cover all ofits dets ut foresees the impossiilit! of meeting them when the! respectivel! fall due or in caseswhere the corporation# partnership or association has no sufficient assets to cover its liailities# ut isunder the 4management of a rehailitation receiver or5 @anagement $ommittee created pursuant to thisDecree"The same :"D"# in Section 9/c0 provides that&S6$TION 9" In order to effectivel! exercise such Eurisdiction# the $ommission shall possess the followingpowers&x x x xc0 To appoint one or more receivers of the propert!# real or personal# which is the suEect of the actionpending efore the $ommission in accordance with the pertinent provisions of the Rules of $ourt i n suchother cases whenever necessar! in order to preserve the rights of the parties7litigants andor protect theinterest of the investing pulic and creditors&Y:rovided# finall! # That upon appointment of amanagement committee# rehailitation receiver# oard or od!# pursuant to this Decree# all actions forclaims against corporations# partnerships or associations under management or receivership pendingefore an! court# triunal# oard or od! shall e suspended accordingl!"x x x xJorth stressing# upon appointment ! the S6$ of a rehailitation receiver# all actions for claims againstthe corporation pending efore an! court# triunal or oard shall ipso Eure e suspended" The purposeof the automatic sta! of all pending actions for claims is to enale the rehailitation receiver toeffectivel! exercise itshis powers free from an! Eudicial or extra7Eudicial interference that might undul!hinder or prevent the rescue of the corporation"'9@ore importantl!# the suspension of all actions for claims against the corporation emraces all phases ofthe suit# e it efore the trial court or an! triunal or efore this $ourt" ') No other action ma! e ta+en#including the rendition of Eudgment during the state of suspension" It must e stressed that what areautomaticall! sta!ed or suspended are the proceedings of a suit and not Eust the pa!ment of claimsduring the execution stage after the case had ecome final and executor!"';urthermore# the actions that are suspended cover all claims against the corporation whether fordamages founded on a reach of contract of carriage# laor cases# collection suits or an! other claims ofa pecuniar! nature"'( No exception in favor of laor claims is mentioned in the law"83'avvphi'This $ourtXs adherence to the aove7stated rule has een resolute and steadfast as evidenced ! its oft7repeated application in a plethora of cases involving :%?# the most recent of which is :hilippine %irlines#Inc" v" Camora"8'Since petitionersX claim against :%? is a mone! claim for their wages during the pendenc! of :%?Xsappeal to the N?R$# the same should have een suspended pending the rehailitation proceedings" The?aor %riter# the N?R$# as well as the $ourt of %ppeals should have astained from resolvingpetitionersX case for illegal dismissal and should instead have directed them to lodge their claim efore:%?Xs receiver"88However# to still reuire petitioners at this time to re7file their laor claim against :%? under the peculiarcircumstances of the case W that their dismissal was eventuall! held valid with onl! the matter ofreinstatement pending appeal eing the issue W this $ourt deems it legall! expedient to suspend theproceedings in this case"JH6R6;OR6# the instant petition is :%RTI%??G <R%NT6D in that the instant proceedings herein areS1S:6ND6D until further notice from this $ourt " %ccordingl!# respondent :hilippine %irlines# Inc" ishere!D$RE+ED to uarterl! update the $ourt as to the status of its ongoing rehailitation" No costs"SO ORD6R6D"

F$RS+ D$$S$N

SSES EDARD <"R" No" '99)S*REAN$+E !"#F$DELA S*REAN$+E, :resent&:etitioners#Davide# >r"# $"> " /$hairman0#-uisuming#7 versus 7 Gnares7Santiago#$arpio# and

%.cuna# >>" AS* DEEL&EN+RRA+$N, :romulgated&Respondent"Septemer *3# 833x 7777777777777777777777777777777777777777777777777777777777777777777777777777777777777777 x

DE$S$N

)NARES-SAN+$AG, 0 "& This petition for review on certiorari assail s the >une 8(# 8332 Decision of the $ourt of %ppeals in $%7<"R" S: No" )(283 which reversed and set aside the Decision of the Office of the :resident= and itsOctoer '# 8332 Resolution den!ing reconsideration thereof" The antecedent facts show that on @arch )# 833'# spouses 6duardo and ;idela SoreEuanite/SoreEuanite0 filed a $omplaint4'5 for rescission of contract# refund of pa!ments and damages# against

%SB Development $orporation /%SBD$0 efore the Housing and ?and 1se Regulator! Board /H?1RB0" SoreEuanite alleged that the! entered into a $ontract to Sell with %SBD$ over a condominium unit anda par+ing space in the BS% Twin Tower7B $ondominum located at Ban+ Drive# Ortigas $enter#@andalu!ong $it!" The! averred that despite full pa!ment and demands# %SBD$ failed to deliver thepropert! on or efore Decemer '((( as agreed" The! pra!ed for the rescission of the contract= refundof pa!ments amounting to :8#9)2#9*)"'3= pa!ment of moral and exemplar! damages# attorne!s fees#litigation expenses# appearance fee and costs of the suit"

%SBD$ filed a motion to dismiss or suspend proceedings in view of the approval ! the Securities and6xchange $ommission /S6$0 on %pril 89# 833' of the rehailitation plan of %SB <roup of $ompanies#which includes %SBD$# and the appointment of a rehailitation receiver" The H?1RB a riter howeverdenied the motion and ordered the continuation of the proceedings" The ariter found that under the $ontract to Sell# %SBD$ should have delivered the propert! toSoreEuanite in Decemer '(((= that the latter had full! paid their oligations except the :3#333"33which should e paid upon completion of the construction= and that rescission of the contract withdamages is proper" The dispositive portion of the Decision reads& JH6R6;OR6# in view of the foregoing Eudgment is rendered ordering the rescission of the contracts tosell etween the parties# and further ordering the respondent 4%SBD$5 to pa! the complainants4SoreEuanite5 the following& a0 all amorti.ation pa!ments ! the complainants amounting to :8#9)2#9*)"'3 plus '8 interest fromthe date of actual pa!ment of each amorti.ation=0 moral damages amounting to :833#333"33=c0 exemplar! damages amounting to :'33#333"33=d0 attorne!s fees amounting to :'33#333"33=e0 litigation expenses amounting to :3#333"33"

%ll other claims and all counter7claims are here! dismissed" IT IS SO ORD6R6D"485 The H?1RB Board of $ommissioners4*5 affirmed the ruling of the ariter that the approval of therehailitation plan and the appointment of a rehailitation receiver ! the S6$ did not have the effect ofsuspending the proceedings efore the H?1RB" The oard held that the H?1RB could properl! ta+ecogni.ance of the case since whatever monetar! award that ma! e granted ! it will e ultimatel! filedas a claim efore the rehailitation receiver" The oard also found that %SBD$ failed to deliver thepropert! to SoreEuanite within the prescried period" The dispositive portion of the Decision reads& Jherefore the petition for review is denied and the decision of the office elow is affirmed" It shall eunderstood that all monetar! awards shall stil l e filed as claims efore the rehailitation receiver"425

%SBD$ filed an appeal45 efore the Office of the :resident which was dismissed495 for lac+ of merit"Hence# %SBD$ filed a petition4)5 under Section '# Rule 2* of the Rules of $ourt efore the $ourt of

%ppeals# doc+eted as $%7<"R" S: No" )(283" On >une 8(# 8332# the $ourt of %ppeals rendered its assailed Decision#45 the dispositive portion ofwhich reads& JH6R6;OR6# premises considered# the instant petition is <R%NT6D" The impugned decision dated >une8)# 833* of the Office of the :resident is here! R6V6RS6D %ND S6T %SID6" No pronouncement as tocosts" SO ORD6R6D"4(5 The $ourt of %ppeals held that the approval ! the S6$ of the rehailitation plan and the appointmentof the receiver caused the suspension of the H?1RB proceedings" The appellate court noted thatSoreEuanites complaint for rescission and damages is a claim under the contemplation of :residentialDecree /:D0 No" (387% or the S6$ Reorgani.ation %ct and %"@" No" 3377'37S$ or the Interim Rules of:rocedure on $orporate Rehailitation # ecause it sought to enforce a pecuniar! demand" Therefore#

Eurisdiction lies with the S6$ and not H?1RB" It also ruled that %SBD$ was oliged to deliver thepropert! in Decemer '((( ut its financial reverses warranted the extension of the period" SoreEuanites motion for reconsideration was denied4'35 hence the instant petition which raises thefollowing issues& '" TH6 $O1RT O; %::6%?S $O@@ITT6D R6V6RSIB?6 6RROR %ND <R%V6?G %B1S6D ITS DIS$R6TIONIN R1?IN< TH%T TH6 S6$# NOT TH6 H?1RB# H%S >1RISDI$TION OV6R :6TITION6RS $O@:?%INT# IN$ONTR%V6NTION TO ?%J %ND TH6 R1?IN< O; THIS HONOR%B?6 $O1RT IN TH6 %RR%NC% $%S6" 8" TH6 $O1RT O; %::6%?S $O@@ITT6D R6V6RSIB?6 6RROR %ND <R%V6?G %B1S6D ITS DIS$R6TIONJH6N IT R1?6D TH%T TH6 %::ROV%? O; TH6 $OR:OR%T6 R6H%BI?IT%TION :?%N %ND TH6

%::OINT@6NT O; % R6$6IV6R H%D TH6 6;;6$T O; S1S:6NDIN< TH6 :RO$66DIN< IN TH6 H?1RB# %ND TH%T TH6 @ON6T%RG %J%RD <IV6N BG TH6 H?1RB $O1?D NOT 4B65 ;I?6D IN TH6 S6$ ;OR:RO:6R DIS:OSITION# NOT B6IN< IN %$$ORD%N$6 JITH ?%J %ND >1RIS:R1D6N$6" *" TH6 $O1RT O; %::6%?S $O@@ITT6D R6V6RSIB?6 6RROR %ND <R%V6?G %B1S6D ITS DIS$R6TIONIN R1?IN< TH%T R6S:OND6NT IS >1STI;I6D IN 6T6NDIN< TH6 %<R66D D%T6 O; D6?IV6RG BGINVOAIN< %S <RO1ND TH6 ;IN%N$I%? $ONSTR%INTS IT 6:6RI6N$6D# B6IN< $ONTR%RG TO ?%J

%ND IN 66;6$T %N 1N?%J;1? NOV%TION O; TH6 %<R66@6NT O; TH6 D%T6 O; D6?IV6RG 6NT6R6DINTO BG :6TITION6RS %ND R6S:OND6NT"4''5 The petition lac+s merit" Section 9/c0 of :D No" (387% empowers the S6$& c0 To appoint one or more receivers of the propert!# real and personal# which is the suEect of the actionpending efore the $ommission whenever necessar! in order to preserve the rights of the parties7litigants andor protect the interest of the investing pulic and creditors& :rovided# finall !# That uponappointment of a management committee# rehailitation receiver# oard or od!# pursuant to thisDecree# ! !:t'o"s or :!'ms !<!'"st :orpor!t'o"s, p!rt"ers8'ps or !sso:'!t'o"s ;"#erm!"!<eme"t or re:e'(ers8'p pe"#'"< beore !"= :o;rt, tr'b;"!, bo!r# or bo#= s8! bes;spe"#e# !::or#'"<=. 46mphasis added5











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The purpose for the suspension of the proceedings is to prevent a creditor from otaining an advantageor preference over another and to protect and preserve the rights of part! litigants as well as theinterest of the investing pulic or creditors"4'85 Such suspension is intended to give enough reathingspace for the management committee or rehailitation receiver to ma+e the usiness viale again#without having to divert attention and resources to litigations in various fora"4'*5 The suspension wouldenale the management committee or rehailitation receiver to effectivel! exercise itshis powers freefrom an! Eudicial or extra7Eudicial interference that might undul! hinder or prevent the rescue of thedetor compan!" To allow such other action to continue would onl! add to the urden of themanagement committee or rehailitation receiver# whose time# effort and resources would e wasted indefending claims against the corporation instead of eing directed toward its restructuring andrehailitation"4'25 Thus# in order to resolve whether the proceedings efore the H?1RB should e suspended# it isnecessar! to determine whether the complaint for rescission of contract with damages is a claim withinthe contemplation of :D No" (387%" In ;inasia Investments and ;inance $orp" v" $ourt of %ppeals #4'5 we construedclaim to refer onl! todets or demands pecuniar! in nature" Thus& 4T5he word claim as used in Sec" 9/c0 of :"D" (387% refers to dets or demands of a pecuniar! nature" Itmeans the assertion of a right to have mone! paid" It is used in special proceedings li+e those eforeadministrative court# on insol venc!"The word claim is also defined as& Right to pa!ment# whether or not such right is reduced to Eudgment# liuidated# unliuidated# fixed#contingent# matured# unmatured# disputed# undisputed# legal# euitale# secured# or unsecured= or rightto an euitale remed! for reach of performance if such reach gives rise to a right to pa!ment#whether or not such right to an euitale remed! is reduced to Eudgment# fixed# contingent# matured#unmatured# disputed# undisputed# secured# unsecured" In conflicts of law# a receiver ma! e appointed in an! state which has Euris diction over the defendantwho owes a claim"

%s used in statutes reuiring the presentation of claims against a decedents estate# claim is generall!construed to mean dets or demands of a pecuniar! nature which could have een enforced against thedeceased in his lifetime and could have een reduced to simple mone! Eudgments= and among these arethose founded upon contract" In %rran.a v" B";" Homes# Inc"#4'95 claim is defined as referring to actions i nvolving monetar!considerations" ;inasia Investments and ;inance $orp" v" $ourt of %ppeals and %rran.a v" B";" Homes# Inc" werepromulgated prior to the effectivit! of the Interim Rules of :rocedure on $orporate Rehailitation onDecemer '# 8333" The interim rules define a claim as referring to all claims or demands# of whatevernature or character against a detor or its propert!# whether for mone! or otherwise " The definition isall7encompassing as it refers to all actions whether for mone! or otherwise" There are no distinctions orexemptions" Incidentall!# although the petition for rehailitation with pra!er for suspension of actions andproceedings was filed efore the S6$ on @a! 8# 8333#4')5 or prior to the effectivit! of the interim rules#the same would still appl! pursuant to Section '# Rule ' thereof which provides& Section '" Scope These Rules shall appl! to petitions for rehailitation filed ! corporations#partnerships# and associations pursuant to :residential Decree No" (387%# as amended" $learl! then# the complaint filed ! SoreEuanite is a claim as defined under theInterim Rules of:rocedure on $orporate Rehailitation" 6ven under our rulings in ;inasia Investments and ;inance $orp"v" $ourt of %ppeals and %rran.a v" B";" Homes# Inc"# the complaint for rescission with damages would fallunder the categor! of claim considering that it is for pecuniar! considerations" In their complaint# SoreEuanite pra! for the rescission of the contract and the refund of :8#9)2#9*)"'3representing their total pa!ments to %SBD$= :833#333"33 as moral damages= :'33#333"33 as exemplar!damages= :'33#333"33 as attorne!s fees= :3#333"33 as litigation expenses= :'#33"33 per hearing asappearance fees= and costs of the suit" In the decision of the H?1RB ariter# %SBD$ was ordered to pa! :8#9)2#9*)"'3 plus '8 interest fromthe date of actual pa!ment of each amorti.ation# representing the refund of all the amorti.ationpa!ments made ! SoreEuanite= :833#333"33 as moral damages= :'33#333"33 as exemplar! damages=:'33#333"33 as attorne!s fees= and :3#333"33 as litigation expenses"

%s such# the H?1RB ariter should have suspended the proceedings upon the approval ! the S6$ ofthe %SB <roup of $ompanies rehailitation plan and the appointment of its rehailitation receiver" B! thesuspension of the proceedings# the receiver is allowed to full! devote his time and efforts to therehailitation and restructuring of the distressed corporation"It is well to note that even the execution of final Eudgments ma! e held in ae!ance when acorporation is under rehailitation"4'5 Hence# there is more reason in the instant case for the H?1RBariter to order the suspension of the proceedings as the motion to suspend was fi led soon after theinstitution of the complaint" B! all owing the proceedings to proceed# the H?1RB ariter unwittingl! gaveundue preference to SoreEuanite over the other creditors and claimants of %SBD$# which is precisel!the vice sought to e prevented ! Section 9/c0 of :D (387%" Thus&

%s etween creditors# the +e! phrase is eualit! is euit!" Jhen a corporation threatened ! an+ruptc!is ta+en over ! a receiver# all the creditors should stand on eual footing" Not an!one of them shoulde given an! preference ! pa!ing one or some of them ahead of the others" This is precisel! thereason for the suspension of al l pending claims against the corporation under receivership" Instead ofcreditors vexing the courts with suits against the distressed firm# the! are directed to file their claimswith the receiver who is a dul! appointed officer of the S6$"4'(5 :etitioners reliance on %rran.a v" B";" Homes# Inc "4835 is misplaced" In that case# we held that theH?1RB retained its Eurisdiction despite the rehailitation proceedings since the claim filed ! thehomeowners did not involve pecuniar! considerations" The claim therein was for specific performance toenforce the homeowners rights as regards right of wa!# open spaces# road and perimeter wall repairs#and securit!" However# it can also e deduced therefrom that if the claim was for monetar! awards# theproceedings efore the H?1RB should e suspended during the rehailitation" Thus& No violation of the S6$ order suspending pa!ments to creditors would result as far as petitionerscomplaint efore the H?1RB is concerned" To reiterate# what petitioners see+ to enforce are respondentsoligations as a sudivision developer" Such claims a re asicall! not pecuniar! in nature although itcould incidentall! involve monetar! considerations" %ll that petitioners claims entail is the exercise ofproper sudivision management on the part of the S6$7appointed Board of Receivers towards the endthat homeowners shall enEo! the ideal communit! l iving that respondent portra!ed the! would havewhen the! ought real estate from it" Neither ma! petitioners e considered as having claims against respondent within the context of thefollowing proviso of Section 9 /c0 of :"D" No" (387%# to warrant suspension of the H?1RB proceedings"

" In this case# under the complaint for specific performance efore the H?1RB# petitioners do not aim toenforce a pecuniar! demand" Their claim for reimursement should e viewed in the light ofrespondents alleged failure to oserve its statutor! and contractual oligations to provide petitioners adecent human settlement and ample opportunities for improving their ualit! of life" The H?1RB# not theS6$# is euipped with the expertise to deal with that matter"48'5 ;inall!# we agree with the $ourt of %ppeals that under the $ontract to Sell# %SBD$ was oliged to deliverthe propert! to SoreEuanite on or efore Decemer '(((" Nonetheless# the same was deemedextended due to the financial reverses experienced ! the compan!" Section ) of the $ontract to Sellallows the developer to extend the period of deliver! on account of causes e!ond its control# such asfinancial reverses" IEREFRE# the petition is DEN$ED" The assailed Decision of the $ourt of %ppeals dated >une 8(#8332 in $%7<"R" S: No" )(283 and its Resolution dated Octoer '# 8332# are AFF$R&ED" S RDERED.

6N B%N$[G.R. No. 74B/1. De:ember 9, 1999]

R$AL &&ER$AL *AN$NG RRA+$N, pet't'o"er , (s . $N+ER&ED$A+E AELLA+ER+ AND *F &ES, $N.,respo"#e"ts.

R E S L + $ N&EL, 0.5

On Septemer '2# '((8# the $ourt passed upon the case at ar and rendered its decision# dismissingthe petition of Ri.al $ommercial Ban+ing $orporation /R$B$0# there! affirming the decision of the $ourtof %ppeals which canceled the transfer certificate of title issued in favor of R$B$# and reinstating that ofrespondent B; Homes"This will now resolve petitioners motion for reconsideration which# although filed in '((8 was notdeemed sumitted for resolution until in late '((" The dela! was occasioned ! exchange of pleadings#the sumission of supplemental papers# withdrawal and change of law!ers# not to spea+ of the casehaving een passed from one departing to another retiring Eustice" It was not until @a! *# '(((# whenthe case was re7raffled to herein ponente # ut the record was given to him onl! sometime in the lateOctoer '((("B! wa! of review# the pertinent facts as stated in our decision are reproduced herein# to wit&On Septemer 8# '(2# B; Homes filed a :etition for Rehailitation and for Declaration of Suspensionof :a!ments /S6$ $ase No" 3389(*0 with the Securities and 6xchange $ommission /S6$0"One of the creditors listed in its i nventor! of creditors and liailities was R$B$"On Octoer 89# '(2# R$B$ reuested the :rovincial Sheriff of Ri.al to extra7Eudiciall! foreclose its realestate mortgage on some properties of B; Homes" % notice of extra7Eudicial foreclosure sale was issued! the Sheriff on Octoer 8(# '(2# scheduled on Novemer 8(# '(2# copies furnished oth B; Homes/mortgagor0 and R$B$ /mortgagee0"On motion of B; Homes# the S6$ issued on Novemer 8# '(2 in S6$ $ase No" 3389(* a temporar!restraining order /TRO0# effective for 83 da!s# enEoining R$B$ and the sheriff from proceeding with thepulic auction sale" The sale was rescheduled to >anuar! 8(# '("On >anuar! 8# '(# the S6$ ordered the issuance of a writ of preliminar! inEunction upon petitionersfiling of a ond" However# petitioner did not file a ond until >anuar! 8(# '(# the ver! da! of theauction sale# so no writ of preliminar! inEunction was issued ! the S6$" :resumal!# unaware of thefiling of the ond# the sheriffs proceeded with the pulic auction sale on >anuar! 8(# '(# in whichR$B$ was the highest idder for the properties auctioned"On ;eruar! # '(# B; Homes filed in the S6$ a consoli dated motion to annul the auction sale and tocite R$B$ and the sheriff for contempt" R$B$ opposed the motion"Because of the proceedings in the S6$# the sheriff withheld the deliver! to R$B$ of a certificate of salecovering the auctioned properties"On ;eruar! '*# '(# the S6$ in $ase No" 3389(* elatedl! issued a writ of preliminar! inEunctionstopping the auction sale which had een conducted ! the sheriff two wee+s earlier"On @arch '*# '(# despite S6$ $ase No" 3389(*# R$B$ fi led with the Regional Trial $ourt# Br" '23#Ri.al /$$ '33280 an action for mandamus against the provincial sheriff of Ri.al and his deput! to compelthem to execute in its favor a certificate of sa le of the auctioned properties"In answer# the sheriffs alleged that the! proceeded with the auction sale on >anuar! 8(# '( ecauseno writ of preliminar! i nEunction had een issued ! S6$ as of that date# ut the! informed the S6$ thatthe! would suspend the issuance of a certificate of sale to R$B$"On @arch '# '(# the S6$ appointed a @anagement $ommittee for B; Homes"On R$B$s motion in the mandamus case# the trial court issued on @a! # '( a Eudgment on thepleadings# the dispositive portion of which states&JH6R6;OR6# petitioners @otion for >udgment on the pleadings is granted and Eudgement is here!rendered ordering respondents to execute and deliver to petitioner the $ertificate of the %uction Sale of>anuar! 8(# '(# involving the properties sold therein# more particularl! those descried in %nnex $ oftheir %nswer" /p" )# Rollo"0On >une 2# '(# B";" Homes filed an original complaint with the I%$ pursuant to Section ( of B":" '8(pra!ing for the annulment of the Eudgment# premised on the following&x x x& /'0 even efore R$B$ as+ed the sheriff to extra7Eudiciall! foreclose its mortgage on petitionersproperties# the S6$ had alread! assumed exclusive Eurisdiction over those assets# and /80 that there wasextrinsic fraud in procuring the Eudgment ecause the petitioner was not impleaded as a part! in themandamus case# respondent court did not acuire Eurisdiction over it# and it was deprived of its right toe heard" /$% Decision # p" # Rollo0"On %pril # '(9# the I%$ rendered a decision# setting aside the decision of the trial court# dismissing themandamus case and suspending issuance to R$B$ of new land titles# until the resolution of case ! S6$in $ase No" 3389(* # disposing as follows&JH6R6;OR6# the Eudgment dated @a! # '( in $ivil $ase No" '3328 is here! annulled and set asideand the case is here! dismissed" In view of the admission of respondent Ri.al $ommercial Ban+ing$orporation that the sheriffs certificate of sale has een registered on B; Homes T$Ts " " " /here theT$Ts were enumerated0 the Register of Deeds for :asa! $it! is here! ordered to suspend the issuanceto the mortgagee7purchaser# Ri.al $ommercial Ban+ing $orporation# of the owners copies of the newland titles replacing them until the matter shall have een resolved ! the Securities and 6xchange$ommission in S6$ $ase No" 3389(*"/p" 8)7893# Rollo= also pp" *87*2# 8'* S$R% *34'((85= 6mphasis in the original"0On >une '# '(9# R$B$ appealed the decision of the then Intermediate %ppellate $ourt /now# ac+ toits old revered name# the $ourt of %ppeals0 to this $ourt# arguing that&'" :etitioner did not commit extrinsic fraud in excluding private respondent as part! defendant in Special$ivil $ase No" '3328 as private respondent was not indispensale part! thereto# its participation noteing necessar! for the full resolution of the is sues raised in said case"8" S6$ $ase No" 89(* cannot e invo+ed to suspend Special $ivil $ase No" '3328# and for that matter#the extra7Eudicial foreclosure of the real estate mortgage in petitioners favor# as these do not constituteactions against private respondent contemplated under Section 9/c0 of :residential Decree No" (387%"*" 6ven assuming arguendo that the extra7Eudicial sale constitute an action that ma! e suspendedunder Section 9/c0 of :residential Decree No" (387%# the asis for the suspension thereof did not existso as to adversel! affect the validit! and regularit! thereof"2" The Regional Trial court had Eurisdiction to ta+e cogni.ance of Special $ivil $ase No" '3328"" The Regional Trial court had Eurisdiction over Special $ivil $ase No" '3328"/p" # Rollo"0On Novemer '8# '(9# the $ourt gave due course to the petition" During the pendenc! of the case#R$B$ rought to the attention of the $ourt an order issued ! the S6$ on Octoer '9# '(9 in $aseNo"3389(*# den!ing the consolidated @otion to %nnul the %uction Sale and to cite R$B$ and the Sherifffor $ontempt# and ruling as follows&
























JH6R6;OR6# the petitioners $onsolidated @otion to $ite Sheriff and Ri.al $ommercial Ban+ing$orporation for $ontempt and to %nnul :roceedings and Sale# dated ;eruar! # '(# should e as i s#here! D6NI6D"Jhile we cannot direct the Register of Deeds to allow the consolidation of the titles suEect of theOmnius @otion dated Septemer '# '(9 filed ! the Ri.al $ommercial an+ing $orporation# andtherefore# denies said @otion# neither can this $ommission restrain the said an+ and the Register ofDeeds from effecting the said consolidation"SO ORD6R6D"/p" '2*# Rollo"0B! virtue of the aforesaid order# the Register of Deeds of :asa! $it! effected the transfer of title oversuEect pieces of propert! to petitioner R$B$# and the issuance of new titles in its name" Thereafter#R$B$ presented a motion for the dismissal of the petition# theori.ing that the issuance of said newtransfer certificates of title in its name rendered the petition moot and academic"In the decision sought to e reconsidered# a greatl! divided $ourt />ustices <utierre.# Nocon# and @eloconcurred with the ponente # >ustice @edialdea= $hief >ustice Narvasa# >ustices Bidin# Regalado# andBellosillo concurred onl! in the result= while >ustice ;eliciano dissented and was Eoined ! >ustice :adilla#then >ustice# now $hief >ustice Davide# and >ustice Romero= >ustices <rio7%uino and $ampos too+ nopart0 denied petitioners motion to dismiss# finding asis for nullif!ing and setting aside the T$Ts in thename of R$B$" Ruling on the merits# the $ourt upheld the decision of the Intermediate %ppellate $ourtwhich dismissed the mandamus case filed ! R$B$ and suspended the issuance of new titles toR$B$" Setting aside R$B$s acuisition of title and nullif!ing the T$Ts issued to it# the $ourt held that&" " " whenever a distressed corporation as+s the S6$ for rehailitation and suspension of pa!ments#preferred creditors ma! no longer assert such preference# ut " " " stand on eual footing with o thercreditors" ;oreclosure shall e disallowed so as not to preEudice other creditors# or cause discriminationamong them" If foreclosure is underta+en despite the fact that a petition for rehailitation has eenfiled# the certificate of sale shall not e delivered pending rehailitation" ?i+ewise# if this has a lso eendone# no transfer of title shall e effected also# within the period of rehailitation" The rationale ehind:D (387%# as amended# is to effect a feasile and viale rehailitation" This cannot e achieved if onecreditor is preferred over the others"In this connection# the prohiition against foreclosure attaches as soon as a petition for rehailitation i sfiled" Jere it otherwise# what is to prevent the petitioner from dela!ing the creation of a @anagement$ommittee and in the meantime dissipate all its assets" The sooner the S6$ ta+es over and imposes afree.e on all the assets# the etter for all concerned"/pp" 897899# Rollo= also p" *# 8'* S$R% *34'((85"0Then >ustice ;eliciano /Eoined ! three other >ustices0# dissented and voted to grant the petition" Heopined that the S6$ acted prematurel! and without Eurisdiction or l egal authorit! in enEoining R$B$ andthe sheriff from proceeding with the pulic auction sale" The dissent maintain that Section 9 /c0 of:residential Decree (387% is clear and uneuivocal that# claims against the corporations# partnerships# orassociations shall e suspended onl! upon the appointment of a management committee# rehailitationreceiver# oard or od!" Thus# in the case under consideration# onl! upon the appointment of the@anagement $ommittee for B; Homes on @arch '# '(# should the suspension of actions for claimsagainst B; Homes have ta+en effect and not earlier"In support of its motion for reconsideration# R$B$ contends&The restraining order and the writ of preliminar! inEunction issued ! the Securities and 6xchange$ommission enEoining the foreclosure sale of the properties of respondent B; Homes were issuedwithout or in excess of its Eurisdiction ecause it was violative of the clear provision of :residentialDecree No" (387%# and are therefore null and void= and:etitioner# eing a mortgage creditor# is entitled to rel! solel! on its s ecurit! and to refrain from Eoiningthe unsecured creditors in S6$ $ase No" 3389(*# the petition for rehailitation fi led ! privaterespondent"Je find the motion for reconsideration meritorious"The issue of whether or not preferred creditors of distressed corporations stand on eual footing with allother creditors gains relevance and materialit! onl! upon the appointment of a management committee#rehailitation receiver# oard# or od!" Insofar as petitioner R$B$ is concerned# the provisions of:residential Decree No" (387% are not !et applicale and it ma! still e allowed to assert its preferredstatus ecause it foreclosed on the mortgage prior to the appointment of the management committeeon @arch '# '(" The $ourt# therefore# grants the motion for reconsideration on this score"The law on the matter# :aragraph /c0# Section 9 of :residential Decree (387%# provides&Sec" 9" In order to effectivel! exercise such Eurisdiction# the $ommission shall possess the foll owingpowers&c0 To appoint one or more receivers of the propert!# real and personal# which is the suEect of the actionpending efore the $ommission in accordance with the pertinent provisions of the Rules of $ourt i n suchother cases whenever necessar! to preserve the rights of the parties7litigants to andor protect theinterest of the investing pulic and creditors= :rovided# however# that the $ommiss ion ma!# inappropriate cases# appoint a rehailitation receiver of corporations# partnerships or other associationsnot supervised or regulated ! other government agencies who shall have# in addition to the powers ofa regular receiver under the provisions of the Rules of $ourt# such functions and powers as are providedfor in the succeeding paragraph /d0 hereof& :rovided# finall!# That upon appointment of a managementcommittee# rehailitation receiver# oard or od!# pursuant to this Decree # all actions for claims againstcorporations# partnerships or associations under management or receivership pending efore an! court#triunal# oard or od! shall e suspended accordingl! " /%s amended ! :Ds No" '9)*# ') and ! :DNo" ')((" 6mphasis supplied"0It is thus adeuatel! clear that suspension of claims against a corporation under rehailitation iscounted or figured up onl! upon the appointment of a management committee or a rehailitationreceiver" The holding that suspension of actions for claims against a corporation under rehailitationta+es effect as soon as the application or a petition for rehailitation is filed with the S6$ ma!# to some#e more logical and wise ut unfortunatel!# such is incongruent with the clear language of the law" Toinsist on such ruling# no matter how practical and nole# would e to encroach upon legislativeprerogative to define the wisdom of the law plainl! Eudicial legislation"It ears stressing that the first and fundamental dut! of the $ourt is to appl! the law" Jhen the law isclear and free from an! dout or amiguit!# there is no room for construction or interpretation" %s haseen our consistent ruling# where the law spea+s in clear and categorical language# there is no occasionfor interpretation= there is onl! room for application /$eu :ortland $ement $o" vs" @unicipalit! of Naga #82 S$R% )3 4'(950"Jhere the law is clear and unamiguous# it must e ta+en to mean exactl! what it sa!s and the courthas no choice ut to see to i t that its mandate is oe!ed /$hartered Ban+ 6mplo!ees %ssociation vs"Ople # '* S$R% 8)* 4'(5= ?u.on Suret! $o"# Inc" vs" De <arcia # *3 S$R% ''' 4'(9(5= -uiEano vs"Development Ban+ of the :hilippines # * S$R% 8)3 4'()350"Onl! when the law is amiguous or of doutful meaning ma! the court interpret or construe its trueintent" %miguit! is a condition of admitting two or more meanings# of eing understood in more thanone wa!# or of referring to two or more things at the same time" % statute is amiguous if it isadmissile of two or more possile meanings# in which case# the $ourt is called upon to exercise one ofits Eudicial functions# which i s to interpret the law according to its true intent";urthermore# as relevantl! pointed out in the dissenting opinion# a petition for rehailitation does notalwa!s result in the appointment of a receiver or the creation of a management committee" The S6$ hasto initiall! determine whether such appointment is appropriate and necessar! under thecircumstances" 1nder :aragraph /d0# Section 9 of :residential Decree No" (387%# certain situations muste shown to exist efore a management committee ma! e created or appointed# such as='" when there is imminent danger of dissipation# loss# wastage or destruction of assets or otherproperties= or8" when there is parali.ation of usiness operations of such corporations or entities which ma! epreEudicial to the interest of minorit! stoc+holders# parties7litigants or to the general pulic"On the other hand# receivers ma! e appointed whenever&'" necessar! in order to preserve the rights of the parties7litigants= andor8" protect the interest of the investing pulic and creditors" /Section 9 /c0# :"D" (387%"0

These situations are rather serious in nature# reuiring the appointment of a management committee ora receiver to preserve the existing assets and propert! of the corporation in order to protect theinterests of its investors and creditors" Thus# in such situations# suspension of actions for claims againsta corporation as provided in :aragraph /c0 of Section 9# of :residential Decree No" (387% is necessar!#and here we orrow the words of the late >ustice @edialdea# so as not to render the S6$ management$ommittee irrelevant and inutile and to give it unhampered rescue efforts over the distressed firm/Rollo# p" 890"Otherwise# when such circumstances are not otaining or when the S6$ finds no such imminent dangerof losing the corporate assets# a management committee or rehailitation receiver need not eappointed and suspension of actions for claims ma! not e ordered ! the S6$" Jhen the S6$ does notdeem it necessar! to appoint a receiver or to create a management committee# it ma! e assumed# thatthere are sufficient assets to sustain the rehailitation plan and# that the creditors and investors areampl! protected":etitioner additionall! argues in its motion for reconsideration that# eing a mortgage creditor# it isentitled to rel! on its securit! and that it need not Eoin the unsecured creditors in filing their claimsefore the S6$7appointed receiver" To support its position# petitioner cites the $ourts ruling in the caseof :hilippine $ommercial International Ban+ vs" $ourt of %ppeals # /')8 S$R% 2*9 4'((50 that an orderof suspension of pa!ments as well as actions for claims applies onl! to claims of unsecured creditors andcannot extend to creditors holding a mortgage# pledge# or an! lien on the propert!"Ordinaril!# the $ourt would refrain from discussing additional matters such as that presented in R$B$ssecond ground# and would rather limit itself onl! to the relevant issues ! which the controvers! ma! esettled with finalit!"In view# however# of the significance of such issue# and the conflicting decisions of this $ourt on thematter# coupled with the fact that our decision of Septemer '2# '((8# if not clarified# might mislead theBench and the Bar# the $ourt resolved to discuss further"It ma! e recalled that in the herein en anc maEorit! opinion /pp" 8978)# Rollo# also pulishedas R$B$ vs" I%$ # 8'* S$R% *3 4'((850# we held that&" " " whenever a distressed corporation as+s the S6$ for rehailitation and suspension of pa!ments#preferred creditors ma! no longer assert such preference# ut " " " stand on eual footing with othercreditors" ;oreclosure shall e disallowed so as not to preEudice other creditors# or cause discriminationamong them" If foreclosure is underta+en despite the fact that a petition for rehailitation has eenfiled# the certificate of sale shall not e delivered pending rehailitation" ?i+ewise# if this has a lso eendone# no transfer of title shall e effected also# within the period of rehailitation" The rationale ehind:D (387%# as amended# is to effect a feasile and viale rehailitation" This cannot e achieved if onecreditor is preferred over the others"In this connection# the prohiition against foreclosure attaches as soon as a petition for rehailitation i sfiled" Jere it otherwise# what is to prevent the petitioner from dela!ing the creation of a @anagement$ommittee and in the meantime dissipate all its assets" The sooner the S6$ ta+es over and imposes afree.e on all the assets# the etter for all concerned"/pp" 897899# Rollo= also p" *# 8'* S$R% *34'((85" 6mphasis supplied"0The foregoing maEorit! opinion relied upon B; Homes# Inc" vs" $ourt of %ppeals /'(3 S$R% 898 4'((35per $ru.# >"& ;irst Division0 where it was held that when a corporation threatened ! an+ruptc! is ta+enover ! a receiver# all the creditors should stand on an eual footing" Not an!one of them should egiven preference ! pa!ing one or some of them ahead of the others" This is precisel! the reason forthe suspension of all pending claims against the corporation under receivership" Instead of creditorsvexing the courts with suits against the distressed firm# the! are directed to file their claims with thereceiver who is a dul! appointed officer of the S6$ /pp" 89(78)3= emphasis in the original0" This ruling isa reiteration of %lemars Sial L Sons# Inc" vs" Hon" >esus @" 6linias /pp" ((7'33='9 S$R% (2 4'((3per;ernan# $">"& Third Division0"Ta+ing the lead from %lemars Sial L Sons# the $ourt also applied this same ruling in %raneta vs" $ourtof %ppeals /8'' S$R% *(3 4'((85 per Nocon# >"& Second Division0"

%ll the foregoing cases departed from the ruling of the $ourt in the much earlier case of :$IB vs" $ourtof %ppeals /')8 S$R% 2*9 4'((5 per @edialdea# >"& ;irst Division0 where the $ourt categoricall! ruledthat&S6$s order for suspension of pa!ments of :hilfinance as well as for all actions of claims against:hilfinance could onl! e applied to claims of unsecured creditors"Such order can not extend to creditorsholding a mortgage# pledge or an! lien on the propert! unless the! give up the propert!# securit! or lienin favor of all the creditors of :hilfinance" " "/p" 223" 6mphasis supplied0Thus# in B:I vs" $ourt of %ppeals /88( S$R% 88* 4'((25 per Bellosillo# >"& ;irst Division0the $ourtexplicitl! stated that " " " the doctrine in the :$IB $ase has since een arogated" In %lemars Sial LSons v" 6linias# B; Homes# Inc" v" $ourt of %ppeals# %raneta v" $ourt of %ppeals and R$B$ v" $ourt of

%ppeals # we alread! ruled that whenever a distressed corporation as+s S6$ for rehailitation andsuspension of pa!ments# preferred creditors ma! no longer assert such preference# ut shall stand oneual footing with other creditors" " " /pp" 88)7880"It ma! e stressed# however# that of all the cases cited ! >ustice Bellosillo in B:I # which aandoned the$ourts ruling in :$IB # onl! the present case satisfies the constitutional reuirement that no doctrine orprinciple of law laid down ! the court in a decision rendered en anc or in division ma! e modified orreversed except ! the court sitting en anc /Sec 2# %rticle VIII# '() $onstitution0" The rest weredivision decisions"It ehooves the $ourt# therefore# to settle the issue in this present resolution once and for all# and forthe guidance of the Bench and the Bar# the following rules of thum shall a re laid down&'" %ll claims against corporations# partnerships# or associations that are pending efore an! court#triunal# or oard# without distinction as to whether or not a creditor is secured or unsecured# shall esuspended effective upon the appointment of a management committee# rehailitation receiver# oard#or od! in accordance with the provisions of :residential Decree No" (387%"8" Secured creditors retain their preference over unsecured creditors# ut enforcement of suchpreference is euall! suspended upon the appointment of a management committee# rehailitationreceiver# oard# or od!" In the event that the assets of the corporation# partnership# or association arefinall! liuidated# however# secured and preferred credits under the applicale provisions of the $ivil$ode will definitel! have preference over unsecured ones"In other words# once a management committee# rehailitation receiver# oard or od! is appointedpursuant to :"D" (387%# all actions for claims against a distressed corporation pending efore an! court#triunal# oard or od! shall e suspended accordingl!"This suspension shall not preEudice or render ineffective the status of a secured creditor as compared toa totall! unsecured creditor" :"D" (387% does not state an!thing to this effect"Jhat it merel! provides isthat all actions for claims against the corporation# partnership or association shall e suspended" Thisshould give the receiver a chance to rehailitate the corporation if there should still e a possiilit! fordoing so" /This will e in consonance with %lemars # B; Homes # %raneta # and R$B$ insofar as enforcingliens ! preferred creditors are concerned"0However# in the event that rehailitation is no longer feasile and claims against the distressedcorporation would eventuall! have to e settled# the secured creditors shall enEo! preference over theunsecured creditors /still maintaining :$IB ruling0# suEect onl! to the provisions of the $ivil $ode on$oncurrence and :references of $redit /our ruling in State Investment House# Inc" vs" $ourt of %ppeals#8)) S$R% 83( 4'(()50"The maEorit! ruling in our '((8 decision that preferred creditors of distressed corporations shall# in awa!# stand on eual footing with all other creditors# must e read and understood in the light of theforegoing rulings" %ll claims of oth a secured or unsecured creditor# without distinction on this score#are suspended once a management committee is appointed" Secured creditors# in the meantime# shallnot e allowed to assert such preference efore the Securities and 6xchange $ommission" It ma! estressed# however# that this shall onl! ta+e effect upon the appointment of a management committee#rehailitation receiver# oard# or od!# as opined in the dissent"In fine# the $ourt grants the motion for reconsideration for the cogent reason that suspension of actionsfor claims commences onl! from the time a management committee or receiver is appointed ! theS6$" :etitioner R$B$# therefore# could have rightfull!# as i t did# move for the extraEudicial foreclosure of



its mortgage on Octoer 89# '(2 ecause a management committee was not appointed ! the S6$until @arch '# '("IEREFRE# petitioners motion for reconsideration is here! <R%NT6D" The decision datedSeptemer '2# '((8 is vacated# the decision of Intermediate %ppellate $ourt in %$7<"R" No" S:739*'*R6V6RS6D and S6T %SID6# and the Eudgment of the Regional Trial $ourt National $apital >udicialRegion# Branch '23# in $ivil $ase No" '3328 R6INST%T6D"S RDERED.



G.R. No. L-3B649 &!r:8 26, 1979

FA$L$+$ES &ANAGE&EN+ RRA+$N, . S. DRE)ER, !"# . . A+$RA, petitioners#vs"LENARD DE LA RSA AND +E NRA*LE R+ F $NDS+R$ALRELA+$NS, respondents"S!cip# Sala.ar# ;eliciano L %ssociates for petitioners"BenEamin @" @endo.a for respondent $ourt" &AAS$AR, 05

:etition for review on certiorari of the decision of the $ourt of Industrial Relations# dated ;eruar! '2#'()8# ordering petitioners herein to pa! private respondent ?eonardo de la Osa his overtimecompensation# as wen as hi s swing shift and grave!ard shift premiums at the rate of fift! /30 percent of his asic sa /%nnex 6# p" *'# rollo0"The aforesaid decision was ased on a report sumitted ! the Hearing 6xaminer# $IR /Dagupan $it!Branch0# the pertinent portions of which are uoted hereinelow&&&In a petition filed on >ul! '# '(9)# ?eonardo dela Osa sought his reinstatement" with full ac+wages# aswell as the recover! of his overtime compensation# swing shift and grave!ard shift differentials":etitioner alleged that he was emplo!ed ! respondents as follows& /'0 painter with an hourl! rate ofZ'"8 from @arch# '(92 to Novemer# '(92# inclusive= /80 houseo! with an hourl! rate of Z'"89 fromDecemer# '(92 to Novemer# '(9# inclusive= /*0 houseo! with an hourl! rate of Z'"** fromDecemer# '(9 to %ugust# '(99# inclusive= and /20 cashier with an hourl! rate of Z'"23 from %ugust#'(99 to @arch 8)# '(9)# inclusive" He further averred that from Decemer# '(9 to %ugust# '(99#inclusive# he rendered overtime services dail! and that this entire period was divided into swing andgrave!ard shifts to which he was assigned# ut he was not paid oth overtime and night shift premiumsdespite his repeated demands from respondents"Respondents filed on %ugust )# '(9) their letter7 answer without sustantiall! den!ing the materialallegations of the asic petition ut interposed the following special defenses# namel!& That respondents;acilities @anagement $orporation and >" S" Dre!er are domiciled in Ja+e Island which is e!ond theterritorial Eurisdiction of the :hilippine <overnment= that respondent >" V" $atuira# though an emplo!eeof respondent corporation presentl! stationed in @anila# is without power and authorit! of legalrepresentation= and that the emplo!ment contract etween petitioner and respondent corporationcarries 7the approval of the Department of ?aor of the :hilippines"Suseuentl! on @a! *# '(9" respondents filed a motion to dismiss the suEect petition on the groundthat this $ourt has no >urisdiction over the instant case# and on @a! 82# '(9# petitioner interposed anopposition thereto" Said motion was denied ! this $ourt in its Order issued on >ul! '8# '(9 sustaining

Eurisdiction in accordance with the prevailing doctrine of the Supreme $ourt in similar cases"xxx xxx xxx

But efore we consider and discuss the foregoing issues# let us first ascertain if this $ourt could acuire Eurisdiction over the case at ar# it having een contended ! respondents that the! are domiciled inJa+e Island which is e!ond the territorial Eurisdiction of the :hilippine <overnment" To this incidentaluestion# it ma! e stated that while it is true the site of wor+ is Identified as Ja+e Island# it is euall!true the place of hire is estalished in @anila /See Section B# ;il ipino 6mplo!ment $ontract# 6xhiit F'F0"@oreover# what i s important is the fact that the contract of emplo!ment etween the parties litigant wasshown to have een originall! executed and suseuentl! renewed in @anila# as asserted ! petitionerand not denied ! respondents" Hence# an! dispute arising therefrom should necessaril! e determinedin the place or venue where it was contracted"

xxx xxx xxx;rom the evidence on hand# it has een proven e!ond dout that petitioner canvas assigned to andperformed wor+ in respondent compan! at slight time which consisted of two different schedules#namel!# swing shift and grave!ard shifts# particularl! during his tenure as houseo! for the secondperiod and as cashi er" :etitionerFs testimon! to this effect was not contradicted# much less reutted# !respondents# as revealed ! the records" Since petitioner actuall! rendered night time services asreuired ! respondents# and considering the ph!sical# moral and sociological effects arising from theperformance of such nocturnal duties# we thin+ and honestl! elieve that petitioner should ecompensated at least fift! percent /30 more than his asic wage rate" This night shift premium pa!would indeed e at par with the overtime compensation stipulated at one and one7half /' [0 times ofthe straight time rate"

xxx xxx xxx /pp" *'7*9# rollo0" %propos efore this $ourt were filed three /*0 other cases involving the same petitioner# all of which hadeen finall! dispoded of# as follows&<"R" No Date of ;iling Disposition'" ?7*)'') >ul! *3# '()* :etition denied forlac+ of merit on Sept"'*# '()*" @otion forReconsiderationdenied lac+ of merit# Nov" 83#'()*"8" ?7*)' >une ')#'()2 :etition denied forlac+ of merit on >une8'#'()2"*" ?7*('''7'8 Sept" 8#'()2 $ase dismissed on ;e"9# '()9# pursuant tovoluntar! manifestation of private respondent Inocente R" Rielthat his claims had alleen settled to his entiresatisfaction"Incidentall!# in connection with <"R" No" ?7*('''7'8 /No" * aove0# J6 found strong evidence thatpetitioner therein# which is also the petitioner in the case at ar# ,twisted the arm, of privaterespondent# when the latter in his @anifestation dated >ul! *# '()# stated&*" """ ;urthermore# since petitioner ;@$ is a foreign corporation domiciled in $alifornia# 1"S"%" and hasnever een engaged in usiness in the :hilippines# nor does it have an agent or an office in this countr!#there exists no valid reason for me to participate in the continuation andor prosecution of this case /p"'(2# rollo0"

P as if Eurisdiction depends on the will of the parties to a case" %t an! rate# considering that petitionerpaid the claims of private respondent# the case had ecome moot and academic" Besides# the fact ofsuch pa!ment amounts to an ac+nowledgment on the part of petitioner of the Eurisdiction of the courtover it"J6 have also noted that the principal uestion involved in each of the aove7numered three /*0 casesis more or less Identical# to wit& Is the mere act ! a non7resident foreign corporation of recruiting;ilipino wor+ers for its own use aroad# in law doing usiness in the :hilippinesKIn the case at ar# which was filed with this $ourt on >une *# '()2# petitioners presented# inter alia# thefollowing issue& """ can the $IR validl! affirm a Eudgment against persons domiciled outside and notdoing usiness in the :hilippines# and over whom it did not acuire EurisdictionF0Jhile it is true that the i ssues presented in the decided cases are worded differentl! from the principalissue raised in the case at ar# the fact remains that the! all oil down to one and the same issue# whichwas aptl! formulated and al! resolved ! @r" >ustice Ramon $" ;ernande.# then with the $ourt of

%ppeals and now a memer of this $ourt# in $%7<"R" No" S:73'27R# later elevated to this $ourt onappeal ! certiorari in $ase <"R" No" ?7*)'') this case# the maEorit! opinion of the $ourt of %ppeals#which was penned ! >ustice ;ernande. and which J6 here! adopt# runs as follows &The principal issue presented in this special civil action is whether petitioner has een Fdoing usiness inthe :hilippinesF so that the service of summons upon its agent in the :hilippines vested the $ourt of ;irstInstance of @anila with Eurisdiction";rom the facts of record# the petitioner ma! e considered as doing usuness un the :hilippines withinthe the scope of Section '2# Rule '2 of the Rules of the $ourt which provide&

S6$ '2" Service upon private foreign corporations" If the defendant is a foreign corporation or a non7resident Eoint stoc+ compan! or association& doing usiness i n the :hilippines# service ma! e made onits resident agent designated in accordance with law for that purpose or# if there e no such agent# onthe government official designated ! law to that effect# or on an! of its officers or agents within the:hilippines"Indeed# the petitioner# in compliance with %ct 829 as implemented ! Department of ?aor Order No"IV dated @a! 83# '(9 had to appoint >aime V" $atuira# '*88 %" @aini# 6rmita# @anila as agent for ;@$with authorit! to execute 6mplo!ment $ontracts and receive# in ehalf of that corporation# legal servicesfrom and e ound ! processes of the :hilippine $ourts of >ustice# for as long as he remains anemplo!ee of ;@$ /%nnex FIF# rollo# p" 90" It is a fact that when the summons for the petitioner wasserved on >aime V" $atuira he was still in the emplo! of the ;@$"In his motion to dismi ss %nnex BF# p" '(# Rollo0# petitioner admits that @r" $atuira represented it in thiscountr! Ffor the purpose of ma+ing arrangements for the approval ! the Department of ?aor of theemplo!ment of ;ilipinos who a re recruited ! the $ompan! as its own emplo!ees for assignmentaroad"F In effect# @r" $atuira was a on officer representing petitioner in the :hili ppines"1nder the rules and regulations promulgated ! the Board of Investments which too+ effect ;e" *#'(9(# implementing Rep" %ct No" 2# whi ch too+ effect Sept" *3# '(9# the phrase Fdoing usinessFhas een exemption with illustrations# among them eing as follows&

xxx xxx xxx/f0 the performance within the :hilippines of an! act or comination of acts enumerated in section l/l0 ofthe %ct shall constitute Fdoing usinessF therein" in particular# Fdoing usiness includes&/'0 Soliciting orders# purchases /sales0 or service contracts" $oncrete and specific solicitations ! aforeign firm# not acting independentl! of the foreign firm amounting to negotiation or fixing of the termsand conditions of sales or service contracts# regardless of whether the contracts are actuall! reduced towriting# shall constitute doing usiness even if the enterprise has no office or fixed place of usiness inthe :hilippines" xxx/80 %ppointing a representative or distriutor who is dociled in the :hilippines# unless said representativeor distriutor has an independent status# i"e"# it transacts usiness in its name and for its own account#and not in the name or for the account of the principal"

xxx xxx xxx/20 Opening offices# whether called FliaisonFoffices# agencies or ranches# unless proved otherwise"

xxx xxx xxx/'30 %n! other act or acts that impl! a continuit! of commercial dealings or arrangements# andcontemplate to that extent the performance of acts or wor+s# or the exercise of some of the functionsnormall! incident to# or in the progressive prosecution of# commercial gain or of the purpose andoEective of the usiness organi.ation /2 O"<" *0"Recentl! decided ! this $ourt P again thru @r" >ustice Ramon $" ;ernande. P which is similar to thecase at ar# is <"R" No" ?7893(# entitled %etna $asualt! L $uret! $ompan!# plaintiff7 appellant versus:acific Star ?ine# the Bradman $o"# Inc"# @anila :ort Service andor @anila Railroad $ompan!# Inc"#defendants7appellees ", The case is an appeal from the decision of the $ourt of ;irst Instance of @anila#Branch VI# in its $ivil $ase No" *3)2# entitled %etna $asualt! L Suret! $ompan! vs" :acific Star ?ines#The Bradman $o"# Inc"# @anila :ort Service andor @anila Railroad $ompan!# Inc", dismissing thecomplaint on the ground that the plaintiff has no legal capacit! to ring the suit"It appears that on ;eruar! ''# '(9*# Smi th Bell L $o" /:hilippines0# Inc" and %etna $asualt! L Suret!$o"# Inc"# as surogee instituted $ivil $ase No" *3)2 in the $ourt of ;irst Instance of @anila against:acific Star ?ine# The Bradman $o"# Inc"# @anila :ort Service andor @anila Rail road $ompan!# Inc" torecover the amount of 1SZ8#*33"33 representing the value of stolen and damaged cargo plus li tigationexpenses and exemplar! damages in the amounts of :'#333"33 and :8#333"33# respectivel!# with legalinterest thereon from the filing of the suit and costs"

%fter all the defendants had filed their answer# the defendants @anila :ort Service and @anila Railroad$ompan!# Inc" amended their answer to all ege that the plaintiff# %etna $asualt! L Suret! $ompan!# is aforeign corporation not dul! licensed to do usiness in the :hilippines and# therefore# without capacit! tosue and e sued"

%fter the parties sumitted a partial stipulation of facts and additional documentar! evidence# the casewas sumitted for decision of the trial court# whi ch dismissed the complaint on the ground that theplaintiff insurance compan! is suEect to the reuirements of Sections 9 and 9( of %ct '2(# asamended# and for its failure to compl! therewith# it has no legal capacit! to ring suit in this Eurisdiction":laintiff appealed to this $ourt"The main issue involved in the appeal is whether or not the plaintiff appellant has een doing usinessin the :hilippines# considering the fact that it has no license to transact usiness in the :hilippines as aforeign corporation" J6 ruled&The oEect of Sections 9 and 9( of the $orporation ?aw was not to prevent the foreign corporationfrom performing single acts# ut to prevent it from acuiring a domicile for the purpose of usinesswithout ta+ing the steps necessar! to render it amenale to suit in the local courts" It was never thepurpose of the ?egislature to exclude a foreign corporation which happens to otain an isol ated orderfor usiness from the :hilippines# from securing redress in the :hili ppine courts /@arshall $o" vs" 6lser L$o"# 29 :hil )3#)0"In @entholatum $o"# Inc"# et al vs7 @ $ourt rules that7No general rule or governing principle can e laid down as to what constitutes FdoingF or Fengaging inF orFtransactingF usiness" Indeed# each case must e Eudged in the light of its peculiar environmentalcircumstances" The true test# however# seems to e whether the foreign corporation i s continuing theod! or sustance of the usiness or enterprise for which it was organi.ed or whether it hassustantiall! retired from it and turned it over to another" /Traction $os" v" $ollectors of Int Revenue4$"$"% Ohio5# 88* ;" (2# ()0" The term implies a continuit! of commercial dealings and a rrangements#and contemplates# to that extent# the performance of acts or wor+s or the exercise of s ome of thefunctions normall! incident to# and in progressive prosecution of# the purpose and oEect of itsorgani.ation /<riffin v" Implement DealersF @ut" ;ire Ins" $o"# 82' N"J" )# ))= :auline Oil L <as $o" v"@utual Tan+ ?ine $o"# 829 :" '# 8# '' O+l" III= %utomotive @aterial $o" vs" %merican Standard@etal :roducts $orp"# ' N"6" 9(# )3*# *8) III" *9)0F" )8 :hil" 82# 878("

%nd in 6astoard Navigation# ?td"# et al" vs" >uan Gsmael L $o"# Inc"# this $ourt held&/d0 Jhile plaintiff is a foreign corporation without license to transact usiness in the :hilippines# it doesnot follow that it has no capacit! to ring the present action" Such license is not necessar! ecause it isnot engaged in usiness in the :hilippines" In fact# the transaction herein involved is the first usinessunderta+en ! plaintiff in the :hilippines# although on a previous occasion plaintiffFs vessel waschartered ! the National Rice and $orn $orporation to carr! rice cargo from aroad to the :hilippines"These two isolated transactions do not constitute engaging in usiness in the :hilippines within thepurview of Sections 9 and 9( of the $orporation ?aw so as to ar plaintiff from see+ing redress in ourcourts" /@arshall Jens $o" vs" Henr! J" 6lser L $o" 2( :hil"# )3= :acific Vegetale Oil $orporation vs"

%ngel O" Singson# <"R" No" ?7)(')# %pril 8(# '(0F" '38 :hil"# pp" '# '"Based on the rulings laid down in the foregoing cases# it cannot e said that the %etna $asualt! LSuret! $ompan! is transacting usiness of insurance in the :hilippines for which it must have a l icense"The $ontract of insurance was entered into in New Gor+# 1"S"%"# and pa!ment was made to theconsignee in its New Gor+ ranch" It appears from the list of cases issued ! the $ler+ of $ourt of the$ourt of ;irst Instance of @anil a that all the actions# except two /80 cases filed ! Smith# Beer L $o"#Inc" against the %etna $asualt! L Suret! $ompan!# are claims against the shipper and the arrastreoperators Eust li+e the case at ar"$onseuentl!# since the appellant %etna $asualt! L Suret! $ompan! is not engaged in the usiness ofinsurance in the :hilippines ut is merel! collecting a claim assigned to it ! the consignee# it is notarred from filing the instant case although it has not secured a license to transact insurance usiness inthe :hilippines"Indeed# if a foreign corporation# not engaged in usiness in the :hilippines# i s not anned from see+ingredress from courts in the :hilippines# a fortiori # that same corporation cannot claim exemption fromeing sued in :hilippine courts for acts done against a person or persons in the :hilippines"JH6R6;OR6# TH6 :6TITION IS H6R6BG D6NI6D JITH $OSTS %<%INST TH6 :6TITION6RS"SO ORD6R6D"Teehan+ee /$hairman0# ;ernande.# <uerrero# De $astro# and @elencio Herrera# >>"# concur"



G.R. No. L-343B2 ;= 20, 19B3+E &E $NSRANE &AN), petitioner#vs"EAS+ERN S$$NG L$NES !"#or ANGEL SE +RANSR+A+$N, $N. !"# N. A.

&ELEN$-ERRERA, res'#'"< ;#<e o t8e &!"'! o;rt o F'rst $"st!":e, *r!":8 %$$, respondents"G.R. No. L-343B3 ;= 20, 19B3+E &E $NSRANE &AN), petitioner#vs"N. . NEDLL)D L$NENJ L&*$AN $L$$NES, $N., !"#or GADS, $N., !"#

N. A. &ELEN$-ERRERA, res'#'"< ;#<e o t8e &!"'! o;rt o F'rst $"st!":e, *r!":8 %$$, respondents"No" ?7*2*8"Capa ?aw Office for petitioner"Bito# @isa L ?o.ada ?aw Office for respondents"No" ?7*2**"Capa ?aw Office for petitioner"Ross# Salcedo# Del Rosario# Bito L @isa ?aw o ffice for respondents" G+$ERRE, R., 0.5

-uestioned in these consolidated petitions for review on certiorari are the decisions of the $ourt of ;irstInstance of @anila# Branch VII# dismissing the complaints in $ivil $ase No" )'(8* and in $ivil $ase No")'9(2# on the ground that plaintiff therein# now appellant# had failed to prove its capacit! to sue"There is no dispute over the facts of these cases for recover! of maritime damages" In ?7*2*8# thefacts are found in the decision of the respondent court which stated&On or aout >anuar! '*# '(9)# S" AaEita L $o"# on ehalf of %tlas $onsolidated @ining L Development$orporation# shipped on oard the SS ,6astern >upiterF from Osa+a# >apan# 8#*9' coils of ,Blac+ HotRolled $opper Jire Rods", The said V6SS6? is owned and operated ! defendant 6astern Shipping ?ines/$%RRI6R0" The shipment was covered ! Bill of ?ading No" O7@%7(# with arrival notice to :helps Dodge$opper :roducts $orporation of the :hilippines /$ONSI<N660 at @anila" The shipment was insured withplaintiff against all ris+s in the amount of :'#3#'3"39 under its Insurance :olic! No" %S7)*9**"xxx xxx xxxThe coils discharged from the V6SS6? numered 8#*9'# of which * were in ad order" Jhat the$ONSI<N66 ultimatel! received at its warehouse was the same numer of 8#*9' coils with )* coils looseand partl! cut# and 8 coils entangled# partl! cut# and which had to e considered as scrap" 1ponweighing at $ONSI<N66Fs warehouse# the 8#*9' coils were found to weight 89*#(23" +ilos as againstits invoiced weight of 892#*2"33 +ilos or a net lossshortage of (*"' +ilos# according to 6xhiit ,%,# or'#83(#9 ls"# according to the claims presented ! the consignee against the plaintiff /6xhiit ,D7',0#the $%RRI6R /6xhiit ,>7',0# and the TR%NS:ORT%TION $O@:%NG /6xhiit ,A7 l,0";or the lossdamage suffered ! the cargo# plaintiff paid the consignee under its insurance polic! theamount of :*#893"22# ! virtue of which plaintiff ecame surogated to the rights and actions of the$ONSI<N66" :laintiff made demands for pa!ment against the $%RRI6R and the TR%NS:ORT%TION$O@:%NG for reimursement of the aforesaid amount ut each refused to pa! the same" """The facts of ?7*2** are found in the decision of the lower court as follows&On or aout Decemer 88# '(99# the Hansa Transport Aontor shipped from Bremen# <erman!# *3pac+ages of Service :arts of ;arm 6uipment and Implements on oard the V6SS6?# SS ,N6D6R RI>N,owned ! the defendant# N" V" Nedllo!d ?iEnen# and represented in the :hilippines ! its local agent# thedefendant $olumian :hilippines# Inc" /$%RRI6R0" The shipment was covered ! Bill of ?ading No" 88 fortransportation to# and deliver! at# @anila# in favor of the consignee# international Harvester @acleod#Inc" /$ONSI<N660" The shipment was insured with plaintiff compan! under its $argo :olic! No" %S7)*)* ,with average terms, for :(#9)")("xxx xxx xxxThe pac+ages discharged from the V6SS6? numered 8(# of which seven pac+ages were found to e inad order" Jhat the $ONSI<N66 ultimatel! received at its warehouse was the same numer of 8(pac+ages with ( pac+ages in ad order" Out of these ( pac+ages# ' pac+age was accepted ! the$ONSI<N66 in good order due to the negligile damages sustained" 1pon inspection at the consigneeFswarehouse# the contents of * out of the cases were also found to e complete and intact# leaving cases in ad order" The contents of these pac+ages showed several items miss ing in the total amountof Z'*'"'2= while the contents of the undelivered ' pac+age were valued at Z*(2"99# or a total ofZ8"3 or :8#289"(";or the short7deliver! of ' pac+age and the missing items in other pac+ages# plaintiff paid the$ONSI<N66 under its Insurance $argo :olic! the amount of :8#289"(# ! virtue of which plaintiffecame surogated to the rights and actions of the $ONSI<N66" Demands were made on defendants$%RRI6R and $ONSI<N66 for reimursement thereof ut the! failed and refused to pa! the same"In oth cases# the petitioner7appellant made the following averment regarding its capacit! to sue&The plaintiff is a foreign insurance compan! dul! authori.ed to do usiness in the :hilippines through itsagent# @r" VI$TOR H" B6??O# of legal age and with office address at Oledan Building# %!ala %venue#@a+ati# Ri.al"In ?7*2*8# the respondent7appellee 6astern Shipping ?ines# Inc"# filed its answer and all eged that it&Denies the allegations of :aragraph I which refer to plaintiffFs capacit! to sue for lac+ of +nowledge orinformation sufficient to form a elief a s to the truth thereof"Respondent7appellee# %ngel >ose Transportation# Inc"# in turn filed its answer admitting the a llegationsof the complaint# regarding the capacit! of plaintiff7appellant" The pertinent paragraph of this answerreads as follows&

%ngel >ose %dmits the Eurisdictional averments in paragraphs '# 8# and * of the heading :arties"In ?7*2**# the respondents7appellees N" V" Nedllo!d ?iEhen# $olumian :hilippines# Inc" and <uacods#Inc"# filed their answers" The! denied the petitioner7appellantFs capacit! to sue for lac+ of +nowledge orinformation sufficient to form a elief a s to the truth thereof"

%s earlier stated# the respondent court dismissed the complaints in the two cases on the same ground#that the plaintiff failed to prove its capacit! to sue" The court reasoned as follows&

In the opinion of the $ourt# if plaintiff had the capacit! to sue# the $ourt should hold that a0 defendant6astern Shipping ?ines should pa! plaintiff the sum of :'#9*3"88 with interest at the legal rate from>anuar! # '(9# the date of the institution of the $omplaint# until full! paid= 0 defendant %ngel >oseTransportation# Inc" should pa! plaintiff the sum of :'#9*3"88 also with interest at the legal rate from>anuar! # '(9 until full! paid= c0 the counterclaim of defendant %ngel >ose transportation# Inc" shoulde ordered dismissed= and d0 each defendant to pa! one7half of the costs"

The $ourt is of the opinion that Section 9 of the $orporation ?aw reflects a polic! designed to protectthe pulic interest" Hence# although defendants have not raised the uestion of plaintiffFs compliancewith that provision of law# the $ourt has resolved to ta+e the matter into account"

% suing foreign corporation# li+e plaintiff# has to plead affirmativel! and prove either that the transactionupon which it ases its complaint is an isolated one# or that it i s licensed to transact usiness in thiscountr!# failing which# it will e deemed that it has no valid cause of action /%tlantic @utual Ins" $o" vs"$eu Stevedoring $o"# Inc"# ') S$R% '3*)0" In view of the numer of cases filed ! plaintiff efore this$ourt# of which Eudicial cogni.ance can e ta+en# and under the ruling in ;ar 6ast International Importand 6xport $orporation vs" Han+ai Aoa!o $o "# 9 S$R% )8# it has to e held that plaintiff is doingusiness in the :hilippines" $onseuentl!# it must have a license under Section 9 of the $orporation?aw efore it can e allowed to sue"

The situation of plaintiff under said Section 9 has een descried as follows in $ivil $ase No" )'(8* ofthis $ourt# entitled FHome Insurance $o" vs" N" V" Nedllo!d ?iEnen # of which Eudicial cogni.ance can alsoe ta+en&

6xhiit ,R,#presented ! plaintiff is a certified cop! of a license# dated >ul! '# '(9)# issued ! the Officeof the Insurance $ommissioner authori.ing plaintiff to transact insurance usiness in this countr!" B!virtue of Section ')9 of the Insurance ?aw# it has to e presumed that a license to transact usinessunder Section 9 of the $orporation ?aw had previousl! een issued to plaintiff" No cop! thereof#however# was sumitted for a reason un+nown" The date of that license must not have een muchanterior to >ul! '# '(9)" The preponderance of the evidence would therefore call for the finding that theinsurance contract involved in this case# which was executed at @a+ati# Ri.al# on ;eruar! # '(9)# wascontracted efore plaintiff was licensed to transact usiness i n the :hilippines"

This $ourt views Section 9 of the $orporation ?aw as reflective of a asic pulic polic!" Hence# it is ofthe opinion that# in the e!es of :hilippine law# the insurance contract involved in this case must e heldvoid under the provisions of %rticle '23( /'0 of the $ivil $ode# and could not e validated ! suseuentprocurement of the license" That view of the $ourt finds support in the following citation&

%ccording to man! authorities# a constitutional or statutor! prohiition against a foreign corporationdoing usiness in the state# unless such corporation has complied with conditions prescried# is effectiveto ma+e the contracts of such corporation void# or at least unenforceale# and prevents the maintenance! the corporation of an! action on such contracts" %lthough the usual construction is to the contrar!#and to the effect that onl! the remed! for enforcement is affected there!# a statute prohiiting a non7compl!ing corporation from suing in the state courts on an! contract has een held ! some courts torender the contract void and unenforceale ! the corporation# even after its has complied with thestatute", /*9 %m" >ur" 8d 8((7*330"xxx xxx xxxThe said $ivil $ase No" )'(8* was dismissed ! this $ourt" %s the insurance contract involved hereinwas executed on >anuar! 83# '(9)# the instant case should also e dismissed"Je resolved to consolidate the two cases when we gave due course to the petition"The petitioner raised the following assignments of errors&;irst %ssignment of 6rrorTH6 HONOR%B?6 TRI%? $O1RT 6RR6D IN $ONSID6RIN< %S %N ISS16 TH6 ?6<%? 6IST6N$6 OR$%:%$ITG O; :?%INTI;;7%::6??%NT"Second %ssignment of 6rrorTH6 HONOR%B?6 TRI%? $O1RT 6RR6D IN DIS@ISSIN< TH6 $O@:?%INT ON TH6 ;INDIN< TH%T:?%INTI;;7%::6??%NT H%S NO $%:%$ITG TO S16"On the asis of factual and euitale considerations# there is no uestion that the private respondentsshould pa! the oligations found ! the trial court as owing to the petitioner" Onl! the uestion ofvalidit! of the contracts in relation to lac+ of capacit! to sue stands in the wa! of the petitioner einggiven the affirmative relief it see+s" Jhether or not the petitioner was engaged in single acts or solitar!transactions and not engaged in usiness is li+ewise not in issue" The petitioner was engaged inusiness without a license" The private respondentsF oligation to pa! under the terms of the contractshas een proved"Jhen the complaints in these two cases were filed# the petitioner had alread! secured the necessar!license to conduct its insurance usiness in the :hilippines" It could alread! filed suits":etitioner was# therefore# telling the truth when it averred in its complaints that it was a foreigninsurance compan! dul! authori.ed to do usiness in the :hilippines through its agent @r" Victor H"Bello" However# when the insurance contracts which formed the asis of these cases were executed# thepetitioner had not !et secured the necessar! licenses and authorit!" The lower court# therefore# declaredthat pursuant to the asic pulic polic! reflected in the $orporation ?aw# the insurance contractsexecuted efore a license was secured must e held null and void" The court ruled that the contractscould not e validated ! the suseuent procurement of the license"The applicale provisions of the old $orporation ?aw# %ct '2(# as amended are&Sec" 9" No foreign corporation or corporations formed# organi.ed# or existing under an! laws other thanthose of the :hilippine Islands shall e permitted to transact usiness in the :hilippine Islands until afterit shall have otained a license for that purpose from the chief of the @ercantile Register of the Bureauof $ommerce and Industr!# /Now Securities and 6xchange $ommission" See R% 20 upon order of theSecretar! of ;inance /Now @onetar! Board0 in case of an+s# savings# and loan an+s# trustcorporations# and an+ing institutions of all +inds# and upon order of the Secretar! of $ommerceand $ommunications /Now Secretar! of Trade" See 2# section 2 for other reuirements0 in case of allother foreign corporations" """xxx xxx xxxSec" 9(" No foreign corporation or corporation formed# organi.ed# or existing under an! laws other thanthose of the :hilippine Islands shall e permitted to transact usiness in the :hilippine Islands ormaintain ! itself or assignee an! suit for the recover! of an! det# claim# or demand whatever# unless itshall have the license prescried in the section immediatel! preceding" %n! officer# director# or agent ofthe corporation or an! person transacting usiness for an! foreign corporation not having the licenseprescried shag e punished ! imprisonment for not less than six months nor more than two !ears or! a fine of not less than two hundred pesos nor more than one thousand pesos# or ! oth suchimprisonment and fine# in the discretion of the court"

%s earl! as '(82# this $ourt ruled in the leading case of @arshall Jells $o" v" Henr! J" 6lser L $o" /29:hil" )30 that the oEect of Sections 9 and 9( of the $orporation ?aw was to suEect the foreigncorporation doing usiness in the :hilippines to the Eurisdiction of our courts" The @arshall Jells $o"decision referred to a litigation over an isolated act for the unpaid alance on a ill of goods ut thephilosoph! ehind the law applies to the factual circumstances of these cases" The $ourt stated&xxx xxx xxxDefendant isolates a portion of one sentence of section 9( of the $orporation ?aw and as+s the court togive it a literal meaning $ounsel would have the law read thus& ,No foreign corporation shall epermitted to maintain ! itself or assignee an! suit for the recover! of an! det# claim# or demandwhatever# unless it shall have the license prescried in section 9 of the law", :laintiff# on the contrar!#desires for the court to consider the particular point under discussion with reference to all the law# andthereafter to give the law a common sense interpretation"The oEect of the statute was to suEect the foreign corporation doing usiness in the :hilippines to the

Eurisdiction of its courts" The oEect of the statute was not to prevent the foreign corporation fromperforming single acts# ut to prevent it from acuiring a domicile for the purpose of usiness withoutta+ing the steps necessar! to render it amenale to suit in the local courts" The implication of the law isthat it was never the purpose of the ?egislature to exclude a foreign corporation which happens tootain an isolated order for usiness from the :hilippines# from securing redress in the :hilippine courts#and thus# in effect# to permit persons to avoid their contracts made with such foreign corporations" Theeffect of the statute preventing foreign corporations from doing usiness and from ringing actions inthe local courts# except on compliance with elaorate reuirements# must not e undul! extended orimproperl! applied" It should not e construed to extend e!ond the plain meaning of its terms#considered in connection with its oEect# and in connection with the spirit of the entire law"/State vs" %merican Boo+ $o" 4'(325# 9( Aan# '= %merican De ;orest Jireless Telegraph $o" vs"Superior$ourt of $it! L $ountr! of San ;rancisco and Heard 4'(35# '* $al"# **= Thompson on$orporations# 8d ed"# chap" '2"0$onfronted with the option of giving to the $orporation ?aw a harsh interpretation# which woulddisastrousl! emarrass trade# or of giving to the law a reasonale interpretation# which would mar+edl!help in the development of trade= confronted with the option of arring from the courts foreign litigantswith good causes of action or of assuming Eurisdiction of their cases= confronted with the option ofconstruing the law to mean that an! corporation in the 1nited States# which might want to sell to aperson in the :hilippines must send some representative to the Islands efore the sale# and go throughthe complicated formulae provided ! the $orporation ?aw with regard to the otaining of the license#efore the sale was made# in order to avoid eing swindled ! :hilippine citi.ens# or of construing thelaw to mean that no foreign corporation doing usiness in the :hilippines can maintain an! suit until itshall possess the necessar! license=7confronted with these options# can an!one dout what our decisionwill eK The law simpl! means that no foreign corporation shall e permitted ,to transact usiness in the:hilippine Islands#, as this phrase is +nown in corporation law# unless it shall have the license reuired! law# and# until it complies with the law# shall not e permitted to maintain an! suit in the local courts"



% contrar! holding would ring the law to the verge of unconstitutionalit!# a result which should e andcan e easil! avoided" /Sioux Remed! $o" vs" $ope and $ope# supra= :er+ins# :hilippine Business ?aw#p" 892"0To repeat# the oEective of the law was to suEect the foreign corporation to the Eurisdiction of ourcourts" The $orporation ?aw must e given a reasonale# not an undul! harsh# interpretation whichdoes not hamper the development of trade relations and which fosters friendl! commercial intercourseamong countries"The oEectives enunciated in the '(82 decision are even more relevant toda! when we view commercialrelations in terms of a world econom!# when the tendenc! is to re7examine the political oundariesseparating one nation from another insofar as the! define usiness reuirements or restrict mar+etingconditions"Je distinguish etween the denial of a right to ta+e remedial action and the penal sanction for non7registration"Insofar as transacting usiness without a license is concerned# Section 9( of the $orporation ?awimposed a penal sanction7imprisonment for not less than six months nor more than two !ears orpa!ment of a fine not less than :833"33 nor more than :'#333"33 or oth in the discretion of the court"There is a penalt! for transacting usiness without registration"

%nd insofar as litigation is concerned# the foreign corporation or its assignee ma! not maintain an! suitfor the recover! of an! det# claim# or demand whatever" The $orporation ?aw is silent on whether ornot the contract executed ! a foreign corporation with no capacit! to sue is null and void a initio"Je are not unaware of the conflicting schools of thought oth here and aroad which are divided onwhether such contracts are void or merel! voidale" :rofessor Sulpicio <uevarra in his oo+ $orporation?aw /:hilippine >urisprudence Series# 1":" ?aw $enter# pp" 8**78*20 cites an Illinois decision which holdsthe contracts void and a @ichigan statute and decision declaring them merel! voidale&xxx xxx xxxJhere a contract which is entered into ! a foreign corporation without compl!ing with the localreuirements of doing usiness is rendered void either ! the express terms of a statute or ! statutor!construction# a suseuent compliance with the statute ! the corporation will not enale it to maintainan action on the contract" /:er+ins @fg" $o" v" $linton $onst" $o"# 8( :" ' 4'(*35" See also Diamond<lue $o" v" 1"S" <lue $o"# supra see note '"0 But where the statute merel! prohiits the maintenance ofa suit on such contract /without expressl! declaring the contract ,void,0# it was held that a failure tocompl! with the statute rendered the contract voidale and not void# and compliance at an! time eforesuit was sufficient" /:er+ins @fg" $o" v" $linton $onst" $o"# supra"0 Notwithstanding the aove decision#the Illinois statute provides# among other things that a foreign corporation that fails to compl! with theconditions of doing usiness in that state cannot maintain a suit or action# etc" The court said& FThecontract upon which this suit was rought# having een entered into in this state when appellant wasnot permitted to transact usiness in this state# is in violation of the plain provisions of the statute# andis therefore null and void# and no action can e maintained thereon at an! time# even if the corporationshall# at some time after the ma+ing of the contract# ualif! itself to transact usiness in this state ! acompliance with our laws i n reference to foreign corporations that desire to engage in usiness here"/1nited ?ead $o" v" >"@" Read! 6levator @fg" $o"# 888 Ill" '((# )* N"N" 9) 4'(395"0

% @ichigan statute provides& ,No foreign corporation suEect to the provisions of this %ct# shall maintainan! action in this state upon an! contract made ! it in this state after the ta+ing effect of this

%ct# until it shall have full! complied with the reuirement of this %ct# and procured a certificate to thateffect from the Secretar! of State#, It was held that the aove statute does not render contracts of aforeign corporation that fails to compl! with the statute void# ut the! ma! e enforced onl! aftercompliance therewith" /Hastings Industrial $o" v" @oral# '2* @ich" 9)(#'3) N"6" )39 4'(395= Auennan v"1"S" ;idelit! L <" $o"# @ich" '88= '8* N"J" )(( 4'(3(5= Despres# Bridges L Noel v" Cierle!n# '9* @ich"*((# '8 N"J" )9( 4'('350"It has also een held that where the law provided that a corporation which has not complied with thestatutor! reuirements ,shall not maintain an action until such compliance," ,%t the commencement ofthis action the plaintiff had not fi led the certified cop! with the countr! cler+ of @adera $ount!# ut it didfile with the officer several months efore the defendant filed his amended answer# setting up thisdefense# as that at the time this defense was pleaded ! the defendant the plaintiff had complied withthe statute" The defense pleaded ! the defendant was therefore unavailale to him to prevent theplaintiff from thereafter maintaining the action" Section 8(( does not declare that the plaintiff shall notcommence an action in an! count! unless it has filed a certified cop! in the office of the count! cler+#ut merel! declares that it shall not maintain an action until it has filled it" To maintain an action is notthe same as to commence an action# ut implies that the action has alread! een commenced", /Seealso Aendric+ L Roerts Inc" v" Jarren Bros" $o"# ''3 @d" 2)# )8 %" 29' 4'(3(50"In another case# the court said& ,The ver! fact that the prohiition against maintaining an action in thecourts of the state was inserted in the statute ought to e conclusive proof that the legislature did notintend or understand that contracts made without compliance with the law were void" The statute doesnot fix an! time within which foreign corporations shall compl! with the %ct" If such contracts were void#no suits could e prosecuted on them in an! court" """ The primar! purpose of our statute is to compel aforeign corporation desiring to do usiness within the state to sumit itself to the Eurisdiction of thecourts of this state" The statute was not intended to exclude foreign corporations from the state" It doesnot# in terms# render invalid contracts made in this state ! non7compl!ing corporations" The etterreason# the wiser and fairer polic!# and the greater weight lie with those decisions which hold thatwhere# as here# there is a prohiition with a penalt!# with no express or implied declarations respectingthe validit! of enforceailit! of contracts made ! ualified foreign corporations# the contracts """ areenforceale """ upon compliance with the law", /:eter L Burghard Stone $o" v" $arper# ')8 N"6" *'(4'(*35"0Our Eurisprudence leans towards the later view" %part from the oEectives earlier cited from @arshallJells $o" v" Henr! J" 6lser L $o /supra0# it has long een the rule that a foreign corporation actuall!doing usiness in the :hilippines without license to do so ma! e sued in our courts" The defendant

%merican corporation in <eneral $orporation of the :hilippines v" 1nion Insurance Societ! of $anton ?tdet al" /) :hil" *'*0 entered into insurance contracts without the necessar! license or authorit!" Jhensummons was served on the agent# the defendant had not !et een registered and authori.ed to dousiness" The registration and authorit! came a little l ess than two months later" This $ourt ruled&$ounsel for appellant contends that at the time of the service of summons# the appellant had not !eteen authori.ed to do usiness" But# as alread! stated# section '2# Rule ) of the Rules of $ourt ma+esno distinction as to corporations with or without authorit! to do usiness in the :hilippines" The test iswhether a foreign corporation was actuall! doing usiness here" Otherwise# a foreign corporationillegall! doing usiness here ecause of its refusal or neglect to otain the corresponding license andauthorit! to do usiness ma! successfull! though unfairl! plead such neglect or illegal act so as to avoidservice and there! impugn the Eurisdiction of the local courts" It would indeed e anomalous and uitepreEudicial# even disastrous# to the citi.ens in this Eurisdiction who in all good faith and in the regularcourse of usiness accept and pa! for shipments of goods from %merica# rel!ing for their protection ondul! executed foreign marine insurance policies made pa!ale in @anila and dul! endorsed anddelivered to them# that when the! go to court to enforce said policies# the insurer who all along haseen engaging in this usiness of issuing similar marine policies# serenel! pleads immunit! to local

Eurisdiction ecause of i ts refusal or neglect to otain the corresponding license to do usiness herethere! compelling the consignees or purchasers of the goods insured to go to %merica and sue in itscourts for redress"There is no uestion that the contracts are enforceale" The reuirement of registration affects onl! theremed!"Significantl!# Batas :amansa Blg" 9# the $orporation $ode of the :hilippines has corrected theamiguit! caused ! the wording of Section 9( of the ol d $orporation ?aw"Section '** of the present $orporation $ode provides&S6$" '**" Doing usiness without a license"7No foreign corporation transacting usiness in the:hilippines without a license# or its successors or assigns# shag e permitted to maintain or intervene inan! action# suit or proceeding in an! court or administrative agenc! in the :hilippines= ut suchcorporation ma! e sued or proceeded against efore :hilippine courts or administrative triunals onan! valid cause of action recogni.ed under :hilippine laws"

The old Section 9( has een reworded in terms of non7access to courts and administrative agencies inorder to maintain or intervene in an! action or proceeding"The prohiition against doing usiness without first securing a license is now given penal sanction whichis also applicale to other violations of the $orporation $ode under the general provisions of Section '22of the $ode"It is# therefore# not necessar! to declare the contract nun and void even as against the erring foreigncorporation" The penal sanction for the violation and the denial of access to our courts andadministrative odies are sufficient from the viewpoint of legislative polic!"Our ruling that the lac+ of capacit! at the time of the execution of the contracts was cured ! thesuseuent registration is also strengthened ! the procedural aspects of these cases"The petitioner averred in its complaints that it is a foreign insurance compan!# that it is authori.ed to dousiness in the :hilippines# that its agent is @r" Victor H" Bello# and that its office address is the OledanBuilding at %!ala %venue# @a+ati" These are all the averments reuired ! Section 2# Rule of the Rulesof $ourt" The petitioner sufficientl! alleged its capacit! to sue" The private respondents countered eitherwith an admission of the plaintiffFs Eurisdictional averments or with a general denial ased on lac+ of+nowledge or information sufficient to form a elief a s to the truth of the averments"Je find the general denials inadeuate to attac+ the foreign corporations lac+ of capacit! to sue i n thelight of its positive averment that it is authori.ed to do so" Section 2# Rule reuires that ,a part!desiring to raise an issue as to the legal existence of an! part! or the capacit! of an! part! to sue or esued in a representative capacit! shall do so ! specific denial# which shag include such supportingparticulars as are particularl! within the pleaderFs +nowledge" %t the ver! least# the private respondentsshould have stated particulars in their answers upon which a specific denial of the petitionerFs capacit!to sue could have een ased or which could have supported its denial for lac+ of +nowledge" %nd !et#even if the plaintiffFs lac+ of capacit! to sue was not properl! raised as an issue ! the answers# thepetitioner introduced documentar! evidence that it had the authorit! to engage in the insuranceusiness at the time it filed the complaints"JH6R6;OR6# the petitions are here! granted" The decisions of the respondent court are reversed andset aside"In ?7*2*8# respondent 6astern Shipping ?ines is ordered to pa! the petitioner the sum of :'#9*3"88with interest at the legal rate from >anuar! # '(9 until full! paid and respondent %ngel >oseTransportation Inc" is ordered to pa! the petitioner the sum of :'#9*3"88 also with interest at the legalrate from >anuar! # '(9 until full! paid" 6ach respondent shall pa! one7half of the costs" Thecounterclaim of %ngel >ose Transportation Inc" is dismissed"In ?7*2**# respondent N" V" Nedllo!d ?iEnen# or its agent $olumian :hil" Inc" is ordered to pa! thepetitioner the sum of :8#289"( with interest at the legal rate from ;eruar! '# '(9 until full! paid# thesum of :33"33 attorne!Fs fees# and costs# The complaint against <uacods# Inc" is dismissed"SO ORD6R6D"Teehan+ee /$hairman0# :lana# 6scolin and Relova# >>"# concur"@elencio7Herrera and Vasue.# >>"# are on leave"

G.R. No. L-47701 ;"e 27, 1941

+E &EN+LA+& ., $N., E+ AL., petitioners#vs" ANALE+ &ANGAL$&AN, E+ AL., respondents" %raneta# Carago.a# %raneta L Bautista for petitioners"Benito Soliven for respondents"LAREL, 0.5

This is a petition for a writ of certiorari to review the decision of the $ourt of %ppeals dated >une 8(#'(23# reversing the Eudgment of the $ourt of ;irst Instance of @anila and dismissing petitionersFcomplaint"On Octoer '# '(*# the @entholatum $o"# Inc"# and the :hilippine7%merican Drug $o"# Inc" instituted anaction in the $ourt of ;irst Instance of @anila# civil case No" 2# against %nacleto @angaliman#;lorencio @angaliman and the Director of the Bureau of $ommerce for infringement of trade mar+ andunfair competition" :laintiffs pra!ed for the issuance of an order restraining %nacleto and ;lorencio@angaliman from selling their product ,@entholiman#, and directing them to render an accounting oftheir sales and profits and to pa! damages" The complaint stated# among other particulars# that the@entholatum $o"# Inc"# is a Aansas corporation which manufactures @entholatum#, a medicament andsalve adapted for the treatment of colds# nasal irritations# chapped s+in# insect ites# rectal irritation andother external ailments of the od!= that the :hilippine7%merican Drug co"# Inc"# is its exclusivedistriuting agent in the :hilippines authori.ed ! it to loo+ after and protect its interests= that on >une89# '('( and on >anuar! 8'# '(8'# the @entholatum $o"# Inc"# registered with the Bureau of $ommerceand Industr! the word# ,@entholatum#, as trade mar+ for its products= that the @angaliman rothersprepared a medicament and salve named ,@entholiman, which the! sold to the pulic pac+ed in acontainer of the same si.e# color and shape as ,@entholatum,= and that# as a conseuence of these actsof the defendants# plaintiffs suffered damages from the dimunition of their sales and the loss of goodwilland reputation of their product in the mar+et"

%fter a protracted trial# featured ! the dismissal of the case on @arch (# '(*9 for fai lure of plaintiffFscounsel to attend# and its suseuent reinstatement on %pril 2# '(*9# the $ourt of ;irst Instance of@anila# on Octoer 8(# '(*)# rendered Eudgment in favor of the complainants# the dispositive part of itsdecision reading thus&6n meritos de todo lo expuesto# este >u.gado dicta sentencia&/a0 Haciendo ue sea perpetuo ! permanente el iterdicto prohiitorio preliminar expedido contra

%nacleto @angaliman# sus agentes ! empleados# prohiiendoles vender su producto en la forma en uese vendia al incoarse la demanda de autos# o de alguna otra manera competir inEustamente contra elproducto de las demandantes# ! de usar la marca industrial ,@6NTHO?I@%N, en sus productos=/0 Ordenando al demandado %nacleto @angaliman# ue rinda exacta cuenta de sus ganancias por laventa de su producto desde el dia '3 de mar.o de '(*2# hasta la fecha de esta decision# ! ue pague alas demandantes# en concepto de daos ! perEuicios# lo ue resulte ser la ganancia de dichodemandado=/c0 $ondenando a dicho demandado# %nacleto @angaliman# a pagar un multa de cincuenta pesos /:30por desacato al >u.gado# ! las costas del Euicio= !/d0 Sorese!endo la contra7reclamacion del demandado# %nacleto @angaliman# contra las demandantes"In the $ourt of %ppeals# where the cause was doc+eted as $%7<" R" No" 2939)# the decision of the trialcourt was# on >une 8(# '(23# reversed# said triunal holding that the activities of the @entholatum $o"#Inc"# were usiness transactions in the :hilippines# and that# ! section 9( of the $orporation ?aw# itma! not maintain the present suit" Hence# this petition for certiorari "In see+ing a reversal of the decision appealed from# petitioners assign the following errors&'" The $ourt of %ppeals erred in declaring that the transactions of the @entholatum $o"# Inc"# in the:hilippines constitute ,transacting usiness, in this countr! as this term is used in section 9( of the$orporation ?aw" The aforesaid conclusion of the $ourt of %ppeals is a conclusion of law and not of fact"8" The $ourt of %ppeals erred in not holding that whether or not the @entholatum $o"# Inc"# hastransacted usiness in the :hilippines is an i ssue foreign to the case at ar"*" The $ourt of %ppeals erred in not considering the fact that the complaint was filed not onl! ! the@entholatum $o"# Inc"# ut also ! the :hilippine7%merican Drug $o"# Inc"# and that even if the@entholatum $o"# Inc"# has no legal standing in this Eurisdiction# the complaint filed should e decided onits merits since the :hilippine7%merican Drug $o"# Inc"# has sufficient interest and standing to maintainthe complaint"$ategoricall! stated# this appeal simmers down to an interpretation of section 9( of the $orporation?aw# and incidentall! turns upon a sustantial consideration of two fundamental propositions# to wit& /'0whether or not the petitioners could prosecute the instant action without having secured the licensereuired in section 9( of the $orporation ?aw= and /80 whether or not the :hilippine7%merican Drug $o"#Inc"# could ! itself maintain this proceeding":etitioners maintain that the @entholatum $o"# Inc"# has not sold personall! an! of its products in the:hilippines= that the :hilippine7%merican Drug $o"# Inc"# li+e fifteen or twent! other local entities# wasmerel! an importer of the products of the @entholatum $o"# Inc"# and that the sales of the :hilippine7

%merican Drug $o"# Inc"# were its own and not for the account of the @entholatum $o"# Inc" 1pon the



829 :" '# 8# '' O+l" '''= %utomotive @aterial $o" v" %merican Standard @etal :roducts $orp"# 'N"6" 9(# )3*# *8) III" *9)"0The accepted rule in Eurisprudence is that each case must e Eudged in the light of its ownenvironmental circumstances"4''5 It should e +ept in mind that the purpose of the law is to suEect theforeign corporation doing usiness in the :hilippines to the Eurisdiction of our courts" It is not to preventthe foreign corporation from performing single or isolated acts# ut to ar it from acuiring a domicilefor the purpose of usiness without first ta+ing the steps necessar! to render it amenale to suits in thelocal courts"The trial court held that petitioner7corporation was doing usiness without a license# finding that&4'85The invoices and deliver! receipts covering the period of /sic0 from >anuar! ')# '(( to %ugust '9# '((cannot e treated to mean a singular and isola ted usiness transaction that is temporar! incharacter" <ranting that there i s no distriutorship agreement etween herein parties# !et ! the merefact that plaintiff# each time that the defendant posts an order delivers the items as evidenced ! theseveral invoices and receipts of various dates onl! i ndicates that plaintiff has the intention and desire torepeat the /sic0 said transaction in the future in pursuit of i ts ordinar! usiness";urthermore# and if thecorporation is doing that for which it was created# the amount or volume of the usiness done isimmaterial and a single act of that character ma! constitute doing usiness" /See p" 93*# $orp" $ode# De?eon 7 '(9 6d"0"Respondent $ourt affirmed this finding in its assailed Decision with this explanation&4'*5x x x $onsidering the factual ac+ground as lai d out aove# the transaction cannot e considered as anisolated one" Note that there were ') orders and deliveries /onl! s ixteen per our count0 over a four7month period" The appellee /private respondent0 made separate orders at various dates" Thetransactions did not consist of separate deliveries for one single order" In the case at ar# thetransactions entered into ! the appellant with the appellee are a series of commercial dealings whichwould signif! an intent on the part of the appellant /petitioner0 to do usiness in the :hilippines andcould not ! an! stretch of the imagination e considered an isol ated one# thus would fall under thecategor! of doing usiness"6ven if Je were to view# as contended ! the appellant# that the transactions which oc curred etween>anuar! to %ugust '((# constitute a single act or i solated usiness transaction# this eing the ordinar!usiness of appellant corporation# it can e said to e illegall! doing or transacting usiness without alicense" x x x Here it can e clearl! gleaned from the four7month period of transactions etweenappellant and appellee that it was a continuing usiness relationship# which would# without dout#constitute doing usiness without a license" ;or all intents and purposes# appellant corporation is doingor transacting usiness in the :hilippines without a license and that# therefore# in accordance with thespecific mandate of Section '22 of the $orporation $ode# it has no capacit! to sue" /addition ours0Je find no reason to disagree with oth lower courts" @ore than the sheer numer of transactionsentered into# a clear and unmista+ale intention on the part of petitioner to continue the od! of itsusiness in the :hilippines is more than apparent" %s alleged in its complaint# it is engaged in themanufacture and sale of elements used in sealing pumps# valves# and pipes for i ndustrial purposes#valves and control euipment used for industrial fluid control and :V$ pipes and fittings for industrialuse" Thus# the sale ! petitioner of the items covered ! the receipts# which are part and parcel of itsmain product line# was actuall! carried out i n the progressive prosecution of commercial gain and thepursuit of the purpose and oEect of its usiness# pure and simple" ;urther# its grant and extension of(37da! credit terms to private respondent for ever! purchase made# unargual! shows an intention tocontinue transacting with private respondent# since in the usual course of commercial transactions#credit is extended onl! to customers in good standing or to those on whom there is an intention tomaintain long7term relationship" This eing so# the existence of a distriutorship agreement etween theparties# as alleged ut not proven ! private respondent# would# if dul! estalished ! competentevidence# e merel! corroorative# and failure to sufficientl! prove said allegation will not significantl!affect the finding of the courts elow" Nor our own ruling" It is precisel! upon the set of facts aove7detailed that we concur with respondent $ourt that petitioner corporation was doing usiness in thecountr!"6uall! important is the asence of an! fact or circumstance which might tend even remotel! to negatesuch intention to continue the progressive prosecution of petitioners usiness activities in thiscountr!" Had private respondent not turned out to e a ad ris+# in all li+elihood petitioner would haveindefinitel! continued its commercial transactions with him# and not surprisingl!# in ever increasingvolumes"Thus# we hold that the series of transactions in uestion could not have een isolated or casualtransactions" Jhat is determinative of doing usiness is not reall! the numer or the uantit! of thetransactions# ut more importantl!# the intention of an entit! to continue the od! of its usiness in thecountr!" The numer and uantit! are merel! evidence of such intention" The phrase isolatedtransaction has a definite and fixed meaning# i"e" a transaction or series of transactions set apart fromthe common usiness of a foreign enterprise in the sense that there is no intention to engage in aprogressive pursuit of the purpose and oEect of the usiness organi.ation" Jhether a foreigncorporation is doing usiness does not necessaril! depend upon the freuenc! of its transactions# utmore upon the nature and character of the transactions"4'25<iven the facts of this case# we cannot see how petitioners usiness dealings will fit the categor! ofisolated transactions considering that its intention to continue and pursue the corpus of its usiness inthe countr! had een clearl! estalished" It has not presented an! convincing argument with euall!convincing evidence for us to rule otherwise"

$":!p!:'t!te# to &!'"t!'" S;'t

%ccordingl! and ineluctal!# petitioner must e held to e incapacitated to maintain the action auo against private respondent"It was never the intent of the legislature to ar court access to a foreign corporation or entit! whichhappens to otain an isolated order for usiness in the :hilippines"Neither# did it intend to shield detorsfrom their legitimate liailities or oligations"4'5 But it cannot allow foreign corporations or entitieswhich conduct regular usiness an! access to courts without the fulfillment ! such corporations of thenecessar! reuisites to e suEected to our governments regulation and authorit!" B! securing a l icense#the foreign entit! would e giving assurance that it will aide ! the decisions of our courts# even ifadverse to it"

t8er Reme#= St' A(!'!be

B! this Eudgment# we are not foreclosing petitioners right to collect pa!ment" Res Eudicata does not setin a case dismissed for lac+ of capacit! to sue# ecause there has een no determination on the merits"4'95 @oreover# this $ourt has ruled that suseuent acuisition of the license will cure the lac+ ofcapacit! at the time of the execution of the contract"4')5The reuirement of a license is not meant to put foreign corporations at a disadvantage" Rather# thedoctrine of lac+ of capacit! to sue is ased on considerations of sound pulic polic!" 4'5 Thus# it haseen ruled in Home Insurance that&4'(5x x x The primar! purpose of our statute is to compel a foreign corporation desiring to do usinesswithin the state to sumit itself to the Eurisdiction of the courts of this s tate"The statute was notintended to exclude foreign corporations from the state" x x x x The etter reason# the wiser and fairerpolic!# and the greater weight lie with those decisions which hold that where# as here# there is aprohiition with a penalt!# with no express or implied declarations respecting the validit! ofenforceailit! of contracts made ! ualified foreign corporations# the contracts x x x are enforceale x xx upon compliance with the law"/:eter L Burghard Stone $o" v" $arper# ')8 N"6" *'( 4'(*35"0Jhile we agree with petitioner that the countr! needs to develop trade relations and foster friendl!commercial relations with other states# we also need to enforce our laws that regulate the conduct offoreigners who desire to do usiness here" Such strangers must follow our laws and must suEectthemselves to reasonale regulation ! our government"IEREFRE# premises considered# the instant petition is here! D6NI6D and the assailed Decisionis %;;IR@6D "S RDERED.Narvasa# $">"# /$hairman0 # Davide# >r"# @elo# and ;rancisco# >>"# concur"

http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/118843.htm#_edn11




















wit& ! if a foreign corporation #oes b;s'"ess in the :hilippines >'t8o;t ! ':e"se# it :!""ot

s;e efore the :hilippine courts=4'5 b if a foreign corporation is "ot #o'"< b;s'"ess in the:hilippines# it "ee#s "o ':e"se to s;e efore :hilippine courts on an isolated transaction 4'(5or on acause of action entirel! independent of an! usiness transaction=4835 and : if a foreigncorporation #oes b;s'"ess in the :hilippines with the reuired license# it :!" s;e efore :hilippinecourts on an! transaction" %pparentl!# it is not the asence of the prescried license ut the doing /of0usiness in the :hilippines without such license which dears the foreign corporation from access to ourcourts"48'5The tas+ at hand reuires us to weigh the facts vis77vis the estalished principles" The uestion whetheror not a foreign corporation is doing usiness is dependent principall! upon the facts and circumstancesof each particular case# considered in the light of the purposes and language of the pertinent statute orstatutes involved and of the general principles governing the Eurisdictional authorit! of the state oversuch corporations"4885Batas :amansa Blg" 9# otherwise +nown as The $orporation $ode of the :hilippines# is silent as towhat constitutes doing ortransacting usiness in the :hilippines" ;ortunatel!# Eurisprudence has suppliedthe deficienc! and has held that the term implies a continuit! of commercial dealings and arrangements#and contemplates# to that extent# the performance of acts or wor+s or the exercise of some of thefunctions normall! incident to# and in progressive prosecution of# the purpose and oEect for which thecorporation was organi.ed"48*5 In @entholatum $o" Inc"# vs" @angaliman #4825 this $ourt laid down thetest to determine whether a foreign compan! isdoing usiness# thus&x x x +8e tr;e test, 8o>e(er, seems to be >8et8er t8e ore'<" :orpor!t'o" 's :o"t'";'"< t8e

bo#= or s;bst!":e o t8e b;s'"ess or e"terpr'se or >8':8 't >!s or<!"'Ke# or >8et8er 't8!s s;bst!"t'!= ret're# rom 't !"# t;r"e# 't o(er to !"ot8er. /Traction $os" vs" $ollectors ofInt" Revenue 4$"$"%"# Ohio5# 88* ;" (2#()"0 x x x"The traditional case law definition has metamorphosed into a statutor! definition# having een adoptedwith some ualifications in various pieces of legislation in our Eurisdiction" ;or instance# Repulic %ct No")328# otherwise +nown as the ;oreign Investment %ct of '(('# defines doing usiness as foll ows&# The phrase doing usiness shall include soli citing orders# service contracts# opening offices# whethercalled liaison offices or ranches= appointing representatives or distriutors domiciled in the :hilippinesor who in an! calendar !ear sta! in the countr! for a period or periods totalling one hundred eight/!0/'30 da!s or more= participating in the management# supervision or control of an! domestic usiness#firm# entit!# or corporation in the :hilippines= !"# !"= ot8er !:t or !:ts t8!t 'mp= ! :o"t'";'t= o:ommer:'! #e!'"<s or !rr!"<eme"ts, !"# :o"temp!te to t8!t ete"t t8e perorm!":e o

!:ts or >orsJ or t8e eer:'se o some o t8e ;":t'o"s "orm!= '":'#e"t to, !"# '"pro<ress'(e prose:;t'o" o, :ommer:'! <!'" or o t8e p;rpose !"# ob?e:t o t8e b;s'"ess

or<!"'K!t'o"= :rovided# however# That the phrase doing usiness shall not e deemed to include mereinvestment as a shareholder ! a foreign entit! in domestic corporations dul! registered to do usiness#andor the exercise of rights as such investor# nor having a nominee director or officer to represent itsinterests in such corporation# nor appointing a representative or distriutor domiciled in the :hilippineswhich transacts usiness in its own name and for its own account" /6mphasis supplied0485?i+ewise# Section ' of Repulic %ct No" 2#4895 provides that&SE+$N. 1" Definition and scope of this %ct" 7 /'0 x x x the phrase doing usiness shall includesoliciting orders# purchases# service contracts# opening offices# whether called liaison o ffices orranches= appointing representatives or distriutors who are domiciled in the :hilippines or who in an!calendar !ear sta! in the :hilippines for a period or periods totaling one hundred eight! da!s or more=participating in the management# supervision or control of an! domestic usiness f irm# entit! orcorporation in the :hilippines= and !"= ot8er !:t or !:ts t8!t 'mp= ! :o"t'";'t= o :ommer:'!

#e!'"<s or !rr!"<eme"ts, !"# :o"temp!te to t8!t ete"t t8e perorm!":e o !:ts or>ors, or t8e eer:'se o some o t8e ;":t'o"s "orm!= '":'#e"t to, !"# '" pro<ress'(e

prose:;t'o" o, :ommer:'! <!'" or o t8e p;rpose !"# ob?e:t o t8e b;s'"ess or<!"'K!t'o".There are other statutes48)5 defining the term doing usiness in the same tenor as those aove7uoted#and as ma! e oserved# one common denominator among them all is the concept of continuit!"In the case at ar# the $ourt of %ppeals categori.ed as doing usiness petitioners participation under the

%ssignment %greement and the Deed of %ssignment" This is simpl! untenale" The expression doingusiness should not e given such a strict and literal construction as to ma+e it appl! to an! corporatedealing whatever"485 %t this earl! stage and with petitioners acts or transactions limited to theassignment contracts# it cannot e said that it had performed acts intended to continue the usiness forwhi ch i t was organi.ed" $t m!= "ot be !m'ss to po'"t o;tt8!t t8e p;rpose or b;s'"ess or >8':8 pet't'o"er >!s or<!"'Ke# ' s "ot #'s:er"'be '" t8ere:or#s. No eort >!s eerte# b= t8e o;rt o Appe!s to est!b's8 t8e "e;s bet>ee"pet't'o"ers b;s'"ess !"# t8e !:ts s;ppose# to :o"st't;te #o'"< b;s'"ess. +8;s, >8et8er t8e!ss'<"me"t :o"tr!:ts >ere '":'#e"t! to pet't'o"ers b;s'"ess or >ere :o"t'";!t'o" t8ereo's be=o"# #eterm'"!t'o"" Je cannot appl! the case cited ! the $ourt of %ppeals# ;ar 6ast IntlImport and 6xport $orp" vs" Nan+ai Aog!o $o"# ?td" #48(5 which held that a single act ma! still constitutedoing usiness if it is not merel! incidental or casual# ut is of such character as distinctl! to indicate apurpose on the part of the foreign corporation to do other usiness in the state" In said case# there wasan express admission from an official of the foreign corporation that he was sent to the :hilippines toloo+ into the operation of mines# there! revealing the foreign corporations desire to continue engagingin usiness here" But in the case at ar# there is no evidence of similar desire or intent" 1nargual!#petitioner ma!# !s t8e o;rt o Appe!s s;<<este# # decide to operate @arcoppers mining usiness#ut# of course# at this stage# that is a mere speculation" Or it ma! decide to sell the credit secured !the mining properties to an offshore investor# in which case the acts w ill still e isolated transactions" +osee t8ro;<8 t8e prese"t !:ts !" '"te"t'o" o" t8e p!rt o pet't'o"er to st!rt ! ser'es ob;s'"ess tr!"s!:t'o" 's to rest o" !ss;mpt'o"s or prob!b''t'es !'"< s8ort o !:t;!proo. o;rts s8o;# "e(er b!se 'ts ?;#<me"ts o" ! st!te o !:ts so '"!#e;!te= #e(eope#t8!t 't :!""ot be #eterm'"e# >8ere '"ere":e e"#s !"# :o"?e:t;re be<'"s.Indeed# the $ourt of %ppeals holding that petitioner was determined to e doing usiness in the:hilippines is ased mainl! on conEectures and speculation" In concluding that the unmista+aleintention of petitioner is to continue @arcoppers usiness# the $ourt of %ppeals hangs on the wol!premise that there is no other wa! for petitioner to recover its huge financial investments which itpoured into @arcoppers rehailitation without it /petitioner0 continuing @arcoppers usiness in thecountr!"4*35 This is a mere presumption"%sent overt acts of petitioner from which we ma! directl! inferits intention to continue @arcoppers usiness# we cannot give our concurrence" Significantl!# a viewsuscried upon ! man! authorities is that the mere ownership ! a foreign corporation of a propert!in a certain state# ;"!::omp!"'e# b= 'ts !:t'(e ;se '" ;rt8er!":e o t8e b;s'"ess or >8':8 't>!s orme## is insufficient in itself to constitute doing usiness"4*'5 In $hittim vs" Belle ;ourcheBentonite :roducts $o" #4*85 it was held that e(e" ' ! ore'<" :orpor!t'o" p;r:8!se#!"# too :o"(e=!":es o ! m'"'"< :!'m, #'# some !ssessme"t >or t8ereo", !"#e"#e!(ore# to se 't, 'ts !:ts >' "ot :o"st't;te t8e #o'"< o b;s'"ess so !s to s;b?e:t t8e:orpor!t'o" to t8e st!t;tor= re;'reme"ts or t8e tr!"s!:t'"< o b;s'"ess " On the same vein#petitioner# a foreign corporation# which ecomes the assignee of mining properties# facilities andeuipment cannot e automaticall! considered as doing usiness# nor presumed to have the intention ofengaging in mining usiness"One important point" ?ong efore petitioner assumed @arcoppers det to %DB and ecame theirassignee under the two assignment contracts# there alread! existed a Support and Stand! $redit

%greement etween %DB and :lacer Dome where! the latter ound itself to provide cash flow supportfor @arcoppers pa!ment of its oligations to %DB" :lainl!# petitioners pa!ment of 1SZ '#2*# 23"'8 to

%DB was more of a fulfillment of an oligation under the Support and Stand! $redit %greement ratherthan an investment" That petitioner had to step into the shoes of %DB as @arcoppers creditor was Eust anecessar! legal conseuence of the transactions that transpired" %lso# we must hasten to add that theSupport and Stand! $redit %greement was executed o;r @4 =e!rs pr'or to &!r:oppers'"so(e":=# hence# the alleged intention of petitioner to continue @arcoppers usiness could have noasis for at that time# @arcoppers fate cannot !et e determined"In the final anal!sis# we are convinced that petitioner was engaged onl! in isolated acts ortransactions" Single or isolated acts# contracts# or transactions of foreign corporations are not regardedas a doing or carr!ing on of usiness" T!pical examples of these are the ma+ing of a single contract#

sale# sale with the ta+ing of a note and mortgage in the state to secure pa!ment therefor# purchase# ornote# or the mere commission of a tort"4**5 In these instances# there is "o p;rpose to do an! otherusiness within the countr!"

$$Solidan+ contends that from the chronolog! and timing of events# it is evident that there existed a pre7set pattern of response on the part of @arcopper to defeat whatever court ruling that ma! e renderedin favor of Solidan+"Je are not convinced"Jhile it ma! appear# at initial glance# that the assignment contracts are in the nature of fraudulentconve!ances# however# a closer loo+ at the events that transpired prior to the execution of thosecontracts gives rise to a different conclusion" The ovious flaw in the $ourt of %ppeals Decision lies in itsconstricted view of the facts otaining in the case" In its factual narration# the $ourt of %ppeals definitel!left out some events" Je shall see later the significance of those events"

%rticle '*) of the $ivil $ode of the :hilippines provides& Art. 13B7. %ll contracts ! virtue of which the detor alienates propert! ! gratuitous title arepresumed to have een entered into in fraud of creditors# when the donor did not reserve sufficientpropert! to pa! all dets contracted efore the donation" A'e"!t'o"s b= o"ero;s t'te !re !so pres;me# r!;#;e"t >8e" m!#e b= perso"s !<!'"st>8om some ?;#<me"t 8!s bee" re"#ere# '" !"= '"st!":e or some >r't o !tt!:8me"t 8!s

bee" 'ss;e#. +8e #e:'s'o" or !tt!:8me"t "ee# "ot reer to t8e propert= !'e"!te#, !"# "ee#"ot 8!(e bee" obt!'"e# b= t8e p!rt= see'"< res:'ss'o".

In addition to these presumptions# the design to defraud creditors ma! e proved in an! other mannerrecogni.ed ! law and of evidence"This article presumes the existence of fraud made ! a detor" Thus# in the asence of satisfactor!evidence to the contrar!# an alienation of a propert! will e held fraudulent if it is made after a

Eudgment has een rendered against the detor ma+ing the alienation"4*25 This presumption of fraud isnot conclusive and ma! e reutted ! satisfactor! and convincing evidence" A t8!t 's "e:ess!r= 's

to est!b's8 !'rm!t'(e= t8!t t8e :o"(e=!":e 's m!#e '" <oo# !'t8 !"# or ! s;':'e"t !"#(!;!be :o"s'#er!t'o".4*5The %ssignment %greement and the Deed of %ssignment were executed for valualeconsiderations" :atent from the %ssignment %greement is the fact that petitioner assumed the pa!mentof 1SZ '#2*#23"'8 to %DB in satisfaction of @arcoppers remaining det as of @arch 83# '(()"4*95 Solidan+ cannot den! this fact considering that a sustantial portion of the said pa!ment# in thesum of 1SZ '*#9#)('"39# was remitted in favor of the Ban+ of Nova Scotia# its maEor stoc+holder"4*)5The facts of the case so far show that the assignment contracts were executed in good faith" Theexecution of the %ssignment %greement on @acrh 83# '(() and the Deed of %ssignment on Decemer#'(() is not the alpha of this case" Jhile the execution of these assignment contracts almost coincidedwith the rendition on @a! )# '(() of the :artial >udgment in $ivil $ase No" (9733* ! the @anila RT$#however# there was no intention on the part of petitioner to defeat Solidan+s claim" It ears reiteratingthat as earl! as Novemer 2# '((8# :lacer Dome had alread! ound itself under a Support and Stand!$redit %greement to provide @arcopper with cash flow support for the pa!ment to %DB of itsoligations" Jhen @arcopper ceased operations on account of disastrous mine tailings spill into the BoacRiver and %DB pressed for pa!ment of the loan# :lacer Dome agreed to have its susidiar!# hereinpetitioner# paid %DB the amount of 1S Z'#2*#23"'8" Thereupon# %DB and @arcopper executed#respectivel!# in favor of petitioner an %ssignment %greement and a Deed of %ssignment" Oviousl!# theassignment contracts were connected with transactions that happened long efore the rendition in '(()of the :artial >udgment in $ivil $ase No" (9733* ! the @anila RT$" Those contracts cannot e viewedin isolation" If we ma! add# it is highl! inconceivale that %DB# a reputale international financialorgani.ation# will connive with @arcopper to feign or simulate a contract in '((8 Eust to defraudSolidan+ for its claim four !ears thereafter" %nd it is euall! incredile for petitioner to e pa!ing thehuge sum of 1S Z '# 2*# 23"'8 to %DB onl! for the purpose of defrauding Solidan+ of the sumof :8#()3")9"("It is said that the test as to whether or not a conve!ance is fraudulent is 77 does it preEudice the rights ofcreditorsK4*5 Je cannot see how Solidan+s right was preEudiced ! the assignment contractsconsidering that sustantiall! all of @arcoppers properties were alread! covered ! the registered Deedof Real 6state and $hattel @ortgage executed ! @arcopper in favor of %DB as earl! a s Novemer ''#'((8" %s such# Solidan+ cannot assert a etter right than %DB# the latter eing a preferred creditor" Itis asic that mortgaged properties answer primaril! for the mortgaged credit# not for the Eudgmentcredit of the mortgagors unsecured creditor" $onsidering that petitioner assumed @arcoppers det to

%DB# it follows that Solidan+s right as Eudgment creditor over the suEect properties must give wa! tothat of the former"

$$$The record is lac+ing in circumstances that would suggest that petitioner corporation# :lacer Dome and@arcopper are one and the same entit!" Jhile admittedl!# petitioner is a wholl!7owned susidiar! of:lacer Dome# which in turn# which# in turn# was then a minorit! stoc+holder of @arcopper# however# t8emere !:t t8!t ! :orpor!t'o" o>"s ! o t8e sto:s o !"ot8er :orpor!t'o", t!e" !o"e 's"ot s;':'e"t to ?;st'= t8e'r be'"< tre!te# !s o"e e"t't=" If used to perform legitimate functions#a susidiar!s separate existence shall e respected# and the liailit! of the parent corporation as well asthe susidiar! will e confined to those a rising in their respective usiness"4*(5The recent case of :hilippine National Ban+ vs" Ri tratto <roup Inc"#4235 outlines the circumstances whichare useful in the determination of whether a susidiar! is ut a mere instrumentalit! of the parent7corporation# to wit&@! The parent corporation owns all or most of the capital stoc+ of the susidiar!"@b The parent and susidiar! corporations have common directors or officers"@: The parent corporation finances the susidiar!"@# The parent corporation suscries to all the capital stoc+ of the susidiar! or otherwise causes itsincorporation"@e The susidiar! has grossl! i nadeuate capital"@ The parent corporation pa!s the salaries and other expenses or losses of the susidiar!"@< The susidiar! has sustantiall! no usiness except with the parent corporation or no assets exceptthose conve!ed to or ! the parent corporation"@8 In the papers of the parent corporation or in the statements of its officers# the susidiar! isdescried as a department or division of the parent corporation# or its usiness or financial responsiilit!is referred to as the parent corporations own"@' The parent corporation uses the propert! of the susidiar! as its own"@? The directors or executives of the susidiar! do not act independentl! in the interest of thesusidiar!# ut ta+e their orders from the parent corporation"@ The formal legal reuirements of the susidiar! are not oserved"$" t8's :!te"! o :'r:;mst!":es, >8!t 's o"= et!"t '" t8e re:or#s 's t8e m!tter o sto:o>"ers8'p. +8ere !re "o ot8er !:tors '"#':!t'(e t8!t pet't'o"er 's ! mere '"str;me"t!'t= o&!r:opper or !:er Dome" The mere fact that :lacer Dome agreed# under the terms of the Supportand Stand! $redit %greement to provide @arcopper with cash flow support in pa!ing its oligations to

%DB# does not mean that its personalit! has merged with that of @arcopper" This s ingular underta+ing#performed ! :lacer Dome with its own stoc+holders in $anada and elsewhere# i s not a sufficient groundto merge its corporate personalit! with @arcopper which has its own set of shareholders# dominatedmostl! ! ;ilipino citi.ens" The same view applies to petitioners pa!ment of @arcoppers remaining detto %DB"Jith the foregoing considerations and the asence of fraud in the transaction of the three foreigncorporations# we find it improper to pierce the veil of corporate fiction that euitale doctrine developedto address situations where the corporate personalit! of a corporation is aused or used for wrongfulpurposes"

$ On the issue of forum shopping# there could have een a violation of the rules thereon if petitioner and@arcopper were indeed one and the same entit!" But since petitioner has a separate personalit!# it hasthe right to pursue its third7part! claim ! filing the independent reivindicator! action with the RT$ ofBoac# @arinduue# pursuant to Rule *(# Section '9 of the '(() Rules of $ivil :rocedures" This remed!

http://sc.judiciary.gov.ph/jurisprudence/2002/apr2002/138104.htm#_edn18










































































has een recogni.ed in a long line of cases decided ! this $ourt"42'5 In Rodrigue. vs" $ourt of %ppeals #4285we held&" " " It has long een settled in this E urisdiction that the claim of ownership of a third part! overproperties levied for execution of a Eudgment presents no issue for determination ! the court issuingthe writ of execution"" " "Thus# when a propert! levied upon ! the sheriff pursuant to a writ of execution is claimed ! thirdperson in a sworn s tatement of ownership thereof# as prescried ! the rules# !" e"t're= #'ere"t

m!tter :!'"< or ! "e> !#?;#':!t'o" !r'ses" %nd dealing as it does with the all important uestionof title# it is reasonale to reuire the filing of proper pleadings and the holding of a trial on the matterin view of the reuirements of due process"" " " In other words# construing Section ') of Rule *( of the Revised Rules of $ourt /now Section '9 ofthe '(() Rules of $ivil :rocedure0# the rights of third7part! claimants over certain properties levied upon! the sheriff to satisf! the Eudgment ma! not e ta+en up in the case where such claims are presentedut in a separate and independent action instituted ! the claimants" /6mphasis supplied0This reivindicator! action has for its oEect the recover! of ownership or possession of the propert!sei.ed ! the sheriff# despite the third part! claim# as well as damages resulting therefrom# and it ma!e rought against the sheriff and such other parties as ma! e alleged to have connived with him inthe supposedl! wrongful execution proceedings# such as the Eudgment creditor himself" S;:8 !:t'o" 's!" e"t're= sep!r!te !"# #'st'":t !:t'o" rom t8!t '" >8':8 ee:;t'o" 8!s bee" 'ss;e# " Thus#there eing no identit! of parties and cause of action etween $ivil $ase No" (7'* /RT$# Boac0 andthose cases filed ! @arcopper# including $ivil $ase No" (9733* /RT$# @anila0 as to give rise to res

Eudicata or litis pendentia # Solidan+s allegation of forum7shopping cannot prosper"42*5 %ll considered# we find petitioner to e entitled to the issuance of a writ of preliminar! inEunction"Section *# Rule of the '(() Rules of $ivil :rocedure provides&SE. 3 <rounds for issuance of preliminar! inEunction " % preliminar! i nEunction ma! e granted when itis estalished&@! That the applicant is entitled to the relief demanded# and the whole or part of such relief consists inrestraining the commission or continuance of the act or acts complained of# or in reuiring theperformance of an act or acts# either for a limited period or perpetuall!=@b That the commission# continuance or non7performance of the acts or acts complained of during thelitigation would proal! wor+ inEustice to the applicant= or@: That a part!# court# agenc! or a person is doing# threatening# or is attempting to do# or is procuringor suffering to e done# some act or acts proal! in violation of the rights of the applicant respectingthe suEect of the action or proceeding# and tending to render the Eudgment ineffectual":etitioners right to stop the further execution of the properties covered ! the assignment contracts isclear under the facts so far estalished" %n execution can e issued onl! against a part! and not againstone who did not have his da! in court" 4225 The dut! of the sheriff is to lev! the propert! of the

Eudgment detor not that of a third person" ;or# as the sa!ing goes# one mans goods shall not e soldfor another manFs dets"425 To allow the execution of petitioners properties would surel! wor+ i nEusticeto it and render the Eudgment on the reivindicator! action# should it e favorale# ineffectual" In %raa!#Inc"# vs" Salvador #4295 this $ourt held that an inEunction is a proper remed! to prevent a sheriff fromselling the propert! of one person for the purpose of pa!ing the dets of another= and that while thegeneral rule is that no court has authorit! to interfere ! inEunction with the Eudgments or decrees ofanother court of eual or concurrent or coordinate Eurisdiction# however# it is not so when a third7part!claimant is involved" Je uote the instructive words of >ustice -uerue $" @a+alintal in %iera vs" $ourtof %ppeals #42)5 thus&The rationale of the decision in the Herald :ulishing $ompan! case425 is peculiarl! applicale to theone efore 1s# and removes it from the general doctrine enunciated in the decisions cited ! therespondents and uoted earlier herein"'" 1nder Section ') of Rule *( a third person who claims propert! levied upon on execution ma!vindicate such claim ! action" Oviousl! a Eudgment rendered in his favor# that is# declaring him to ethe owner of the propert!# would not constitute interference with the powers or processes of the courtwhich rendered the Eudgment to enforce which the execution was levied" $ t8!t be so !"# 't 's so

be:!;se t8e propert=, be'"< t8!t o ! str!"<er, 's "ot s;b?e:t to e(= t8e" !" '"tero:;tor=or#er s;:8 !s '"?;":t'o", ;po" ! :!'m !"# pr'm! !:'e s8o>'"< o o>"ers8'p b= t8e

:!'m!"t, :!""ot be :o"s'#ere# !s s;:8 '"terere":e e't8er"IEREFRE# the petition is <R%NT6D" The assailed Decision dated >anuar! # '((( and theResolution dated @arch 8(# '((( of the $ourt of %ppeals in $% <"R" No" 2(889 are set aside" 1pon fili ngof a ond of :'#333#333"33# respondent sheriffs are restrained from further implementing the writ ofexecution issued in $ivil $ase No" (9733* ! the RT$# Branch 89# @anila# until further orders from this$ourt" The RT$# Branch (2# Boac# @arinduue# is directed to dispose of $ivil $ase No" (7'* withdispatch"S RDERED.

@elo# /$hairman0# Vitug# :anganian# and $arpio# >>"# concur"

8*5 $olumia :ictures# Inc" vs" $ourt of %ppeals# supra" %s a general proposition upon which man!authorities agree in principle# suEect to such modifications as ma! e necessar! in view of the particularissue or of the terms of the statute involved# it is recogni.ed that a foreign corporation is doing#transacting# engaging in# or carr!ing on usiness in the State when# and ordinaril! onl! when# it hasentered the State ! its agents and is there engaged in carr!ing on and transacting through them somesustantial part of its ordinar! or customar! usiness# usuall! continuous in the sense that it ma! edistinguished from merel! casual# sporadic# or occasional transactions and isolated acts"4895 %n %ct to Reuire that the @a+ing of Investments and the Doing of Business Jithin the :hilippines! ;oreigners or Business Organi.ations Owned in Jhole or in :art ! ;oreigners Should $ontriute tothe Sound and Balanced Development of the National 6conom! on a Self7Sustaining Basis# and for Other:urposes# 6nacted Jithout executive approval# Septemer *3# '(9 /9 O"<" No" 8(# p" )2'30"48)5 %rticle 9 of :residential Decree No" ')( /% Decree to Revise# %mend# and $odif! the Investment#

%gricultural and 6xport Incentives %cts to e Anown as the Omnius Investment $ode0# which too+effect on >anuar! '9# '('# defines doing usiness to include soliciting orders# purchases# servicecontracts# opening offices# whether called liaison offices or ranches= appointing representatives ordistriutors who are domiciled in the :hilippines or who in an! calendar !ear sta! in the :hilippines for aperiod or periods totaling one hundred eight! /'30 da!s or more= participating in the management#supervision or control of an! domestic usiness firm# entit! or corporation in the :hilippines# and !"=ot8er !:t or !:ts t8!t 'mp= ! :o"t'";'t= o :ommer:'! #e!'"<s or !rr!"<eme"ts !"#:o"temp!te to t8!t ete"t t8e perorm!":e o !:ts or >ors, or t8e eer:'se o some o t8e;":t'o"s "orm!= '":'#e"t to, !"# '" pro<ress'(e prose:;t'o" o , :ommer:'! <!'" or o t8ep;rpose !"# ob?e:t o t8e b;s'"ess or<!"'K!t'o""See also %rticle 22 of the Omnius Investments $ode of '() /6xecutive Order No" 889# effective >ul!'9# '()0"4*'5 *9 %m >ur *23 citing $aledonian $oal $o" vs" Ba+er# '(9 1S 2*8# 2( ?ed 23" The mere ownershipof propert! within a state# without more# would not e sufficient for purposes of Eurisdiction or processunder the minimum contact doctrine of the International Shoe $ompan! vs" Jashington $ase /*89 1S*'3# (3 ?ed (# 99 S $t '2# '9' %?R '3)"42*5 The test in determining the presence of forum7shopping is whether in the two /or more cases0pending# there is identit! of ! parties# b rights or causes of action and : reliefs sought" /6mplo!ees$ompensation $ommission vs" $ourt of %ppeals# <"R" No" ''# >une 8# '((9"

;IRST DIVISION

[G.R. No. 131367. A;<;st 31, 2000]

+$SN R+S $L$$NES L$&$+ED, pet't'o"er, (s. S*$ *A) &E+RL$+AN A+R$+), $N+ERNA+$NAL N+A$NER +ER&$NAL SER$ES $N., R)AL R+

SER$ES $N. !"# t8e E%E+$E SERE+AR), respo"#e"ts.D E $ S $ N

)NARES-SAN+$AG, 0 .5On ;eruar! '8# '((9# the Suic Ba! @etropolitan %uthorit! /or SB@%0 advertised in leading nationaldail! newspapers and in one international pulication# 4'5 an invitation offering to the private sector theopportunit! to develop and operate a modern marine container terminal within the Suic Ba! ;reeportCone" Out of seven idders who responded to the pulished invitation# three were declared ! the SB@%as ualified idders after passing the pre7ualification evaluation conducted ! the SB@%s Technical6valuation $ommittee /or SB@%7T6$0" These are& /'0 International $ontainer Terminal Services# Inc" /orI$TSI0= /80 a consortium consisting of Ro!al :ort Services# Inc" and H:$ Hamurg :ort $onsulting <@BH/or R:SI0= and /*0 Hutchison :orts :hilippines ?imited /or H::?0# representing a consortium composedof H::?# <uoco Holdings /:hils"0# Inc" and 1nicol @anagement Services# Inc" %ll three ualified idderswere reuired to sumit their respective formal id pac+age on or efore >ul! '# '((9 ! the SB@%s:re7ualification# Bids and %wards $ommittee /or SB@%7:B%$0"Thereafter# the services of three /*0 international consultants 485 recommended ! the Jorld Ban+ fortheir expertise were hired ! SB@% to evaluate the usiness plans sumitted ! each of the idders# andto ensure that there would e a transparent and comprehensive review of the sumitted ids" The SB@%also hired the firm of Davis# ?angdon and Seah :hilippines# Inc" to assi st in the evaluation of the idsand in the negotiation process after the winning idder is chosen" %ll the consultants# after such reviewand evaluation unanimousl! concluded that H::?s Business :lan was far superior to that of the twoother idders"4*5However# even efore the sealed envelopes containing the idders proposed ro!alt! fees could eopened at the appointed time and place# R:SI formall! protested that I$TSI is legall! arred fromoperating a second port in the :hilippines ased on 6xecutive Order No" 8'8 and Department ofTransportation and $ommunication /DOT$0 Order (79*" R:SI thus reuested that the financial id ofI$TSI should e set aside"425Nevertheless# the opening of the sealed financial ids proceeded under advisement relative to theprotest signified ! R:SI" The financial ids# more particularl! the proposed ro!alt! fee of each idder#was as follows&I$TSI 7777777777771SZ)"3 T61H::? 7777777777771SZ83"3 T61R:SI 77777777777771SZ'"3 T61The SB@%7:B%$ decided to suspend the announcement of the winning id# however# and instead gaveI$TSI seven /)0 da!s within which to respond to the letter7protest lodged ! R:SI" The H::? Eoined inR:SIs protest# stating that I$TSI should e disualified ecause it was alread! operating the @anilaInternational $ontainer :ort /or @I$:0# which would give rise to inevitale conflict of interest etweenthe @I$: and the Suic Ba! $ontainer Terminal facilit!"45On %ugust '# '((9# the SB@%7:B%$ issued a resolution reEecting the id of I$TSI ecause said iddoes not compl! with the reuirements of the tender documents and the laws of the :hilippines" Thesaid resolution also declared that&R6SO?V6D ;1RTH6R# that the winning id e awarded to H1T$HISON :ORTS :HI?I::IN6S?I@IT6D /H::?0 and thatnegotiations commence immediatel! with H::? /H1T$HISON0 with a view toconcluding an acceptale agreement within 2 da!s of this date failing which negotiations with R:SI/ROG%?0 will commence with a view to concluding an acceptale agreement within 2 da!s thereafterfailing which there will e declared a fai lure of ids"495 /1nderscoring supplied0The following da!# I$TSI filed a letter7appeal with SB@%s Board of Directors reuesting the nullificationand reversal of the aove7uoted resolution reEecting I$TSIs id while awarding the same to H::?" Buteven efore the SB@% Board could act on the appeal# I$TSI filed a similar appeal efore the Office ofthe :resident"4)5 On %ugust *3# '((9# then $hief :residential ?egal $ounsel /$:?$0 Renato ?" $a!etanosumitted a memorandum to then :resident ;idel V" Ramos# containing the following recommendations&Je therefore suggest that the :resident direct SB@% $hairman <ordon to consider option numer 2 thatis to re7evaluate the financial ids sumitted ! the parties# ta+ing into consideration all the followingfactors&'" Reinstate I$TSIs id=8" Disregard all arguments relating to monopol!=*" The re7evaluation must e limited to the parties financial ids"*"' $onsidering that the parties usiness have een accepted /passed0# strictl! follow the criteria for idevaluation provided for in pars" /c0 and /d0# :art B /'0 of the Tender Document"2" In the re7evaluation# the $O% should activel! participate to determine which of the fi nancial ids ismore advantageous"" In addition# all the parties should e given ample opportunit! to elucidate or clarif! thecomponentsEustification for their respective financial ids in order to ensure fair pla! and transparenc!in the proceedings"9" The :residents authorit! to review the final award shall remain"45 /1nderscoring supplied0The recommendation of $:?$ $a!etano was approved ! :resident Ramos# and a cop! of :residentRamos handwritten approval was sent to the SB@% Board of Directors" %ccordingl!# the SB@% Board#with the concurrence of representatives of the $ommission on %udit# agreed to focus the reevaluation ofthe ids in accordance with the evaluation criteria and the detailed components contained in the TenderDocument# including all relevant information gleaned from the idding documents# as well as the reportsof the three international experts and the consultanc! firm hired ! the SB@%"On Septemer '(# '((9# the SB@% Board issued a Resolution# declaring&NOJ# TH6R6;OR6# IT IS H6R6BG R6SO?V6D that the id that conforms to the Invitation to Tender# thathas a realistic Business :lan offering the greatest financial return to SB@%# the est possile offer andthe most advantageous to the government is that of H::? and H::? is accordingl! selected as thewinning idder and is here! awarded the concessionfor the operation and development of the SuicBa! $ontainer Terminal"4(5 /1nderscoring supplied0In a letter dated Septemer 82# '((9# the SB@% Board of Directors sumitted to the Office of the:resident the results of the re7evaluation of the id proposals# to wit&SB@%# through the unanimous vote of all the Board @emers# excluding the $hairman of the Board whovoluntaril! inhiited himself from participating in the re7evaluation# selected the H::? id as the winningid# eing& the conforming id with a realistic Business :lan offering the greatest financial return to theSB@%= the est possile offer in the mar+et# and the most advantageous to the government inaccordance with the Tender Document"4'35Notwithstanding the SB@% Boards recommendations and action awarding the proEect to H::?# then6xecutive Secretar! Ruen Torres sumitted a memorandum to the Office of the :residentrecommending that another reidding e conducted"4''5 $onseuentl!# the Office of the :residentissued a @emorandum directing the SB@% Board of Directors to refrain from signing the $oncession$ontract with H::? and to conduct a reidding of the proEect"4'85In the meantime# the Resident Omudsman for the DOT$ filed a complaint against memers of theSB@%7:B%$ efore the Office of the Omudsman for alleged violation of Section */e0 of Repulic %ct No"*3'( for awarding the contract to H::?" On %pril '9# '(()# the 6valuation and :reliminar! InvestigationBureau of the Office of the Omudsman issued a Resolution asolving the memers of the SB@%7:B%$of an! liailit! and dismissing the complaint against them# ruling thus&

%fter an assiduous stud! of the respective contentions of oth parties# we are inclined to hold# as it ishere! held# that there is no proof on record pinpointing respondents to have acted in excess of theirdiscretion when the! awarded the id to H::?" Records revealed that respondents# in the exercise oftheir discretion in determining the financial pac+ages offered ! the applicants# were guided ! theexpert report of Davis# ?angdon and Seah /D?S0 that fairl! evaluated which of the idders tender thegreatest financial return to the government" There is no showing that respondents had aused theirprerogatives" %s succinctl! set forth in the D?S report it stated# among others# that# in assessing the fullfinancial return to SB@% offered ! the idders# it is necessar! to consider the following critical matters&'" Ro!alt! fees8" Volume of T61s as affected !&




















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http://sc.judiciary.gov.ph/jurisprudence/2000/aug2000/131367.htm#_edn1




















































a" Tariff rates=" @ar+eting strateg!=c" :ort facilities= andd" 6fficient reliale services"Jith the preceding parameters for the evaluation of idders usiness plan# the respondents were fairl!guided !# as the! ali gned their Eudgment in congruence with# the opinion of the panel of experts andthe SB@%s Technical 6valuation $ommittee to the effect that H::?s usiness is superior while that ofI$TSIs appeared to e unrealisticall! high which ma! eventuall! hinder the competitiveness of the SB@%port with the rest of the world" Respondents averred that the panel of Jorld Ban+ experts noted thatI$TSIs high tariff rates at 1"S" Z''("33 per T61 is alread! higher ! *) through H::?# which couldfurther increase ! 83 in the first two /80 !ears and ! hi+e thereafter" In short# high tariffs woulddiscourage potential customers which ma! e translated into low cargo volume that will eventuall!reduce financial return to SB@%" Respondents asserted that H::?s usiness plan offers the greatestfinancial return which could e euated that over the five !ears# H::? offers '"8 illion pesos whileI$TSI offers :3"( illion# and R:SI offers :"283 illion" Over the first ten !ears H::? gives :8"2*3illion# I$TSI tenders :8"'() illion and R:SI has :'"9*8 illion"

Viewed from this perspective alongside with the evidence on record# the undersigned panel does notfind respondents to have exceeded their discretion in awarding the id to H::?" $onseuentl!# it couldnot e said that respondents act had placed the government at a grossl! disadvantageous plight thatcould have Eeopardi.ed the interest of the Repulic of the :hilippines"4'*5On >ul! )# '(()# the H::?# feeling aggrieved ! the SB@%s failure and refusal to commence negotiationsand to execute the $oncession %greement despite its earlier pronouncements that H::? was thewinning idder# filed a complaint4'25 against SB@% efore the Regional Trial $ourt /RT$0 of Olongapo$it!# Branch )# for specific performance# mandator! inEunction and damages" In due time# I$TSI# R:SIand the Office of the :resident filed separate %nswers7in7Intervention4'5 to the complaint opposing thereliefs sought ! complainant H::?"$omplainant H::? alleged and argued therein that a inding and legall! enforceale contract had eenestalished etween H::? and defendant SB@% under %rticle '*3 of the $ivil $ode# considering thatSB@% had repeatedl! declared and confirmed that H::? was the winning idder" Having accepted H::?soffer to operate and develop the proposed container terminal# defendant SB@% is dut!7ound to compl!with its oligation ! commencing negotiations and drawing up a $oncession %greement with plaintiffH::?" H::? also pointed out that the idding procedure followed ! the SB@% faithfull! complied withexisting laws and rules estalished ! SB@% itself= thus# when H::? was declared the winning idder itacuired the exclusive right to negotiate with the SB@%" $onseuentl!# plaintiff H::? posited that SB@%should e& /'0 arred from conducting a re7idding of the proposed proEect andor performing an! suchacts relating thereto= and /80 prohiited from negotiating with an! part! other than plaintiff H::? untilnegotiations etween H::? and SB@% have een concluded or in the event that no acceptaleagreement could e arrived at" :laintiff H::? also alleged that SB@%s continued refusal to negotiate the$oncession $ontract is a sustantial infringement of its proprietar! rights# and caused damage andpreEudice to plaintiff H::?"Hence# H::? pra!ed that&/'0 1pon the filing of this complaint# hearings e scheduled to determine the propriet! of plaintiffsmandator! inEunction application which see+s to order defendant or an! of its appropriate officers orcommittees to forthwith specif! the date as well as to perform an! and all such acts /e"g" la!ing theground rules for discussion0 for the commencement of negotiations with plaintiff with the view tosigning at the earliest possile time a $oncession %greement for the development and operation of theSuic Ba! $ontainer Terminal"/80 Thereafter# Eudgment e rendered in favor of plaintiff and against defendant&8"'" @a+ing permanent the preliminar! mandator! inEunction it had i ssued=8"8" Ordering defendant to implement the $oncession %greement it had executed with plaintiff i nrespect of the development and operation of the proposed Suic Ba! $ontainer Terminal=8"*" Ordering defendant to pa! for the cost of plaintiffs attorne!s fees in the amount of :33#333"33# oras otherwise proven during the trial":laintiff pra!s for other euitale reliefs" 4'95During the pre7trial hearing# one of the issues raised and sumitted for resolution was whether or notthe Office of the :resident can set aside the award made ! SB@% in favor of plaintiff H::? and if so#can the Office of the :resident direct the SB@% to conduct a re7idding of the proposed proEect"Jhile the case efore the trial court was pending litigation# on %ugust 2# '(()# the SB@% sent notices toplaintiff H::?# I$TSI and R:SI reuesting them to declare their interest in participating in a reidding ofthe proposed proEect"4')5 On Octoer 83# '(()# plaintiff H::? received a cop! of the minutes of the pre7id conference which stated that the winning idder would e announced on Decemer # '(()"4'5 Then on Novemer 2# '(()# plaintiff H::? learned that the SB@% had accepted the ids of I$TSIand R:SI who were the onl! idders who uali fied"In order to enEoin the reidding while the case was still pending# plaintiff H::? filed a motion formaintenance of thestatus u o 4'(5 on Octoer 8# '(()" The said motion was denied ! the court auo in an Order dated Novemer *# '(()# to wit&:laintiff maintains that ! voluntaril! participating in this proceedings# the defendant and the intervenorshave unualifiedl! agreed to sumit the issue of the propriet!# legalit! and validit! of the Office of the:residents directive that the SB@% effect a reidding of its concession contract or the operation of theSuic Ba! $ontainer Terminal" %s such# the status uo must e maintained in order not to thwart thecourts ailit! to resolve the issues presented" ;urther# the ethics of the profession reuire that counselshould discontinue an! act which tends to render the issues academic"The Opposition is anchored on lac+ of Eurisdiction since the issuance of a cease7and7desist order woulde tantamount to the issuance of a Temporar! Restraining Order or a Jrit of InEunction which this $ourtcannot do in light of the provision of Section 8' of R"%" )88) which states&Section 8'" InEunction and Restraining Order" The implementation of the proEects for the conversion intoalternative productive uses of the militar! reservations are urgent and necessar! and shall not erestrained or enEoined except ! an order issued ! the Supreme $ourt of the :hilippines"During the hearing on Octoer *3# '(()# SB@%s counsel revealed that there is no l aw or administrativerule or regulation which reuires that a idding e accomplished within a definite time frame"Trul!# the matter of the deferment of the re7idding on Novemer 2# '(() rests on the sound discretionof the SB@%" ;or this $ourt to issue a cease7and7desist order would e tantamount to an issuance of aTemporar! Restraining Order or a Jrit of :reliminar! InEunction" /:rado v" Veridiano II# <"R" No" (''#Decemer 9# '(('0"The $ourt notes that the Office of the :resident has not een heard full! on the i ssues" @oreover# one ofthe intervenors is of the view that the is sue of Eurisdiction must e resolved first# ahead of all the otherissues"JH6R6;OR6# and viewed from the foregoing considerations# plaintiffs motion is D6NI6D"SO ORD6R6D"4835 /1nderscoring supplied0Hence# this petition filed ! petitioner /plaintiff elow0 H::? against respondents SB@%# I$TSI# R:SI andthe 6xecutive Secretar! see+ing to otain a prohiitor! inEunction" The grounds relied upon ! petitionerH::? to Eustif! the filing of the instant petition are summed up as follows&8(" It is respectfull! sumitted that to allow or for this Honorale $ourt to otherwise refrain fromrestraining SB@%# during the pendenc! of this suit# from committing the aforementioned act/s0 whichwill certainl! occur on Decemer '(() such action /or inaction0 will wor+ an inEustice upon petitionerwhich has validl! een announced as the winning idder for the operation of the Suic Ba! $ontainerTerminal"*3" To allow or for this Honorale $ourt to otherwise refrain from restraining SB@%# during the pendenc!of this suit# from committing the aforementioned threatened acts would e in violation of petitionersrights in respect of the action it had fi led efore the RT$ of Olongapo $it! in $ivil $ase No" 82*7O7()#and could render an! Eudgment which ma! e reached ! said $ourt moot and ineffectual" %s stated#the legal issues raised ! the parties in that proceedings are of far reaching importance to the nationalpride and prestige# and the! impact on the integrit! of government agencies engaged in internationalidding of privati.ation proEects" Its resolution on the merits ! the trial court elow and# thereafter# an!further action to e ta+en ! the parties efore the appellate courts wi ll certainl! enefit respondentsand the entire ;ilipino people"48'5

JH6R6;OR6# petitioner H::? sought relief pra!ing that&a0 1pon the filing of this petition# the same e given due course and a temporar! restraining orderandor writ of preliminar! inEunction e issued ex parte # restraining SB@% or an! of its committees# orother persons acting under its control or direction or upon its i nstruction# from declaring an! winneron Decemer '(() or at an! other date thereafter# in connection with the reidding for theprivati.ation of the Suic Ba! $ontainer Terminal andor for an!# some or all of the respondents toperform an! such act/s0 in pursuance thereof# until further orders from this Honorale $ourt=0 %fter appropriate proceedings# Eudgment e rendered in favor of petitioner and against respondents77/'0 Ordering SB@% to desist from conducting an! reidding or in declaring the winner of an! suchreidding in respect of the development and operation of the Suic Ba! $ontainer Terminal until the

Eudgment which the RT$ of Olongapo $it! ma! render in $ivil $ase No" 82*7O7() is resolved withfinalit!=/80 Declaring null and void an! award which SB@% ma! announce or issue on Decemer '(()= and/*0 Ordering respondents to pa! for the cost of suit":etitioner pra!s for other euitale reliefs"4885The instant petition see+s the issuance of an inEunctive writ for the sole purpose of holding in ae!ancethe conduct ! respondent SB@% of a reidding of the proposed SBI$T proEect until the case for specificperformance is resolved ! the trial court" In other words# petitioner H::? pra!s that the status uo epreserved until the issues raised in the main case are litigated and finall! determined" :etitioner wasconstrained to invo+e this $ourts exclusive Eurisdiction and authorit! ! virtue of the aove7uotedRepulic %ct )88)# Section 8'"On Decemer *# '(()# this $ourt granted petitioner H::?s application for a temporar! restraining orderenEoining the respondent SB@% or an! of its committees# or other persons acting under its control ordirection or upon its instruction# from declaring an! winner on Decemer # '(() or at an! other datethereafter# in connection with the reidding for the privati.ation of the Suic Ba! $ontainer Terminalandor for an!# some or all of the respondents to perform an! such act or acts in pursuance thereof "48*5There is no dout that since this controvers! arose# precious time has een lost and a vi tal infrastructureproEect has in essense een mothalled to the detriment of all parties involved# not the least of which isthe :hilippine <overnment# through its officials and agencies# who serve the interest of the nation" It is#therefore# imperative that the issues raised herein and in the court a uo e resolved without furtherdela! so as not to exacerate an alread! untenale situation"

%t the outset# the application for the inEunctive writ is onl! a provisional remed!# a mere adEunct to themain suit"4825Thus# it is not uncommon that the issues in the main action are closel! intertwined# if notidentical# to the allegations and counter allegations propounded ! the opposing parties in support oftheir contrar! positions concerning the propriet! or impropriet! of the inEunctive writ" Jhile it is not ourintention to preempt the trial courts determination of the issues in the main action for specificperformance# this $ourt has a ounden dut! to perform= that is# to resolve the matters efore this $ourtin a manner that gives essence to E ustice# euit! and good conscience"Jhile our pronouncements are for the purpose onl! of determining whether or not the circumstanceswarrant the issuance of the writ of inEunction# it is inevitale that it ma! have some impact on the mainaction pending efore the trial court" Nevertheless# without delving into the merits of the main case# ourfindings herein shall e confined to the necessar! issues attendant to the application for an inEunctivewrit";or an inEunctive writ to e issued# the foll owing reuisites must e proven&;irst" That the petitionerapplicant must have a clear and unmista+ale right"Second" That there is a material and sustantial invasion of such right"Third" That there is an urgent and permanent necessit! for the writ to prevent serious damage"485To our mind# petitioner H::? has not sufficientl! shown that it has a clear and unmista+ale right to edeclared the winning idder with finalit!# such that the SB@% can e compelled to negotiate a$oncession $ontract" Though the SB@% Board of Directors# ! resolution# ma! have declared H::? asthe winning idder# said award cannot e said to e final and unassailale" The SB@% Board of Directorsand other officers are suEect to the control and supervision of the Office of the :resident" %ll proEectsunderta+en ! SB@% reuire the approval of the :resident of the :hilippines under ?etter of InstructionNo" 983# which places the SB@% under its amit as an instrumentalit!# defined in Section '3 thereof asan agenc! of the national government# not integrated within the department framewor+# vested withspecial functions or Eurisdiction ! law# endowed with some if not al l corporate powers#administeringspecial funds# and enEo!ing operational autonom!# usuall! through a charter" This term includesregulator! agencies# chartered institutions and government owned and controlled corporations"4895 /1nderscoring supplied0

%s a chartered institution# the SB@% is alwa!s under the direct control of the Office of the :resident#particularl! when contracts andor proEects underta+en ! the SB@% entail sustantial amounts ofmone!" Specificall!# ?etter of Instruction No" 983 dated Octoer 8)# '(() mandates that the approval ofthe :resident is reuired in all contracts of the national government offices# agencies andinstrumentalities# including government7owned or controlled corporations involving two million pesos/:8#333#333"330 and aove# awarded through pulic idding or negotiation" The :resident ma!# withinhis authorit!# overturn or reverse an! award made ! the SB@% Board of Directors for Eustifialereasons" It is well7estalished that the discretion to accept or reEect an! id# or even recall the awardthereof# is of such wide latitude that the courts will not generall! interfere with the exercise thereof !the executive department# unless it is apparent that such exercise of discretion is used to shieldunfairness or inEustice" Jhen the :resident issued the memorandum setting aside the award previousl!declared ! the SB@% in favor of H::? and directing that a reidding e conducted# the same was#within the authorit! of the :resident and was a valid exercise of his prerogative" $onseuentl!# petitionerH::? acuired no clear and unmista+ale right as the award announced ! the SB@% prior to the:residents revocation thereof was not final and inding"There eing no clear and unmista+ale right on the part of petitioner H::?# the reidding of theproposed proEect can no longer e enEoined as there is no material and sustantial invasion to spea+of" Thus# there is no longer an! urgent or permanent necessit! for the writ to prevent an! perceivedserious damage" In fine# since the reuisites for the issuance of the writ of inEunction are not present inthe instant case# petitioners application must e denied for lac+ of merit "48)5;inall!# we focus on the matter of whether or not petitioner H::? has the legal capacit! to even see+redress from this $ourt" %dmittedl!# petitioner H::? is a foreign corporation# organi.ed and existingunder the laws of the British Virgin Islands" Jhile the actual idder was a consortium composed ofpetitioner# and two other corporations# namel!# <uoco Holdings /:hils"0 Inc" and 1nicol @anagementServises# Inc"# it is onl! petitioner H::? that has rought the controvers! efore the $ourt# arguing thatit is suing onl! on an isol ated transaction to evade the legal reuirement that foreign corporations muste licensed to do usiness in the :hilippines to e ale to file and prosecute an action efore :hilippinescourts"The maelstrom of this issue is whether participating in the idding is a mere isolated transaction# or didit constitute engaging in or transacting usiness in the :hilippines such that petitioner H::? needed alicense to do usiness in the :hilippines efore it could come to court"There is no general rule or governing principle laid down as to what constitutes doing or engaging in ortransacting usiness in the :hilippines" 6ach case must e Eudged in the light of its peculiarcircumstances"485 Thus# it has often een held that a single act or transaction ma! e considered asdoing usiness when a corporation performs acts for which it was created or exercises some of thefunctions for which it was organi.ed" The amount or volume of the usiness is of no moment# for even asingular act cannot e merel! incidental or casual if it indicates the foreign corporations intention to dousiness"48(5:articipating in the idding process constitutes doing usiness ecause it shows the foreign corporationsintention to engage in usiness here" The idding for the concession contract is ut an exercise of thecorporations reason for creation or existence" Thus# it has een held that a foreign compan! invited toid for IBRD and %DB international proEects in the :hilippines will e considered as doing usiness in the:hilippines for which a license is reuired" In this regard# it is the performance ! a foreign corporationof the acts for which it was created# regardless of volume of usiness# that determines whether aforeign corporation needs a license or not"4*35The primar! purpose of the license reuirement is to compel a foreign corporation desiring to do
























































usiness within the :hilippines to sumit itself to the Eurisdiction of the courts of the state and to enalethe government to exercise Eurisdiction over them for the regulation of their activities in this countr!"4*'5 If a foreign corporation operates a usiness in the :hilippines without a license# and thus does notsumit itself to :hilippine laws# it is onl! Eust that said foreign corporation e not allowed to invo+e themin our courts when the need arises" Jhile foreign investors are alwa!s welcome in this land tocollaorate with us for our mutual enefit# the! must e prepared as an indispensale condition torespect and e ound ! :hilippine law in proper cases# as in the one at ar"4*85 The reuirement of alicense is not intended to put foreign corporations at a disadvantage# for the doctrine of lac+ of capacit!to sue is ased on considerations of sound pulic polic!" 4**5 %ccordingl!# petitioner H::? must e heldto e incapacitated to ring this petition for inEunction efore this $ourt for it is a foreign corporationdoing usiness in the :hilippines without the reuisite license"IEREFRE# in view of all the foregoing# the instant petition is here! DIS@ISS6D for lac+ ofmerit" ;urther# the temporar! restraining order issued on Decemer *# '(() is ?I;T6D and S6T

%SID6" No costs"S RDERED.

:uno# Aapunan# and :ardo# >>"# concur"Davide# >r"# $">"# /$hairman0# in the result"

4'5 %nnex %= Rollo # p" '9= ;eruar! '8# '((9 issues of the :hilippine Dail! Inuirer# Business Jorld#?lo!ds ?ist and 8 newspapers of local circulation in Olongapo $it!

<"R" No" ?79'8* >ul! *'# '(9 AN+A& NSL$DA+ED, $N., +A&*N+$NG +RAD$NG RRA+$N !"# ARRA

NSL$DA+ED SER$+$ES !"# $NES+&EN+ RRA+$N,petitioners#vs"+E R+ F AEALS, +E NRA*LE &A%$&$AN . ASN$N @o;rt o F'rst$"st!":e o L!<;"!, *r!":8 $$ [St!. r;K] !"# S+EL) AN A&, $N., respondents"Siguion Re!na# @ontecillo L Ongsia+o ?aw Offices for petitioners"Bito# @isa L ?o.ada ?aw Offices for respondents" G+$ERRE, R., 0.5

This petition for certiorari and prohiition see+s to set aside the order of the Regional Trial $ourt of?aguna which denied the petitionersF motion to dismiss on the ground that the reason relied upon !them does not appear to e induitale" :etitioners also see+ to set aside the decision and resolution ofthe Intermediate %ppellate $ourt which respectivel! upheld the order of the trial court and denied thepetitionersF motion for reconsideration of the same"

On %pril (# '('# respondent Sto+el! Van $amp" Inc" /Sto+el!0 filed a complaint against Banahaw @illing$orporation /Banahaw0# %ntam $onsolidated# Inc"# Tamunting Trading $orporation /Tamunting0# %urora $onsolidated Securities and Investment $orporation# and 1nited $oconut Oil @ills# Inc" /1nicom0for collection of sum of mone!"In its complaint# Sto+el! alleged& /'0 that it is a corporation organi.ed and existing under the laws of thestate of Indiana# 1"S"%" and has its principal office at (2' North @eridian Street# Indianapolis# Indiana#1"S"%"# and one of its sudivisions ,$apital $it! :roduct $ompan!, /$apital $it!0 has its office in$olumus# Ohio# 1"S"%"= /80 that Sto+el! and $apital $it! were not engaged in usiness in the:hilippines prior to the commencement of the suit so that Sto+el! is not licensed to do usiness in thiscountr! and is not reuired to secure such license= /*0 that on %ugust 8'# '()# $apital $it! and$oconut Oil @anufacturing /:hil"0 Inc" /$omphil0 with the latter acting through its ro+er Roths childBro+erage $ompan!# entered into a contract /No" RBS *90 wherein $omphil undertoo+ to sell anddeliver and $apital $it! agreed to u! 33 long tons of crude coconut oil to e delivered inOctoerNovemer '() at the c"i"f" price of 1SZ3"*3'" ut $omphil failed to deliver the coconut oil sothat $apital $it! covered its coconut oil needs in the open mar+et at a price sustantiall! in excess of thecontract and sustained a loss of 1SZ'3*#933= that to settle $apital $it!Fs loss under the contract# theparties entered into a second contract /No" RBS *)*0 on Novemer *# '() wherein $omphil undertoo+to u! and $apital $it! agreed to sell 33 long tons of coconut crude oil under the same terms andconditions ut at an increased c"i"f" price of 1SZ3"*(8l"= /20 that the second contract states that ,it isa wash out against RBS *9, so that $omphil was supposed to repurchase the undelivered coconut oilat 1SZ3"*(8 from $apital $it! ! pa!ing the latter the sum of 1SZ'3*#933"33 which is the sameamount of loss that $apital $it! sustained under the first contract= that $omphil again failed to pa! saidamount# so to settle $apital $it!Fs loss# it entered into a third contract with $omphil on >anuar! 82# '()(

wherein the latter undertoo+ to sell and deliver and $apital $it! agreed to u! the same uantit! ofcrude coconut oil to e delivered in %pril@a! '()( at the c"i"f" price of 1SZ3"*28l"= /0 that the latterprice was ("8 centsl" or 1SZ'3*#933 for 33 long tons elow the then current mar+et price of 2*"8centsl" and ! delivering said uantit! of coconut oil to $apital $it! at the discounted price# $omphilwas to have settled its 1SZ'3*#933 liailit! to $apital $it!= /90 that $omphil failed to deliver the coconutoil so $apital $it! notified the former that it was in default= /)0 that $apital $it! sustained damages inthe amount of 1SZ')#333= and /0 that after repeated demands from $omphil to pa! the said amount#the latter still refuses to pa! the same"Respondent Sto+el! further pra!ed that a writ of attachment e issued against an! and all the propertiesof the petitioners in an amount sufficient to satisf! an! lien of Eudgment that the respondent ma! otainin its action" In support of this provisional remed! and of its cause of action against the rest of thepetitioners other than $omphil# the respondent alleged the following& '0 %fter demands were made !respondent on $omphil# the Tamuntings ceased to e directors and officers of $omphil and werereplaced ! their five emplo!ees# who were managers of TamuntingFs pawnshops and said emplo!eescaused the name of $omphil to e changed to ,Banahaw @illing $orporation, and authori.ed one of theTamuntings# %ntonio :" Tamunting# >r"# who was at that time neither a director nor officer of Banahawto sell its oil mill= 80 1nicom has ta+en over the entire operations and assets of Banahaw ecause theentire and outstanding capital stoc+ of the latter was sold to the former= *0 %?? of the issued andoutstanding capital stoc+ of $omphil are owned ! the Tamuntings who were the directors and officersof $omphil and who were the ones who enefited from the sale of BanahawFs assets or shares to1nicorn= 20 %?? of the petitioners evaded their oligation to respondent ! the devious scheme of usingTamunting emplo!ees to replace the Tamuntings in the management of Banahaw and disposing of theoil mill of Banahaw or their entire interests to 1nicorn= and 0 Respondent has reasonale cause to

elieve and does elieve that the coconut oil mil+ which is the onl! sustantial asset of Banahaw isaout to e sold or removed so that unless prevented ! the $ourt there will proal! e no assets ofBanahaw to satisf! its claim"On %pril '3# '('# the trial court ordered the issuance of a writ of attachment in favor of the respondentupon the latterFs deposit of a ond in the amount of : l#8#333"33"On >une *# '('# the respondent filed a motion for reconsideration to reduce the attachment ond"

%ttached to this motion is an affidavit ! the assistant attorne! of the respondentFs counsel stating thathe has verified with the records of $omphil and the Securities and 6xchange $ommission /S6$0 the factshe alleged in the pra!er for the attachment order"On >une ''# '('# the petitioners filed a motion to dismiss the complaint on the ground that therespondent# eing a foreign corporation not licensed to do usiness in the :hilippines# has no personalit!to maintain the instant suit"

%fter the respondent had filed an opposition to the motion to dismiss and petitioner has opposed theattachment and the motion to reduce the attachment ond# the trial court issued an order# dated %ugust'3# '('# reducing the attachment ond to : 33#333"33 and den!ing the motion to dismiss !petitioners on the ground that the reason cited therein does not appear to e induitale":etitioners filed a petition for certiorari efore the Indianapolis intermediate %ppellate $ourt"On >une '2# '(8# the appellate court dismissed the petition stating that the respondent Eudge did notcommit an! grave ause of discretion in deferring the petitionersF motion to dismiss ecause the said

Eudge is not !et satisfied that he has the necessar! facts which would permit him to ma+e a Eudiciousresolution" The appellate court further ruled that in another case entitled 1nited $oconut Oil @ills# Inc"

and Banahaw @illing $orporation v" Hon" @aximiano $" %suncion and Sto+el! Van $amp# Inc" where thefacts and issues raised therein are intrinsicall! the same as in the case at ar# it has alread! denied thepetition for certiorari filed ! 1nicom and Banahaw for lac+ of merit and the same was upheld ! theSupreme $ourt":etitioners filed a motion for reconsideration ut the same was denied" Hence# the! filed this instantpetition for certiorari and prohiition with pra!er for temporar! restraining order# uestioning thepropriet! of the appellate courtFs decision in& a0 affirming the deferment of the resolution on petitionerFmotion to dismiss= and 0 den!ing the motion to set# aside the order of attachment"Jith regards to the first uestion# petitioners maintain that the appellate court erred in den!ing theirmotion to dismiss since the ground relied upon ! them is clear and induitale# that is# that therespondent has no personalit! to sue" :etitioners argue that to maintain the suit filed with the trialcourt# the respondent should have secured the reuisite license to do usiness in the :hilippinesecause# in fact# it is doing usiness here" :etitioners anchor their argument that the respondent is aforeign corporation doing usiness in the :hilippines on the fact that ! the respondentFs ownallegations# it has participated in three transactions# either as a seller or u!er# which are ! theirnature# in the pursuit of the purpose and oEect for which it was organi.ed" :etitioners further arguethat the test of whether one is doing usiness or not is ,whether there is continuit! of transactionswhich are in the pursuance of the normal usiness of the corporation, and that the transactions enteredinto ! respondent undoutedl! fall within this categor!"Je reEect the petitionersF arguments"In the case of Top7Jeld @anufacturing# Inc" v" 6$6D# S"%" /'* S$R% ''#'8)7'80# we stated&

There is no general rule or governing principle laid down as to whatconstitutesFdoingForFengaging inF or Ftransacting usiness in the :hilippines"6ach case must e Eudged in the ?ight of its peculiar circumstance/@entholatum $o" v" @angaliman# )8 :hil"820" Thus# a foreign corporationwith a settling agent in the :hilippines which issues twelve marine policiescovering different shipments to the :hilippines /<eneral $orporation of the:hilippines v" 1nion Insurance Societ! of $anton# ?td"# ) :hil" *'*0 and aforeign corporation which had een collecting premiums on outstandingpolicies /@anufacturing ?ife Insurance $o"# v" @eer# ( :hil" *'0 wereregarded as doing usiness here" The acts of these corporations should edistinguished from a single or isolated usiness transaction or occasional#incidental and casual transactions which do not come within the meaningof the law" Jhere a single act or transaction # however# is not merel!incidental or casual ut indicates the foreign corporationFs intention to doother usiness in the :hilippines# said single act or transaction constitutesFdoingF or Fengaging inF or FtransactingF usiness in the :hilippines" /;ar 6astInternational Import and 6xport $orporation v" Nan+ai Aog!o# $o"# 9 S$R%)80"In the @entholatum $o" v" @angaliman case earlier cited# this $ourt held&xxx xxx xxx"""The true test# however# seems to e whether the foreign corporation iscontinuing the od! or sustance of the usiness or enterprise for which itwarning7organi.ed or whether it has sustantiall! was retired from it andturned it over to another" /Traction $os" v" $ollectors of Int" Revenue 4$$%"#Ohio5# 88* ;" (2# ()"0 The term implies a continuit! of commercialdealings and arrangements# and contemplates# to that extent# theperformance of acts or wor+ers or the exercise of some of the functionsnormall! incident to# and in progressive prosecution of# the purpose andoEect of its organi.ation" /<riffin v" Implement DealersF @ut" ;ire Ins" $o"#82' N"J" )# ))# :auline Oil L <as $o" v" @utual Tan+ ?ine $o"# 829 :" '#8# '' O+l" '''= %utomotive @aterial $o" v" %merican Standard @etal:roducts $orp"# ' N"6" 9(# )3*# *8) '''" *9)"0 F

In the case at ar# the transactions entered into ! the respondent with the petitioners are not a seriesof commercial dealings which signif! an intent on the part of the respondent to do usiness in the:hilippines ut constitute an isolated one which does not fall under the categor! of ,doing usiness",The records show that the onl! reason wh! the respondent entered into the second and thirdtransactions with the petitioners was ecause it wanted to recover the loss it sustained from the failureof the petitioners to deliver the crude coconut oil under the first transaction and in order to give thelatter a chance to ma+e good on their oligation" Instead of ma+ing an outright demand on thepetitioners# the respondent opted to tr! to push through with the transaction to recover the amount of1SZ'3*#933"33 it lost" This explains wh! in the second transaction# the petitioners were supposed tou! ac+ the crude coconut oil the! should have delivered to the respondent in an amount which willearn the latter a profit of 1SZ'3*#933"33" Jhen this failed the third transaction was entered into ! theparties where! the petitioners were supposed to sell crude coconut oil to the respondent at adiscounted rate# the total amount of such discount eing 1SZ'3*#933"33" 1nfortunatel!# the petitionersfailed to deliver again# prompting the respondent to file the suit elow";rom these facts alone# it can e deduced that in realit!# there was onl! one agreement etween thepetitioners and the respondent and that was the deliver! ! the former of 33 long tons of crudecoconut oil to the latter# who in turn# must pa! the corresponding price for the same" The threeseemingl! different transactions were entered into ! the parties onl! in an effort to fulfill the asicagreement and in no wa! indicate an intent on the part of the respondent to engage in a continuit! oftransactions with petitioners which will categori.e it as a foreign corporation doing usiness in the:hilippines" Thus# the trial court# and the appellate court did not err i n den!ing the petitionersF motion todismiss not onl! ecause the ground thereof does not appear to e induitale ut ecause therespondent# eing a foreign corporation not doing usiness in the :hilippines# does not need to otain alicense to do usiness in order to have the capacit! to sue" %s we have held in 6astoard Navigation?td" v" >uan Gsmael and $o"# Inc " /'38 :hil" '# '0&

xxx xxx xxx/d0 Jhile plaintiff is a foreign corporation without license to transactusiness in the :hilippines# it does not follow that it has no capacit! toring the present action" Such license is F not necessar! ecause it is notengaged in usiness in the :hilippines" In fact# the transaction hereininvolved is the first usiness underta+en ! plaintiff in the :hilippines#although on a previous occasion plaintiffFs vessel was chartered ! theNational Rice and $orn $orporation to carr! rice cargo from aroad to the:hilippines" These two isolated transactions do not constitute engaging inusiness in the :hilippines within the purview of Sections 9 and 9( of the$orporation ?aw so as to ar plaintiff from see+ing redress in our courts/@arshall7Jells $o" v" Henr! J" 6lser L $o" 2( :hil" )3= :acific VegetaleOil $orporation v" %ngel 3" Singson# <"R" No" ?7)(')# %pril 8(# '(= alsocited in ;acilities @anagement $orporation v" De la Osa# ( S$R% '*'#'*0"

Je agree with the respondent that it is a common plo! of defaulting local companies which are sued !unlicensed foreign companies not engaged in usiness in the :hilippines to invo+e lac+ of capacit! tosue" The respondent cites decisions from '(3) to '() recogni.ing and reEecting the improper use ofthis procedural tactic" /Damfschieffs Rhedered 1nion v" $ia Trans7atlantica# :hil" )99 ''(3)5= @arshall7Jells $o" v" Henr! J" 6lser L $o"# 2( :hil" )3 4'(825= Jestern 6uipment $o" v" Re!es# ' :hil" ''4'(8)5= $entral Repulic Ban+ v" Bustamante# )' :hil" *( 4'(2'5= :acific Vegetale Oil $o" v" Singson#(9 :hil"7(9 4'(5= 6astoard Navigation# ?td" v" >uan Gsmael and $o"# Inc"# '38 :hil" ' 4'()50" Thedoctrine of lac+ of capacit! to sue ased on failure to first acuire a local license is ased onconsiderations of sound pulic polic!" It intended to favor domestic corporations who enter was neverinto solitar! transactions with unwar! foreign firms and then repudiate their oligations simpl! ecausethe latter are not licensed to do usiness in this countr!" The petitioners in this case a re engaged in theexportation of coconut oil# an export item so vital in our countr!Fs econom!" The! filed this petition onthe ground that Sto+el! is an unlicensed foreign corporation without a are allegation or showing that








http://sc.judiciary.gov.ph/jurisprudence/2000/aug2000/131367.htm#_ednref1








their defenses in the collection case are valid and meritorious" Je cannot fault the two courts elow foracting as the! did"

%nent the second issue the! raise# the petitioners contend that the trial court should not have issued theorder of attachment and the appellate court should not have affirmed the same ecause the verificationin support of the pra!er for attachment is insufficient" The! state that the person who made suchverification does not personall! +now the facts relied upon for the issuance of the attachment order":etitioners capitali.e on the fact that Renato $alma# the assistant attorne! of Bito# @isa# and ?o.ada#counsel for respondent# stated in his verification that ,he has read the foregoing complaint and thataccording to his information and elief the all egations therein contained are true and correct",The aove contention deserves scant consideration"Je rule that the defect in the original verification was cured when Renato $alma suseuentl! executedan affidavit to the effect that the allegations he made in support of the pra!er for attachment wereverified ! him from the records of $omphil and the Securities and 6xchange $ommission" @oreover#petitioner had the opportunit! to oppose the issuance of the writ"

%s to the merit of the attachment order itself# we find that the allegations in the respondentFs complaintsatisfactoril! Eustif! the issuance of said order"JH6R6;OR6# IN VI6J O; TH6 ;OR6<OIN<# the petition is DIS@ISS6D for l ac+ of merit" The Temporar!Restraining Order dated ;eruar! 8# '(* is here! DISSO?V6D" $osts against the petitioners"SO ORD6R6D";eria /$hairman0# ;ernan# $ru. and :aras# >>"# concur"

%lampa!# Q >"# too+ no part"

G.R. No. 97B16 ;= 24, 1992

&ERR$LL L)N F+RES, $N., petitioner#vs"N. R+ F AEALS, !"# t8e SSES EDR &. LARA !"# EL$SA G.LARA, respondents" NARASA, .0.5

The capacit! of a foreign corporation to maintain an action in the :hilippines against residents thereof# isthe principal uestion in the appellate proceedings at ar" The issue arises from the undisputed factsnow to e riefl! narrated"On Novemer 8*# '()# @errill ?!nch ;utures# Inc" /hereafter# simpl! @? ;1T1R6S0 filed a complaintwith the Regional Trial $ourt at -ue.on $it! against the Spouses :edro @" ?ara and 6lisa <" ?ara for therecover! of a det and interest thereon# damages# and attorne!Fs fees" 1 In its complaint @? ;1T1R6Sdescried itself as P

a0 a non7resident foreign corporation# not doing usiness in the :hilippines#dul! organi.ed and existing under and ! virtue of the laws of the state ofDelaware# 1"S"%"=, as well as0 a ,futures commission merchant, dul! licensed to act as such in thefutures mar+ets and exchanges in the 1nited States# " " essentiall!functioning as a ro+er " " /executing0 orders to u! and sell futurescontracts received from its customers on 1"S" futures exchanges"

It also defined a ,futures contract, as a ,contractual commitment to u! and sell a standardi.ed uantit!of a particular item at a specified future settlement date and at a price agreed upon# with the purchaseor sale eing executed on a regulated futures exchange",In its complaint @? ;1T1R6S al leged the following&'0 that on Septemer 8# '(* it entered into a ;utures $ustomer %greement with the defendantspouses /%ccount No" '*7'8'9'0# in virtue of which it agreed to act as the latterFs ro+er for thepurchase and sale of futures contracts in the 1"S"=80 that pursuant to the contract# orders to u! and sell futures contracts were transmitted to @?;1T1R6S ! the ?ara Spouses ,through the facilities of @errill ?!nch :hilippines# Inc"# a :hilippinecorporation and a compan! servicing plaintiffs customers= 2

*0 that from the outset# the ?ara Spouses ,+new and were dul! advised that @errill ?!nch :hilippines#Inc" was not a ro+er in futures contracts#, and that it , did not have a license from the Securities and6xchange $ommission to operate as a commodit! trading advisor / i "e "# Fan entit! which# not eing aro+er# furnishes advice on commodit! futures to persons who trade in futures contractsF0=20 that in line with the aove mentioned agreement and through said @errill ?!nch :hilippines# Inc"# the?ara Spouses activel! traded in futures contracts# including ,stoc+ index futures, for four !ears orso# i "e "# from '(* to Octoer# '()# 3 there eing more or less regular accounting and correspondingremittances of mone! /or crediting or deiting0 made etween the spouses and @? ;1T1R6S=0 that ecause of a loss amounting to 1SZ'93#)2("9( incurred in respect of three /*0 transactionsinvolving ,index futures#, and after setting this off against an amount of 1SZ)#('*"28 then owing !@? ;1T1R6S to the ?ara Spouses# said spouses ecame indeted to @? ;1T1R6S for the ensuingalance of 1SZ2#*9"8)# which the latter as+ed them to pa!=90 that the ?ara Spouses however refused to pa! this alance# ,alleging that the transactions were nulland void ecause @errill ?!nch :hilippines# Inc"# the :hilippine compan! servicing accounts of plaintiff# " "had no license to operate as a Fcommodit! andor financial futures ro+er"F,On the foregoing essential facts# @? ;1T1R6S pra!ed /'0 for a preliminar! attachment againstdefendant spousesF properties ,up to the value of at least :8#89)#'*("3#, and /80 for Eudgment# aftertrial# sentencing the spouses to pa! @? ;1T1R6S&

a0 the :hilippine peso euivalent of Z2#*9"8) at the applicaleexchanged rate on date of pa!ment# with legal interest from date ofdemand until full pa!ment=0 exemplar! damages in the sum of at least :33#333"33= andc0 attorne!Fs fees and expenses of litigation as ma! e proven at the trial"

:reliminar! attachment issued ex parte on Decemer 8# '()# and the defendant spouses were dul!served with summons"The! then filed a motion to dismis s dated Decemer '# '() on the grounds that&

/'0 plaintiff @? ;1T1R6S had ,no legal capacit! to sue, and/80 its ,complaint states no cause of action since " " /it0 is not the real part!in interest",

In that motion to dismiss# the defendant spouses averred that&a0 although not licensed to do so# @? ;1T1R6S had een doing usiness in the :hilippines ,at least forthe last four /20 !ears#, this eing clear from the ver! allegations of the complaint= conseuentl!# @?;1T1R6S is prohiited ! law ,to maintain or intervene in an! action# suit or proceeding in an! court oradministrative agenc! of the :hilippines=, and0 the! had never een informed that @errill ?!nch :hilippines# Inc" was not licensed to do usiness inthis countr!= and contrar! to the allegations of the complaint# all their transactions had actuall! eenwith @6RRI?? ?GN$H :I6R$6 ;6NN6R L S@ITH# IN$"# and not with @? ;1T1R6S /@errill ?!nch ;utures#Inc"0# in proof of which the! attached to their motion to dismiss copies of eight /0 agreements# receiptsor reminders# etc"# executed on standard printed forms of said @errill ?!nch :ierce ;enner L SmithInc" 4

@? ;1T1R6S filed an O::OSITION to the defendant spousesF motion to dismiss " In that motion Pa0 it drew attention to paragraph 2 of its complaint# admitted ! defendants# that the latter ,have eenactivel! trading in futures contracts " " " in 1"S" futures exchanges from '(* to '()#, and as+# ,If thetrading " " " /was0 made in 1"S"# how could plaintiff e doing usiness in the :hilippinesK,0 it also drew attention to a printed form of ,@errill ?!nch ;utures# Inc", filled out and signed !defendant spouses when the! opened an account with @? ;utures# in order to suppl! information aoutthemselves# including their an+Fs name P

/'0 in which appear the following epigraph&,%ccount introduced ! @errill ?!nchInternational# Inc"#, and the followingstatements# to wit&

This $ommodit! Trading %dvisor /@errill ?!nch# :ierce# ;enner L Smith:hilippines# Inc"0 is prohiited ! the :hilippine Securities and 6xchange

$ommission from accepting funds in the trading advisorFs name from aclient of @errill ?!nch ;utures# Inc" for trading commodit! interests" %llfunds in this trading program must e placed with @errill ?!nch ;utures#Inc"=and" " " It is agreed etween @6RRI?? ?GN$H# :I6R$6# ;6NN6R L S@ITH IN$"#and other account carr!ing @6RRI?? ?GN$H entities and their customersthat all legal relationships etween them will e governed ! applicalelaws in countries outside the :hilippines where sale and purchasetransactions ta+e place"

c0 and it argued that P/'0 it is not permitted for defendant spouses to present ,evidence, inconnection with a motion to dismiss ased on failure of the complaint tostate a cause of action=/80 even if the documents appended to the motion to dismiss econsidered as admissile ,evidence#, the same would e immaterial sincethe documents refer to a different account numer& '*7'8'*9# thedefendantsF account numer with @? ;1T1R6S eing '*7'8'9'=/*0 it is a lie for the defendant spouses to assert that the! were neverinformed that @errill ?!nch :hilippines# Inc" had not een licensed to dousiness in the :hilippines= and/20 defendant spouses should not e allowed to ,invo+e the aid of thecourt with unclean hands"

The defendant spouses filed a R6:?G reaffirming their lac+ of awareness that @errill ?!nch :hilippines#Inc"/formerl! registered as @errill ?!nch# :ierce# ;enner L Smith :hilippines# Inc " 0 / did not have alicense# claiming that the! learned of this onl! from inuiries with the Securities and 6xchange$ommission which elicited the information that it had denied said corporationFs application to operate asa commodit! futures trading advisor P a denial suseuentl! affirmed ! the $ourt of %ppeals /@errill?!nch :hilippines# Inc" v" Securities L 6xchange $ommission# $%7< "R " No " '38'7S: # Nov " '( # '() 0"The spouses also sumitted additional documents /%nnexes > to R0 involving transactions with @errill?!nch :ierce ;enner L Smith# Inc"# dating ac+ to '(3# stressing that all ut one of the documents,refer to %ccount No" '*7'8'9' which is the ver! account that is involved in the instant complaint",@? ;1T1R6S filed a ReEoinder alleging it had given the spouses a disclosure statement ! which thelatter were made aware that the transactions the! were agreeing on would ta+e place outside of the:hilippines# and that ,all funds in the trading program must e placed with @errill ?!nch ;utures# Inc",On >anuar! '8# '(# the Trial $ourt promulgated an Order sustaining the motion to dismiss# directingthe dismissal of the case and discharging the writ of preliminar! attachment" It later denied @?;1T1R6SFs motion for reconsideration# ! Order dated ;eruar! 8(# '(" @? ;1T1R6S appealed to the$ourt of %ppeals" 6

In its own decision promulgated on Novemer 8)# '((3# 7 the $ourt of %ppeals affirmed the Trial$ourtFs Eudgment" It declared that the Trial $ourt had seen ,through the charade in the representationof @?:I and the plaintiff that @?:I is onl! a trading advisor and in fact it is a conduit in the plaintiffFsusiness transactions in the :hilippines as a asis for invo+ing the provisions of Section '** of the$orporation $ode#, B vi. "&

Sec" '**" Doing usiness without a license " P No foreign corporationtransacting usiness in the :hilippines without a license# or its successorsor assigns# shall e permitted to maintain or intervene in an! action# suit orproceeding in an! court or administrative agenc! in the :hilippines= utsuch corporation ma! e sued or proceeded against efore :hilippinecourts or administrative triunals on an! valid cause of action recogni.edunder :hilippine laws"

It also declared that the evidence estalished that plaintiff had in fact een ,doingusiness, in this countr! in legal contemplation# adverting to @entholatumv " @angaliman# )8 :hil" 82# 87*3# and Section ' of Repulic %ct No" 2 reading asfollows& 9

Sec" '" Definition and scope of this %$T " /'0 %s used in this %ct# the term,investment, shall mean euit! participation in an! enterprise formed#organi.ed# or existing under the laws of the :hilippines= and the phrase,doing usiness, shall IN$?1D6 soliciting orders# purchases# servicecontracts# opening offices# whether called ,liaison, offices orranches= appointing representatives or distriutors who are domiciled inthe :hilippines or who in an! calendar !ear sta! in the :hilippines for aperiod or periods totalling one hundred eight! da!s or more = participatingin the management# supervision or control of an! domestic usiness firm#entit! or corporation in the :hilippines= %ND %NG OTH6R %$T OR %$TSTH%T I@:?G % $ONTIN1ITG O; $O@@6R$I%? D6%?IN<S OR

%RR%N<6@6NTS %ND $ONT6@:?%T6 TO TH%T 6T6NT TH6:6R;OR@%N$6 O; %$TS OR JORAS# OR TH6 66R$IS6 O; SO@6;1N$TIONS NOR@%??G IN$ID6NT TO# %ND IN :RO<R6SSIV6:ROS6$1TION O; $O@@6R$I%? <%IN OR O; TH6 :1R:OS6 %ND OB>6$TO; TH6 B1SIN6SS OR<%NIC%TION"

%s regards the claim that it was error for the Trial $ourt to place reliance on the decision of the $ourt of %ppeals in $%7<"R" No" '38'7S: P sustaining the finding of the Securities L 6xchange $ommission that@? ;1T1R6S was doing usiness in the :hilippines P since that Eudgment was not !et final and @?;1T1R6S was not a part! to that proceeding# the $ourt of %ppeals ruled that there was no need toelaor the point considering that there was# in an! event# ,adeuate proof of the activities of @?:I " " "which manifestl! show that the plaintiff /@? ;1T1R6S0 performed a series of usiness acts#consummated contracts and undertoo+ transactions for the period from '(* to Octoer '()#, ,andecause @? ;1T1R6S had done so without license# it conseuentl! had ,no legal personalit! to ringsuit in :hilippine courts",Its motion for reconsideration having een denied# 10 @? ;1T1R6S has appealed to this $ourton certiorari " Here# it sumits the following issues for resolution&

/a0 Jhether or not the annexes appended ! the ?aras to their @otion toDismiss and Repl! filed with the Regional Trial $ourt# ut neverauthenticated or offered# constitute admissile evidence"/0 Jhether or not in the proceedings elow# @? ;1T1R6S has eenaccorded procedural due process"/c0 Jhether or not the annexes# assuming them to e admissile#estalished that @? ;1T1R6S was doing usiness in the :hilippines withouta license"

%s Eust stated# the ?ara SpouseFs motion to dismiss was founded on two /80 grounds& /a0 that theplaintiff has no legal capacit! to sue# and /0 that the complaint states no cause of action /Sec" ' 4d5#and 4g5# Rule '9# Rules of $ourt0"

%s regards the second ground# i "e "# that the complaint states no cause of action# the settled doctrine ofcourse is that said ground must appear on the face of the complaint# and its existence ma! edetermined onl! ! the allegations of the complaint# consideration of other facts eing proscried# andan! attempt to prove extraneous circumstances not eing allowed" 11 The test of the sufficienc! of thefacts alleged in a complaint as constituting a cause of action is whether or not# admitting the factsalleged# the court might render a valid Eudgment upon the same in accordance with the pra!er of thecomplaint" 12 Indeed# it is error for a Eudge to conduct a preliminar! hearing and receive evidence onthe affirmative defense of failure of the complaint to s tate a cause of action" 13

The other ground for dismissal relied upon# i "e "# that the plaintiff has no legal capacit! to sue P ma! eunderstood in two senses& one# that the plaintiff is prohiited or otherwise incapacitated ! law toinstitute suit in :hilippine $ourts# 14 or two# although not otherwise incapacitated in the sense Euststated# that it is not a real part! in interest" 1/ Now# the ?ara Spouses contend that @? ;utures has nocapacit! to sue them ecause the transactions suEect of the complaint were had ! them# not with the



plaintiff @? ;1T1R6S# ut with @errill ?!nch :ierce ;enner L Smith # Inc " 6vidence is uite oviousl!needed in this situation# for it is not to e expected that said ground# or an! facts from which itsexistence ma! e inferred# will e found in the averments of the complaint" Jhen such a ground isasserted in a motion to dismiss# the general rule governing evidence on motions applies" The rule isemodied in Section )# Rule '** of the Rules of $ourt"

Sec" )" 6vidence on motion " P Jhen a motion is ased on facts notappearing of record the court ma! hear the matter on affidavits ordepositions presented ! the respective parties# ut the court ma! directthat the matter e heard wholl! or partl! on oral testimon! or depositions"

There was# to e sure# no affidavit or deposition attached to the ?ara SpousesF motion to dismiss orthereafter proffered in proof of the averments of their motion" The motion itself was not verified" Jhatthe spouses did do was to refer in their motion to documents which purported to estalish that it wasnot with @? ;1T1R6S that the! had theretofore een dealing# ut another# distinct entit!# @errill ?!nch#:ierce# ;enner L Smith# Inc"# copies of which documents were attached to the motion" It is significantthat @? ;1T1R6S raised no issue relative to the authenticit! of the documents thus annexed to the?arasF motion" In fact# its a rguments susumed the genuineness thereof and even adverted to one ortwo of them" Its oEection was centered on the propriet! of ta+ing account of those documents asevidence# considering the estalished principle that no evidence should e received in the resolution of amotion to dismiss ased on an alleged failure of the complaint to s tate a cause of action"There eing otherwise no uestion respecting the genuineness of the documents# nor of their relevanceto at least one of the grounds for dismissal P i "e "# the prohiition on suits in :hilippine $ourts ! foreigncorporations doing usiness in the countr! without license P it would have een a superfluit! for the$ourt to reuire prior proof of their authenticit!# and no error ma! e ascried to the Trial $ourt inta+ing account of them in the determination of the motion on the ground# not that the complaint fails tostate a cause of action P as regards which evidence is improper and impermissile P ut that theplaintiff has no legal capacit! to sue P respecting which proof ma! and should e presented "Neither ma! @? ;1T1R6S argue with an! degree of tenailit! that it had een denied due process in thepremises" %s Eust pointed out# it was ver! clear from the outset that the claim of lac+ of its capacit! tosue was eing made to rest suarel! on the documents annexed thereto# and @? ;1T1R6S had morethan ample opportunit! to impugn those documents and reuire their authentication# ut did not do so"To sustain its theor! that there should have een identification and authentication# and formal offer# ofthose documents in the Trial $ourt pursuant to the rules of evidence would e to give unwarrantedimportance to technicalit! and ma+e it prevail over the sustance of the issue"The first uestion then# is# as @? ;1T1R6S formulates it# whether or not the annexes# a ssuming them toe admissile# estalish that /a0 @? ;1T1R6S is prohiited from suing in :hilippine $ourts ecausedoing usiness in the countr! without a license# and that /0 it is not a real part! in interest since the?ara Spouses had not een doing usiness with it# ut with another corporation# @errill ?!nch# :ierce#;enner L Smith# Inc"The $ourt is satisfied that the facts on record adeuatel! estalish that @? ;1T1R6S# operating in the1nited States# had indeed done usiness with the ?ara Spouses in the :hilippines over several !ears#had done so at all times through @errill ?!nch :hilippines# Inc" /@?:I0# a corporation organi.ed in thiscountr!# and had executed all these transactions without @? ;1T1R6S eing li censed to so transactusiness here# and without @?:I eing authori.ed to operate as a commodit! futures trading advisor"These are the factual findings of oth the Trial $ourt and the $ourt of %ppeals" These# too# are theconclusions of the Securities L 6xchange $ommission which denied @?:IFs application to operate as acommodit! futures trading advisor# a denial suseuentl! affirmed ! the $ourt of %ppeals" :rescindingfrom the proposition that factual findings of the $ourt of %ppeals are generall! conclusive this $ourt haseen cited to no circumstance of sustance to warrant reversal of said %ppellate $ourtFs findings orconclusions in this case"The $ourt is satisfied# too# that the ?aras did transact usiness with @? ;1T1R6S through its agentcorporation organi.ed in the :hilippines# it eing unnecessar! to determine whether this domestic firmwas @?:I /@errill ?!nch :hilippines# Inc"0 or @errill ?!nch :ierce ;enner L Smith /@?:IFs allegedpredecessor0" The fact is that @? ;1T1R6S did deal with futures contracts in exchanges in the 1nitedStates in ehalf and for the account of the ?ara Spouses# and that on several occasions the latterreceived account documents and mone! in connection with those transactions"<iven these facts# if indeed the last transaction executed ! @? ;1T1R6S in the ?arasFs ehalf hadresulted in a loss amounting to 1S Z'93#)2("9(= that in relation to this loss# @? ;1T1R6S had creditedthe ?aras with the amount of 1SZ)#('*"28 P which it /@? ;1T1R6S0 then admittedl! owed thespouses P and thereafter sought to collect the alance# 1SZ2#*9"8)# ut the ?aras had refused to pa!/for the reasons alread! aove stated0# the crucial uestion is whether or not @? ;1T1R6S ma! sue in:hilippine $ourts to estalish and enforce its rights against said spouses# in light of the undeniale factthat it had transacted usiness in this countr! without eing licensed to do so" In other words# i f it etrue that during all the time that the! were transacting with @? ;1T1R6S# the ?aras were full! aware ofits lac+ of license to do usiness in the :hilippines# and in relation to those transactions had madepa!ments to# and received mone! from it for several !ears# the uestion is whether or not the ?araSpouses are now estopped to impugn @? ;1T1R6SF capacit! to sue them in the courts of the forum"The rule is that a part! is estopped to challenge the personalit! of a corporation after havingac+nowledged the same ! entering into a contract with it" 16 %nd the ,doctrine of estoppel to den!corporate existence applies to foreign as well as to domestic corporations=, 17 ,one who has dealt witha corporation of foreign origin as a corporate entit! is estopped to den! its corporate existence andcapacit!", 1B The principle ,will e applied to prevent a person contracting with a foreign corporationfrom later ta+ing advantage of its noncompliance with the statutes# chiefl! in cases where such personhas received the enefits of the contract /Sherwood v" %lvis# * %la ''# * So *3)# limited anddistinguished in Dudle! v" $ollier# ) %la 2*'# 9 So *32= Spinne! v" @iller# ''2 Iowa 8'3# 9 NJ *')0#where such person has acted as agent for the corporation and has violated his fiduciar! oligations a ssuch# and where the statute does not provide that the contract shall e void# ut merel! fixes a specialpenalt! for violation of the statute" " " ", 19

The doctrine was adopted ! this $ourt as earl! as '(82 in %sia Ban+ing $orporation v " Standard:roducts $o "# 20in which the following pronouncement was made& 21

The general rule that in the asence of fraud of person who has contractedor otherwise dealt with an association in such a wa! as to recogni.e and ineffect admit its legal existence as a corporate od! is there! estopped toden! its corporate existence in an! action leading out of or involving suchcontract or dealing# unless its existence is attac+ed for causes which havearisen since ma+ing the contract or other dealing relied on as an estoppeland this applies to foreign as well as domestic corporations " /'2$ "> ")=$hinese $hamer of $ommerce vs" :ua Te $hing# '2 :hil" 8880"

There would seem to e no uestion that the ?aras received enefits generated ! their usinessrelations with @? ;1T1R6S" Those usiness relations# according to the ?aras themselves# spanned aperiod of seven /)0 !ears= and the! evidentl! found those relations to e of such profitailit! aswarranted their maintaining them for that not insignificant period of time= otherwise# it is reasonal!certain that the! would have terminated their dealings with @? ;1T1R6S much# much earlier" In fact#even as regards their last transaction# in which the ?aras allegedl! suffered a loss in the sum of1SZ'93#)2("9(# the ?aras nonetheless still received some monetar! advantage# for @? ;1T1R6Scredited them with the amount of 1SZ)#('*"28 then due to them# thus reducing their det to1SZ2#*9"8)" <iven these facts# and assuming that the ?ara Spouses were aware from the outset that@? ;1T1R6S had no license to do usiness in this countr! and @?:I# no authorit! to act as ro+er for it#it would appear uite ineuitale for the ?aras to evade pa!ment of an otherwise legitimateindetedness due and owing to @? ;1T1R6S upon the plea that it should not have done usiness in thiscountr! in the first place# or that its agent in this countr!# @?:I# had no license either to operate as a,commodit! andor financial futures ro+er",$onsiderations of euit! dictate that# at the ver! least# the issue of whether the ?aras a re in truth lialeto @? ;1T1R6S and if so in what amount# and whether the! were so far aware of the asence of thereuisite licenses on the part of @? ;1T1R6S and its :hilippine correspondent# @?:I# as to e estoppedfrom alleging that fact as defense to such liailit!# should e ventilated and adEudicated on the merits !the proper trial court"

JH6R6;OR6# the decision of the $ourt of %ppeals in $%7<"R" $V No" '92) dated Novemer 8)# '((3and its Resolution of @arch )# '((' are R6V6RS6D and S6T %SID6# and the Regional Trial $ourt at-ue.on $it!# Branch 2# is ORD6R6D to reinstate $ivil $ase No" -78*93 and forthwith conduct ahearing to adEudicate the issues set out in the preceding paragraph on the merits"SO ORD6R6D":adilla# Regalado and Nocon# >>"# concur":aras# >"# Retired as of >ul! 2# '((8" Foot"otes

' The case was doc+eted as $ivil $ase No" -78*93 and as signed toBranch 2# presided over ! Hon" Teodoro :" Regino"8 It appears that @errill ?!nch :hilippines# Inc" was formerl! registered and+nown as @errill ?!nch# :ierce# ;enner L Smith :hilippines# Inc"

P S66 footnote # infra "* The ?aras sa! the trading was carried on for seven /)0 !ears" S66 footnote 8# supra " The counterpart provision /Sec" 9(0 of the prior law# %ct No" '2(# statedthat ,No foreign corporation or corporation formed# organi.ed# or existingunder an! laws other than those of the :hilippines# shall e permitted totransact usiness in the :hilippines or maintain ! itself or assignee an!suit for the recover! of an! det# claim# or demand whatever # unless itshall have the license prescried in the section immediatel! preceding" " " ",/emphasis supplied0 /although# it ma! e added# it ma! e sued 4<eneral$orporation of the :hilippines v" 1nion Insurance Societ! of $anton# ?td"#) :hil" *'* /'(3050"'3 :er Resolution dated @arch )# '(('# which also ,directed /the Trial$ourt0 to hear and resolve appelleesF application for damages on theappellantFs attachment ond",'2 I "e "# Section '** of the $orporation $ode# supra /S66 <eneral$orporation of the :hilippines v" 1nion Insurance Societ! of $anton# ?td"#) :hil" *'*0= or he does not have the necessar! ualifications to appear atthe trial# such as when he is not in the full exercise of his civil rights/?unsod v" Ortega# 29 :hil" 992# cited in ;elia# $ivil :rocedure# '(9( ed"#pp" *'97*')0' S6$" 8# Rule * of the Rules of $ourt provides that ,6ver! action must eprosecuted and defended in the name of the real part! in interest" %llpersons having an interest in the suEect of the action and in otaining therelief demanded shall e Eoined as plaintiffs" %ll persons who claim aninterest in the controvers! adverse to the plaintiff or who are necessar! toa complete determination or settlement of the uestions involved thereinshall e Eoined as defendants", The real part! in interest is the part! whowould e enefited or inEured ! the Eudgment# or the Fpart! entitled to theavails of the suitF /' Sutherland# $ode :leading :ractice L ;orms# p" ''0/Salonga v" Jarner# Barnes L $o"# ?td"# :hil" '8 # cited in ;eria# op " cit "#p" '*(0" S66 # also # @oran# op " cit "# p" '2= and ?unsod v" Ortega# supra #holding inter alia that a plaintiff has no legal capacit! to sue when he doesnot have the character or representation he claims# which is a matter ofevidence"

' *9 %m" >ur" 8d# pp" 8(978()# although there is authorit! that sa iddoctrine ,does not# ! anal og!# reuire that such person e held estoppedto den! that the corporation has complied with the local statutes imposingconditions# restrictions# and regulations on foreign corporations and that ithas acuired there! the right to do usiness in the state,

F$RS+ D$$S$N[G.R. No. 1/461B. ]

AG$LEN+ +ENLG$ES S$NGARE @+E L+D., pet't'o"er, (s. $N+EGRA+ED S$L$N+ENLG) $L$$NES RRA+$N, +E $ANG NG, +E $ANG SENG, AN+N) , ANNE A+E &. DELA R, EAN A) &. DELA R !"# RLAND +.NA$LLA, respo"#e"ts.

D E $ S $ N )NARES-SAN+$AG, 0 .5

This petition for review assails the Decision dated of the $ourt of %ppeals in $%7<"R" S: No" 99)2#which dismissed $ivil $ase No" *'8*7833'7$ and annulled and set aside the Order dated issued ! theRegional Trial $ourt of $alama# ?aguna# Branch (8":etitioner %gilent Technologies Singapore /:te"0# ?td" /%gilent0 is a foreign corporation# which# ! its ownadmission# is not licensed to do usiness in the "4'5 Respondent Integrated Silicon Technolog!:hilippines $orporation /Integrated Silicon0 is a private domestic corporation# '33 foreign owned#which is engaged in the usiness of manufacturing and assemling electronics components"485 Respondents Teoh Aiang Hong# Teoh Aiang Seng and %nthon!$hoo# @ala!sian nationals# are currentmemers of Integrated Silicons oard of directors# while >oanne Aate @" dela $ru.# >ean Aa!@" dela $ru.# and Rolando T" Nacilla are i ts former memers"4*5The Euridical relation among the various parties in this case can e traced to a 7!ear Value %dded

%sseml! Services %greement /V%%S%0# entered into on %pril 8# '((9 etween Integrated Silicon andthe Hewlett7:ac+ard Singapore /:te"0 ?td"# $omponents Operation /H:7Singapore0"425 1nder the termsof the # Integrated Silicon was to locall! manufacture and assemle fier optics for export to H:7Singapore" H:7Singapore# for its part# was to consign raw materials to Integrated Silicon= transportmachiner! to the plant of Integrated Silicon= and pa! Integrated Silicon the purchase price of thefinished products"45 The had a five7!ear term# eginning on # with a provision for annual renewal !mutual written consent"495 On # with the consent of Integrated Silicon#4)5 H:7Singapore assigned all itsrights and oligations in the to %gilent"45On @a! 8# 833'# Integrated Silicon filed a complaint for Specific :erformance and Damagesagainst %gilent and i ts officers Tan Bian 6e# ?im $hin Hong# Te! Boon Tec+ and ;rancis Ahor# doc+eted as$ivil $ase No" *''373'7$" It alleged that %gilent reached the parties oral agreement to extendthe " Integrated Silicon thus pra!ed that defendant e ordered to execute a written extension of the fora period of five !ears as earlier assured and promised= to compl! with the extended = and to pa! actual#moral# exemplar! damages and attorne!s fees"4(5On # summons and a cop! of the complaint were served on %tt!" Ramon -uisuming# who returnedthese processes on the claim that he was not the registered agent of %gilent" ?ater# he entered a specialappearance to assail the courts Eurisdiction over the person of %gilent"On >ul! 8 # 833'# %gi len t f iled a separate complaint aga inst IntegratedSilicon# Teoh Aang Seng# Teoh Aiang <ong# %nthon! $hoo# >oanne Aate @" dela $ru.# >ean Aa!@" dela $ru. and Rolando T" Nacilla#4'35 for Specific :erformance# Recover! of :ossession# and Sum of@one! with Replevin# :reliminar! @andator! InEunction# and Damages# efore the Regional Trial$ourt# $alama# ?aguna# Branch (8# doc+eted as $ivil $ase No" *'8*7833'7$" %gilent pra!ed that a writofreplevin or# in the alternative# a writ of preliminar! mandator! inEunction# e issued orderingdefendants to immediatel! return and deliver to plaintiff its euipment# machineries and the materials toe used for fier7optic components which were left in the plant of Integrated Silicon" It further pra!edthat defendants e ordered to pa! actual and exemplar! damages and attorne!s fees" 4''5Respondents filed a @otion to Dismiss in $ivil $ase No" *'8*7833'7$#4'85 on the grounds of lac+of %gilents legal capacit! to sue=4'*5 litis pendentia =4'25 forum shopping=4'5 and failure to state acause of action"4'95On # the trial court denied the @otion to Dismiss and granted petitioner %gilents application for a writ

http://sc.judiciary.gov.ph/jurisprudence/2004/apr2004/154618.htm#_ftn1


































of replevin"4')5Jithout filing a motion for reconsideration# respondents filed a petition for certiorari with the $ourt of

%ppeals"4'5In the meantime# upon motion filed ! respondents# >udge %ntonio S" :o.as of Branch (8 voluntaril!inhiited himself in $ivil $ase No" *'8*7833'7$" The case was re7raffled and assigned to Branch *# thesame ranch where $ivil $ase No" *''37833' 7$ is pending"On # the $ourt of %ppeals granted respondents petition for certiorari # set aside the assailed Order of thetrial court dated # and ordered the dismissal of $ivil $ase No" *'8*7833'7$"Hence# the instant petition raising the following errors&

$.TH6 $O1RT O; %::6%?S $O@@ITT6D R6V6RSIB?6 6RROR IN NOT DIS@ISSIN< R6S:OND6NTS:6TITION ;OR $6RTIOR%RI ;OR R6S:OND6NTS ;%I?1R6 TO ;I?6 % @OTION ;OR R6$ONSID6R%TIONB6;OR6 R6SORTIN< TO TH6 R6@6DG O; $6RTIOR%RI"

$$.TH6 $O1RT O; %::6%?S $O@@ITT6D R6V6RSIB?6 6RROR IN %NN1??IN< %ND S6TTIN< %SID6 TH6TRI%? $O1RTS ORD6R D%T6D %ND ORD6RIN< TH6 DIS@ISS%? O; $IVI? $%S6 NO" *'8*7833'7$B6?OJ ON TH6 <RO1ND O; ?ITIS :6ND6NTI%# ON %$$O1NT O; TH6 :6ND6N$G O; $IVI? $%S6 NO"*''37833'7$"

$$$.

TH6 $O1RT O; %::6%?S $O@@ITT6D R6V6RSIB?6 6RROR IN %NN1??IN< %ND S6TTIN< %SID6 TH6TRI%? $O1RTS ORD6R D%T6D %ND ORD6RIN< TH6 DIS@ISS%? O; $IVI? $%S6 NO" *'8*7833'7$B6?OJ ON TH6 <RO1ND O; ;OR1@ SHO::IN<# ON %$$O1NT O; TH6 :6ND6N$G O; $IVI? $%S6 NO"*''37833'7$"

$.TH6 $O1RT O; %::6%?S $O@@ITT6D R6V6RSIB?6 6RROR IN ORD6RIN< TH6 DIS@ISS%? O; $IVI?$%S6 NO" *8*7833'7$ B6?OJ INST6%D O; ORD6RIN< IT $ONSO?ID%T6D JITH $IVI? $%S6 NO" *''37833'7$"4'(5The two primar! issues raised in this petition& /'0 whether or not the $ourt of %ppeals committedreversile error in giving due course to respondents petition# notwithstanding the failure to file a @otionfor Reconsideration of the Septemer 2# 833' Order= and /80 whether or not the $ourt of %ppealscommitted reversile error in dismissing $ivil $ase No" *'8*7833'7$"Je find merit in the petition"The $ourt of %ppeals# citing the case of @ala!ang @anggagawa sa 6SSO v" 6SSO Standard 6astern# Inc"#4835 held that the lower court had no Eurisdiction over $ivil $ase No" *'8*7833'7$ ecause ofthe pendenc! of $ivil $ase No" *''37833'7$ and# therefore# a motion for reconsideration was notnecessar! efore resort to a petition for certiorari " This was error">urisdiction is fixed ! law" Batas :amansa Blg" '8( vests Eurisdiction over the suEect matter of $ivil$ase No" *'8*7833'7$ in the RT$"48'5The $ourt of %ppeals ruling that the assailed Order issued ! the RT$ of $alama# Branch (8# was anullit! for lac+ of Eurisdiction due to litis pendentia and forum shopping# has no legalasis" The pendenc! of another action does not strip a court of the Eurisdiction granted ! law"The $ourt of %ppeals further ruled that a @otion for Reconsideration was not necessar! in view of theurgent necessit! in this case" Je are not convinced" In the case of Bache and $o" /:hils"0# Inc" v" Rui. #4885 relied on ! the $ourt of %ppeals# it was held that time is of the essence in view of the taxassessments sought to e enforced ! respondent officers of the Bureau of Internal Revenue againstpetitioner corporation# on account of which immediate and more direct action ecomes necessar!" Taxassessments in that case were ased on documents sei.ed ! virtue of an illegal search# and thedeprivation of the right to due process tainted the entire proceedings with illegalit!" Hence# the urgentnecessit! of preventing the enforcement of the tax assessments was patent" Respondents# on the otherhand# cite the case of <eronimo v" $ommission on 6lections #48*5 where the urgent necessit! of resolvinga disualification case for a position in local government warranted the expeditious resort tocertiorari" In the case at ar# there is no analogousl! urgent circumstance which would necessitate therelaxation of the rule on a @otion for Reconsideration"Indeed# none of the exceptions for dispensing with a @otion for Reconsideration is present here" Noneof the following cases cited ! respondents serves as adeuate asis for their procedural lapse"In Vigan 6lectric ?ight $o"# Inc" v" :ulic Service $ommission #4825 the uestioned order was null andvoid for failure of respondent triunal to compl! with due process reuirements=in @atanguihan v" Tengco #485 the uestioned order was a patent nullit! for failure to acuire Eurisdictionover the defendants# which fact the records plainl! disclosed= and in National 6lectrification

%dministration v" $ourt of %ppeals #4895 the uestioned orders were void for vagueness" No such patentnullit! is evident in the Order issued ! the trial court in this case" ;inall!# while urgenc! ma! e aground for dispensing with a @otion for Reconsideration# in the case of Vivo v" $loriel #48)5 cited !respondents# the slow progress of the case would have rendered the issues moot had a motion forreconsideration een availed of" Je find no such urgent circumstance in the case at ar"Respondents# therefore# availed of a premature remed! when the! immediatel! raised the matter to the$ourt of %ppeals on certiorari = and the appellate court committed reversile error when it too+cogni.ance of respondents petition instead of dismissing the same outright"Je come now to the sustantive issues of the petition"?itis pendentia is a ?atin term which literall! means a pending suit" It is variousl! referred to in somedecisions as lispendens and auter action pendant " Jhile it is normall! connected with the control whichthe court has on a propert! involved in a suit during the continuance proceedings# it is more interposedas a ground for the dismissal of a civil action pending in court"?itis pendentia as a ground for the dismissal of a civil action refers to that situation wherein anotheraction is pending etween the same parties for the same cause of action# such that the second actionecomes unnecessar! and vexatious";or litis pendentia to e invo+ed# the concurrence of the followingreuisites is necessar!&/a0 identit! of parties or at least such as represent the same interest in oth actions=/0 identit! of rights asserted and reliefs pra!ed for# the reli efs eing founded on the same facts= and/c0 the identit! in the two cases should e such that the Eudgment that ma! e rendered in one would#regardless of which part! is successful# amount to res Eudicata in the other"485The $ourt of %ppeals correctl! appreciated the identit! of parties in $ivil $ases No" *'8*7833'7$ and*''37833'7$" Jell7settled is the rule that lis pendens reuires onl! sustantial# and not asolute#identit! of parties"48(5 There is sustantial identit! of parties when there is a communit! of interestetween a part! in the first case and a part! in the second case# even if the latter was not impleaded inthe first case"4*35 The parties in these cases are v!ing over the interests of the two opposingcorporations= the individuals are onl! incidentall! impleaded# eing the natural persons purportedl!accused of violating these corporations rights"?i+ewise# the fact that the positions of the parties are reversed# i"e"# the plaintiffs in the firs t case are thedefendants in the second case or vice versa# does not negate the identit! of parties for purposes ofdetermining whether the case is dismissile on the ground of litis pendentia "4*'5The identit! of parties notwithstanding# litis pendentia does not otain in this case ecause of theasence of the second and third reuisites" The rights asserted in each of the cases involved areseparate and distinct= there are two suEects of controvers! presented for adEudication= and two causesof action are clearl! involved" The fact that respondents instituted a prior action for Specific :erformanceand Damages is not a ground for defeating the petitioners action for Specific :erformance# Recover! of:ossession# and Sum of @one! with Replevin# :reliminar! @andator! InEunction# and Damages"In $ivil $ase No" *''37833'7$ filed ! respondents# the issue is whether or not there was a reach of anoral promise to renew of the " The issue in $ivil $ase No" *'8*7833'7$# filed ! petitioner# is whetherpetitioner has the right to ta+e possession of the suEect properties" :etitioners right of possession isfounded on the ownership of the suEect goods# which ownership is not disputed and i s not contingenton the extension or non7extension of the " Hence# the replevinsuit can validl! e tried even while theprior suit is eing litigated in the Regional Trial $ourt":ossession of the suEect properties is not an issue in $ivil $ase No" *''37833'7$" The reliefs sought !respondent Integrated Silicon therein are as follows& /'0 execution of a written extension or renewal ofthe = /80 compliance with the extended = and /*0 pa!ment of overdue accounts# damages# and attorne!sfees" The reliefs sought ! petitioner%gilent in $ivil $ase No" *'8*7833'7$# on the other hand# are as

follows& /'0 issuance of a Jrit of Replevin or Jrit of :reliminar! @andator! InEunction= /80 recover! ofpossession of the suEect properties= /*0 damages and attorne!s fees"$oncededl!# some items or pieces of evidence ma! e admissile in oth ac tions" It cannot e said#however# thatexactl! the same evidence will support the decisions in oth# since the legall! significantand controlling facts in each case are entirel! different" %lthough the figures prominentl! in oth suits#$ivil $ase No" *''37833'7$ is premised on a purported reach of an oral oligation to extend the # anddamages arising out of %gilents alleged failure to compl! with such purported extension" $ivil $ase No"*'8*7833'7$# on the other hand# is premised on a reach of the itself # and damages arisingto %gilent out of that purported reach"It necessaril! follows that the third reuisite for litis pendentia is also asent" The following are theelements of resEudicata &/a0 The former Eudgment must e final=/0 The court which rendered Eudgment must have Eurisdiction over the parties and the suEect matter=/c0 It must e a Eudgment on the merits= and/d0 There must e etween the first and second actions identit! of parties# suEect matter# and cause ofaction"4*85In this case# an! Eudgment rendered in one of the actions will not amount to res Eudicata in the otheraction" There eing different causes of action# the decision in one case will not constitute res Eudicata asto the other"Of course# a decision in one case ma!# to a certain extent# affect the other case" This# however# is notthe test to determine the identit! of the causes of action" Jhatever difficulties or inconvenience ma! eentailed if oth causes of action are pursued on separate remedies# the proper solution is not thedismissal order of the $ourt of %ppeals" The possile consolidation of said cases# as well as stipulationsand appropriate modes of discover!# ma! well e considered ! the court elow to suserve not onl!procedural expedience ut# more important# the ends of Eustice"4**5Je now proceed to the issue of forum shopping"The test for determining whether a part! violated the rule against forum7shopping was laid down in thecase of Buan v" ?ope. "4*25 ;orum shopping exists where the elements of litis pendentia are present# orwhere a final Eudgment in one case will amount to res Eudicata in the final other" There eingno litis pendentia in this case# a Eudgment in the said case will not amount to res Eudicata in $ivil $aseNo" *''37833'7$# and respondents contention on forum shopping must li+ewise fail "Je are not unmindful of the afflictive conseuences that ma! e suffered ! oth petitioner andrespondents if replevinis granted ! the trial court in $ivil $ase No" *'8*7833'7$" If respondentIntegrated Silicon eventuall! wins $ivil $ase No" *''37833'7$# and the s terms are extended# petitionercorporation will have to compl! with its oligationsthereunder# which would i nclude the consignment ofproperties similar to those it ma! recover ! wa! of replevin in $ivil $ase No" *'8*7833'7$" However#petitioner will also suffer an inEustice if denied the remed! of replevin# resort to which is not onl!allowed ut encouraged ! law"Respondents argue that since %gilent is an unlicensed foreign corporation doing usiness in the # it lac+sthe legal capacit! to file suit"4*5 The assailed acts of petitioner %gilent# purportedl! in the nature ofdoing usiness in the :hilippines# are the following& /'0 mere entering into the V%%S%# which is a servicecontract=4*95 /80 appointment of a full7time representative in Integrated Silicon# to oversee andsupervise the production of %gilents products=4*)5 /*0 the appointment !%gilent of six full7time staffmemers# who were permanentl! stationed at Integrated Silicons facilities in order to inspect thefinished goods for %gilent=4*5 and /20 %gilents participation in the management# supervision andcontrol of Integrated Silicon#4*(5 including instructing Integrated Silicon to hire more emplo!ees tomeet %gilents increasing production needs#4235regularl! performing ualit! audit# evaluation andsupervision of Integrated Silicons emplo!ees#42'5 regularl! performing inventor! audit of raw materialsto e used ! Integrated Silicon# which was also reuired to provide wee+l! inventor! updatesto %gilent#4285 and providing and dictating Integrated Silicon on the dail! production schedule# volumeand models of the products to manufacture and ship for %gilent"42*5

% foreign corporation without a license is not ipso facto incapacitated from ringing an action in:hilippine courts" % license is necessar! onl! if a foreign corporation is transacting or doing usiness inthe countr!" The $orporation $ode provides&Sec" '**" Doing usiness without a license " No foreign corporation transacting usiness in the:hilippines without a license# or i ts successors or assigns# shall e permitted to maintain or intervene inan! action# suit or proceeding in an! court or administrative agenc! of the :hilippines= ut suchcorporation ma! e sued or proceeded against efore :hilippine courts or administrative triunals onan! valid cause of action recogni.ed under :hilippine laws"The aforementioned provision prevents an unlicensed foreign corporation doing usiness in the fromaccessing our courts"In a numer of cases# however# we have held that an unlicensed foreign corporation doing usiness inthe ma! ring suit in :hilippine courts against a :hi lippine citi.en or entit! who had contracted with andenefited from said corporation"4225 Such a suit is premised on the doctrine of estoppel" % part!is estopped from challenging the personalit! of a corporation after having ac+nowledged the same !entering into a contract with it" This doctrine of estoppel to den! corporate existence and capacit!applies to foreign as well as domestic corporations"425 The application of this principle prevents aperson contracting with a foreign corporation from later ta+ing advantage of its noncompliance with thestatutes chiefl! in cases where such person has received the enefits of the contract"4295The principles regarding the right of a foreign corporation to ring suit in :hilippine courts ma! thus econdensed in four statements& /'0 if a foreign corporation does usiness in the :hilippines without alicense# it cannot sue efore the :hilippine courts=42)5 /80 if a foreign corporation is not doing usinessin the :hilippines# it needs no license to sue efore :hilippine courts on an isolated transaction or on acause of action entirel! independent of an! usiness transaction 425= /*0 if a foreign corporation doesusiness in the :hilippines without a license# a :hilippine citi.en or entit! which has contracted with saidcorporation ma! e estopped from challenging the foreign corporations corporate personalit! in a suitrought efore :hilippine courts=42(5 and /20 if a foreign corporation does usiness in the:hilippines with the reuired license# it can sue efore :hilippine courts on an! transaction"The challenge to %gilents legal capacit! to file suit hinges on whether or not it is doing usiness inthe "However# there is no definitive rule on what constitutes doing# engaging in# or transacting usinessin the # as this $ourt oserved in the case of @entholatum v" @angaliman "435 The $orporation $odeitself is sil ent as to what acts constitute doing or transacting usiness in the ">urisprudence has it# however# that the term implies a continuit! of commercial dealings andarrangements# and contemplates# to that extent# the performance of acts or wor+s or the exercise ofsome of the functions normall! incident to or in progressive prosecution of the purpose and suEect ofits organi.ation"4'5In @entholatum #485 this $ourt discoursed on the two general tests to determine whether or not aforeign corporation can e considered as doing usiness in the " The first of these is the sustance test#thus&4*5The true test 4for doing usiness5# however# seems to e whether the foreign corporation is continuingthe od! of the usiness or enterprise for which it was organi.ed or whether it has sustantiall! retiredfrom it and turned it over to another"The second test is the continuit! test# expressed thus&425The term 4doing usiness5 implies a continuit! of commercial dealings and arrangements# andcontemplates# to that extent# the performance of acts or wor+s or the exercise of some of the functionsnormall! incident to# and in the progressive prosecution of# the purpose and oEect of its organi.ation"

%lthough each case must e Eudged in light of its attendant circumstances# Eurisprudence has evolvedseveral guiding principles for the application of these tests" ;or instance# considering that it transactedwith its :hilippine counterpart for seven !ears# engaging in futures contracts# this $ourt concluded thatthe foreign corporation in @errill ?!nch ;utures# Inc" v" $ourt of %ppeals and Spouses ?ara #45 wasdoing usiness in the " In $ommissioner of Internal Revenue v" >apan %irlines />%?0 #495 the $ourt heldthat >%? was doing usiness in the :hilippines# i"e"# its commercial dealings in the countr! werecontinuous despite the fact that no >%? aircraft landed in the countr! as it sold tic+ets in the :hilippinesthrough a general sales agent# and opened a promotions office here as well"In <eneral $orp" of the :hils" v" 1nion Insurance Societ! of $anton and ;iremans ;und Insurance #4)5 aforeign insurance corporation was held to e doing usiness in the # as it appointed a settling agent






















































































here# and issued '8 marine insurance policies" Je held that these transactions were not isolated orcasual# ut manifested the continuit! of the foreign corporations conduct and its intent to estalish acontinuous usiness in the countr!" In 6ri+s :T6 ?td " v" $ourt of %ppeals and 6nriue. #45 the foreigncorporation sold its products to a ;ilipino u!er who ordered the goods '9 times within an eight7monthperiod" %ccordingl!# this $ourt ruled that the corporation was doing usiness in the # as there was aclear intention on its part to continue the od! of its usiness here# despite the relativel! short span oftime involved"$ommunication @aterials and Design# Inc"# et al" v" $ourt of %ppeals# IT6$# et al"4(5 and Top7Jeld @anufacturing v" 6$6D# IRTI# et al "4935 oth involved the ?icense and Technical

%greement and Distriutor %greement of foreign corporations with their respective local counterpartsthat were the primar! ases for the $ourts ruling that the foreign corporations were doing usiness inthe :hilippines"49'5 In particular# the $ourt cited the highl! restrictive nature of certain provisions in theagreements involved# such that# as stated in $ommunication @aterials # the :hilippine entit! is reducedto a mere extension or i nstrument of the foreign corporation" ;or example# in $ommunication @aterials #the $ourt deemed the No $ompeting :roduct provision of the Representative %greement thereinrestrictive"4985The case law definition has evolved into a statutor! definition# having een adopted with someualifications in various pieces of legislation" The ;oreign Investments %ct of '((' /the ;I%= Repulic %ctNo" )328# as amended0# defines doing usiness as follows&Sec" *# par" /d0" The phrase doing usiness shall include soliciting orders# service contracts# openingoffices# whether called liaison offices or ranches= appointing representatives or distriutors domiciled inthe :hilippines or who in an! calendar !ear sta! in the countr! for a period or periods totaling onehundred eight! /'30 da!s or more= participating in the management# supervision or control of an!domestic usiness# firm# entit!# or corporation in the :hilippines= and an! other act or acts that impl! acontinuit! of commercial dealings or arrangements# and contemplate to that extent the performance ofacts or wor+s# or the exercise of some of the functions normall! incident to# and in the progressiveprosecution of# commercial gain or of the purpose and oEect of the usiness organi.ation"

%n anal!sis of the relevant case law# in conEunction with Section ' of the Implementing Rules andRegulations of the ;I% /as amended ! Repulic %ct No" ')(0# would demonstrate that the actsenumerated in the V%%S% do not constitute doing usiness in the :hilippines"Section ' of the Implementing Rules and Regulations of the ;I% /as amended ! Repulic %ct No" ')(0provides that the following shall not e deemed doing usiness&/'0 @ere investment as a shareholder ! a foreign entit! in domestic corporations dul! registered to dousiness# andor the exercise of rights as such investor=/80 Having a nominee director or officer to represent its interest in such corporation=/*0 %ppointing a representative or distriutor domiciled in the which transacts usiness in therepresentatives or distriutors own name and account=/20 The pulication of a general advertisement through an! print or roadcast media=/0 @aintaining a stoc+ of goods in the solel! for the purpose of having the same processed ! anotherentit! in the =/90 $onsignment ! a foreign entit! of euipment with a local compan! to e used in the processing ofproducts for export=/)0 $ollecting information in the = and/0 :erforming services auxiliar! to an existing isolated contract of sale which are not on a continuingasis# such as installing in the :hilippines machiner! it has manufactured or exported to the :hilippines#servicing the same# training domestic wor+ers to operate it# and simila r incidental services"B! and large# to constitute doing usiness# the activit! to e underta+en in the is one that is for profit7ma+ing"49*5B! the clear terms of the V%%S%# %gilents activities in the :hilippines were confined to /'0 maintaining astoc+ of goods in the :hilippines solel! for the purpose of having the same processed ! IntegratedSilicon= and /80 consignment of euipment with Integrated Silicon to e used in the processing ofproducts for export" %s such# we hold that# ased on the evidence presented thus far# %gilent cannot edeemed to e doing usiness in the " Respondents contention that %gilent lac+s the legal capacit! to filesuit is therefore devoid of merit" %s a foreign corporation not doing usiness in the # it needed no licenseefore it can sue efore our courts";inall!# as to %gilents purported failure to state a cause of action against the i ndividual respondents# weli+ewise rule in favor of petitioner" % @otion to Dismiss h!potheticall! admits all the allegations in the$omplaint# which plainl! alleges that these individual respondents had committed or permitted thecommission of acts preEudicial to %gilent" Jhether or not these individuals had divested themselves oftheir interests in Integrated Silicon# or are no longer memers of Integrated Silicons Board of Directors#is a matter of defense est threshed out during trial"IEREFRE# RE&$SES NS$DERED# the petition is <R%NT6D" The Decision of the $ourt of

%ppeals in $%7<"R" S: No" 99)2 dated %ugust '8# 8338# which dismissed $ivil $ase No" *'8*7833'7$#is R6V6RS6D and S6T %SID6" The Order dated issued ! the Regional Trial $ourt of $alama# ?aguna#Branch (8# in $ivil $ase No" *'8*7833'7$# is R6INST%T6D" %gilents application for a Jrit of Replevin is<R%NT6D"No pronouncement as to costs"S RDERED.

Davide# >r"# $">"# /$hairman0# :anganian# $arpio# and %.cuna# >>"# concur"

48'5 Batas :amansa Blg" '8(# sec" '("42)5 $OR:OR%TION $OD6# sec" '**"49'5 %ccording to the $ourt in $ommunication @aterials # it was persuaded to conclude that the foreigncorporation was doing usiness in the# as this was the inevitale result after a scrutin! of the differentcontracts and agreements entered into ! the foreign corporation"

S6$OND DIVISION[G.R. No. 1/2392. &!= 26, 200/]

E%ER+RAEL +RS, $N., pet't'o"er, (s. R+ F AEALS !"# REAN A$RL$NES,respo"#e"ts .

D E $ S $ NALLE, SR., 0.5Before us is a petition for review on certiorari of the Decision4'5 of the $ourt of %ppeals /$%0 in $%7<"R"S: No" 9'333 dismissing the petition for certiorari and mandamus filed ! 6xpertravel and Tours# Inc"/6TI0"

+8e A"te:e#e"tsAorean %irlines /A%?0 is a corporation estalished and registered in the Repulic of South Aorea andlicensed to do usiness in the :hilippines" Its general manager in the :hilippines is Su+ A!oo Aim# whileits appointed counsel was %tt!" @ario %guinaldo and his law firm"On Septemer 9# '(((# A%?# through %tt!" %guinaldo# filed a $omplaint 485 against 6TI with the RegionalTrial $ourt /RT$0 of @anila# for the collection of the principal amount of :893#'3"33# plus attorne!s feesand exemplar! damages" The verification and certification against forum shopping was signed ! %tt!"

%guinaldo# who indicated therein that he was the resident agent and legal counsel of A%? and hadcaused the preparation of the complaint"6TI filed a motion to dismiss the complaint on the ground that %tt!" %guinaldo was not authori.ed toexecute the verification and certificate of non7forum shopping as reuired ! Section # Rule ) of theRules of $ourt" A%? opposed the motion# contending that %tt!" %guinaldo was its resident agent and wasregistered as such with the Securities and 6xchange $ommission /S6$0 as reuired ! the $orporation$ode of the :hilippines" It was further alleged that %tt!" %guinaldo was also the corporate secretar! ofA%?" %ppended to the said opposition was the identification card of %tt!" %guinaldo# showing that he wasthe law!er of A%?"During the hearing of >anuar! 8# 8333# %tt!" %guinaldo claimed that he had een authori.ed to file thecomplaint through a resolution of the A%? Board of Directors approved during a special meeting held on>une 8# '(((" 1pon his motion# A%? was given a period of '3 da!s within which to sumit a cop! of

the said resolution" The trial court granted the motion" %tt!" %guinaldo suseuentl! filed other similarmotions# which the trial court granted";inall!# A%? sumitted on @arch 9# 8333 an %ffidavit 4*5 of even date# executed ! its general managerSu+ A!oo Aim# alleging that the oard of directors conducted a special teleconference on >une 8# '(((#which he and %tt!" %guinaldo attended" It was also averred that in that same teleconference# the oardof directors approved a resolution authori.ing %tt!" %guinaldo to execute the certificate of non7forumshopping and to file the complaint" Su+ A!oo Aim also alleged# however# that the corporation had nowritten cop! of the aforesaid resolution"On %pril '8# 8333# the trial court issued an Order425 den!ing the motion to dismiss# giving credence tothe claims of %tt!" %guinaldo and Su+ A!oo Aim that the A%? Board of Directors indeed conducted ateleconference on >une 8# '(((# during which it approved a resolution as uoted in the sumittedaffidavit"6TI filed a motion for the reconsideration of the Order# contending that it was inappropriate for the courtto ta+e Eudicial notice of the said teleconference without an! prior hearing" The trial court denied themotion in its Order45 dated %ugust # 8333"6TI then filed a petition for certiorari and mandamus # assailing the orders of the RT$" In its comment onthe petition# A%? appended a certificate signed ! %tt!" %guinaldo dated >anuar! '3# 8333# worded asfollows&

S6$R6T%RGSR6SID6NT %<6NTS $6RTI;I$%T6ANOJ %?? @6N BG TH6S6 :R6S6NTS&I# @ario %" %guinaldo# of legal age# ;il ipino# and dul! elected and appointed $orporate Secretar! andResident %gent of AOR6%N %IR?IN6S# a foreign corporation dul! organi.ed and existing under and !virtue of the laws of the Repulic of Aorea and also dul! registered and authori.ed to do usiness in the:hilippines# with office address at <round ;loor# ?:? :la.a Building# '82 %lfaro St"# Salcedo Village#@a+ati $it!# H6R6BG $6RTI;G that during a special meeting of the Board of Directors of the $orporationheld on >une 8# '((( at which a uorum was present# the said Board unanimousl! passed# voted uponand approved the following resolution which is now in full force and effect# to wit&R6SO?V6D# that @ario %" %guinaldo and his law firm @"%" %guinaldo L %ssociates or an! of its law!ersare here! appointed and authori.ed to ta+e with whatever legal action necessar! to effect thecollection of the unpaid account of 6xpert Travel L Tours" The! are here! specificall! authori.ed toprosecute# litigate# defend# sign and execute an! document or paper necessar! to the fili ng andprosecution of said claim in $ourt# attend the :re7Trial :roceedings and enter into a compromiseagreement relative to the aove7mentioned claim"

IN JITN6SS JH6R6O;# I have hereunto affixed m! signature this '3th da! of >anuar!# '(((# in the $it!of @anila# :hilippines"/Sgd"0@%RIO %" %<1IN%?DOResident %gent

S1BS$RIB6D %ND SJORN to efore me this '3 th da! of >anuar!# '(((# %tt!" @ario %" %guinaldo

exhiiting to me his $ommunit! Tax $ertificate No" '2('22# issued on >anuar! )# 8333 at @anila#:hilippines"/Sgd"0Doc" No" ''(= %TTG" H6NRG D" %D%S%:age No" 8= Notar! :ulicBoo+ No" IV 1ntil Decemer *'# 8333Series of 8333" :TR \(*@?% '*8333495On Decemer '# 833'# the $% rendered Eudgment dismissing the petition# ruling that the verificationand certificate of non7forum shopping executed ! %tt!" %guinaldo was sufficient compliance w ith theRules of $ourt" %ccording to the appellate court# %tt!" %guinaldo had een dul! authori.ed ! the oardresolution approved on >une 8# '(((# and was the resident agent of A%?" %s such# the RT$ could note faulted for ta+ing Eudicial notice of the said teleconference of the A%? Board of Directors"6TI filed a motion for reconsideration of the said decision# which the $% denied" Thus# 6TI# now thepetitioner# comes to the $ourt ! wa! of petition for review on certiorari and raises the following issue&DID :1B?I$ R6S:OND6NT $O1RT O; %::6%?S D6:%RT ;RO@ TH6 %$$6:T6D %ND 1S1%? $O1RS6 O;>1DI$I%? :RO$66DIN<S JH6N IT R6ND6R6D ITS -16STION6D D6$ISION %ND JH6N IT ISS16D ITS-16STION6D R6SO?1TION# %NN66S % %ND B O; TH6 INST%NT :6TITIONK4)5The petitioner asserts that compliance with Section # Rule )# of the Rules of $ourt can e determinedonl! from the contents of the complaint and not ! documents or pleadings outside thereof" Hence# thetrial court committed grave ause of discretion amounting to excess of Eurisdiction# and the $% erred inconsidering the affidavit of the respondents general manager# as well a s the Secretar!sResident %gents$ertification and the resolution of the oard of directors contained therein# as proof of compliance withthe reuirements of Section # Rule ) of the Rules of $ourt" The petitioner also maintains that the RT$

cannot ta+e Eudicial notice of the said teleconference without prior hearing# nor an! motion therefor" Thepetitioner reiterates its sumission that the teleconference and the resolution adverted to ! therespondent was a mere farication"The respondent# for its part# avers that the issue of whether modern technolog! is used in the field ofusiness is a factual issue= hence# cannot e raised in a petition for review on certiorari under Rule 2 ofthe Rules of $ourt" On the merits of the petition# it insists that %tt!" %guinaldo# as the resident agent andcorporate secretar!# is authori.ed to sign and execute the certificate of non7forum shopping reuired !Section # Rule ) of the Rules of $ourt# on top of the oard resolution approved during theteleconference of >une 8# '(((" The respondent insists that technological advances in this time andage are as commonplace as da!rea+" Hence# the courts ma! ta+e Eudicial notice that the :hilippine?ong Distance Telephone $ompan!# Inc" had provided a record of corporate conferences and meetingsthrough ;ierNet using fier7optic transmission technolog!# and that such technolog! facilitates voiceand image transmission with ease= this ma+es constant communication etween a foreign7ased officeand its :hilippine7ased ranches faster and easier# allowing for cost7cutting in terms of travel concerns"It points out that even the 67$ommerce ?aw has recogni.ed this modern technolog!" The respondentposits that the courts are aware of this development in technolog!= hence# ma! ta+e Eudicial noticethereof without need of hearings" 6ven if such hearing is reuired# the reuirement is neverthelesssatisfied if a part! is allowed to fil e pleadings ! wa! of comment or opposition thereto"In its repl!# the petitioner pointed out that there are no rulings on the matter of teleconferencing as ameans of conducting meetings of oard of directors for purposes of passing a resolution= until and afterteleconferencing is recogni.ed as a legitimate means of gathering a uorum of oard of directors# suchcannot e ta+en Eudicial notice of ! the court" It asserts that safeguards must first e set up to preventan! mischief on the pulic or to protect the general pulic from an! possile fraud" It further proposes

possile amendments to the $orporation $ode to give recognition to such manner of oard meetings totransact usiness for the corporation# or other related corporate matters= until then# the petitionerasserts# teleconferencing cannot e the suEect of E udicial notice"The petitioner further avers that the supposed holding of a special meeting on >une 8 # '((( throughteleconferencing where %tt!" %guinaldo was supposedl! given such an authorit! is a farce# consideringthat there was no mention of where it was held# whether in this countr! or elsewhere" It insists that the$orporation $ode reuires oard resolutions of corporations to e sumitted to the S6$" 6ven assumingthat there was such a teleconference# it would e against the provisions of the $orporation $ode not tohave an! record thereof"The petitioner insists that the teleconference and resolution adverted to ! the respondent in itspleadings were mere farications foisted ! therespondent and its counsel on the RT$# the $% and this $ourt"The petition is meritorious"Section # Rule ) of the Rules of $ourt provides&S6$" " $ertification against forum shopping" The plaintiff or principal part! shall certif! under oath inthe complaint or other initiator! pleading asserting a claim for relief# or in a sworn certification annexedthereto and simultaneousl! filed therewith& /a0 that he has not theretofore commenced an! action orfiled an! claim involving the same issues in an! court# triunal or uasi7Eudicial agenc! and# to the estof his +nowledge# no such other action or claim is pending therein= /0 if there is such other pendingaction or claim# a complete statement of the present status thereof= and /c0 if he should thereafter learnthat the same or similar action or claim has een filed or is pending# he shall report that fact within five







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/0 da!s therefrom to the court wherein his aforesaid complaint or ini tiator! pleading has een filed";ailure to compl! with the foregoing reuirements shall not e curale ! mere amendment of thecomplaint or other initiator! pleading ut shall e cause for the dismissal of the case without preEudice#unless otherwise provided# upon motion and after hearing" The sumission of a false certification ornon7compliance with an! of the underta+ings therein shall constitute indirect contempt of court# withoutpreEudice to the corresponding administrative and criminal actions" If the acts of the part! or his counselclearl! constitute willful and delierate forum shopping# the same shall e ground for summar! dismissalwith preEudice and shall constitute direct contempt# as well as a cause for administrative sanctions"It is settled that the reuirement to file a certificate of non7forum shopping is mandator!45 and that thefailure to compl! with this reuirement cannot e excused" The certification is a peculiar and personalresponsiilit! of the part!# an assurance given to the court or other triunal that there are no otherpending cases involving asicall! the same parties# issues and causes of action" Hence# the certificationmust e accomplished ! the part! himself ecause he has actual +nowledge of whether or not he hasinitiated similar actions or proceedings in different courts or triunals" 6ven his counsel ma! e unawareof such facts"4(5 Hence# the reuisite certification executed ! the plaintiffs counsel will not suffice"4'35In a case where the plaintiff is a private corporation# the certification ma! e signed# for and on ehalfof the said corporation# ! a specificall! authori.ed person# including its retained counsel# who haspersonal +nowledge of the facts reuired to e estalished ! the documents" The reason was explained! the $ourt in National Steel $orporation v" $ourt of %ppeals#4''5 as follows&1nli+e natural persons# corporations ma! perform ph!sical actions onl! through properl! delegatedindividuals= namel!# its officers andor agents"The corporation# such as the petitioner# has no powers except those expressl! conferred on it ! the$orporation $ode and those that are implied ! or are incidental to its existence" In turn# a corporationexercises said powers through its oard of directors andor its dul!7authori.ed officers and agents":h!sical acts# li+e the signing of documents# can e performed onl! ! natural persons dul!7authori.edfor the purpose ! corporate !7laws or ! specific act of the oard of directors" %ll acts within thepowers of a corporation ma! e performed ! agents of its selection= and except so far as limitations orrestrictions which ma! e imposed ! special charter# !7law# or statutor! provisions# the same generalprinciples of law which govern the relation of agenc! for a natural person govern the officer or agent ofa corporation# of whatever status or ran+# in respect to his power to act for the corporation= and agentsonce appointed# or memers acting in their stead# are suEect to the same rules# l iailities andincapacities as are agents of i ndividuals and private persons";or who else +nows of the circumstances reuired in the $ertificate ut its own retained counsel" Itsregular officers# li+e its oard chairman and president# ma! not even +now the details reuired therein"Indeed# the certificate of non7forum shopping ma! e incorporated in the complaint or appendedthereto as an integral part of the complaint" The rule is that compliance with the rule after the filing ofthe complaint# or the dismissal of a complaint ased on its non7compliance with the rule# isimpermissile" However# in exceptional circumstances# the court ma! allow suseuent compliance withthe rule"4'85 If the authorit! of a part!s counsel to execute a certificate of non7forum shopping isdisputed ! the adverse part!# the former is reuired to show proof of such authorit! or representation"In this case# the petitioner# as the defendant in the RT$# assailed the authorit! of %tt!" %guinaldo toexecute the reuisite verification and certificate of non7forum shopping as the resident agent andcounsel of the respondent" It was# thus# incument upon the respondent# as the plaintiff# to allege andestalish that %tt!" %guinaldo had such authorit! to execute the reuisite verification and certification forand in its ehalf" The respondent# however# failed to do so"The verification and certificate of non7forum shopping which was incorporated in the complaint andsigned ! %tt!" %guinaldo reads&I# @ario %" %guinaldo of legal age# ;ilipino# with office address at Suite 8'3 <edisco $entre# '92 %"@aini cor" :" <il Sts"# 6rmita# @anila# after having sworn to in accordance with law here! deposes andsa!& TH%T 7'" I am the Resident %gent and ?egal $ounsel of the plaintiff in the aove entitled case and have causedthe preparation of the aove complaint=8" I have read the complaint and that a ll the allegations contained therein are true and correct ased onthe records on files=*" I here! further certif! that I have not commenced an! other action or proceeding involving the sameissues in the Supreme $ourt# the $ourt of %ppeals# or different divisions thereof# or an! other triunal oragenc!" If I suseuentl! learned that a similar action or proceeding has een filed or is pending eforethe Supreme $ourt# the $ourt of %ppeals# or different divisions thereof# or an! triunal or agenc!# I willnotif! the court# triunal or agenc! within five /0 da!s from such notice+nowledge"/Sgd"0@%RIO %" %<1IN%?DO

%ffiant$ITG O; @%NI?%

S1BS$RIB6D %ND SJORN TO efore me this *3th da! of %ugust# '(((# affiant exhiiting to me his$ommunit! Tax $ertificate No" 339)'32) i ssued on >anuar! )# '((( at @anila# :hilippines"/Sgd"0Doc" No" '33= %TTG" H6NRG D" %D%S%:age No" '(= Notar! :ulicBoo+ No" I 1ntil Decemer *'# 8333Series of '(((" :TR No" *833' @la" '2((4'*5

%s gleaned from the aforeuoted certification# there was no allegation that %tt!" %guinaldo had eenauthori.ed to execute the certificate of non7forum shopping ! the respondents Board of Directors=moreover# no such oard resolution was appended thereto or i ncorporated therein"Jhile %tt!" %guinaldo is the resident agent of the respondent in the :hilippines# this does not mean thathe is authori.ed to execute the reuisite certification against forum shopping" 1nder Section '8)# inrelation to Section '8 of the $orporation $ode# the authorit! of the resident agent of a foreigncorporation with license to do usiness in the :hilippines is to receive# for and in ehalf of the foreigncorporation# services and other legal processes in all actions and other legal proceedings against suchcorporation# thus&S6$" '8)" Jho ma! e a resident agent" % resident agent ma! either e an individual residing in the:hilippines or a domestic corporation lawfull! transacting usiness in the :hilippines& :rovided # That inthe case of an individual# he must e of good moral character and of sound fi nancial standing"S6$" '8" Resident agent= service of process " The Securities and 6xchange $ommission shall reuire asa condition precedent to the issuance of the license to transact usiness in the :hilippines ! an! foreigncorporation that such corporation file with the Securities and 6xchange $ommission a written power of

attorne! designating some persons who must e a resident of the :hilippines# on whom an! summonsand other legal processes ma! e served in all actions or other legal proceedings against suchcorporation# and consenting that service upon such resident agent shall e admitted and held as valid asif served upon the dul!7authori.ed officers of the foreign corporation as its home office"4'251nder the law# %tt!" %guinaldo was not specificall! authori.ed to execute a certificate of non7forumshopping as reuired ! Section # Rule ) of the Rules of $ourt" This is ecause while a resident agentma! e aware of actions filed against his principal /a foreign corporation doing usiness in the:hilippines0# such resident ma! not e aware of actions initiated ! its principal# whether in the:hilippines against a domestic corporation or private individual# or i n the countr! where such corporationwas organi.ed and registered# against a :hilippine registered corporation or a ;ilipino citi.en"The respondent +new that its counsel# %tt!" %guinaldo# as its resident agent# was not specificall!authori.ed to execute the said certification" It attempted to show its compliance with the rulesuseuent to the filing of its complaint ! sumitting# on @arch 9# 8333# a resolution purporting tohave een approved ! its Board of Directors during a teleconference held on >une 8# '(((# allegedl!with %tt!" %guinaldo and Su+ A!oo Aim in attendance" However# such attempt of the respondent castsveritale dout not onl! on its claim that such a teleconference was held# ut also on the approval !the Board of Directors of the resolution authori.ing %tt!" %guinaldo to execute the certificate of non7forum shopping"In its %pril '8# 8333 Order# the RT$ too+ Eudicial notice that ecause of the onset of modern technolog!#persons in one location ma! confer with other persons in other places# and# ased on the said premise#concluded that Su+ A!oo Aim and %tt!" %guinaldo had a teleconference with the respondents Board of

Directors in South Aorea on >une 8# '(((" The $%# li+ewise# gave credence to the respondents claimthat such a teleconference too+ place# as contained in the affidavit of Su+ A!oo Aim# as well as %tt!"

%guinaldos certification"<enerall! spea+ing# matters of Eudicial notice have three material reuisites& /'0 the matter must e oneof common and general +nowledge= /80 it must e well and authoritativel! settled and not doutful oruncertain= and /*0 it must e +nown to e within the limits of the Eurisdiction of the court" The principalguide in determining what facts ma! e assumed to e Eudiciall! +nown is that of notoriet!" Hence# itcan e said that Eudicial notice is limited to facts evidenced ! pulic records and facts of general

notoriet!"4'5 @oreover# a Eudiciall! noticed fact must e one not suEect to a reasonale dispute in thatit is either& /'0 generall! +nown within the territorial Eurisdiction of the trial court= or /80 capale ofaccurate and read! determination ! resorting to sources whose accurac! cannot reasonal! euestionale"4'95Things of common +nowledge# of which courts ta+e Eudicial matters coming to the +nowledge of mengenerall! in the course of the ordinar! experiences of life# or the! ma! e matters which are generall!accepted ! man+ind as true and are capale of read! and unuestioned demonstration" Thus# factswhich are universall! +nown# and which ma! e found in enc!clopedias# dictionaries or other

pulications# are Eudiciall! noticed# provided# the! are of such universal notoriet! and so generall!understood that the! ma! e regarded as forming part of the common +nowledge of ever! person" %sthe common +nowledge of man ranges far and wide# a wide variet! of particular facts have een

Eudiciall! noticed as eing matters of common +nowledge" But a court cannot ta+e Eudicial notice of an!fact which# in part# is dependent on the existence or non7existence of a fact of which the court has noconstructive +nowledge "4')5In this age of modern technolog!# the courts ma! ta+e Eudicial notice that usiness transactions ma! emade ! i ndividuals through teleconferencing" Teleconferencing is interactive group communication/three or more people in two or more locations0 through an electronic medium" In general terms#teleconferencing can ring people together under one roof even though the! are separated ! hundredsof miles"4'5 This t!pe of group communication ma! e used in a numer of wa!s# and have three asict!pes& /'0 video conferencing 7 television7li+e communication augmented with sound= /80 computerconferencing 7 printed communication through +e!oard terminals# and /*0 audio7conferencing7veralcommunication via the telephone with optional capacit! for telewriting or telecop!ing"4'(5

% teleconference represents a uniue alternative to face7to7face /;T;0 meetings" It was first introducedin the '(93s with %merican Telephone and Telegraphs :icturephone" %t that time# however# no demandexisted for the new technolog!" Travel costs were reasonale and consumers were unwilling to pa! themonthl! service charge for using the picturephone# which was regarded as more of a novelt! than as anactual means for ever!da! communication"4835 In time# people found it advantageous to holdteleconferencing in the course of usiness and corporate governance# ecause of the mone! saved#among other advantages include&'" :eople /including outside guest spea+ers0 who wouldnt normall! attend a distant ;T; meeting canparticipate"

8" ;ollow7up to earlier meetings can e done with relative ease and little expense"*" Sociali.ing is minimal compared to an ;T; meeting= therefore# meetings are shorter and moreoriented to the primar! purpose of the meeting"2" Some routine meetings are more effective since one can audio7conference from an! location euippedwith a telephone"" $ommunication etween the home office and field staffs is maximi.ed"9" Severe climate andor unreliale transportation ma! necessitate teleconferencing")" :articipants are generall! etter prepared than for ;T; meetings"" It is particularl! satisfactor! for simple prolem7solving# information exchange# and procedural tas+s"(" <roup memers participate more euall! in well7moderated teleconferences than an ;T; meeting"48'5On the other hand# other private corporations opt not to hold teleconferences ecause of the followingdisadvantages&'" Technical failures with euipment# including connections that arent made"8" 1nsatisfactor! for complex interpersonal communication# such as negotiation or argaining"*" Impersonal# less eas! to create an atmosphere of group rapport"2" ?ac+ of participant familiarit! with the euipment# the medium itself# and meeting s+ills"" %coustical prolems within the teleconferencing rooms"9" Difficult! in determining participant spea+ing order= freuentl! one person monopoli.es the meeting")" <reater participant preparation time needed"" Informal# one7to7one# social interaction not possile"4885Indeed# teleconferencing can onl! facilitate the lin+ing of people= it does not alter the complexit! ofgroup communication" %lthough it ma! e easier to communicate via teleconferencing# it ma! also e

easier to miscommunicate" Teleconferencing cannot satisf! the individual needs of ever! t!pe ofmeeting"48*5In the :hilippines# teleconferencing and videoconferencing of memers of oard of directors of privatecorporations is a realit!# in light of Repulic %ct No" )(8" The Securities and 6xchange $ommissionissued S6$ @emorandum $ircular No" '# on Novemer *3# 833'# providing the guidelines to ecomplied with related to such conferences"4825 Thus# the $ourt agrees with the RT$ that persons in the:hilippines ma! have a teleconference with a group of persons in South Aorea relating to usinesstransactions or corporate governance"6ven given the possiilit! that %tt!" %guinaldo and Su+ A!oo Aim participated in a teleconference alongwith the respondents Board of Directors# the $ourt is not convinced that one was conducted= even ifthere had een one# the $ourt is not inclined to elieve that a oard resolution was dul! passedspecificall! authori.ing %tt!" %guinaldo to file the complaint and execute the reuired certification againstforum shopping"The records show that the petitioner filed a motion to dismiss the complaint on the ground that therespondent failed to compl! with Section # Rule ) of the Rules of $ourt" The respondent opposed themotion on Decemer '# '(((# on its contention that %tt!" %guinaldo# its resident agent# was dul!authori.ed to sue in its ehalf" The respondent# however# failed to estalish its claim that %tt!" %guinaldowas its resident agent in the :hilippines" 6ven the identification card 485 of %tt!" %guinaldo which therespondent appended to its pleading merel! showed that he is the compan! law!er of the respondents@anila Regional Office"The respondent# through %tt!" %guinaldo# announced the holding of the teleconference onl! during thehearing of >anuar! 8# 8333= %tt!" %guinaldo then pra!ed for ten da!s# or until ;eruar! # 8333# withinwhich to sumit the oard resolution purportedl! authori.ing him to file the complaint and execute the

reuired certification against forum shopping" The court granted the motion"4895 The respondent#however# failed to compl!# and instead pra!ed for ' more da!s to sumit the said resolution#contending that it was with its main office in Aorea" The court granted the motion per itsOrder48)5 dated ;eruar! ''# 8333" The respondent again pra!ed for an extension within which tosumit the said resolution# until @arch 9# 8333"485 It was on the said date that the respondentsumitted an affidavit of its general manager Su+ A!oo Aim# stating#inter alia# that he and %tt!"

%guinaldo attended the said teleconference on >une 8# '(((# where the Board of Directors supposedl!approved the following resolution&R6SO?V6D# that @ario %" %guinaldo and his law firm @"%" %guinaldo L %ssociates or an! of its law!ersare here! appointed and authori.ed to ta+e with whatever legal action necessar! to effect thecollection of the unpaid account of 6xpert Travel L Tours" The! are here! specificall! authori.ed toprosecute# litigate# defend# sign and execute an! document or paper necessar! to the fili ng andprosecution of said claim in $ourt# attend the :re7trial :roceedings and enter into a compromiseagreement relative to the aove7mentioned claim"48(5But then# in the same affidavit# Su+ A!oo Aim declared that the respondent do4es5 not +eep a writtencop! of the aforesaid Resolution ecause no records of oard resolutions approved duringteleconferences were +ept" This elied the respondents earlier allegation in its ;eruar! '3# 8333 motionfor extension of time to sumit the uestioned resolution that it was in the custod! of its main office inAorea" The respondent gave the trial court the impression that it needed time to secure a cop! of theresolution +ept in Aorea# onl! to allege later /via the affidavit of Su+ A!oo Aim0 that it had no suchwritten cop!" @oreover# Su+ A!oo Aim stated in his affidavit that the resolution was emodied in the




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Secretar!sResident %gents $ertificate signed ! %tt!" %guinaldo" However# no such resolution wasappended to the said certificate"The respondents allegation that its oard of directors conducted a teleconference on >une 8# '((( andapproved the said resolution /with %tt!" %guinaldo in attendance0 is incredile# given the additional factthat no such allegation was made in the complaint" If the resolution had indeed een approved on >une8# '(((# long efore the complaint was filed# the respondent should have incorporated it in itscomplaint# or at least appended a cop! thereof" The respondent failed to do so" It was onl! on >anuar!8# 8333 that the respondent claimed# for the first time# that there was such a meeting of the Board ofDirectors held on >une 8# '(((= it even represented to the $ourt that a cop! of its resolution was withits main office in Aorea# onl! to allege later that no written cop! existed" It was onl! on @arch 9# 8333that the respondent alleged# for the first time# that the meeting of the Board of Directors where theresolution was approved was held via teleconference"Jorse still# it appears that as earl! as >anuar! '3# '((( # %tt!" %guinaldo had signed aSecretar!sResident %gents $ertificate alleging that the oard of directors held a teleconference on >une8# '((( " No such certificate was appended to the complaint# which was filed on Septemer 9# '((("@ore importantl!# the respondent did not explain wh! the said certificate was signed ! %tt!" %guinaldoas earl! as >anuar! (# '(((# and !et was notari.ed one !ear later /on >anuar! '3# 83330= it also did notexplain its failure to append the said certificate to the complaint# as well as to its $ompliance dated@arch 9# 8333" It was onl! on >anuar! 89# 833' when the respondent filed its comment in the $% that itsumitted the Secretar!sResident %gents $ertificate4*35 dated >anuar! '3# 8333"The $ourt is# thus# more inclined to elieve that the alleged teleconference on >une 8# '((( never too+place# and that the resolution allegedl! approved ! the respondents Board of Directors during the saidteleconference was a mere concoction purposefull! foisted on the RT$# the $% and this $ourt# to avertthe dismissal of i ts complaint against the petitioner"$N L$G+ F ALL +E FREG$NG# the petition is <R%NT6D" The Decision of the $ourt of %ppealsin $%7<"R" S: No" 9'333 is R6V6RS6D and S6T %SID6" The Regional Trial $ourt of @anila is here!ORD6R6D to dismiss# without preEudice# the complaint of the respondent"S RDERED.:uno# %cting $">"# /$hairman0# %ustria7@artine.# and $hico7Na.ario# >>"# concur"Tinga# >"# out of the countr!"

4'25 These provisions are the asis of Section '8# Rule '2 of the Rules of $ourt# which reads&S6$" '8" Service upon foreign private Euridical entit! " Jhen the defendant is a foreign private Euridicalentit! which has transacted usiness in the :hilippines# service ma! e made on its resident agentdesignated in accordance with law for that purpose# or# if there e no such agent# on the governmentofficial designated ! law to that effect# or on an! of its officers or agents within the :hilippines"4825 The $ourt also approved the Rule on 6xamination of a child witness which allows live7lin+ televisiontestimon! in criminal cases where the child is a victim or a witness /Section 80# which too+ effect onDecemer '# 8333"The earl! applications of videoconferencing in the States in the 1nited States courts primaril! focused onvideo arraignments and proale cause hearings" %s courts egan to appreciate the costs savings andthe decreased securit! ris+s of the technolog!# other uses ecame apparent" Videoconferencing is aneffective tool for parole interviews# Euvenile detention hearings# mental health hearings# domesticviolence hearings# pretrial conferences# remote witness testimon!# and depositionsto name a few" Thetechnolog! will prove even more valuale in an age of international terrorist trials with witnesses fromaround the world" Videoconferencing has ecome uite commonplace in State $ourts per the Report"The last comprehensive report& se o $"ter!:t'(e '#eo or o;rt ro:ee#'"<s5 Le<! St!t;s!"# se N!t'o">'#e.:ulished in '((# ! the National Institute of $orrections# is thatvideoconferencing is used in 3 states in the 1nited States of %merica"

S6$OND DIVISION*. AN $DEN *RS., L+D., G.R. No. 14790/:etitioner#:resent&-1IS1@BIN<# > "#$hairperson #7versus7 $%R:IO#$%R:IO @OR%?6S#TIN<%# and

V6?%S$O# >R"# >> "G+L &ANFA+R$NG :romulgated&$NDS+R$ES, $N.,Respondent" @a! 8# 833)x77777777777777777777777777777777777777777777777777777777777777777777777777777777777777777x

D E $ S $ NAR$ , 0.5

+8e !se

Before the $ourt is a petition for review4'5 of the Decision485 of the $ourt of %ppeals in $%7<"R" $V No"998*9" The $ourt of %ppeals affirmed the Order4*5 of the Regional Trial $ourt# Branch8# :araaue $it! /trial court0 dismissing the complaint for sum of mone! filed ! B" Van Cuiden Bros"#?td" /petitioner0 against <TV? @anufacturing Industries# Inc" /respondent0"

+8e F!:tsOn # petitioner filed a complaint for sum of mone! against respondent# doc+eted as $ivil $ase No" ((7382(" The pertinent portions of the complaint read&'" :laintiff# C1ID6N# is a corporation# incorporated under the laws of " x x x C1ID6N is not engaged inusiness in the # ut is suing efore the :hilippine $ourts# for the reasons hereinafter stated"x x x x*" C1ID6N is engaged in the importation and exportation of several products# including lace products"2" On several occasions# <TV? purchased lace products from 4C1ID6N5"" The procedure for these purchases# as per the instructions of <TV?# was that C1ID6N delivers theproducts purchased ! <TV?# to a certain Hong Aong corporation# +nown as Aen.ar ?td" /A6NC%R0#x x x and the products are then considered as sold# upon receipt ! A6NC%R of the goods purchased !<TV?"A6NC%R had the oligation to deliver the products to the andor to follow whatever instructions <TV?had on the matter"Insofar as C1ID6N is concerned# upon deliver! of the goods to A6NC%R in # the transaction is concluded=and <TV? ecame oligated to pa! the agreed purchase price"x x x x)" However# commencing up to the present# <TV? has failed and refused to pa! the agreed purchaseprice for several deliveries ordered ! i t and delivered ! C1ID6N# as aove7mentioned"x x x x(" In spite 4sic5 of said demands and in spite 4sic5 of promises to pa! andor admissions of liailit!# <TV?has failed and refused# and continues to fail and refuse# to pa! the overdue amount of 1"S"Z*8#3"384inclusive of interest5"425Instead of filing an answer# respondent filed a @otion to Dismi ss45 on the ground that petitioner has nolegal capacit! to sue" Respondent alleged that petitioner is doing usiness in the :hilippines withoutsecuring the reuired license" %ccordingl!# petitioner cannot sue efore :hilippine courts"

%fter an exchange of several pleadings495 etween the parties# the trial court issued an Order on '3Novemer '((( dismissing the complaint"On appeal# the $ourt of %ppeals sustained the trial courts dismissal of the complaint"

Hence# this petition"+8e o;rt o Appe!s R;'"<

In affirming the dismissal of the complaint# the $ourt of %ppeals relied on 6ri+s :te"# ?td" v" $ourt of %ppeals"4)5 In that case# 6ri+s# an unlicensed foreign corporation# sought to collect 1SZ2'#(*("9* from a;ilipino usinessman for goods which he purchased and received on several occasions from >anuar! to@a! '((" The transfers of goods too+ place in Singapore# for the ;ilipinos account# ;"O"B" Singapore#with a (37da! credit term" Since the transactions involved were not isolated# this $ourt found 6ri+s to edoing usiness in the :hilippines" Hence# this $ourt upheld the dismissal of the complaint on the groundthat 6ri+s has no capacit! to sue"The $ourt of %ppeals noted that in 6ri+s # while the deliveries of the goods were perfected in Singapore#this $ourt still found 6ri+s to e engaged in usiness in the :hilippines" Thus# the $ourt of %ppealsconcluded that the place of deliver! of the goods /or the place where the transaction too+ place0 is notmaterial in determining whether a foreign corporation is doing usiness in the :hilippines" The $ourt of

%ppeals held that what is material are the proponents to the transaction# as well as the parties to eenefited and oligated ! the transaction"In this case# the $ourt of %ppeals found that the parties entered into a contract of sale where!petitioner sold lace products to respondent in a series of transactions" Jhile petitioner delivered thegoods in Hong Aong to Aen.ar# ?td" /Aen.ar0# another Hong Aong compan!# the part! with whompetitioner transacted was actuall! respondent# a :hilippine corporation# and not Aen.ar" The $ourt of

%ppeals elieved Aen.ar is merel! a shipping compan!" The $ourt of %ppeals concluded that the deliver!of the goods in Hong Aong did not exempt petitioner from eing considered as doing usiness in the:hilippines"

+8e $ss;e

The sole issue in this case is whether petitioner# an unlicensed foreign corporation# has legal capacit! tosue efore :hilippine courts" The resolution of this issue depends on whether petitioner is doingusiness in the :hilippines"

+8e R;'"< o t8e o;rt

The petition is meritorious"Section '** of the $orporation $ode provides&Doing usiness without license " No foreign corporation transacting usiness in the :hilippines without alicense# or its successors or assigns# shall e permitted to maintain or intervene in an! action# suit orproceeding in an! court or administrative agenc! of the :hilippines= ut such corporation ma! e suedor proceeded against efore :hilippine courts or administrative triunals on an! valid cause of actionrecogni.ed under :hilippine laws"The law is clear" %n unlicensed foreign corporation doing usiness in the :hilippines cannot sue efore:hilippine courts" On the other hand# an unlicensed foreign corporation "ot doing usiness in the:hilippines can sue efore :hilippine courts"In the present controvers!# petitioner is a foreign corporation which claims that it is not doing usinessin the :hilippines" %s such# it needs no license to institute a collection suit against respondent efore:hilippine courts"Respondent argues otherwise" Respondent insists that petitioner is doing usiness in the :hilippineswithout the reuired license" Hence# petitioner has no legal capacit! to sue efore :hilippine courts"1nder Section */d0 of Repulic %ct No" )328 /R% )3280 or The ;oreign Investments %ct of '(('# thephrase doing usiness includes&x x x soliciting orders# service contracts# opening offices# whether called liaison offices or ranches=appointing representatives or distriutors domiciled in the :hilippines or who in an! calendar !ear s ta! inthe countr! for a period or periods totalli ng one hundred eight! /'30 da!s or more= participating in themanagement# supervision or control of an! domestic usiness# firm# entit! or corporation in the:hilippines= and an! other act or acts that impl! a continuit! of commercial dealings or arrangements#and contemplate to that extent the performance of acts or wor+s# or the exercise of some of thefunctions normall! incident to# and in progressive prosecution of# commercial gain or of the purpose andoEect of the usiness organi.ation& :rovided# however # That the phrase doing usiness shall not edeemed to include mere investment as a shareholder ! a foreign entit! in domestic corporations dul!registered to do usiness# andor the exercise of rights as such investor= nor having a nominee directoror officer to represent its interests in such corporation= nor appointing a representative or distriutordomiciled in the :hilippines which transacts usiness in its own name and for its own account"The series of transactions etween petitioner and respondent cannot e classified as doing usiness inthe :hilippines under Section */d0 of R% )328" %n essential condition to e considered as doing usinessin the :hilippines is the actual performance of specific commercial acts within the territor! of the:hilippines for the plain reason that the :hilippines has no Eurisdiction over commercial acts performedin foreign territories" Here# there is no showing that petitioner performed within the :hilippineterritor! the specific acts of doing usiness mentioned in Section */d0 of R% )328" :etitioner did not alsoopen an office here in the :hilippines# appoint a representative or distriutor# or manage# supervise orcontrol a local usiness" Jhile petitioner and respondent entered into a series of transactions impl!ing acontinuit! of commercial dealings# the perfection and consummation of these transactions were doneoutside the :hilippines"45In its complaint# petitioner alleged that it is engaged in the importation and exportation of severalproducts# including lace products" :etitioner asserted that on several occasions# respondent purchasedlace products from it" :etitioner also claimed that respondent instructed it to deliver the purchasedgoods to Aen.ar# which is a Hong Aong compan! ased in Hong Aong" 1pon Aen.ars receipt of thegoods# the products were considered sold" Aen.ar# in turn# had the oligation to deliver the laceproducts to the :hilippines" In other words# the sale of lace products was consummated in Hong Aong"

%s earlier s tated# the series of transactions etween petitioner and respondent transpired and wereconsummated in Hong Aong"4(5 Je also find no single activit! which petitioner performed here in the:hilippines pursuant to its purpose and oEect as a usiness organi.ation"4'35 @oreover# petitionersdesire to do usiness within the :hilippines is not discernile from the allegations of the complaint orfrom its attachments" Therefore# there is no asis for ruling that petitioner is doing usiness in the:hilippines"In 6ri+s # respondent therein alleged the existence of a distriutorship agreement etween him and theforeign corporation" If dul! estalished# such distriutorship agreement could support respondents claimthat petitioner was indeed doing usiness in the :hilippines" Here# there is no such or similar agreementetween petitioner and respondent"Je disagree with the $ourt of %ppeals ruling that the proponents to the transaction determine whethera foreign corporation is doing usiness in the :hilippines# regardless of the place of deliver! or placewhere the transaction too+ place" To accede to such theor! ma+es it possile to classif!# for instance# aseries of transactions etween a ;ilipino in the 1nited States and an %merican compan! ased in the1nited States as doing usiness in the :hilippines# even when these transactions are negotiated andconsummated onl! within the 1nited States"

%n exporter in one countr! ma! export its products to man! foreign importing countries withoutperforming in the importing countries specific commercial acts that would constitute doing usiness inthe importing countries" The mere act of exporting from ones own countr!# without doing an! specificcommercial act within the territor! of the importing countr!# cannot e deemed as doing usiness in theimporting countr!" The importing countr! does not acuire Eurisdiction over the foreign exporter who hasnot performed an! specific commercial act within the territor! of the importing countr!" Jithout

Eurisdiction over the foreign exporter# the importing countr! cannot compel the foreign exporter tosecure a license to do usiness i n the importing countr!"Otherwise# :hilippine exporters# ! the mere act alone of exporting their products# could e considered! the importing countries to e doing usiness in those countries" This will reuire :hilippine exportersto secure a usiness license in ever! foreign countr! where the! usuall! export their products# even ifthe! do not perform an! specific commercial act within the territor! of such importing countries" Such alegal concept will have a deleterious effect not onl! on :hili ppine exports# ut also on gloal trade"To e doing or transacting usiness in the :hilippines for purposes of Section '** of the $orporation$ode# the foreign corporation must actuall! transact usiness in the :hilippines # that is# perform specificusiness transactions within the :hilippine territor! on a continuing asis in its own name and for itsown account" %ctual transaction of usiness within the :hilippine territor! is an essential reuisite for the:hilippines to acuire Eurisdiction over a foreign corporation and thus reuire the foreign corporation to


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secure a :hilippine usiness license" If a foreign corporation does not transact such +ind of usiness inthe :hilippines# even if it exports its products to the :hilippines# the :hilippines has no Eurisdiction toreuire such foreign corporation to secure a :hilippine usiness license"$onsidering that petitioner is not doing usiness in the :hilippines# it does not need a license in order toinitiate and maintain a collection suit against respondent for the unpaid alance of respondentspurchases"IEREFRE# we GRAN+ the petition" Je REERSE the Decision dated ' %pril 833' of the $ourt of

%ppeals in $%7<"R" $V No" 998*9" No costs"S RDERED" AN+N$ +. AR$ %ssociate >ustice

<"R" No" '99*( >anuar! 8(# 833) ALDER$+ . )$, *N$FA$ . S&*$LLA, !"# DLNE) S. S&*$LLA, :etitioners#vs"EAR +. $A&*A, SE &. &AGN $$$, &A. R$S+$NA F. FERRERS, AN+N) .

$A&*A, S$&L$$ +. $A&*A, R., ER$ . $LA$L, AL*ER+ &. RASALAN, !"#REG$NAL +R$AL R+, *RAN 4B, RDANE+A $+), Respondents"

D 6 $ I S I O NSANDAL-G+$ERRE,0.5

Before us for resolution is the :etition for Review on $ertiorari' challenging the Decision dated @arch*'# 833 rendered ! the $ourt of %ppeals in $%7<"R" S: No" ))# as well as its Resolution dated>une 8(# 8339"The facts are&Strategic %lliance Development $orporation /STR%D6$0 is a domestic corporation engaged in theusiness of providing financial and investment advisor! services and investing in proEects throughconsortium or Eoint venture information"8 ;rom its inception# STR%D6$Xs principal place of usiness waslocated at the 82th ; loor# One @agnificent @il e7$itra Building# San @iguel %venue# Ortigas $enter# :asig$it!" On >ul! 8)# '((# the Securities and 6xchange $ommission /S6$0 approved the amendment ofSTR%D6$Xs %rticles of Incorporation authori.ing the change of its principal office from :asig $it! toBa!amang# :angasinan"*On @arch '# 8332# STR%D6$ held its annual stoc+holdersX meeting in its :asig $it! office as indicated inthe notices sent to the stoc+holders"2 %t the said meeting# the following were elected memers of theBoard of Directors& %lderito C" GuEuico# Bonifacio $" Sumilla# Dolne! S" Sumilla /petitioners herein0#$esar T" -uiamao# >ose @" @agno III and @a" $hristina ;erreros /respondents herein0" :etitioners

%lderito GuEuico was elected $hairman and :resident# while Bonifacio Sumilla was elected Treasurer" %llof them then discharged the duties of their office"

%fter five /0 months# or on %ugust '9# 8332# respondents filed with the Regional Trial $ourt /RT$0# San$arlos $it!# :angasinan a $omplaint against STR%D6$ /represented ! herein petitioners as memers ofits Board of Directors0# doc+eted as $ivil $ase No" S$$78)2 and raffled off to Branch 9" The complaintpra!s that& /'0 the @arch '# 8332 election e nullified on the ground of improper venue# pursuant toSection ' of the $orporation $ode= /80 all ensuing transactions conducted ! the elected directors eli+ewise nullified= and /*0 a special stoc+holdersX meeting e held anew"Suseuentl!# respondents filed an %mended $omplaint dated Septemer 8# 8332 further pra!ing for theissuance of a temporar! restraining order /TRO0 andor writ of preliminar! inEunction to enEoinpetitioners from discharging their functions as directors and officers of STR%D6$" On Septemer 88#8332# the! filed a Supplemental $omplaint pra!ing that the court /'0 direct 6xport Industr! Ban+# $e.arT" -uiamao and Bonifacio <" Sumilla to surrender to them the original and reconstituted Stoc+ andTransfer Boo+ and other corporate documents of STR%D6$= and /80 nullif! the reconstituted Stoc+ andTransfer Boo+ and all transactions of the corporation" Both pleadings were admitted ! the trial court"

%s the controvers! involves an intra7corporate dispute# the trial court# on Octoer 2# 8332# i ssued anOrder transferring $ivil $ase No" S$$78)2 to RT$# Branch 2# 1rdaneta $it!# eing a designated Special$ommercial $ourt" The case was then re7doc+eted as $ivil /S6$0 $ase No" 17'2"Since Branch 2 of RT$# 1rdaneta $it! had no presiding Eudge then# >udge @eliton <" 6muslan acted aspairing Eudge of that ranch to ta+e cogni.ance of the cases therein until the appointment andassumption to dut! of a regular Eudge"9On Novemer 8# 8332# petitioners filed their %nswer with $ounterclaim ) in $ivil /S6$0 $ase No" 17'2"The! pra!ed for the dismissal of the complaint on the following grounds# among others& /a0 thecomplaint does not state a cause of action= /0 the action is arred ! prescription for it was filede!ond the '7da! prescriptive period provided ! Section 8# Rule 9 of the Interim Rules and :rocedure<overning Intra7$orporate $ontroversies under Repulic %ct /R"%"0 No" )((= /c0 respondentsX pra!erthat a special stoc+holdersX meeting e held in Ba!amang# :angasinan ,is premature pending theestalishment of a principal office of STR%D6$ in said municipalit!=, and /d0 respondents waived theirright to oEect to the venue as the! attended and participated in the said @arch '# 8332 meeting andelection without an! protest", :etitioners li+ewise opposed the application for a writ of preliminar!inEunction as respondents have no right that was violated# hence# are not entitled to e protected !law" The! further pra!ed for damages ! wa! of counterclaim"@eanwhile# >udge %urelio R" Ralar# >r" was appointed presiding Eudge of RT$# Branch 2# 1rdaneta $it!"Significantl!# on Novemer (# 8332# he too+ his oath of office efore %ssociate >ustice Diosdado @":eralta of the Sandigana!an# and on Novemer '8# 8332# he assumed his duties"( Suseuentl!# or onNovemer 8# 8332# pairing >udge @eliton 6muslan still issued an Order '3 granting respondentsXapplication for preliminar! inEunction ordering /'0 the holding of a special stoc+holdersX meeting ofSTR%D6$ on Decemer '3# 8332 ,in the principal office of the corporation in Ba!amang# :angasinan=,and /80 the turn7over ! petitioner Bonifacio Sumilla to the court of the duplicate +e! of the safet!deposit ox in 6xport Industr! Ban+# Shaw Boulevard# :asig $it! where the original Stoc+ and TransferBoo+ of STR%D6$ was deposited" The pertinent portions of the Order read&

O R D 6 R This resolves the application of plai ntiffs for the issuance of writ o f preliminar! prohiitor! inEunction"During the hearing on the application for Temporar! Restraining OrderInEunction on Octoer 83# 8332#plaintiffs presented as witnesses& $e.ar T" -uiamao# >ose @" @agno III and 6ric <ene :ilapil whotestified in support of the material averments of the plaintiffs in their %mended $omplaint andSupplemental $omplaint" Specificall!# plaintiff -uiamao testified# among other things# on the fact of theunlawful denial ! defendant GuEuico of his reuest for the holding of a special stoc+holdersX meeting#the location of the principal place of office of the corporation# the deposit ! him and defendantSumilla of the Stoc+ and Transfer Boo+ of the corporation in the 6xport Industr! Ban+ in :asig $it!# theillegal and unEustified reconstitution of said stoc+ and transfer oo+# and the damages which he and thecorporation sustained as a result of defendantsX unlawful acts including the unauthori.ed sale ofcorporate shares of stoc+":laintiff @agno III testified that he did not attend the %nnual Stoc+holdersX meeting held last @arch '#8332 and that he did not authori.e an!od! to appear for and i n his ehalf"?astl!# witness :ilapil testified on the principal place of usiness of defendant corporation# the holding ofthe %nnual Stoc+holdersX @eeting in a place outside the principal place of usiness of the corporation#and the fact that two /80 other stoc+holders# namel!# >ose @agno III and %ngel 1mali were neitherpresent nor represented in said meeting# contrar! to what was alleged in defendantsX %nswer with$ounterclaim /see par" 3# %nswer with $ounterclaim0"

x x x %fter a careful evaluation of the records and all the pleadings extant in this case as well as thetestimonies of the witnesses for the plaintiffs# this court is inclined to grant the plaintiffsX application forthe writs of preliminar! prohiitor! inEunction in order to restrain the defendants from acting as officersof the corporation and committing further acts inimical to the corporation and to the rest of thestoc+holders thereof" It is also evident from the pleadings that defendants would not !ield to thedemand of plaintiffs for the maintenance of the status uo until after the resolution of the merits of theinstant controvers!"

x x xThe effect of the issuance of this Order would create a hiatus in the action of the oard of directors ofSTR%D6$# pending the determination of the merits of the case and after trial on the merits"It would thus e for the est interest of the corporation as well as its stoc+holders that an election eunderta+en of the memers of the oard and officers pursuant to STR%D6$XS %rticles of the corporation/sic0 and the $orporation $ode of the :hilippines# under the supervision of the court"This is to avoid discontinuit! of the operations of the corporation# which ma! result to its damage andpreEudice"JH6R6;OR6# premises considered# let the Jrit of :reliminar! InEunction issue# upon posting of thereuisite ond in the amount of ;ive Hundred Thousand :esos /:33#333"330 to answer for whateverdamages that the defendants would suffer on account of the issuance of the inEunction writ# restrainingdefendants from acting as officers of the $orporation and committing further acts inimical to thecorporation"It is li+ewise ordered that a special stoc+holdersX meeting in the principal place of office of thecorporation in Ba!amang# :angasinan on Decemer '3# 8332 e held" The Branch $ler+ of this courtshall attend the said meeting to oserve the proceedings and report his oservations to this court" ;orthis purpose# the defendant Bonifacio Sumilla is ordered to surrender to the court# not later thanDecemer *# 8332# the duplicate +e! given to him ! 6xport Industr! Ban+# Shaw Blvd"# :asig $it!# ofthe safet! deposit ox where he and plaintiff $e.ar T" -uiamao deposited the Original Stoc+ andTransfer Boo+ of STR%D6$ which shall e the asis i n the determination of the corporate stoc+holdingduring the meeting scheduled on the aove7mentioned date"SO ORD6R6D"In compliance with the aove Order# the court sheriff /and respondent $e.ar -uiamao# as claimed !petitioners0 caused the opening of the safet! deposit ox of STR%D6$ in the 6xport Industr! Ban+#Shaw Boulevard Branch# :asig $it! and too+ custod! of its contents"On Decemer '3# 8332# petitioners# claiming that a motion for reconsideration is a prohiited pleadingunder Section /*0# Rule ' of the Interim Rules of :rocedure <overning Intra7$orporate $ontroversiesunder R"%" No" )((# filed with the $ourt of %ppeals a :etition for $ertiorari with :ra!er for the Issuanceof a TRO andor :reliminar! InEunction#'' assailing >udge 6muslanXs Novemer 8# 8332 Order" Thepetition was doc+eted as $%7<"R" S: No" ))" In the proceedings efore the appellate court#petitioners raised the following issues&

%" Onl! the S6$# not the RT$# has Eurisdiction to order the holding of a specialstoc+holdersX meeting involving an intra7corporate controvers!=B" >udge @eliton 6muslan had no authorit! to issue the assailed Order dated Novemer8# 8332 as >udge %urelio Ralar# >r" was alread! the presiding Eudge of RT$# Branch 2#1rdaneta $it!='8 and$" %ssuming >udge 6muslan had authorit! to issue the assailed Order# he nonethelessacted with grave ause of discretion amounting to lac+ or excess of Eurisdiction"

@eanwhile# on the same da! /Decemer '30# as directed in the Novemer 8# 8332 Order of >udge6muslan# a special stoc+holdersX meeting of STR%D6$ was held in Ba!amang# :angasinan wherein anew set of directors were elected for the term 83327833# namel!& $e.ar T" -uiamao# %nthon! A"-uiamao# and Simplicio T" -uiamao# >r" Immediatel! thereafter# the new directors elected thefollowing officers& $e.ar T" -uiamao as $hairman and :resident= 6ric $" :ilapil as $orporate Secretar!=

%nthon! A" -uiamao as $orporate Treasurer= and %lert @" Rasalan as %ssistant $orporate Secretar!"On @arch *'# 833# the $ourt of %ppeals rendered a Decision '* in $%7<"R" S: No" ))# dismissingthe :etition for $ertiorari" It upheld the Eurisdiction of the RT$ over the controvers! and sustained thevalidit! of >udge 6muslanXs Order of Novemer 8# 8332" :etitionersX motion for reconsideration wasdenied in a Resolution dated >une 8(# 833"'2Hence# the instant :etition for Review on $ertiorari";IRST# petitioners contend that the $ourt of %ppeals erred in ruling that the RT$ has the power to call aspecial stoc+holdersX meeting involving an intra7corporate controvers!" The! maintain that it is onl! theS6$ that ma! do so to e held under its supervision"The respondents# in their comment# counter that the appellate court correctl! ruled that the power tohear and decide controversies involving intra7corporate disputes# as well as to act on matters incidentaland necessar! thereto# have een transferred from the S6$ to the RT$s designated as Special$ommercial $ourts" It would e the height of asurdit!# the! argue# to reuire the filing of a separatecase with the S6$ for the sole purpose of as+ing the said agenc! to order the holding of a specialstoc+holdersX meeting where there is alread! a pending case involving the same matter efore theproper court"Je agree with respondents"

%n intra7corporate controvers! is one which ,pertains to an! of the following relationships& /'0 etweenthe corporation# partnership or association and the pulic= /80 etween the corporation# partnership orassociation and the State in so far as its franchise# permit or license to operate is concerned= /*0etween the corporation# partnership or association and its stoc+holders# partners# memers or officers=and /20 among the stoc+holders# partners or associates themselves", ' There is thus no dispute thatrespondentsX complaint in $ivil /S6$0 $ase No" 17'2 efore the RT$# Branch 2# 1rdaneta $it! involvesan intra7corporate controvers!# the contending parties eing stoc+holders and officers of a corporation"Originall!# Section of :residential Decree /:"D"0 No" (387% estowed the S6$ original and exclusive

Eurisdiction over cases involving the following&/a0 Devices or schemes emplo!ed !# or an! act of# the oard of directors# usinessassociates# its officers or partners# amounting to fraud and misrepresentation which ma!e detrimental to the interest of the pulic andor of the stoc+holders# partners# ormemers of associations registered with the $ommission=/0 $ontroversies arising out of intra7corporate or partnership relations# etween andamong stoc+holders# memers or associates= etween an! or all of them and thecorporation# partnership or association and the State insofar as it concerns their individualfranchise or right as such entit!=/c0 $ontroversies in the election or appointment of directors# trustees# officers ormanagers of such corporations# partnership or associations=/d0 :etitioners of corporations# partnerships or associations to e declared in the state ofsuspension of pa!ment in cases where the corporation# partnership or associationpossesses sufficient propert! to cover all its dets ut foresees the impossiilit! ofmeeting them when the! fall due or in cases where the corporation# partnership orassociation has no sufficient assets to cover its liailities ut is under the management ofa rehailitation receiver or management committee created pursuant to thisDecree"'9 /1nderscoring supplied0

1pon the enactment of R"%" No" )((# otherwise +nown as ,The Securities Regulation $ode, which too+effect on %ugust # 8333#') the Eurisdiction of the S6$ over intra7corporate controversies and othercases enumerated in Section of :"D" No" (387% has een transferred to the courts of general

Eurisdiction# or the appropriate RT$" Section "8 of R"%" No" )(( provides&"8" The $ommissionXs Eurisdiction over all cases enumerated in Section of :residential Decree No"(387% is here! transferred to the $ourts of general Eurisdiction or the appropriate Regional Trial $ourt#:rovided# That the Supreme $ourt in the exercise of its authorit! ma! designate the Regional Trial $ourtranches that shall exercise Eurisdiction over these cases" The $ommission shall retain Eurisdiction overpending cases involving intra7corporate disputes sumitted for final resolution which should e resolvedwithin one /'0 !ear from the enactment of this $ode" The $ommission shall retain Eurisdiction overpending suspension of pa!mentsrehailitation cases filed as of *3 >une 8333 until finall! disposed"/1nderscoring supplied0:ursuant to R"%" No" )((# the $ourt issued a Resolution dated Novemer 8'# 8333 in %"@" No" 337''73*7S$ designating certain ranches of the RT$ to tr! and decide cases enumerated in Section of :"D"No" (387%" Branch 2 of RT$# 1rdaneta $it!# the court a uo# is among those designated as a Special$ommercial $ourt" On @arch '*# 833'# the $ourt approved the Interim Rules of :rocedure <overningIntra7$orporate $ontroversies under R"%" No" )(( which too+ effect on %pril '# 833'" ' Sections ' and8# Rule 9 of the said Rules provide&S6$" '" $ases covered" W The provisions of this rule shall appl! to election contests in stoc+ and non7stoc+ corporations"

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S6$" 8" Definition" W %n election contest refers to an! controvers! or dispute involving title or claim toan! elective office in a stoc+ or non7stoc+ corporation# the validation of proxies# the manner and validit!of elections# and the ualifications of candidates# including the proclamation of winners# to the office ofdirector# trustee or other officer directl! elected ! the stoc+holders in a close corporation or !memers of a non7stoc+ corporation where the articles of incorporation or !7laws so provide"/1nderscoring supplied0In @orato v" $ourt of %ppeals#'( we held that pursuant to R"%" No" )(( and the Interim Rules of:rocedure <overning Intra7$orporate $ontroversies# ,among the powers and functions of the S6$ whichwere transferred to the RT$ include the following& /a0 Eurisdiction and supervision over all corporations#partnerships or associations which are the grantees of primar! franchises andor a l icense or permitissued ! the <overnment= /0 the approval# reEection# suspension# revocation or reuirement forregistration statements# and registration and licensing applications= /c0 the regulation# investigation# orsupervision of the activities of persons to ensure compliance= /d0 the supervision# monitoring#suspension or ta+e over the activities of exchanges# clearing agencies# and other SROs= /e0 theimposition of sanctions for the violation of laws and the rules# regulations and orders issued pursuantthereto= /f0 the issuance of cease7and7desist orders to prevent fraud or inEur! to the investing pulic= /g0the compulsion of the officers of an! registered corporation or association to call meetings ofstoc+holders or memers thereof under its supervision= and /h0 the exercise of such other powers asma! e provided ! law as well as those which ma! e implied from# or which are necessar! orincidental to the carr!ing out of# the express powers granted the $ommission to achieve the oEectivesand purposes of these laws",$learl!# the RT$ has the power to hear and decide the intra7corporate controvers! of the parties herein"$oncomitant to said power is the authorit! to issue orders necessar! or incidental to the carr!ing out ofthe powers expressl! granted to it" Thus# the RT$ ma!# in appropriate cases# order the holding of aspecial meeting of stoc+holders or memers of a corporation involving an intra7corporate dispute underits supervision"S6$OND# petitioners assert that >udge 6muslan did not have the authorit! to issue the assailed Order ofNovemer 8# 8332 upon the appointment and assumption on ,Novemer 8# 8332, /should eNovemer '80 ! >udge %urelio R" Ral ar# >r" as the regular presiding Eudge of RT$# Branch 2# 1rdaneta$it!"Significantl!# respondents never refuted petitionersX assertion" The $ourt of %ppeals# for its part#dismissed petitionersX allegation ! merel! ruling that ,this is the first time the! are raising this issue Wwhich is much too late in the da!" In an! event# one cannot uestion the authorit! of the court when itdoes not suit him and accepts such authorit! when it favors him", 83 The ruling suggests that petitionersare arred ! laches andor estoppel from raising that issue" The appellate court li+ewise deniedpetitionersX motion to set the case for oral arguments"The $ourt of %ppeals should have resolved the issue of whether >udge 6muslan had the authorit! toissue the assailed Order# a Eurisdictional uestion crucial to the resolution of the petition" It is elementar!that a Eurisdictional controvers! ma! e raised at an! time"8'Indeed# as earl! as Novemer '8# 8332# >udge %urelio Ralar# >r" assumed his duties a s presiding Eudge ofRT$# Branch 2# 1rdaneta $it!" 6videntl!# >udge 6muslanXs authorit!# as pairing Eudge of Branch 2# toact on $ivil /S6$0 $ase No" 17'2 automaticall! ceased on that date" Therefore# he no longer had theauthorit! to issue the Order of Novemer 8# 8332# or thirteen /'*0 da!s after >udge Ralar# >r" hadassumed office" This is clear from this $ourtXs $ircular No" '(7( dated ;eruar! '# '(( whichmandates&TO & %?? >1D<6S O; TH6 R6<ION%? TRI%? $O1RTS# @6TRO:O?IT%N TRI%? $O1RTS# @1NI$I:%?TRI%? $O1RTS IN $ITI6S# @1NI$I:%? TRI%? $O1RTS# %ND @1NI$I:%? $IR$1IT TRI%? $O1RTSS1B>6$T & 6:%ND6D %1THORITG O; :%IRIN< $O1RTSIn the interest of efficient administration of Eustice# the authorit! of the pairing Eudge under $ircular No") dated Septemer 8*# '()2 /:airing S!stem for @ultiple Sala Stations0 to act on incidental orinterlocutor! matters and those urgent matters reuiring immediate action on cases pertaining to thepaired court shall henceforth e expanded to include all other matters" Thus# whenever a vacanc!occurs ! reason of resignation# dismissal# suspension# retirement# death# or prolonged asence of thepresiding Eudge in a multi7sala station# the Eudge of the paired court shall ta+e cogni.ance of all casesthereat as acting Eudge therein 1NTI? the %::OINT@6NT and %SS1@:TION TO D1TG O; TH6 R6<1?%R>1D<6 or the designation of an acting presiding Eudge or the return of the regular incument Eudge# oruntil further orders from this $ourt";or this purpose# the provisions of $ircular No")# dated Septemer 8*# '()2# inconsistent with this$ircular are here! amended"

x x x" /1nderscoring supplied0Thus# although the RT$# Branch 2# 1rdaneta $it! is clothed with power to ta+e cogni.ance of $ivil/S6$0 $ase No" 17'2# the exercise of such power is entirel! a different matter" Veril!# in Tolentino v"?eviste#88 this $ourt# spea+ing through >ustice /now $hief >ustice0 Re!nato S" :uno# held&x x x" >urisdiction is not the same as the exercise of Eurisdiction" %s distinguished from the exercise of

Eurisdiction# Eurisdiction is the authorit! to decide a cause# not the decision rendered therein" Jherethere is Eurisdiction over the person and the suEect matter# the decision on all other uestions arising inthe case is ut an exercise of the Eurisdiction" x x x" /1nderscoring supplied0There are instances where a Eudge ma! commit errors" He ma! issue an order without authorit!" %nd ifclothed with power# he ma! exercise it in excess of his authorit! or with grave ause of discretionamounting to lac+ or excess of Eurisdiction" %n! of these acts ma! e struc+ down as a nullit! through apetition for certiorari#8* as what petitioners did efore the $ourt of %ppeals" It ears stressing that an!act or order rendered ! a Eudge without authorit!# such as the uestioned Novemer 8# 8332 Order# isno order at all" It is void" %s such# it cannot e the source of an! right nor the creator of an! oligation"

%ll acts performed pursuant to it and all claims emanating from it have no legal force and effect"82THIRD# petitioners further contend that even if >udge 6muslan had the authorit! to issue the challengedOrder# still he issued it with grave ause of discretion amounting to lac+ or excess of Eurisdiction" The!lament that the Order effectivel! disposed of the merits of the main case 4$ivil /S6$0 $ase No" 17'25"1nfortunatel!# despite the significance of this issue# the $ourt of %ppeals totall! ignored it ! failing torender a ruling thereon" Respondents# for their part# merel! aver that >udge 6muslan ,onl! had the estinterest of STR%D6$ in mind, when he issued the uestioned Order" 8Je find for petitioners"The dut! of the court ta+ing cogni.ance of an application for a writ of preliminar! inEunction is todetermine whether the reuisites necessar! for the grant of such writ are present" The reuisites for theissuance of a writ of preliminar! inEunction are& /'0 the applicant for such writ must show that he has aclear and unmista+ale right that must e protected= and /80 there exists an urgent and paramountnecessit! for the writ to prevent serious damage"89In this case# >udge 6muslanXs Novemer 8# 8332 Order# uoted earlier# is ha.! and too unsustantial to

Eustif! the i ssuance of a writ of preliminar! inEunction" The Order does not contain specific findings offact and conclusion of law showing that the reuirements for the grant of the inEunctive writ are present"It merel! mentions the names of witnesses presented ! respondents during the hearing on theapplication for the issuance of the writ# ut there is no specific and sustantial narration of thewitnessesX testimonies to estalish the existence of a clear and unmista+ale right on their part thatmust e protected# as well as the serious damage or irreparale loss that the! would suffer if the writ isnot granted" It does not also disclose the specific evidence formall! offered ! the applicants" Oviousl!#the asis of the EudgeXs conclusion is too uncertain" Thus# in issuing the uestioned Novemer 8# 8332Order granting a writ of preliminar! inEunction# he committed grave ause of discretion" In @anilaInternational %irport %uthorit! v" $ourt of %ppeals#8) we held&In the instant case# however# the trial courtXs order of >anuar! 83# '((* was# on its face# ereft of asisfor the issuance of a writ of preliminar! inEunction" There were no findings of fact or law in the assailedorder indicating that an! of the elements essential for the grant of a preliminar! inEunction existed" Thetrial court alluded to hearings during which the parties mar+ed their respective exhiits and the trialcourt heard the oral arguments of opposing counsels" However# it cannot e ascertained what evidencewas formall! offered and presented ! the parties and given weight and c redence ! the trial court" Theasis for the trial courtXs conclusion that A Services was entitled to a writ of preliminar! inEunction isunclear"In its order of %ugust # '((*# the trial court stated that it issued the inEunction to prevent irreparale

loss that might e caused to A Services" Once more# however# the trial court neglected to mention whatright in esse of A Services# if an!# was in danger of eing violated and reuired the protection of apreliminar! inEunction"

x x x"x x x the possiilit! of irreparale damage without proof of actual existing right is not a ground for aninEunction /Heirs of %suncion v" <ervacio# >r"# *32 S$R% *88 4'(((50" Jhere the complainantXs right isdoutful or disputed# inEunction is not proper" %sent a clear legal right# the issuance of the inEunctiverelief constitutes grave ause of discretion /Id"0"8;urthermore# >udge 6muslanXs Novemer 8# 8332 Order goes against the concept and oEective of awrit of preliminar! inEunction" % writ of preliminar! inEunction is a provisional remed!# an adEunct to amain suit" It is also a preservative remed!# issued to preserve the status uo of the things suEect of theaction or the relations etween the parties during the pendenc! of the suit" In Selegna @anagement andDevelopment $orporation v" 1nited $oconut :lanters Ban+ #8( we held&x x x" InEunction is not designed to protect contingent or future rights" It is not proper when thecomplainantXs right is doutful or disputed"x x x# courts should avoid i ssuing this writ which in effect disposes of the main case without trial /;"Regalado# Remedial ?aw $ompendium# Vol" I# 9*( /)th revised ed"# '(((0" x x x" /1nderscoringsupplied0In the same case of @anila International %irport %uthorit! v" $ourt of %ppeals# *3 we urged the courts toexercise extreme caution in issuing the writ# thus&x x x" Je remind trial courts that while generall! the grant of a writ of preliminar! inEunction rests onthe sound discretion of the court ta+ing cogni.ance of the case# extreme caution must e oserved inthe exercise of such discretion" The discretion of the court a uo to grant an inEunctive writ must eexercised ased on the grounds and in the manner provided ! law" Thus# the $ourt declared in <arciav" Burgos&It has een consistentl! held that there is no power the exercise of which is more delicate# whichreuires greater caution# delieration and sound discretion# or more dangerous in a doutful case# thanthe issuance of an inEunction" It is the strong arm of euit! that should never e extended unless tocases of great inEur!# where courts of law cannot afford an adeuate or commensurate remed! indamages"6ver! court should rememer that an inEunction is a limitation upon the freedom of action of thedefendant and should not e granted lightl! or precipitatel!" It should e granted onl! when the court isfull! satisfied that the law permits it and the emergenc! demands it 4citations omitted5" /1nderscoringsupplied0To repeat# the purpose of the writ of preliminar! inEunction is to preserve the status uo until the courtcould hear the merits of the case"*' The status uo is the last actual peaceale uncontested status thatpreceded the controvers!*8 which# in the instant case# is the holding of the annual stoc+holdersXmeeting on @arch '# 8332 and the ensuing election of the directors and officers of STR%D6$" Butinstead of preserving the status uo# >udge 6muslanXs Order messed it up when# in compliancetherewith# a special stoc+holdersX meeting was held anew and a new set of directors and officers ofSTR%D6$ was elected" That effectivel! resolved respondentsX principal action without even a full7lowntrial on the merits since the Order impliedl! ruled that the @arch '# 8332 annual stoc+holdersX meetingand election are void" Veril!# the issuance of the uestioned Order violates the estalished principle thatcourts should avoid granting a writ of preliminar! inEunction that would in effect dispose of the maincase without trial"**6uall! important is the fact that the Order was issued even though respondentsX right to an inEunctiverelief is doutful or has een vehementl! disputed" Je note that petitioners# in their answer withcounterclaim# raised serious and valid defenses# among which is that the action is premature since theprincipal office of STR%D6$ in Ba!amang# :angasinan is !et to e estalished# as authori.ed ! theS6$"*2 Oviousl!# pending the estalishment of a principal office in Ba!amang# :angasinan# all thestoc+holdersX meetings of STR%D6$ have een properl! held in their principal office in :asig $it!"

%nother weight! defense raised ! petitioners is that the action has prescried" One of the reliefs sought! respondents in the complaint is the nullification of the election of the Board of Directors andcorporate officers held during the @arch '# 8332 annual stoc+holdersX meeting on the ground ofimproper venue# in violation of the $orporation $ode" Hence# the action involves an election contest#falling suarel! under the Interim Rules of :rocedure <overning Intra7$orporate $ontroversies underR"%" No" )((" Sections ' and 8# Rule 9 of the Interim Rules provide&S6$" '" $ases covered" W The provisions of this rule shall appl! to election contests in stoc+ and non7stoc+ corporations"S6$" 8" Definition" W %n election contest refers to an! controvers! or dispute involving title or claim toan! elective office in a stoc+ or non7stoc+ corporation# the validation of proxies# the manner and validit!of elections# and the ualifications of candidates# including the proclamation of winners# to the office ofdirector# trustee or other officer directl! elected ! the stoc+holders in a close corporation or !memers of a non7stoc+ corporation where the articles of incorporation or !7laws so provide"/1nderscoring supplied0'avvphi'"net It is important to note that the $ourt of %ppeals itself ruled that respondentsX action efore the RT$#Branch 2# 1rdaneta $it! is an election contest# thus&?i+ewise# as clearl! provided in Section '# Rule ' of the Interim Rules of :rocedure <overning Intra7$orporate $ontroversies under R"%" No" )((# among the intra7corporate controversies transferred tothe special courts are&

x x x/*0 $ontroversies in the election or appointment of directors# trustees# officers# or managers ofcorporation# partnerships or associations=x x x1ndoutedl!# therefore# the instant case is an intra7corporate controvers! among the s toc+holdersthemselves relative to the election of directors or officers of STR%D6$# specificall! etween respondentsx x x on one hand and petitioners x x x on the other" x x x" If there is still an! dout that the Special$orporate $ourt can call for a stoc+holdersX meeting# Rule 9 /citing Sections ' and 80 of the InterimRules completel! puts to rest said issue"x x x$learl!# therefore# said Rule empowers the special corporate courts to decide election cases x xx"* /1nderscoring supplied0

%s pointed out ! petitioners in their answer with counterclaim# under Section *# Rule 9 of the InterimRules of :rocedure <overning Intra7$orporate $ontroversies under R"%" No" )((# an election contestmust e ,filed within ' da!s from the date of the election",*9 It was onl! on %ugust '9# 8332 thatrespondents instituted an action uestioning the validit! of the @arch '# 8332 stoc+holdersX election#clearl! e!ond the '7da! prescriptive period"In sum# >udge 6muslan# in granting the writ of preliminar! inEunction# acted with grave ause ofdiscretion amounting to lac+ or excess of Eurisdiction"JH6R6;OR6# we <R%NT the instant petition and reverse the assailed Decision and Resolution of the$ourt of %ppeals in $%7<"R" S: No" ))"The Order dated Novemer 8# 8332 of >udge @eliton <" 6muslan# RT$# Branch 2# 1rdaneta $it! in$ivil /S6$0 $ase No" 17'2 and the special stoc+holdersX meeting and election held on Decemer '3#8332 in Ba!amang# :angasinan are S6T %SID6"The last actual peaceale uncontested status of the parties prior to the filing ! respondents herein of$ivil /S6$0 $ase No" 17'2 i s R6STOR6D"This case is R6@%ND6D to the RT$# Branch 2# 1rdaneta $it! for further proceedings with dispatch"SO ORD6R6D" ANGEL$NA SANDAL-G+$ERRE %ssociate >ustice

:ursuant to Supreme $ourt Resolution dated Novemer 8'# 8333 in %"@" No" 337''73*7S$# ,Resolution Designating $ertain Branches of Regional Trial $ourts to Tr! and Decide$ases ;ormerl! $ogni.ale ! the Securities and 6xchange $ommission=, Supreme $ourt

%dministrative $ircular No" 37833'# promulgated >anuar! 8*# 833'# ,Transfer toDesignated Regional Trial $ourts of S6$ $ases 6numerated in Section # :"D" No" (387%,"










































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;IRST DIVISION&ANEL . *A$ERA#et't'o"er,

7 versus 7ESERANA AGL$NAIAN, '" 8er :!p!:'t= !s Dep!rtme"t o ;st':e St!te rose:;torJ LEA .

+ANDRA-AR&A&EN+, $" 8er :!p!:'t= !s Ass'st!"t 8'e St!te rose:;tor !"# 8!'r>om!"o +!s For:e o" *;s'"ess S:!mJ EN$+ R. N, '" 8's :!p!:'t= !s Dep!rtme"t o ;st':e

8'e St!te rose:;torJ S+ANDARD AR+ERED *AN, AL S$&N &RR$S, AA) ANIAL,SR$DAR

RA&AN, &AR$EL GNALES, NA RE)ES, &AR$A ELLEN $+R, !"# ENA$DA$GLES$AS,Respo"#e"ts.

x 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 x

G.R. No.

&ANEL . *A$ERA, et't'o"er,

7 versus 7S+ANDARD AR+ERED *AN, *R)AN . SANDERSN, +E R$G+ NRA*LE LRD

S+EIAR+*), EAN &ER)N DA$ES, &$AEL *ERNARD DEN&A, R$S+ER AED$SEL$, R$ARD ENR) &EDD$NGS, A$ NARGLIALA, E+ER ALE%ANDER SANDS, RNN$E

$ NG AN, S$R I, *ARR) LARE, IN $NG, RDL ARLD E+ER ARA&, DA$D GERGE &$R, $G EDIARD NR+N, S$R RAL ARR) R*$NS,

AN+N) I$LL$A& AL S+ENA& @St!"#!r# 8!rtere# *!" 8!'rm!", Dep;t= 8!'rm!",!"# &embers o t8e *o!r#, SERAA& &AAR$ @Gro;p Re<'o"! e!# or o"s;mer

*!"'"<, AL S$&N &RR$S, AA) ANIAL, SR$DAR RA&AN, &AR$EL GNALES,NA RE)ES, ELLEN $+R, RA&NA . *ERNAD, D&$NG AR*NELL, R., !"#

ENA$DA $GLES$AS @St!"#!r# 8!rtere# *!"-8''pp'"es *r!":8 e!#s':ers,Respo"#e"ts.

G.R. No. 170602

:resent&:1NO#S%NDOV%?7<1TI6RR6C#Q#

%C$1N%# and<%R$I%#:romulgated&;eruar! # 833)

x 7777777777777777777777777777777777777777777777777777777777777777777777777777777777777777777x

D 6 $ I S I O N

S%NDOV%?7<1TI6RR6C# > "&Before us are two consolidated :etitions for Review on $ertiorari assailing the Decisions of the $ourt of

%ppeals in $%7<"R" S: No" )*84'5 and in $%7<"R" S: No" 3)"485The common factual antecedents of these cases as shown ! the records are&@anuel Baviera# petitioner in these cases# was the former head of the HR Service Deliver! and IndustrialRelations of Standard $hartered Ban+7:hilippines /S$B0# one of herein respondents" S$B is a foreignan+ing corporation dul! licensed to engage in an+ing# trust# and other fiduciar! usiness in the ":ursuant to Resolution No" ''28 dated of the @onetar! Board of the Bang+o Sentral ng :ilipinas /BS:0#the conduct of S$Bs usiness in this E urisdiction is suEect to the following conditions&'" %t the end of a one7!ear period from the date the S$B starts its trust functions# at least 8 of itstrust accounts must e for the account of non7residents of the :hilippines and that actual foreignexchange had een remitted into the :hilippines to fund such accounts or that the estalishment of suchaccounts had reduced the indetedness of residents /individuals or corporations or governmentagencies0 of the :hilippines to non7residents" %t the end of the second !ear# the aove ratio shall e3# which ratio must e oserved continuousl! thereafter=8" The trust operations of S$B shall e suEect to all existing laws# rules and regulations applicale totrust services# particularl! the creation of a Trust $ommittee= and*" The an+ shall inform the appropriate supervising and examining department of the BS: at thestart of its operations"

%pparentl!# S$B did not compl! with the aove conditions" Instead# as earl! as '((9# it acted as a stoc+ro+er# soliciting from local residents foreign securities called <?OB%? THIRD :%RTG @1T1%? ;1NDS/<T:@;0# denominated in 1S dollars" These securities were not registered with the Securities and6xchange $ommission /S6$0" These were then remitted outwardl! to S$B7Hong Aong and S$B7Singapore"S$Bs counsel# Romulo @aanta Buenaventura Sa!oc and Delos %ngeles ?aw Office# advised the an+ toproceed with the selling of the foreign securities although unregistered with the S6$# under the guise ofa custodianship agreement= and should it e uestioned# it shall invo+e Section )84*5 of the <eneralBan+ing %ct /Repulic %ct No"**)0"425 In sum# S$B was ale to sell <T:@; securities worth around :9illion to some 92 investors"However# S$Bs operations did not remain unchallenged" On # the Investment $apital %ssociation of the:hilippines /I$%:0 filed with the S6$ a complaint alleging that S$B violated the Revised Securities %ct#45particularl! the provision prohiiting the selling of securities without prior registration with the S6$=and that its actions are potentiall! damaging to the l ocal mutual fund industr!"In its answer# S$B denied offering and selling securities# contending that it has een performing a purel!informational function without solicitations for an! of its investment outlets aroad= that it has a trustlicense and the services it renders under the $ustodianship %greement for offshore investments areauthori.ed ! Section )8495 of the <eneral Ban+ing %ct= that its clients were the ones who too+ theinitiative to invest in securities= and it has een acting merel! as an agent or passive order ta+er forthem"On # the S6$ issued a $ease and Desist Order against S$B# holding that its services violated Sections2/a04)5 and '(45 of the Revised Securities %ct"@eantime# the S6$ indorsed I$%:s complaint and its supporting documents to the BS:"On # the S6$ informed the Secretar! of ;inance that it withdrew <T:@; securities from the mar+et andthat it will not s ell the same without the necessar! clearances from the regulator! authorities"@eanwhile# on # the BS: directed S$B not to include investments in gloal mutual funds issued aroad inits trust investments portfolio without prior registration with the S6$"On # S$B sent a letter to the BS: confirming that it will withdraw third7part! fund products which coulde directl! purchased ! investors"However# notwithstanding its c ommitment and the BS: directive# S$B continued to offer and sell <T:@;securities in this countr!" This prompted petitioner to enter into an Investment Trust %greement withS$B wherein he purchased 1SZ#333"33 worth of securities upon the an+s promise of 23 return onhis investment and a guarantee that his mone! is safe" %fter six /90 months# however# petitioner learnedthat the value of his investment went down to 1SZ)#333"33" He tried to withdraw his investment utwas persuaded ! %ntonette de los Re!es of S$B to hold on to it for another six /90 months in view ofthe possiilit! that the mar+et would pic+ up"@eanwhile# on # the BS: found that S$B failed to compl! with its directive of "$onseuentl!# it was finedin the amount of :*3#333"33"The trend in the securities mar+et# however# was earish and the worth of petitioners investment wentdown further to onl! 1SZ*#333"33"On # petitioner learned from @arivel <on.ales# head of the S$B ?egal and $ompliance Department# thatthe latter had een prohiited ! the BS: to sell <:T@; securities" :etitioner then filed with the BS: aletter7complaint demanding compensation for his lost investment" But S$B denied his demand on theground that his investment is regular"On # petitioner filed with the Department of >ustice /DO>0# represented herein ! its prosecutors# pulicrespondents# a complaint charging the aove7named officers and memers of the S$B Board ofDirectors and other S$B officials# private respondents# with s!ndicated estafa# doc+eted as I"S" No"833*7'3(";or their part# private respondents filed the following as counter7charges against petitioner& /'0lac+mail and extortion# doc+eted as I"S" No" 833*7'3(7%= and lac+mail and perEur!# doc+eted as I"S"No" 833*7'8)"On # petitioner also filed a complaint for perEur! against private respondents :aul Simon @orris and@arivel <on.ales# doc+eted as I"S" No" 833*7'8)7%"On # the S6$ issued a $ease and Desist Order against S$B restraining it from further offering# soliciting#or otherwise selling its securities to the pulic until these have een registered with the S6$"Suseuentl!# the S6$ and S$B reached an ami cale settlement"On # the S6$ lifted its $ease and Desist Order and approved the :) million settlement offered !S$B" Thereupon# S$B made a commitment not to offer or sell securities without prior compliance with

the reuirements of the S6$"On # petitioner filed with the DO> a complaint for violation of Section "' 4(5 of the Securities Regulation$ode against private respondents# doc+eted as I"S" No" 8332788("On # the DO> rendered its >oint Resolution4'35 dismissing petitioners complaint for s!ndicated estafa inI"S" No" 833*7'3(= private respondents complaint for lac+mail and extortion in I"S" No" 833*7'3(7%=private respondents complaint for lac+mail and perEur! in I"S" No" 833*7'8)= and petitioners complaintfor perEur! against private respondents @orris and <on.ales in I"S" No" 833*7'8)7%"@eanwhile# in a Resolution4''5 dated # the DO> dismissed petitioners complaint in I"S" No" 8332788(/violation of Securities Regulation $ode0# holding that it should have een filed with the S6$":etitioners motions to dismiss his complaints were denied ! the DO>" Thus# he fil ed with the $ourt of

%ppeals a petition for certiorari# doc+eted as $%7<"R" S: No" 3)" He alleged that the DO> acted withgrave ause of discretion amounting to lac+ or excess of Eurisdiction in dismissing his complaintfor s!ndicated estafa "He also filed with the $ourt of %ppeals a separate petition for certiorari assailing the DO> Resolutiondismissing I"S" No" 8332788( for violation of the Securities Regulation $ode" This petition wasdoc+eted as $%7<"R" S: No" )*8":etitioner claimed that the DO> acted with grave ause of discretiontantamount to lac+ or excess of Euris diction in holding that the complaint should have een filed with theS6$"On # the $ourt of %ppeals promulgated its Decision dismissing the petition" It sustained the ruling of theDO> that the case should have een filed initiall! with the S6$":etitioner filed a motion for reconsideration ut it was denied in a Resolution dated "@eanwhile# on # the $ourt of %ppeals rendered its Decision in $%7<"R" S: No" 3) /involvingpetitioners charges and respondents counter charges0 dismissing the petition on the ground that thepurpose of a petition for certiorari is not to evaluate and weigh the parties evidence ut to determinewhether the assailed Resolution of the DO> was issued with grave ause of discretion tantamount tolac+ of Eurisdiction" %gain# petitioner moved for a reconsideration ut it was denied in a Resolution of "Hence# the instant petitions for review on certiorari";or our resolution is the fundamental issue of whether the $ourt of %ppeals erred in concluding that theDO> did not commit grave ause of discretion in dismissing petitioners complaint in I"S" 8332788( forviolation of Securities Regulation $ode and his complaint in I"S" No" 833*7'3( for s!ndicated estafa "

G.R. No 16B3B0

Re5 $.S. No. 2004-229For ('o!t'o" o t8e Se:;r't'es Re<;!t'o" o#e

Section *"' of the Securities Regulation $ode provides&S6$" *" Investigations# InEunctions and :rosecution of Offenses "*" '" The $ommission ma!# in its discretion# ma+e such investigation as it deems necessar! todetermine whether an! person has violated or is aout to violate an! provision of this $ode# an! rule#regulation or order thereunder# or an! rule of an 6xchange# registered securities association# clearingagenc!# other self7regulator! organi.ation# and ma! reuire or permit an! person to file with it astatement in writing# under oath or otherwise# as the $ommission shall determine# as to all facts andcircumstances concerning the matter to e investigated" The $ommission ma! pulish informationconcerning an! such violations and to investigate an! fact# condition# practice or matter which it ma!deem necessar! or proper to aid in the enforcement of the provisions of this $ode# in the prescriing ofrules and regulations thereunder# or in securing information to serve as a asis for recommendingfurther legislation concerning the matters to which this $ode relates& :rovided# however # That an!person reuested or supoenaed to produce documents or testif! in an! investigation shallsimultaneousl! e notified in writing of the purpose of such investigation& :rovided# further # +8!t !

:r'm'"! :omp!'"ts or ('o!t'o"s o t8's o#e !"# t8e 'mpeme"t'"< r;es !"# re<;!t'o"se"or:e# or !#m'"'stere# b= t8e omm'ss'o" s8! be reerre# to t8e Dep!rtme"t o ;st':e

or pre'm'"!r= '"(est'<!t'o" !"# prose:;t'o" beore t8e proper :o;rt5 :rovided#furthermore# That in instances where the law allows independent civil or criminal proceedings ofviolations arising from the act# the $ommission shall ta+e appropriate action to implement thesame& :rovided# finall! = That the investigation# prosecution# and trial of such cases shall e givenpriorit!"The $ourt of %ppeals held that under the aove provision# a criminal complaint for violation of an! lawor rule administered ! the S6$ must first e fil ed with the latter" If the $ommission finds that there isproale cause# then it should refer the case to the DO>" Since petitioner failed to compl! with theforegoing procedural reuirement# the DO> did not gravel! ause its discretion in dismissing hiscomplaint in I"S" No" 8332788("

% criminal charge for violation of the Securities Regulation $ode is a speciali.ed dispute" Hence# it mustfirst e referred to an administrative agenc! of special competence# i"e"# the S6$" 1nder the doctrine ofprimar! Eurisdiction# courts will not determine a controvers! involving a uestion within the Eurisdictionof the administrative triunal# where the uestion demands the exercise of sound administrativediscretion reuiring the speciali.ed +nowledge and expertise of said administrative triunal to determinetechnical and intricate matters of fact"4'85 The Securities Regulation $ode is a special law" Itsenforcement is particularl! vested in the S6$" Hence# all complaints for an! violation of the $ode and itsimplementing rules and regulations should e filed with the S6$" Jhere the complaint is criminal innature# the S6$ shall indorse the complaint to the DO> for preliminar! investigation and prosecution asprovided in Section *"' earlier uoted"Je thus agree with the $ourt of %ppeals that petitioner committed a fatal procedural lapse when hefiled his criminal complaint directl! with the DO>" Veril!# no grave ause of discretion can e ascried tothe DO> in dismissing petitioners complaint"

G.R. No. 170602Re5 $.S. No. 2003-10/9 or

S="#':!te# Est!!

Section # Rule ''3 of the 8333 Rules of $riminal :rocedure# as amended# provides that all criminalactions# commenced ! either a complaint or an information# shall e prosecuted under the directionand control of a pulic prosecutor" This mandate is founded on the theor! that a crime is a reach of thesecurit! and peace of the people at large# an outrage against the ver! sovereignt! of the State" Itfollows that a representative of the State shall direct and control the prosecution of the offense"4'*5 Thisrepresentative of the State is the pulic prosecutor# whom this $ourt descried in the old case of Suare.v" :laton #4'25 as&4T5he representative not of an ordinar! part! to a controvers!# ut of a sovereignt! whose oligation togovern impartiall! is as compelling as its oligation to govern at all= and whose interest# therefore# in acriminal prosecution is not that it shall win a case# ut that Eustice shall e done" %s such# he is in apeculiar and ver! definite sense a servant of the law# the twofold aim of which i s that guilt shall notescape or innocence suffers"$oncomitant with his authorit! and power to control the prosecution of criminal offenses# the pulicprosecutor is vested with the discretionar! power to determine whether a prima facie case exists or not"4'5 This is done through a preliminar! investigation designed to secure the respondent from hast!#malicious and oppressive prosecution" % preliminar! investigation is essentiall! an inuir! to determinewhether /a0 a crime has een committed= and /0 whether there is proale cause that the accused isguilt! thereof "4'95 In :onteEos v" Office of the Omudsman #4')5proale cause is defined as such factsand circumstances that would engender a well7founded elief that a crime has een committed and thatthe respondent is proal! guilt! thereof and should e held for trial" It is the pulic prosecutor whodetermines during the preliminar! investigation whether proale cause exists" Thus# the decisionwhether or not to dismiss the criminal complaint against the accused depends on the sound discretion ofthe prosecutor"<iven this latitude and authorit! granted ! law to the investigating prosecutor# t8e r;e '" t8's ?;r's#':t'o" 's t8!t :o;rts >' "ot '"terere >'t8 t8e :o"#;:t o pre'm'"!r= '"(est'<!t'o"s orre'"(est'<!t'o"s or '" t8e #eterm'"!t'o" o >8!t :o"st't;tes s;':'e"t prob!be :!;se ort8e ''"< o t8e :orrespo"#'"< '"orm!t'o" !<!'"st !" oe"#er.4'5 $ourts are not empoweredto sustitute their own Eudgment for that of the executive ranch"4'(5 Differentl! stated# as the matterof whether to prosecute or not is purel! discretionar! on his part# courts cannot compel a pulicprosecutor to file the corresponding information# upon a complaint# where he finds the evidence eforehim insufficient to warrant the filing of an action in court" In sum# t8e prose:;tors '"#'"<s o" t8e

http://sc.judiciary.gov.ph/jurisprudence/2007/feb2007/168380.htm#_ftn1







































































e'ste":e o prob!be :!;se !re "ot s;b?e:t to re('e> b= t8e :o;rts, ;"ess t8ese !re

p!te"t= s8o>" to 8!(e bee" m!#e >'t8 <r!(e !b;se o #'s:ret'o".4835<rave ause of discretion is such capricious and whimsical exercise of Eudgment on the part of thepulic officer concerned which is euivalent to an excess or lac+ of Eurisdiction" The ause of discretionmust e as patent and gross as to amount to an evasion of a positive dut! or a virtual refusal to performa dut! enEoined ! law# or to act at all in contemplation of l aw# as where the power is exercised in anaritrar! and despotic manner ! reason of passion or hostilit!"48'5In determining whether the DO> committed grave ause of discretion# it is expedient to +now ifthe '"#'"<s o !:tof herein pulic prosecutors were reached i n an aritrar! or despotic manner"The $ourt of %ppeals held that petitioners evidence is insufficient to estalish proale cause fors!ndicated estafa " There is no showing from the record that private respondents herein did inducepetitioner ! false representations to invest in the <T:@; securities" Nor did the! act as a s!ndicate tomisappropriate his mone! for their own enefit" Rather# the! invested it in accordance with his writteninstructions" That he lost his i nvestment is not their fault since it was highl! speculative"Records show that pulic respondents examined petitioners evidence with care# well aware of their dut!to prevent material damage to his constitutional right to liert! and fair pla!" In Suare. previousl! cited#this $ourt made it clear that a pulic prosecutors dut! is two7fold" On one hand# he is ound ! his oathof office to prosecute persons where the complainants evidence is ample and sufficient toshow prima facie guilt of a crime" Get# on the other hand# he is li+ewise dut!7ound to protect innocentpersons from groundless# false# or mali cious prosecution"4885Hence# we hold that the $ourt of %ppeals was correct in dismissing the petition for review againstprivate respondents and in concluding that the DO> did not act with grave ause of discretiontantamount to lac+ or excess of Euris diction"On petitioners complaint for violation of the Securities Regulation $ode# suffice it to state that# as aptl!declared ! the $ourt of %ppeals# he should have filed it with the S6$# not the DO>" %gain# there is noindication here that in dismissing petitioners complaint# the DO> acted capriciousl! or aritraril!"IEREFRE# we DEN) the petitions and AFF$R& the assailed Decisions of the $ourt of %ppeals in$%7<"R" S: No" )*8 and in $%7<"R" S: No" 3)"$osts against petitioner"S RDERED.

4*5 S6$")8" In addition to the operations specificall! authori.ed elsewhere in this %ct# an+inginstitutions other than uilding and loan associations ma! perform the following services&a0 Receive in custod! funds# documents and valuale oEects# and rent safet! deposit oxes for thesafeguarding of such effects=0 %ct as financial agent and u! and sell# ! order of and for the account of their customers#shares# evidences of indetedness and all other t!pes of securities=c0 @a+e collections and pa!ments for the account of others and perform such other services fortheir customers as are not incompatile with an+ing usiness=d0 1pon prior approval of the @onetar! Board# act as managing agent# adviser# consultant oradministrator of investment management advisor!consultanc! accounts"The an+s shall perform the services permitted under susections /a0# /0# and /c0 of this section asdepositaries or as agents" %ccordingl! the! shall +eep the funds# securities and other effects which the!thus receive dul! separated and apart from the an+s own assets and li ailities"The @onetar! Board ma! regulate the operations authori.ed ! this section in order to insure that saidoperations do not endanger the interest of the depositors and other creditors of the an+s"425 Now repealed ! The <eneral Ban+ing ?aw of 8333 /Repulic %ct No" )('0"45 Batas :amansa Blg" ')" Now repealed ! Repulic %ct No" )(( /The Securities Regulation $ode0#which too+ effect on >ul! '(" 8333"495 Supra at footnote *"4)5 S6$" 2" Reuirement of registration of securities" /a0 No securities# except of a class exempt underan! of the provisions of Section five hereof or unless sold in an! transaction exempt under an! of theprovisions of Section six hereof shall e sold or offered for sale or distriution to the pulic within the:hilippines unless such securities shall have een registered and permitted to e sold as hereinafterprovided"45 S6$" '(" Registration of ro+ers# dealers and salesmen"7 No ro+er# dealer or salesman shallengage in usiness in the :hilippines as such ro+er# dealer or salesman or sell an! securities# includingsecurities exempted under this %ct# except in exempt transactions# unless he has een registered as aro+er# dealer# or salesman pursuant to the provisions of this Section"4(5 Sec" " Reuirement of Registration of Securities &"'" Securities shall not e sold or offered for sale or distriution within the # without a registrationstatement dul! filed with and approved ! the $ommission" :rior to such sale# information on thesecurities# in such form and with such sustance as the $ommission ma! prescrie# shall e madeavailale to each prospective purchaser"S6$OND DIVISIONS6$1RITI6S %ND 6$H%N<6 $O@@ISSION#:etitioner#

7 versus 7:6R;OR@%N$6 ;OR6I<N 6$H%N<6 $OR:OR%TION#Respondent"

<"R" No" '2'*':resent&:1NO# > "# $hairperson#S%NDOV%?7<1TI6RR6C#$ORON%#

%C$1N%# and<%R$I%# >> ":romulgated&>ul! 83# 8339

x 77777777777777777777777777777777777777777777777777777777777777777777777777777777777777 x

D 6 $ I S I O N

S%NDOV%?7<1TI6RR6C# > "&;or our resolution is the :etition for Review on $ertiorari 4'5 assailing the Decision485 dated ;eruar! ''#8338 and Resolution dated >ul! *# 8338 of the $ourt of %ppeals in $%7<"R" S: No" 98')# entitled:erformance ;oreign 6xchange $orporation# petitioner # versus Securities and 6xchange$ommission# respondent "The pertinent facts as found ! the $ourt of %ppeals are&:erformance ;oreign 6xchange $orporation# herein respondent# is a domestic corporation dul! registeredon >une 8*# '(( under Securities and 6xchange $ommission /S6$0 Registration No" %'((3('3# withthe following purposes&:rimar! :urposeTo operate as a ro+eragent etween mar+et participants in transactions involving# ut not limited to#foreign exchange# deposits# interest rate instruments# fixed income securities# ondsills# repurchasedagreements of fixed income securities# certificate of deposits# an+ers acceptances# ills of exchange#over7the7counter option of the aforementioned instruments# ?esser Developed $ountr!s /?"D"$"0 det#energ! and stoc+ indexes and all related# similar or derivative products# other than acting as a ro+er forthe trading of securities pursuant to the Revised Securities %ct of the :hilippines"Secondar! :urposeTo engage in mone! changer or exchanging foreign currencies into domestic currenc!# :hilippinecurrenc! or other foreign currencies into another currencies"

%fter two !ears of operation# respondent received a letter dated Novemer 8# 8333 from the S6$#herein petitioner# reuiring it to appear efore the $ompliance and 6nforcement Department /$6D0 onDecemer '2# 8333 for a clarificator! conference regarding its usiness operations" Respondents officerscomplied and explained efore the $6D the nature of their usiness"On >anuar! '9# 833'# 6milio B" %uino# Director of $6D# issued a $ease and Desist Order# 4*5 in $6D$ase No" ((788()# stating that his department conducted an inuir! on respondents usiness operationsfor poss'be ('o!t'o" of Repulic %ct /R"%"0 No" )(( /otherwise +nown as The Securities Regulation$ode0= that the outcome of the inuir! shows that respondent is engaged in the trading of foreigncurrenc! futures contracts in ehalf of its clients without the necessar! license= that such transaction

can e deemed as a direct violation of Section '' of R"%" No" )(( 425 and the related provisions of itsImplementing Rules and Regulations= and that it is imperative to enEoin respondent from furtheroperating as such to protect the interest of the pulic" The dispositive portion of the sai d Order reads&JH6R6;OR6# pursuant to the authorit! vested in the $ommission# :6R;OR@%N$6 ;OR6I<N 6$H%N<6$OR:OR%TION# its officers# directors# agents# representatives# and an! and all persons claiming andacting under their authorit!# are here! ordered to 'mme#'!te= EASE AND DES$S+ rom ;rt8ere"<!<'"< '" t8e so':'t!t'o" o ;"#s or ore'<" :;rre":= tr!#'"< !"# oper!t'"< !s ! ore'<"

:;rre":= ;t;res mer:8!"tbroer, ;po" re:e'pt o t8's r#er"In accordance with the provisions of Section 92"*45 of Repulic %ct )((# otherwise +nown as theSecurities Regulation $ode# the parties suEect of this $ease and Desist Order ma! file a reuest for thelifting thereof within f ive /0 da!s from receipt hereof"SO ORD6R6D"On >anuar! 8# 833'# respondent filed with petitioner S6$ a motion 495 pra!ing for the lifting of the$ease and Desist Order# alleging that& /a0 it has not violated an! law or regulation in the conduct of itsusiness= /0 it has een operating in accordance with the purposes for which it was organi.ed# whichpurposes were dul! approved ! petitioner= /c0 it has not engaged in currenc! futures contracts trading=and /d0 its usiness involves spot currenc! trading which is not a form of currenc! futures transaction"On ;eruar! # 833'# then S6$ $hairman ?ilia R" Bautista# '" 8er #es're to "o> >'t8 :ert!'"t= t8e"!t;re o respo"#e"ts b;s'"ess# sent a letter4)5 tothe Bang+o Sentral ng :ilipinas /BS:0# re;est'"< ! #e'"'t'(e st!teme"t that respondents usinesstransactions are a form of financial derivatives and# therefore# can onl! e underta+en ! an+s or non7an+ financial intermediaries performing uasi7an+ing functions"I't8o;t >!'t'"< or *Ss #eterm'"!t'o" o t8e m!tter # petitioner# the following da! /;eruar! (#833'0# issued an Order45 den!ing respondents motion for the lifting of the $ease and Desist Order anddirecting that the same st!=s ;"t' respo"#e"t s8! 8!(e s;bm'tte# t8e !ppropr'!te

e"#orseme"t rom t8e *S t8!t 't :!" e"<!<e '" '"!":'! #er'(!t'(e tr!"s!:t'o"s " The Orderstates that the contracts entered into# offered and sold ! respondent are in the nature of commodit!futures contracts =4(5 and that such contracts ma! e considered a form of financialderivatives instruments # the trading of which is regulated ! BS:"On ;eruar! '9# 833'# respondent filed a @anifestation Jith 1rgent @otion 4'35 pra!ing that# pendingdetermination ! the BS: of the real nature of its usiness# the impl ementation of the ;eruar! (# 833'Order e temporaril! suspended to allow it to continue its operations"On @arch '# 833'# respondent# in compliance with petitioners ;eruar! (# 833' Order reuiring it tosumit the appropriate BS: endorsement# presented efore the BS: panel of officers a summar! of itsoperations and its foreign exchange spot product"On %pril 8*# 833'# petitioner issued an Order4''5 ma+ing the $ease and Desist Order perm!"e"t#thus&JH6R6%S# on ;eruar! '(# 833'# :;6$ filed with the $ommission its @anifestation with 1rgent @otionto Temporaril! Suspend Implementation of Order dated 3( ;eruar! 833'# which @anifestationwas #e"'e# b= t8e omm'ss'o" e" b!": during its meeting on ;eruar! 88# 833'# and the saiddenial was conve!ed (erb!= to the corporation=JH6R6;OR6# premises considered# and pursuant to the authorit! vested in the $ommission# the $easeand Desist Order is now made perm!"e"t, and :erformance ;oreign 6xchange $orporation is here!directed to s8o> :!;sewithin thirt! /*30 da!s from receipt of this Order >8= 'ts :ert'':!te ore<'str!t'o" s8o;# "ot be re(oe# or ('o!t'o" o t8e Se:;r't'es Re<;!t'o" o#e, !"#or

D 902-A spe:'':!= o" t8e <ro;"# o ser'o;s m'sreprese"t!t'o" !s to >8!t t8e:orpor!t'o" :!" #o or 's #o'"<, to t8e <re!t pre?;#':e or #!m!<e to t8e <e"er!

p;b':" /1nderscoring supplied0On @a! 2# 833'# respondent filed a motion 4'85 pra!ing that the said Order e set aside" :etitioner#however# did not act on the motion" This prompted respondent to file with petitioner a notice4'*5 dated>une '2# 833' that it i s withdrawing its motion in order to see+ a more appropriate and speed! remed!";eeling the inEurious effects of petitioners acts to its usiness operations# respondent# on >une 83# 833'#filed with the $ourt of %ppeals a :etition for $ertiorari4'25 with pra!er for a temporar! restraining orderand preliminar! inEunction# doc+eted as $%7<"R" S: No" 98')" Respondent alleged# among others# thatpetitioner S6$ acted without or in excess of its Eurisdiction or with grave ause of discretion when itissued the $ease and Desist Order and its suseuent Order ma+ing the same permanent withoutwaiting for the BS:s determination of the real nature of its usiness operations= and that petitionersOrders# issued without an! factual asis# violated its /respondents0 fundamental right to due process"@eanwhile# on %ugust '*# 833'# %mado @" Tetangco# >r"# then Officer7in7$harge# Office of the <overnor#BS:# in answer to S6$ $hairman ?ilia Bautistas letter7reuest of ;eruar! # 833'# stated thatrespondents usiness activit! #oes "ot ! ;"#er t8e :!te<or= o ;t;res tr!#'"< and :!" "otbe :!ss''e# !s '"!":'! #er'(!t'(es tr!"s!:t'o"s# thus&Dear @s" Bautista#This refers to !our letter dated ;eruar! # 833' reuesting for a definitive statement that the foreigncurrenc! leverage trading engage in ! private corporations# particularl!# :erformance ;oreign 6xchange$orporation /:;6$0# is a financial derivatives transaction and that it can onl! e underta+en ! an+s ornon7an+ financial intermediaries performing uasi7an+ing functions andor its susidiariesaffiliates"

%s indicated in !our description of the transactions and the documents sumitted# t8e ore'<":;rre":= e(er!<e tr!#'"<, s;b?e:t o =o;r ;er=, is essentiall! similar in mechanics to currenc!future trading# particularl! with respect to the margin reuirements# standard contract si.e# and dail!mar+et7to7mar+et of open position" o>e(er, 't #oes "ot ! ;"#er t8e :!te<or= o ;t;restr!#'"< ecause it is not exchange7traded" F;rt8er, >e :!" "ot :!ss'= 't !s be'"< '"!":'!#er'(!t'(es tr!"s!:t'o"s as we consider the transaction as plai n currenc! margin trading# which ! itsmechanics# involve the set7up of margin and non7deliver! of the currencies involved"In view of the foregoing facts# the activities of the aforesaid corporation are not covered ! BS:guidelines on derivative licensing"Je hope we have satisfactoril! :!r''e# =o;r :o":er"s"

Ver! trul! !ours#/Sgd"0

%@%NDO @" T6T%N<$O# >R "4'5On ;eruar! ''# 8338# the $ourt of %ppeals rendered a Decision4'95 in favor of respondent# thus&JH6R6;OR6# premises considered# the instant petition is GRAN+ED and accordingl!# theassailed r#ers #!te# !";!r= 16, 2001# Febr;!r= 9, 2001# Febr;!r= 22, 2001 and Apr' 23,2001 of the Securities and 6xchange $ommission a re SE+ AS$DE"SO ORD6R6D"The $ourt of %ppeals ruled that petitioner acted with grave ause of discretion when it issued itschallenged Orders >'t8o;t ! pos't'(e !:t;! '"#'"< that respondent violated the SecuritiesRegulation $ode":etitioner filed a motion for reconsideration ut it was denied ! the appellate court in aResolution4')5 dated >ul! *# 8338"Hence# the instant :etition for Review on $ertiorari":etitioner# through the Solicitor <eneral# contends that the $ourt of %ppeals erred in not appl!ing therule that factual findings of uasi7Eudicial odies# li+e the S6$# which have acuired expertise ecausetheir Eurisdiction is confined to specific matters# are generall! accorded not onl! respect ut even finalit!if such findings are supported ! sustantial evidence"4'5In its $omment#4'(5 respondent counters that the instant petition utterl! lac+s merit and should edismissed"The issue for our resolution is whether petitioner S6$ acted with grave ause of discretion in issuing the$ease and Desist Order and its suseuent Order ma+ing it permanent"Section 92 of R"%" No" )((# provides&Sec" 92" $ease and Desist Order " 92"'" The $ommission# !ter proper '"(est'<!t'o" or(er'':!t'o"# motuproprio # or upon verified complaint ! an! aggrieved part!# m!= 'ss;e ! :e!se !"##es'st or#er without the necessit! of a prior hearing if in its Eudgment t8e !:t or pr!:t':e, ;"essrestr!'"e#, >' oper!te !s ! r!;# o" '"(estors or 's ot8er>'se 'e= to :!;se <r!(e or'rrep!r!be '"?;r= or pre?;#':e to t8e '"(est'"< p;b':"x x x" /1nderscoring supplied0







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1nder the aove provision# there are two essential reuirements that must e complied with ! the S6$efore it ma! issue a cease and desist order& F'rst# it must conduct proper investigation or verification=and Se:o"## there must e a finding that the act or practice# unless restrained# will operate as a fraudon investors or is otherwise li+el! to cause grave or irreparale inEur! or preEudice to the investingpulic"Here# the 'rst re;'reme"t is not present" :etitioner did not conduct proper investigation orverification efore it issued the challenged orders" The clarificator! conference underta+en ! petitionerregarding respondents usiness operations cannot e considered a proper investigation or verificationprocess to Eustif! the issuance of the $ease and Desist Order" It was merel! an '"'t'! stage of suchprocess# considering that after it issued the said order following the clarificator! conference# petitionerstill so;<8t (er'':!t'o" rom t8e *S on the nature of respondents usiness activit!" Its letter to theBS: dated ;eruar! # 833' states in part&The Securities and 6xchange $ommission 8!s bee" '"(est'<!t'"< corporations which engage inforeign currenc! trading aroad" The following i llustrates their operations&x x x6nclosed are pertinent documents which were sumitted ! a corporation showing how its transactionsoperate" It is claimed ! the corporation in uestion that theirs are all spot transactions and are notcovered ! the Bang+o Sentralng :ilipinas " Je understand# however# that in other Eurisdiction# this t!peof activit! can onl! e done ! an+s":revious inuiries from the Bang+o Sentral ng :ilipinas # specificall! Department of $ommercial Ban+s II#and !our department# $ommercial Ban+s I# lead to conclude that this +ind of trading in foreigncurrencies ma! e a form of financial derivatives"&!= >e, t8ereore, re;est ! #e'"'t'(e st!teme"t t8!t t8e !bo(e-#es:r'be# tr!"s!:t'o"s,

!"# !s ';str!te# '" t8e !tt!:8e# #o:;me"ts, !re ! orm o '"!":'! #er'(!t'(es !"#,t8ereore, :!" o"= be ;"#ert!e" b= b!"s, or "o"-b!" '"!":'! '"terme#'!r'es

perorm'"< ;!s'-b!"'"< ;":t'o"s !"#or 'ts s;bs'#'!r'es!''!tes"4835/1nderscoringsupplied0:etitioners act of referring the matter to the BS: is an esse"t'! p!rt o t8e '"(est'<!t'o" !"#(er'':!t'o" pro:ess" In fact# such referral indicates that petitioner concedes to the BS:s expertise indetermining the nature of respondents usiness" It ears stressing# however# that such investigation andverification# to e proper# must e conducted ! petitioner beore# not after# issuing the $ease andDesist Order in uestion" This# petitioner utterl! failed to do" The issuance of such order e(e" beore 't:o;# '"'s8 'ts '"(est'<!t'o" !"# (er'':!t'o" on respondents usiness activit! oviousl!contravenes Section 92 of R"%" No" )(( earlier uoted"Jorse# when respondent filed a motion pra!ing that the same order e lifted for eing premature#petitioner# in its Order dated ;eruar! (# 833'# even denied the motion despite its !#m'ss'o" thereinthat it :!""ot #eterm'"e:ert!'" m!ter'! !:ts involving respondents transactions and# as such# thematter must e referred to the BS: for determination# thus&In the light of the aove circumstances# and t8e !:t t8!t t8e omm'ss'o" :!""ot #eterm'"e

>8et8er s;:8 tr!"s!:t'o"s !re !:t;!= ee:;te# '" S'"<!pore or o"<o"< as alleged# !"#>8et8er t8e ore'<" :;rre":= r!tes ;se# '" t8e tr!"s!:t'o"s !re (er''!be, 't 's o;r pos't'o"

t8!t t8e s!me be e"#orse# to t8e *S"In view of the foregoing# the cease and desist order sta!s against the corporation until the latter shall eale to sumit the appropriate endorsement from the Bang+o Sentral ng :ilipinas that it can engage infinancial derivative transactions"SO ORD6R6D"48'5 /1nderscoring supplied0

%nd worst# without waiting for BS:s action# petitioner proceeded to issue its Order dated %pril 8*# 833'ma+ing the $ease and Desist Order permanent" In the same Order# petitioner further directedrespondent to show cause x x x wh! its certificate of registration should not e revo+ed for allegedviolation of the Securities Regulation $ode andor :residential Decree No" (387%# specificall! on theground of ser'o;s m'sreprese"t!t'o" !s to >8!t t8e :orpor!t'o" :!" #o or 's #o'"< to t8e

<re!t pre?;#':e or #!m!<e to t8e <e"er! p;b':" Oviousl!# without BS:sdetermination of thenature of respondents usiness# there was no factual and legal asis to Eustif! the issuance of suchorder"Jhich rings us to the se:o"# re;'reme"t. Before a cease and desist order ma! e issued ! theS6$# there must e a showing that the act or practice sought to e restrained will operate as a fraud oninvestors or is li+el! to cause grave# irreparale inEur! or preEudice to the investing pulic" Suchreuirement implies that the act to e restrained has bee" #eterm'"e# !ter :o"#;:t'"< t8eproper '"(est'<!t'o"(er'':!t'o"" In this case# the nature of the act to e restrained can onl! edetermined !ter the BS: shall have sumitted its findings to petitioner"However# there is nothing in theuestioned Orders that shows how the pulic i s greatl! preEudiced or damaged ! respondents usinessoperation"In sum# we find no reversile error committed ! the $ourt of %ppeals in rendering its assailed Decisionand Resolution"IEREFRE# we DEN) the petition" The challenged Decision and Resolution of the $ourt of %ppealsin $%7<"R" S: No" 98') are AFF$R&ED"S RDERED.

%N<6?IN% S%NDOV%?7<1TI6RR6C %ssociate >ustice

4'5 ;iled under Rule 2# '(() Rules of $ivil :rocedure# as amended"425 Sec" ''" $ommodit! ;utures $ontracts " No person shall offer# sell or enter into commodit! futurescontracts except in accordance with the rules# regulations and orders the $ommission /S6$0 ma!prescrie in the pulic interest" The $ommission shall promulgate rules and regulations involvingcommodit! futures contracts to protect investors to ensure the development of a fair and transparentcommodities mar+et"45 Sec" 92"*" %n! person against whom a cease and desist order was issued ma!# within five /0 da!sfrom receipt of the order# file a formal reuest for a l ifting thereof" Said reuest shall e set for hearing! the $ommission not later than fifteen /'0 da!s from its filing and the resolution thereof shall emade not later than ten /'30 da!s from the termination of the hearing" If the $ommissi on fails to resolvethe reuest within the time herein prescried# the cease and desist order shall automaticall! e lifted"4(5 The Order cited the Implementing Rules and Regulations of the Securities Regulation $odedefining commodit! futures contract as a contract providing for the ma+ing or ta+ing deliver! at aprescried time in the future of a specific uantit! and ualit! of a commodit! or the cash value thereof#

which is customaril! offset prior to the deliver! date# and includes standardi.ed contracts having theindicia of commodit! futures# commodit! options and commodit! leverage# or margin contracts" Id"# p""




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