Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-22238 February 18, 1967

CLAVECILLIA RADIO SYSTEM, petitioner-appellant,

vs.
HON. AGUSTIN ANTILLON, as City Judge of the Municipal Court of Cagayan de Oro City
and NEW CAGAYAN GROCERY, respondents-appellees.

B. C. Padua for petitioner and appellant.

Pablo S. Reyes for respondents and appellees.

REGALA, J.:

This is an appeal from an order of the Court of First Instance of Misamis Oriental dismissing the
petition of the Clavecilla Radio System to prohibit the City Judge of Cagayan de Oro from taking
cognizance of Civil Case No. 1048 for damages.

It appears that on June 22, 1963, the New Cagayan Grocery filed a complaint against the Clavecilla
Radio System alleging, in effect, that on March 12, 1963, the following message, addressed to the
former, was filed at the latter's Bacolod Branch Office for transmittal thru its branch office at Cagayan
de Oro:

NECAGRO CAGAYAN DE ORO (CLAVECILLA)

REURTEL WASHED NOT AVAILABLE REFINED TWENTY FIFTY IF AGREEABLE SHALL

SHIP LATER REPLY POHANG

The Cagayan de Oro branch office having received the said message omitted, in delivering
the same to the New Cagayan Grocery, the word "NOT" between the words "WASHED" and
"AVAILABLE," thus changing entirely the contents and purport of the same and causing the
said addressee to suffer damages. After service of summons, the Clavecilla Radio System
filed a motion to dismiss the complaint on the grounds that it states no cause of action and
that the venue is improperly laid. The New Cagayan Grocery interposed an opposition to
which the Clavecilla Radio System filed its rejoinder. Thereafter, the City Judge, on
September 18, 1963, denied the motion to dismiss for lack of merit and set the case for
hearing.1äwphï1.ñët

Hence, the Clavecilla Radio System filed a petition for prohibition with preliminary injunction with the
Court of First Instance praying that the City Judge, Honorable Agustin Antillon, be enjoined from
further proceeding with the case on the ground of improper venue. The respondents filed a motion to
dismiss the petition but this was opposed by the petitioner. Later, the motion was submitted for
resolution on the pleadings.

In dismissing the case, the lower court held that the Clavecilla Radio System may be sued either in
Manila where it has its principal office or in Cagayan de Oro City where it may be served, as in fact it
was served, with summons through the Manager of its branch office in said city. In other words, the
court upheld the authority of the city court to take cognizance of the case. 1äwphï1.ñët

In appealing, the Clavecilla Radio System contends that the suit against it should be filed in Manila
where it holds its principal office.

It is clear that the case for damages filed with the city court is based upon tort and not upon a written
contract. Section 1 of Rule 4 of the New Rules of Court, governing venue of actions in inferior courts,
provides in its paragraph (b) (3) that when "the action is not upon a written contract, then in the
municipality where the defendant or any of the defendants resides or may be served with summons."
(Emphasis supplied)

Settled is the principle in corporation law that the residence of a corporation is the place where its
principal office is established. Since it is not disputed that the Clavecilla Radio System has its
principal office in Manila, it follows that the suit against it may properly be filed in the City of Manila.

The appellee maintain, however, that with the filing of the action in Cagayan de Oro City, venue was
properly laid on the principle that the appellant may also be served with summons in that city where
it maintains a branch office. This Court has already held in the case of Cohen vs. Benguet
Commercial Co., Ltd., 34 Phil. 526; that the term "may be served with summons" does not apply
when the defendant resides in the Philippines for, in such case, he may be sued only in the
municipality of his residence, regardless of the place where he may be found and served with
summons. As any other corporation, the Clavecilla Radio System maintains a residence which is
Manila in this case, and a person can have only one residence at a time (See Alcantara vs.
Secretary of the Interior, 61 Phil. 459; Evangelists vs. Santos, 86 Phil. 387). The fact that it maintains
branch offices in some parts of the country does not mean that it can be sued in any of these places.
To allow an action to be instituted in any place where a corporate entity has its branch offices would
create confusion and work untold inconvenience to the corporation.

It is important to remember, as was stated by this Court in Evangelista vs. Santos, et al., supra, that
the laying of the venue of an action is not left to plaintiff's caprice because the matter is regulated by
the Rules of Court. Applying the provision of the Rules of Court, the venue in this case was
improperly laid.

The order appealed from is therefore reversed, but without prejudice to the filing of the action in
Which the venue shall be laid properly. With costs against the respondents-appellees.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro,
JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-23606 July 29, 1968

ALHAMBRA CIGAR & CIGARETTE MANUFACTURING COMPANY, INC., petitioner,

vs.
SECURITIES & EXCHANGE COMMISSION, respondent.

Gamboa and Gamboa for petitioner.

Office of the Solicitor General for respondent.

SANCHEZ, J.:

To the question — May a corporation extend its life by amendment of its articles of incorporation
effected during the three-year statutory period for liquidation when its original term of existence had
already expired? — the answer of the Securities and Exchange Commissioner was in the negative.
Offshoot is this appeal.

That problem emerged out of the following controlling facts:

Petitioner Alhambra Cigar and Cigarette Manufacturing Company, Inc. (hereinafter referred to simply
as Alhambra) was duly incorporated under Philippine laws on January 15, 1912. By its corporate
articles it was to exist for fifty (50) years from incorporation. Its term of existence expired on January
15, 1962. On that date, it ceased transacting business, entered into a state of liquidation.

Thereafter, a new corporation. — Alhambra Industries, Inc. — was formed to carry on the business
of Alhambra.

On May 1, 1962, Alhambra's stockholders, by resolution named Angel S. Gamboa trustee to take
charge of its liquidation.

On June 20, 1963 — within Alhambra's three-year statutory period for liquidation - Republic Act 3531
was enacted into law. It amended Section 18 of the Corporation Law; it empowered domestic private
corporations to extend their corporate life beyond the period fixed by the articles of incorporation for
a term not to exceed fifty years in any one instance. Previous to Republic Act 3531, the maximum
non-extendible term of such corporations was fifty years.

On July 15, 1963, at a special meeting, Alhambra's board of directors resolved to amend paragraph
"Fourth" of its articles of incorporation to extend its corporate life for an additional fifty years, or a
total of 100 years from its incorporation.

On August 26, 1963, Alhambra's stockholders, representing more than two-thirds of its subscribed
capital stock, voted to approve the foregoing resolution. The "Fourth" paragraph of Alhambra's
articles of incorporation was thus altered to read:

FOURTH. That the term for which said corporation is to exist is fifty (50) years from and after
the date of incorporation, and for an additional period of fifty (50) years thereafter.
On October 28, 1963, Alhambra's articles of incorporation as so amended certified correct by its
president and secretary and a majority of its board of directors, were filed with respondent Securities
and Exchange Commission (SEC).

On November 18, 1963, SEC, however, returned said amended articles of incorporation to
Alhambra's counsel with the ruling that Republic Act 3531 "which took effect only on June 20, 1963,
cannot be availed of by the said corporation, for the reason that its term of existence had already
expired when the said law took effect in short, said law has no retroactive effect."

On December 3, 1963, Alhambra's counsel sought reconsideration of SEC's ruling aforesaid, refiled
the amended articles of incorporation.

On September 8, 1964, SEC, after a conference hearing, issued an order denying the
reconsideration sought.

Alhambra now invokes the jurisdiction of this Court to overturn the conclusion below.1

1. Alhambra relies on Republic Act 3531, which amended Section 18 of the Corporation Law. Well it
is to take note of the old and the new statutes as they are framed. Section 18, prior to and after its
modification by Republic Act 3531, covers the subject of amendment of the articles of incorporation
of private corporations. A provision thereof which remains unaltered is that a corporation may amend
its articles of incorporation "by a majority vote of its board of directors or trustees and ... by the vote
or written assent of the stockholders representing at least two-thirds of the subscribed capital stock
... "

But prior to amendment by Republic Act 3531, an explicit prohibition existed in Section 18, thus:

... Provided, however, That the life of said corporation shall not be extended by said
amendment beyond the time fixed in the original articles: ...

This was displaced by Republic Act 3531 which enfranchises all private corporations to extend their
corporate existence. Thus incorporated into the structure of Section 18 are the following:

... Provided, however, That should the amendment consist in extending the corporate life, the
extension shall not exceed fifty years in any one instance: Provided, further, That the original
articles, and amended articles together shall contain all provisions required by law to be set
out in the articles of incorporation: ...

As we look in retrospect at the facts, we find these: From July 15 to October 28, 1963, when
Alhambra made its attempt to extend its corporate existence, its original term of fifty years had
already expired (January 15, 1962); it was in the midst of the three-year grace period statutorily fixed
in Section 77 of the Corporation Law, thus: .

SEC. 77. Every corporation whose charter expires by its own limitation or is annulled by
forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any
other manner, shall nevertheless be continued as a body corporate for three years after the
time when it would have been so dissolved, for the purpose of prosecuting and defending
suits by or against it and of enabling it gradually to settle and close its affairs, to dispose of
and convey its property and to divide its capital stock, but not for the purpose of continuing
the business for which it was established.2
Plain from the language of the provision is its meaning: continuance of a "dissolved" corporation as a
body corporate for three years has for its purpose the final closure of its affairs, and no other; the
corporation is specifically enjoined from "continuing the business for which it was established". The
liquidation of the corporation's affairs set forth in Section 77 became necessary precisely because its
life had ended. For this reason alone, the corporate existence and juridical personality of that
corporation to do business may no longer be extended.

Worth bearing in mind, at this juncture, is the basic development of corporation law.

The common law rule, at the beginning, was rigid and inflexible in that upon its dissolution, a
corporation became legally dead for all purposes. Statutory authorizations had to be provided for its
continuance after dissolution "for limited and specified purposes incident to complete liquidation of its
affairs".3 Thus, the moment a corporation's right to exist as an "artificial person" ceases, its corporate
powers are terminated "just as the powers of a natural person to take part in mundane affairs cease
to exist upon his death".4 There is nothing left but to conduct, as it were, the settlement of the estate
of a deceased juridical person.

2. Republic Act 3531, amending Section 18 of the Corporation Law, is silent, it is true, as to when
such act of extension may be made. But even with a superficial knowledge of corporate principles, it
does not take much effort to reach a correct conclusion. For, implicit in Section 77 heretofore quoted
is that the privilege given to prolongcorporate life under the amendment must be exercised before
the expiry of the term fixed in the articles of incorporation.

Silence of the law on the matter is not hard to understand. Specificity is not really necessary. The
authority to prolong corporate life was inserted by Republic Act 3531 into a section of the law that
deals with the power of a corporation to amend its articles of incorporation. (For, the manner of
prolongation is through an amendment of the articles.) And it should be clearly evident that under
Section 77 no corporation in a state of liquidation can act in any way, much less amend its articles,
"for the purpose of continuing the business for which it was established".

All these dilute Alhambra's position that it could revivify its corporate life simply because when it
attempted to do so, Alhambra was still in the process of liquidation. It is surely impermissible for us
to stretch the law — that merely empowers a corporation to act in liquidation — to inject therein the
power to extend its corporate existence.

3. Not that we are alone in this view. Fletcher has written: "Since the privilege of extension is purely
statutory, all of the statutory conditions precedent must be complied with in order that the extension
may be effectuated. And, generally these conditions must be complied with, and the steps necessary
to effect the extension must be taken, during the life of the corporation, and before the expiration of
the term of existence as original fixed by its charter or the general law, since, as a rule, the
corporation is ipso facto dissolved as soon as that time expires. So where the extension is by
amendment of the articles of incorporation, the amendment must be adopted before that time. And,
similarly, the filing and recording of a certificate of extension after that time cannot relate back to the
date of the passage of a resolution by the stockholders in favor of the extension so as to save the life
of the corporation. The contrary is true, however, and the doctrine of relation will apply, where the
delay is due to the neglect of the officer with whom the certificate is required to be filed, or to a
wrongful refusal on his part to receive it. And statutes in some states specifically provide that a
renewal may be had within a specified time before or after the time fixed for the termination of the
corporate existence".5

The logic of this position is well expressed in a foursquare case decided by the Court of Appeals of
Kentucky.6There, pronouncement was made as follows:
 ... But section 561 (section 2147) provides that, when any corporation expires by the terms of
its articles of incorporation, it may be thereafter continued to act for the purpose of closing up
its business, but for no other purpose. The corporate life of the Home Building Association
expired on May 3, 1905. After that date, by the mandate of the statute, it could continue to
act for the purpose of closing up its business, but for no other purpose. The proposed
amendment was not made until January 16, 1908, or nearly three years after the corporation
expired by the terms of the articles of incorporation. When the corporate life of the
corporation was ended, there was nothing to extend. Here it was proposed nearly three
years after the corporate life of the association had expired to revivify the dead body, and to
make that relate back some two years and eight months. In other words, the association for
two years and eight months had only existed for the purpose of winding up its business, and,
after this length of time, it was proposed to revivify it and make it a live corporation for the
two years and eight months daring which it had not been such.

The law gives a certain length of time for the filing of records in this court, and provides that
the time may be extended by the court, but under this provision it has uniformly been held
that when the time was expired, there is nothing to extend, and that the appeal must be
dismissed... So, when the articles of a corporation have expired, it is too late to adopt an
amendment extending the life of a corporation; for, the corporation having expired, this is in
effect to create a new corporation ..."7

True it is, that the Alabama Supreme Court has stated in one case.8 that a corporation empowered
by statute to renew its corporate existence may do so even after the expiration of its corporate life,
provided renewal is taken advantage of within the extended statutory period for purposes of
liquidation. That ruling, however, is inherently weak as persuasive authority for the situation at bar
for at least two reasons: First. That case was a suit for mandamus to compel a former corporate
officer to turn over books and records that came into his possession and control by virtue of his
office. It was there held that such officer was obliged to surrender his books and records even if the
corporation had already expired. The holding on the continued existence of the corporation was a
mere dictum. Second. Alabama's law is different. Corporations in that state were authorized not only
to extend but also to renew their corporate existence.That very case defined the word "renew" as
follows; "To make new again; to restore to freshness; to make new spiritually; to regenerate; to begin
again; to recommence; to resume; to restore to existence, to revive; to re-establish; to recreate; to
replace; to grant or obtain an extension of Webster's New International Dict.; 34 Cyc. 1330; Carter v.
Brooklyn Life Ins. Co., 110 N.Y. 15, 21, 22, 17 N.E. 396; 54 C.J. 379. Sec".9

On this point, we again draw from Fletcher: "There is a broad distinction between the extension of a
charter and the grant of a new one. To renew a charter is to revive a charter which has expired, or,
in other words, "to give a new existence to one which has been forfeited, or which has lost its vitality
by lapse of time". To "extend" a charter is "to increase the time for the existence of one which would
otherwise reach its limit at an earlier period".10 Nowhere in our statute — Section 18, Corporation
Law, as amended by Republic Act 3531 — do we find the word "renew" in reference to the authority
given to corporations to protract their lives. Our law limits itself to extension of corporate existence.
And, as so understood, extension may be made only before the term provided in the corporate
charter expires.

Alhambra draws attention to another case11 which declares that until the end of the extended period
for liquidation, a dissolved corporation "does not become an extinguished entity". But this statement
was obviously lifted out of context. That case dissected the question whether or not suits can be
commenced by or against a corporation within its liquidation period. Which was answered in the
affirmative. For, the corporation still exists for the settlement of its affairs.
People, ex rel. vs. Green,12 also invoked by Alhambra, is as unavailing. There, although the
corporation amended its articles to extend its existence at a time when it had no legal authority yet, it
adopted the amended articles later on when it had the power to extend its life and during its original
term when it could amend its articles.

The foregoing notwithstanding, Alhambra falls back on the contention that its case is arguably within
the purview of the law. It says that before cessation of its corporate life, it could not have extended
the same, for the simple reason that Republic Act 3531 had not then become law. It must be
remembered that Republic Act 3531 took effect on June 20, 1963, while the original term of
Alhambra's existence expired before that date — on January 15, 1962. The mischief that flows from
this theory is at once apparent. It would certainly open the gates for all defunct corporations —
whose charters have expired even long before Republic Act 3531 came into being — to resuscitate
their corporate existence.

4. Alhambra brings into argument Republic Act 1932, which amends Section 196 of the Insurance
Act, now reading as follows: 1äwphï1.ñët

SEC. 196. Any provision of law to the contrary notwithstanding, every domestic life insurance
corporation, formed for a limited period under the provisions of its articles of incorporation,
may extend its corporate existence for a period not exceeding fifty years in any one instance
by amendment to its articles of incorporation on or before the expiration of the term so fixed
in said articles ...

To be observed is that the foregoing statute — unlike Republic Act 3531 — expressly authorizes
domestic insurance corporations to extend their corporate existence "on or before the expiration of
the term" fixed in their articles of incorporation. Republic Act 1932 was approved on June 22, 1957,
long before the passage of Republic Act 3531 in 1963. Congress, Alhambra points out, must have
been aware of Republic Act 1932 when it passed Republic Act 3531. Since the phrase "on or
before", etc., was omitted in Republic Act 3531, which contains no similar limitation, it follows,
according to Alhambra, that it is not necessary to extend corporate existence on or before the
expiration of its original term.

That Republic Act 3531 stands mute as to when extention of corporate existence may be made,
assumes no relevance. We have already said, in the face of a familiar precept, that a defunct
corporation is bereft of any legal faculty not otherwise expressly sanctioned by law.

Illuminating here is the explanatory note of H.B. 1774, later Republic Act 3531 — now in dispute. Its
first paragraph states that "Republic Act No. 1932 allows the automatic extension of the corporate
existence of domestic life insurance corporations upon amendment of their articles of incorporation
on or before the expiration of the terms fixed by said articles". The succeeding lines are decisive:
"This is a good law, a sane and sound one. There appears to be no valid reason why it should not be
made to apply to other private corporations.13

The situation here presented is not one where the law under consideration is ambiguous, where
courts have to put in harness extrinsic aids such as a look at another statute to disentangle doubts. It
is an elementary rule in legal hermeneutics that where the terms of the law are clear, no statutory
construction may be permitted. Upon the basic conceptual scheme under which corporations
operate, and with Section 77 of the Corporation Law particularly in mind, we find no vagueness in
Section 18, as amended by Republic Act 3531. As we view it, by directing attention to Republic Act
1932, Alhambra would seek to create obscurity in the law; and, with that, ask of us a ruling that such
obscurity be explained. This, we dare say, cannot be done.
The pari materia rule of statutory construction, in fact, commands that statutes must be harmonized
with each other.14 So harmonizing, the conclusion is clear that Section 18 of the Corporation Law, as
amended by Republic Act 3531 in reference to extensions of corporate existence, is to be read in the
same light as Republic Act 1932. Which means that domestic corporations in general, as with
domestic insurance companies, can extend corporate existence only on or before the expiration of
the term fixed in their charters.

5. Alhambra pleads for munificence in interpretation, one which brushes technicalities aside. Bases
for this posture are that Republic Act 3531 is a remedial statute, and that extension of corporate life
is beneficial to the economy.

Alhambra's stance does not induce assent. Expansive construction is possible only when there is
something to expand. At the time of the passage of Republic Act 3531, Alhambra's corporate life had
already expired. It had overstepped the limits of its limited existence. No life there is to prolong.

Besides, a new corporation — Alhambra Industries, Inc., with but slight change in stockholdings15 —
has already been established. Its purpose is to carry on, and it actually does carry on,16 the business
of the dissolved entity. The beneficial-effects argument is off the mark.

The way the whole case shapes up then, the only possible drawbacks of Alhambra might be that,
instead of the new corporation (Alhambra Industries, Inc.) being written off, the old one (Alhambra
Cigar & Cigarette Manufacturing Company, Inc.) has to be wound up; and that the old corporate
name cannot be retained fully in its exact form.17What is important though is that the
word Alhambra, the name that counts [it has goodwill], remains.

FOR THE REASONS GIVEN, the ruling of the Securities and Exchange Commission of November
18, 1963, and its order of September 8, 1964, both here under review, are hereby affirmed.

Costs against petitioner Alhambra Cigar & Cigarette Manufacturing Company, Inc. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Angeles and Fernando, JJ.,
concur.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 9321 September 24, 1914

NORBERTO ASUNCION, ET AL., petitioners-appellants,

vs.
MANUEL DE YRIARTE, respondent-appellee.

Modesto Reyes for appellants.

Attorney-General Villamor for appellee.

MORELAND, J.:

This is an action to obtain a writ of mandamus to compel the chief of the division of achieves of the
Executive Bureau to file a certain articles of incorporation.

The chief of the division of archives, the respondent, refused to file the articles of incorporation,
hereinafter referred to, upon the ground that the object of the corporation, as stated in the articles,
was not lawful and that, in pursuance of section 6 of Act No. 1459, they were not registerable.

The proposed incorporators began an action in the Court of First Instance of the city of Manila to
compel the chief of the division of archives to receive and register said articles of incorporation and
to do any and all acts necessary for the complete incorporation of the persons named in the articles.
The court below found in favor of the defendant and refused to order the registration of the articles
mentioned, maintaining ad holding that the defendant, under the Corporation Law, had authority to
determine both the sufficiency of the form of the articles and the legality of the object of the proposed
corporation. This appeal is taken from that judgment.

The first question that arises is whether or not the chief of the division of archives has authority,
under the Corporation for registration, to decide not only as to the sufficiency of the form of the
articles, but also as to the lawfulness of the purpose of the proposed corporation.

It is strongly urged on the part of the appellants that the duties of the defendant are purely ministerial
and that he has no authority to pass upon the lawfulness of the object for which the incorporators
propose to organize. No authorities are cited to support this proposition and we are of the opinion
that it is not sound.

Section 6 of the Corporation Law reads in part as follows:

Five or more persons, not exceeding fifteen, a majority of whom are residents of the
Philippine Islands, may form a private corporation for any lawful purpose by filing with the
division of archives, patents, copyrights, and trademarks if the Executive Bureau articles of
incorporation duly executed and acknowledged before a notary public, . . . .

Simply because the duties of an official happens to be ministerial, it does not necessarily follow that
he may not, in the administration of his office, determine questions of law. We are of the opinion that
it is the duty of the division of archives, when articles of incorporation are presented for registration,
to determine whether the objects of the corporation as expressed in the articles are lawful. We do
not believe that, simply because articles of incorporation presented foe registration are perfect in
form, the division of archives must accept and register them and issue the corresponding certificate
of incorporation no matter what the purpose of the corporation may be as expressed in the articles.
We do not believe it was intended that the division of archives should issue a certificate of
incorporation to, and thereby put the seal of approval of the Government upon, a corporation which
was organized for base of immoral purposes. That such corporation might later, if it sought to carry
out such purposes, be dissolved, or its officials imprisoned or itself heavily fined furnished no reason
why it should have been created in the first instance. It seems to us to be not only the right but the
duty of the divisions of archives to determine the lawfulness of the objects and purposes of the
corporation before it issues a certificate of incorporation.

It having determined that the division of archives, through its officials, has authority to determine not
only the sufficiency as to form of the articles of incorporation offered for registration, but also the
lawfulness of the purposes of leads us to the determination of the question whether or not the chief
of the division of archives, who is the representative thereof and clothed by it with authority to deal
subject to mandamus in the performance of his duties.

We are of the opinion that he may be mandamused if he act in violation of law or if he refuses,
unduly, to comply with the law. While we have held that defendant has power to pass upon the
lawfulness of the purposes of the proposed corporation and that he may, in the fulfillment of his
duties, determine the question of law whether or not those purposes are lawful and embraced within
that class concerning which the law permits corporations to be formed, that does not necessarily
mean, as we have already intimated, that his duties are not ministerial. On the contrary, there is no
incompatibility in holding, as we do hold, that his duties are ministerial and that he has no authority
to exercise discretion in receiving and registering articles of incorporation. He may exercise
judgment — that is, the judicial function — in the determination of the question of law referred to, but
he may not use discretion. The question whether or not the objects of a proposed corporation are
lawful is one that can be decided one way only. If he err in the determination of that question and
refuse to file articles which should be filed under the law, the decision is subject to review and
correction and, upon proper showing, he will be ordered to file the articles. This is the same kind of
determination which a court makes when it decides a case upon the merits, the court makes when it
decides a case upon the merits. When a case is presented to a court upon the merits, the court can
decide only one way and be right. As a matter of law, there is only one way and be right. As a matter
of law, there is only one course to pursue. In a case where the court or other official has discretion in
the resolution of a question, then, within certain limitations, he may decide the question either way
and still be right. Discretion, it may be said generally, is a faculty conferred upon a court or other
official by which he may decide a question either way and still be right. The power conferred upon
the division of archives with respect to the registration of articles of incorporation is not of that
character. It is of the same character as the determination of a lawsuit by a court upon the merits. It
can be decided only one way correctly.

If, therefore, the defendant erred in determining the question presented when the articles were
offered for registration, then that error will be corrected by this court in this action and he will be
compelled to register the articles as offered. If, however, he did not commit an error, but decided that
question correctly, then, of course, his action will be affirmed to the extent that we will deny the relief
prayed for.

The next question leads us to the determination of whether or not the purposes of the corporation as
stated in the articles of incorporation are lawful within the meaning of the Corporation Law.
The purpose of the incorporation as stated in the articles is: "That the object of the corporation is (a)
to organize and regulate the management, disposition, administration and control which the barrio of
Pulo or San Miguel or its inhabitants or residents have over the common property of said residents
or inhabitants or property belonging to the whole barrio as such; and (b) to use the natural products
of the said property for institutions, foundations, and charitable works of common utility and
advantage to the barrio or its inhabitants."

The municipality of Pasig as recognized by law contains within its limits several barrios or small
settlements, like Pulo or San Miguel, which have no local government of their own but are governed
by the municipality of Pasig through its municipal president and council. The president and members
of the municipal council are elected by a general vote of the municipality, the qualified electors of all
the barrios having the right to participate.

The municipality of Pasig is a municipal corporation organized by law. It has the control of all
property of the municipality. The various barrios of the municipality have no right to own or hold
property, they not being recognized as legal entities by any law. The residents of the barrios
participate in the advantages which accrue to the municipality from public property and receive all
the benefits incident to residence in a municipality organized by law. If there is any public property
situated in the barrio of Pulo or San Miguel not belonging to the general government or the province,
it belongs to the municipality of Pasig and the sole authority to manage and administer the same
resides in that municipality. Until the present laws upon the subject are charged no other entity can
be the owner of such property or control or administer it.

The object of the proposed corporation, as appears from the articles offered for registration, is to
make of the barrio of Pulo or San Miguel a corporation which will become the owner of and have the
right to control and administer any property belonging to the municipality of Pasig found within the
limits of that barrio. This clearly cannot be permitted. Otherwise municipalities as now established by
law could be deprived of the property which they now own and administer. Each barrio of the
municipality would become under the scheme proposed, a separate corporation, would take over the
ownership, administration, and control of that portion of the municipal territory within its limits. This
would disrupt, in a sense, the municipalities of the Islands by dividing them into a series of smaller
municipalities entirely independent of the original municipality.

What the law does not permit cannot be obtained by indirection. The object of the proposed
corporation is clearly repugnant to the provisions of the Municipal Code and the governments of
municipalities as they have been organized thereunder. (Act No. 82, Philippine Commission.)

The judgment appealed from is affirmed, with costs against appellants.

Arellano, C.J., Torres, Johnson, Carson and Araullo, JJ., concur.

 SECOND DIVISION

[G.R. No. 117188. August 7, 1997]

LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION,

INC., petitioner, vs. HON. COURT OF APPEALS,
HOME INSURANCE AND GUARANTY CORPORATION, EMDEN
ENCARNACION and HORATIO AYCARDO, respondents.

DECISION
ROMERO, J.:

May the failure of a corporation to file its by-laws within one month from the
date of its incorporation, as mandated by Section 46 of the Corporation Code,
result in its automatic dissolution?
This is the issue raised in this petition for review on certiorari of the
Decision of the Court of Appeals affirming the decision of the Home Insurance
[1]

and Guaranty Corporation (HIGC).This quasi-judicial body recognized Loyola

Grand Villas Homeowners Association (LGVHA) as the sole homeowners
association in Loyola Grand Villas, a duly registered subdivision in Quezon City
and Marikina City that was owned and developed by Solid Homes, Inc. It
revoked the certificates of registration issued to Loyola Grand Villas
Homeowners (North) Association Incorporated (the North Association for
brevity) and Loyola Grand Villas Homeowners (South) Association Incorporated
(the South Association).
LGVHAI was organized on February 8, 1983 as the association of
homeowners and residents of the Loyola Grand Villas. It was registered with
the Home Financing Corporation, the predecessor of herein respondent HIGC,
as the sole homeowners organization in the said subdivision under Certificate
of Registration No. 04-197. It was organized by the developer of the subdivision
and its first president was Victorio V. Soliven, himself the owner of the
developer. For unknown reasons, however, LGVHAI did not file its corporate
by-laws.
Sometime in 1988, the officers of the LGVHAI tried to register its by-laws.
They failed to do so. To the officers consternation, they discovered that there
[2]

were two other organizations within the subdivision the North Association and
the South Association. According to private respondents, a non-resident and
Soliven himself, respectively headed these associations. They also discovered
that these associations had five (5) registered homeowners each who were also
the incorporators, directors and officers thereof. None of the members of the
LGVHAI was listed as member of the North Association while three (3)
members of LGVHAI were listed as members of the South Association. The [3]

North Association was registered with the HIGC on February 13, 1989 under
Certificate of Registration No. 04-1160 covering Phases West II, East III, West
III and East IV. It submitted its by-laws on December 20, 1988.
In July, 1989, when Soliven inquired about the status of LGVHAI, Atty.
Joaquin A. Bautista, the head of the legal department of the HIGC, informed
him that LGVHAI had been automatically dissolved for two reasons. First, it did
not submit its by-laws within the period required by the Corporation Code and,
second, there was non-user of corporate charter because HIGC had not
received any report on the associations activities. Apparently, this information
resulted in the registration of the South Association with the HIGC on July 27,
1989 covering Phases West I, East I and East 11. It filed its by-laws on July 26,
1989.
These developments prompted the officers of the LGVHAI to lodge a
complaint with the HIGC. They questioned the revocation of LGVHAIs
certificate of registration without due notice and hearing and concomitantly
prayed for the cancellation of the certificates of registration of the North and
South Associations by reason of the earlier issuance of a certificate of
registration in favor of LGVHAI.
On January 26, 1993, after due notice and hearing, private respondents
obtained a favorable ruling from HIGC Hearing Officer Danilo C. Javier who
disposed of HIGC Case No. RRM-5-89 as follows:

WHEREFORE, judgment is hereby rendered recognizing the Loyola Grand Villas

Homeowners Association, Inc., under Certificate of Registration No. 04-197 as the
duly registered and existing homeowners association for Loyola Grand Villas
homeowners, and declaring the Certificates of Registration of Loyola Grand Villas
Homeowners (North) Association, Inc. and Loyola Grand Villas Homeowners (South)
Association, Inc. as hereby revoked or cancelled; that the receivership be terminated
and the Receiver is hereby ordered to render an accounting and turn-over to Loyola
Grand Villas Homeowners Association, Inc., all assets and records of the Association
now under his custody and possession.

The South Association appealed to the Appeals Board of the HIGC. In its
Resolution of September 8, 1993, the Board dismissed the appeal for lack of
[4]

merit.
 Rebuffed, the South Association in turn appealed to the Court of Appeals,
raising two issues. First, whether or not LGVHAIs failure to file its by-laws within
the period prescribed by Section 46 of the Corporation Code resulted in the
automatic dissolution of LGVHAI. Second, whether or not two homeowners
associations may be authorized by the HIGC in one sprawling subdivision.
However, in the Decision of August 23, 1994 being assailed here, the Court of
Appeals affirmed the Resolution of the HIGC Appeals Board.
In resolving the first issue, the Court of Appeals held that under the
Corporation Code, a private corporation commences to have corporate
existence and juridical personality from the date the Securities and Exchange
Commission (SEC) issues a certificate of incorporation under its official
seal. The requirement for the filing of by-laws under Section 46 of the
Corporation Code within one month from official notice of the issuance of the
certificate of incorporation presupposes that it is already incorporated, although
it may file its by-laws with its articles of incorporation. Elucidating on the effect
of a delayed filing of by-laws, the Court of Appeals said:

We also find nothing in the provisions cited by the petitioner, i.e., Sections 46 and 22,
Corporation Code, or in any other provision of the Code and other laws which provide
or at least imply that failure to file the by-laws results in an automatic dissolution of
the corporation. While Section 46, in prescribing that by-laws must be adopted within
the period prescribed therein, may be interpreted as a mandatory provision,
particularly because of the use of the word must, its meaning cannot be stretched to
support the argument that automatic dissolution results from non-compliance.

We realize that Section 46 or other provisions of the Corporation Code are silent on
the result of the failure to adopt and file the by-laws within the required period. Thus,
Section 46 and other related provisions of the Corporation Code are to be construed
with Section 6 (1) of P.D. 902-A. This section empowers the SEC to suspend or
revoke certificates of registration on the grounds listed therein. Among the grounds
stated is the failure to file by-laws (see also II Campos: The Corporation Code, 1990
ed., pp. 124-125). Such suspension or revocation, the same section provides, should
be made upon proper notice and hearing. Although P.D. 902-A refers to the SEC, the
same principles and procedures apply to the public respondent HIGC as it exercises its
power to revoke or suspend the certificates of registration or homeowners
associations. (Section 2 [a], E.O. 535, series 1979, transferred the powers and
authorities of the SEC over homeowners associations to the HIGC.)

We also do not agree with the petitioners interpretation that Section 46, Corporation
Code prevails over Section 6, P.D. 902-A and that the latter is invalid because it
contravenes the former. There is no basis for such interpretation considering that these
two provisions are not inconsistent with each other. They are, in fact, complementary
to each other so that one cannot be considered as invalidating the other.

The Court of Appeals added that, as there was no showing that the
registration of LGVHAI had been validly revoked, it continued to be the duly
registered homeowners association in the Loyola Grand Villas. More
importantly, the South Association did not dispute the fact that LGVHAI had
been organized and that, thereafter, it transacted business within the period
prescribed by law.
On the second issue, the Court of Appeals reiterated its previous ruling that
[5]

the HIGC has the authority to order the holding of a referendum to determine
which of two contending associations should represent the entire community,
village or subdivision.
Undaunted, the South Association filed the instant petition for review
on certiorari. It elevates as sole issue for resolution the first issue it had raised
before the Court of Appeals, i.e., whether or not the LGVHAIs failure to file its
by-laws within the period prescribed by Section 46 of the Corporation Code had
the effect of automatically dissolving the said corporation.
Petitioner contends that, since Section 46 uses the word must with respect
to the filing of by-laws, noncompliance therewith would result in self-extinction
either due to non-occurrence of a suspensive condition or the occurrence of a
resolutory condition under the hypothesis that (by) the issuance of the certificate
of registration alone the corporate personality is deemed already formed. It
asserts that the Corporation Code provides for a gradation of violations of
requirements. Hence, Section 22 mandates that the corporation must be
formally organized and should commence transactions within two years from
date of incorporation. Otherwise, the corporation would be deemed dissolved.
On the other hand, if the corporation commences operations but becomes
continuously inoperative for five years, then it may be suspended or its
corporate franchise revoked.
Petitioner concedes that Section 46 and the other provisions of the
Corporation Code do not provide for sanctions for non-filing of the by-laws.
However, it insists that no sanction need be provided because the mandatory
nature of the provision is so clear that there can be no doubt about its being an
essential attribute of corporate birth. To petitioner, its submission is buttressed
by the facts that the period for compliance is spelled out distinctly; that the
certification of the SEC/HIGC must show that the by-laws are not inconsistent
with the Code, and that a copy of the by-laws has to be attached to the articles
of incorporation. Moreover, no sanction is provided for because in the first
place, no corporate identity has been completed. Petitioner asserts that non-
provision for remedy or sanction is itself the tacit proclamation that non-
compliance is fatal and no corporate existence had yet evolved, and therefore,
there was no need to proclaim its demise. In a bid to convince the Court of its
[6]

arguments, petitioner stresses that:

x x x the word MUST is used in Sec. 46 in its universal literal meaning and corollary
human implication its compulsion is integrated in its very essence MUST is always
enforceable by the inevitable consequence that is, OR ELSE. The use of the
word MUST in Sec. 46 is no exception it means file the by-laws within one month
after notice of issuance of certificate of registration OR ELSE. The OR ELSE,
though not specified, is inextricably a part of MUST. Do this or if you do not you are
Kaput. The importance of the by-laws to corporate existence compels such meaning
for as decreed the by-laws is `the government of the corporation. Indeed, how can the
corporation do any lawful act as such without by-laws. Surely, no law is intended to
create chaos.[7]

Petitioner asserts that P.D. No. 902-A cannot exceed the scope and power
of the Corporation Code which itself does not provide sanctions for non-filing of
by-laws. For the petitioner, it is not proper to assess the true meaning of Sec.
46 x x x on an unauthorized provision on such matter contained in the said
decree.
In their comment on the petition, private respondents counter that the
requirement of adoption of by-laws is not mandatory. They point to P.D. No.
902-A as having resolved the issue of whether said requirement is mandatory
or merely directory. Citing Chung Ka Bio v. Intermediate Appellate
Court, private respondents contend that Section 6(I) of that decree provides
[8]

that non-filing of by-laws is only a ground for suspension or revocation of the

certificate of registration of corporations and, therefore, it may not result in
automatic dissolution of the corporation.Moreover, the adoption and filing of by-
laws is a condition subsequent which does not affect the corporate personality
of a corporation like the LGVHAI. This is so because Section 9 of the
Corporation Code provides that the corporate existence and juridical
personality of a corporation begins from the date the SEC issues a certificate
of incorporation under its official seal. Consequently, even if the by-laws have
not yet been filed, a corporation may be considered a de facto corporation. To
emphasize the fact the LGVHAI was registered as the sole homeowners
association in the Loyola Grand Villas, private respondents point out that
membership in the LGVHAI was an unconditional restriction in the deeds of sale
signed by lot buyers.
 In its reply to private respondents comment on the petition, petitioner
reiterates its argument that the word must in Section 46 of the Corporation Code
is mandatory. It adds that, before the ruling in Chung Ka Bio v. Intermediate
Appellate Court could be applied to this case, this Court must first resolve the
issue of whether or not the provisions of P.D. No. 902-A prescribing the rules
and regulations to implement the Corporation Code can rise above and change
the substantive provisions of the Code.
The pertinent provision of the Corporation Code that is the focal point of
controversy in this case states:

Sec. 46. Adoption of by-laws. Every corporation formed under this Code, must within
one (1) month after receipt of official notice of the issuance of its certificate of
incorporation by the Securities and Exchange Commission, adopt a code of by-laws
for its government not inconsistent with this Code. For the adoption of by-laws by the
corporation, the affirmative vote of the stockholders representing at least a majority of
the outstanding capital stock, or of at least a majority of the members, in the case of
non-stock corporations, shall be necessary. The by-laws shall be signed by the
stockholders or members voting for them and shall be kept in the principal office of
the corporation, subject to the stockholders or members voting for them and shall be
kept in the principal office of the corporation, subject to inspection of the stockholders
or members during office hours; and a copy thereof, shall be filed with the Securities
and Exchange Commission which shall be attached to the original articles of
incorporation.

Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted

and filed prior to incorporation; in such case, such by-laws shall be approved and
signed by all the incorporators and submitted to the Securities and Exchange
Commission, together with the articles of incorporation.

In all cases, by-laws shall be effective only upon the issuance by the Securities and
Exchange Commission of a certification that the by-laws are not inconsistent with this
Code.

The Securities and Exchange Commission shall not accept for filing the by-laws or
any amendment thereto of any bank, banking institution, building and loan
association, trust company, insurance company, public utility, educational institution
or other special corporations governed by special laws, unless accompanied by a
certificate of the appropriate government agency to the effect that such by-laws or
amendments are in accordance with law.
 As correctly postulated by the petitioner, interpretation of this provision of
law begins with the determination of the meaning and import of the word must in
this section. Ordinarily, the word must connotes an imperative act or operates
to impose a duty which may be enforced. It is synonymous with ought which
[9]

connotes compulsion or mandatoriness. However, the word must in a statute,

[10]

like shall, is not always imperative. It may be consistent with an exercise of

discretion. In this jurisdiction, the tendency has been to interpret shall as the
context or a reasonable construction of the statute in which it is used demands
or requires. This is equally true as regards the word must. Thus, if the
[11]

language of a statute considered as a whole and with due regard to its nature
and object reveals that the legislature intended to use the words shall and must
to be directory, they should be given that meaning. [12]

In this respect, the following portions of the deliberations of the Batasang

Pambansa No. 68 are illuminating:
MR. FUENTEBELLA. Thank you, Mr. Speaker.
On page 34, referring to the adoption of by-laws, are we made to understand
here, Mr. Speaker, that by-laws must immediately be filed within one month after
the issuance? In other words, would this be mandatory or directory in character?
MR. MENDOZA. This is mandatory.
MR. FUENTEBELLA. It being mandatory, Mr. Speaker, what would be the
effect of the failure of the corporation to file these by-laws within one month?
MR. MENDOZA. There is a provision in the latter part of the Code which
identifies and describes the consequences of violations of any provision of this
Code. One such consequence is the dissolution of the corporation for its inability,
or perhaps, incurring certain penalties.
MR. FUENTEBELLA. But it will not automatically amount to a dissolution of the
corporation by merely failing to file the by-laws within one month. Supposing the
corporation was late, say, five days, what would be the mandatory penalty?
MR. MENDOZA. I do not think it will necessarily result in the automatic or ipso
facto dissolution of the corporation. Perhaps, as in the case, as you suggested, in
the case of El Hogar Filipino where a quo warranto action is brought, one takes
into account the gravity of the violation committed. If the by-laws were late the
filing of the by-laws were late by, perhaps, a day or two, I would suppose that
might be a tolerable delay, but if they are delayed over a period of months as is
happening now because of the absence of a clear requirement that by-laws must
be completed within a specified period of time, the corporation must suffer certain
consequences.[13]
This exchange of views demonstrates clearly that automatic corporate
dissolution for failure to file the by-laws on time was never the intention of the
legislature. Moreover, even without resorting to the records of deliberations of
the Batasang Pambansa, the law itself provides the answer to the issue
propounded by petitioner.
Taken as a whole and under the principle that the best interpreter of a
statute is the statute itself (optima statuli interpretatix est ipsum
statutum), Section 46 aforequoted reveals the legislative intent to attach a
[14]

directory, and not mandatory, meaning for the word must in the first sentence
thereof. Note should be taken of the second paragraph of the law which allows
the filing of the by-laws even prior to incorporation. This provision in the same
section of the Code rules out mandatory compliance with the requirement of
filing the by-laws within one (1) month after receipt of official notice of the
issuance of its certificate of incorporation by the Securities and Exchange
Commission. It necessarily follows that failure to file the by-laws within that
period does not imply the demise of the corporation. By-laws may be necessary
for the government of the corporation but these are subordinate to the articles
of incorporation as well as to the Corporation Code and related statutes. There [15]

are in fact cases where by-laws are unnecessary to corporate existence or to

the valid exercise of corporate powers, thus:

In the absence of charter or statutory provisions to the contrary, by-laws are not
necessary either to the existence of a corporation or to the valid exercise of the powers
conferred upon it, certainly in all cases where the charter sufficiently provides for the
government of the body; and even where the governing statute in express terms
confers upon the corporation the power to adopt by-laws, the failure to exercise the
power will be ascribed to mere nonaction which will not render void any acts of the
corporation which would otherwise be valid. (Italics supplied.)
[16]

As Fletcher aptly puts it:

It has been said that the by-laws of a corporation are the rule of its life, and that until
by-laws have been adopted the corporation may not be able to act for the purposes of
its creation, and that the first and most important duty of the members is to adopt
them. This would seem to follow as a matter of principle from the office and functions
of by-laws. Viewed in this light, the adoption of by-laws is a matter of practical, if not
one of legal, necessity. Moreover, the peculiar circumstances attending the formation
of a corporation may impose the obligation to adopt certain by-laws, as in the case of
a close corporation organized for specific purposes. And the statute or general laws
from which the corporation derives its corporate existence may expressly require it to
make and adopt by-laws and specify to some extent what they shall contain and the
manner of their adoption. The mere fact, however, of the existence of power in the
corporation to adopt by-laws does not ordinarily and of necessity make the exercise
of such power essential to its corporate life, or to the validity of any of its acts. [17]
 Although the Corporation Code requires the filing of by-laws, it does not
expressly provide for the consequences of the non-filing of the same within the
period provided for in Section 46. However, such omission has been rectified
by Presidential Decree No. 902-A, the pertinent provisions on the jurisdiction of
the SEC of which state:

SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall

possess the following powers:

xxx xxx xxx xxx

(l) To suspend, or revoke, after proper notice and hearing, the franchise or
certificate of registration of corporations, partnerships or associations, upon any of
the grounds provided by law, including the following:

xxx xxx xxx xxx

5. Failure to file by-laws within the required period;

xxx xxx xxx xxx

In the exercise of the foregoing authority and jurisdiction of the Commissions or by a

Commissioner or by such other bodies, boards, committees and/or any officer as may
be created or designated by the Commission for the purpose. The decision, ruling or
order of any such Commissioner, bodies, boards, committees and/or officer may be
appealed to the Commission sitting en banc within thirty (30) days after receipt by the
appellant of notice of such decision, ruling or order. The Commission shall
promulgate rules of procedures to govern the proceedings, hearings and appeals of
cases falling within its jurisdiction.

The aggrieved party may appeal the order, decision or ruling of the Commission
sitting en banc to the Supreme Court by petition for review in accordance with the
pertinent provisions of the Rules of Court.

Even under the foregoing express grant of power and authority, there can
be no automatic corporate dissolution simply because the incorporators failed
to abide by the required filing of by-laws embodied in Section 46 of the
Corporation Code. There is no outright demise of corporate existence. Proper
notice and hearing are cardinal components of due process in any democratic
institution, agency or society. In other words, the incorporators must be given
the chance to explain their neglect or omission and remedy the same.
 That the failure to file by-laws is not provided for by the Corporation Code
but in another law is of no moment. P.D. No. 902-A, which took effect
immediately after its promulgation on March 11, 1976, is very much apposite to
the Code. Accordingly, the provisions abovequoted supply the law governing
the situation in the case at bar, inasmuch as the Corporation Code and P.D.
No. 902-A are statutes in pari materia. Interpretare et concordare legibus
est optimus interpretandi. Every statute must be so construed and
harmonized with other statutes as to form a uniform system of jurisprudence. [18]

As the rules and regulations or private laws enacted by the corporation to

regulate, govern and control its own actions, affairs and concerns and its
stockholders or members and directors and officers with relation thereto and
among themselves in their relation to it, by-laws are indispensable to
[19]

corporations in this jurisdiction. These may not be essential to corporate birth

but certainly, these are required by law for an orderly governance and
management of corporations. Nonetheless, failure to file them within the period
required by law by no means tolls the automatic dissolution of a corporation.
In this regard, private respondents are correct in relying on the
pronouncements of this Court in Chung Ka Bio v. Intermediate Appellate
Court, as follows:
[20]

x x x. Moreover, failure to file the by-laws does not automatically operate to dissolve
a corporation but is now considered only a ground for such dissolution.

Section 19 of the Corporation Law, part of which is now Section 22 of the

Corporation Code, provided that the powers of the corporation would cease if it did
not formally organize and commence the transaction of its business or the
continuation of its works within two years from date of its incorporation. Section 20,
which has been reproduced with some modifications in Section 46 of the Corporation
Code, expressly declared that every corporation formed under this Act, must within
one month after the filing of the articles of incorporation with the Securities and
Exchange Commission, adopt a code of by-laws. Whether this provision should be
given mandatory or only directory effect remained a controversial question until it
became academic with the adoption of PD 902-A. Under this decree, it is now clear
that the failure to file by-laws within the required period is only a ground for
suspension or revocation of the certificate of registration of corporations.

Non-filing of the by-laws will not result in automatic dissolution of the corporation.
Under Section 6(I) of PD 902-A, the SEC is empowered to suspend or revoke, after
proper notice and hearing, the franchise or certificate of registration of a corporation
on the ground inter alia of failure to file by-laws within the required period. It is clear
from this provision that there must first of all be a hearing to determine the existence
of the ground, and secondly, assuming such finding, the penalty is not necessarily
revocation but may be only suspension of the charter. In fact, under the rules and
regulations of the SEC, failure to file the by-laws on time may be penalized merely
with the imposition of an administrative fine without affecting the corporate existence
of the erring firm.

It should be stressed in this connection that substantial compliance with conditions

subsequent will suffice to perfect corporate personality. Organization and
commencement of transaction of corporate business are but conditions subsequent and
not prerequisites for acquisition of corporate personality. The adoption and filing of
by-laws is also a condition subsequent. Under Section 19 of the Corporation Code, a
corporation commences its corporate existence and juridical personality and is
deemed incorporated from the date the Securities and Exchange Commission issues
certificate of incorporation under its official seal. This may be done even before the
filing of the by-laws, which under Section 46 of the Corporation Code, must be
adopted within one month after receipt of official notice of the issuance of its
certificate of incorporation.
[21]

That the corporation involved herein is under the supervision of the HIGC
does not alter the result of this case. The HIGC has taken over the specialized
functions of the former Home Financing Corporation by virtue of Executive
Order No. 90 dated December 17, 1986. With respect to homeowners
[22]

associations, the HIGC shall exercise all the powers, authorities and
responsibilities that are vested on the Securities and Exchange Commission x
x x, the provision of Act 1459, as amended by P.D. 902-A, to the contrary
notwithstanding. [23]

WHEREFORE, the instant petition for review on certiorari is hereby

DENIED and the questioned Decision of the Court of Appeals AFFIRMED. This
Decision is immediately executory.Costs against petitioner.
SO ORDERED.
Regalado, (Chairman), Puno, and Mendoza, JJ., concur.
Torres, Jr., J., on leave.
 SECOND DIVISION

[G.R. No. 121466. August 15, 1997]

PMI COLLEGES, petitioner, vs. THE NATIONAL LABOR RELATIONS

COMMISSION and ALEJANDRO GALVAN, respondents.

DECISION
ROMERO, J.:

Subject of the instant petition for certiorari under Rule 65 of the Rules of
Court is the resolution of public respondent National Labor Relations
[1]

Commission rendered on August 4, 1995, affirming in toto the December 7,

[2]

1994 decision of Labor Arbiter Pablo C. Espiritu declaring petitioner PMI

[3]

Colleges liable to pay private respondent Alejandro Galvan P405,000.00 in

unpaid wages and P40,532.00 as attorneys fees.
A chronicle of the pertinent events on record leading to the filing of the
instant petition is as follows:
On July 7, 1991, petitioner, an educational institution offering courses on
basic seamans training and other marine-related courses, hired private
respondent as contractual instructor with an agreement that the latter shall be
paid at an hourly rate of P30.00 to P50.00, depending on the description of load
subjects and on the schedule for teaching the same. Pursuant to this
engagement, private respondent then organized classes in marine engineering.
Initially, private respondent and other instructors were compensated for
services rendered during the first three periods of the abovementioned
contract. However, for reasons unknown to private respondent, he stopped
receiving payment for the succeeding rendition of services. This claim of non-
payment was embodied in a letter dated March 3, 1992, written by petitioners
Acting Director, Casimiro A. Aguinaldo, addressed to its President, Atty.
Santiago Pastor, calling attention to and appealing for the early approval and
release of the salaries of its instructors including that of private respondent. It
appeared further in said letter that the salary of private respondent
corresponding to the shipyard and plant visits and the ongoing on-the-job
training of Class 41 on board MV Sweet Glory of Sweet Lines, Inc. was not yet
included. This request of the Acting Director apparently went
unheeded. Repeated demands having likewise failed, private respondent was
soon constrained to file a complaint before the National Capital Region
[4]

Arbitration Branch on September 14, 1993 seeking payment for salaries earned
from the following: (1) basic seaman course Classes 41 and 42 for the period
covering October 1991 to September 1992; (2) shipyard and plant visits and
on-the-job training of Classes 41 and 42 for the period covering October 1991
to September 1992 on board M/V Sweet Glory vessel; and (3) as Acting
Director of Seaman Training Course for 3-1/2 months.
In support of the abovementioned claims, private respondent submitted
documentary evidence which were annexed to his complaint, such as the
detailed load and schedule of classes with number of class hours and rate per
hour (Annex A); PMI Colleges Basic Seaman Training Course (Annex B); the
aforementioned letter-request for payment of salaries by the Acting Director of
PMI Colleges (Annex C); unpaid load of private respondent (Annex D); and
vouchers prepared by the accounting department of petitioner but whose
amounts indicated therein were actually never paid to private respondent
(Exhibit E).
Private respondents claims, as expected, were resisted by petitioner. It
alleged that classes in the courses offered which complainant claimed to have
remained unpaid were not held or conducted in the school premises of PMI
Colleges. Only private respondent, it was argued, knew whether classes were
indeed conducted. In the same vein, petitioner maintained that it exercised no
appropriate and proper supervision of the said classes which activities allegedly
violated certain rules and regulations of the Department of Education, Culture
and Sports (DECS). Furthermore, the claims, according to petitioner, were all
exaggerated and that, at any rate, private respondent abandoned his work at
the time he should have commenced the same.
In reply, private respondent belied petitioners allegations contending,
among others, that he conducted lectures within the premises of petitioners
rented space located at 5th Floor, Manufacturers Bldg., Sta. Cruz, Manila; that
his students duly enrolled with the Registrars Office of petitioner; that shipyard
and plant visits were conducted at Fort San Felipe, Cavite Naval Base; that
petitioner was fully aware of said shipyard and plant visits because it even wrote
a letter for that purpose; and that basic seaman courses 41 and 42 were
sanctioned by the DECS as shown by the records of the Registrars Office.
Later in the proceedings below, petitioner manifested that Mr. Tomas G.
Cloma, Jr., a member of the petitioners Board of Trustees wrote a letter to the
[5]

Chairman of the Board on May 23, 1994, clarifying the case of private
respondent and stating therein, inter alia, that under petitioners by-laws only the
Chairman is authorized to sign any contract and that private respondent, in any
event, failed to submit documents on the alleged shipyard and plant visits in
Cavite Naval Base.
Attempts at amicable settlement having failed, the parties were required to
submit their respective position papers. Thereafter, on June 16, 1994, the Labor
Arbiter issued an order declaring the case submitted for decision on the basis
of the position papers which the parties filed. Petitioner, however, vigorously
opposed this order insisting that there should be a formal trial on the merits in
view of the important factual issues raised. In another order dated July 22,
1994, the Labor Arbiter impliedly denied petitioners opposition, reiterating that
the case was already submitted for decision. Hence, a decision was
subsequently rendered by the Labor Arbiter on December 7, 1994 finding for
the private respondent. On appeal, the NLRC affirmed the same in toto in its
decision of August 4, 1995.
Aggrieved, petitioner now pleads for the Court to resolve the following
issues in its favor, to wit:
I. Whether the money claims of private respondent representing salaries/wages as
contractual instructor for class instruction, on-the-job training and shipboard and
plant visits have valid legal and factual bases;
II. Whether claims for salaries/wages for services relative to on-the-job training and
shipboard and plant visits by instructors, assuming the same were really conducted,
have valid bases;
III. Whether the petitioner was denied its right to procedural due process; and
IV. Whether the NLRC findings in its questioned resolution have sound legal and factual
support.
We see no compelling reason to grant petitioners plea; the same must,
therefore, be dismissed.
At once, a mere perusal of the issues raised by petitioner already invites
dismissal for demonstrated ignorance and disregard of settled rules
on certiorari. Except perhaps for the third issue, the rest glaringly call for a re-
examination, evaluation and appreciation of the weight and sufficiency of factual
evidence presented before the Labor Arbiter. This, of course, the Court cannot
do in the exercise of its certiorari jurisdiction without transgressing the well-
defined limits thereof. The corrective power of the Court in this regard is
confined only to jurisdictional issues and a determination of whether there is
such grave abuse of discretion amounting to lack or excess of jurisdiction on
the part of a tribunal or agency. So unyielding and consistent are the decisional
rules thereon that it is indeed surprising why petitioners counsel failed to accord
them the observance they deserve.
 Thus, in San Miguel Foods, Inc. Cebu B-Meg Feed Plant v. Hon. Bienvenido
Laguesma, we were emphatic in declaring that:
[6]

This Court is definitely not the proper venue to consider this matter for it is not a trier
of facts. x x x Certiorari is a remedy narrow in its scope and inflexible in character. It
is not a general utility tool in the legal workshop. Factual issues are not a proper
subject for certiorari, as the power of the Supreme Court to review labor cases is
limited to the issue of jurisdiction and grave abuse of discretion. x x x (Emphasis
supplied).

Of the same tenor was our disquisition in Ilocos Sur Electric Cooperative,
Inc. v. NLRC where we made plain that:
[7]

In certiorari proceedings under Rule 65 of the Rules of Court, judicial review by this
Court does not go so far as to evaluate the sufficiency of evidence upon which the
Labor Arbiter and the NLRC based their determinations, the inquiry being limited
essentially to whether or not said public respondents had acted without or in excess of
its jurisdiction or with grave abuse of discretion. (Emphasis supplied).

To be sure, this does not mean that the Court would disregard altogether
the evidence presented. We merely declare that the extent of review of
evidence we ordinarily provide in other cases is different when it is a special
civil action of certiorari. The latter commands us to merely determine whether
there is basis established on record to support the findings of a tribunal and
such findings meet the required quantum of proof, which in this instance, is
substantial evidence. Our deference to the expertise acquired by quasi-judicial
agencies and the limited scope granted to us in the exercise of certiorari
jurisdiction restrain us from going so far as to probe into the correctness of a
tribunals evaluation of evidence, unless there is palpable mistake and complete
disregard thereof in which case certiorari would be proper. In plain terms,
in certiorari proceedings, we are concerned with mere errors of jurisdiction and
not errors of judgment. Thus:

The rule is settled that the original and exclusive jurisdiction of this Court to review a
decision of respondent NLRC (or Executive Labor Arbiter as in this case) in a petition
for certiorari under Rule 65 does not normally include an inquiry into the correctness
of its evaluation of the evidence. Errors of judgment, as distinguished from errors of
jurisdiction, are not within the province of a special civil action for certiorari, which is
merely confined to issues of jurisdiction or grave abuse of discretion. It is thus
incumbent upon petitioner to satisfactorily establish that respondent Commission or
executive labor arbiter acted capriciously and whimsically in total disregard of
evidence material to or even decisive of the controversy, in order that the
extraordinary writ of certiorari will lie. By grave abuse of discretion is meant such
capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction,
and it must be shown that the discretion was exercised arbitrarily or
despotically. For certiorari to lie there must be capricious, arbitrary and whimsical
exercise of power, the very antithesis of the judicial prerogative in accordance with
centuries of both civil law and common law traditions. [8]

The Court entertains no doubt that the foregoing doctrines apply with equal
force in the case at bar.
In any event, granting that we may have to delve into the facts and evidence
of the parties, we still find no puissant justification for us to adjudge both the
Labor Arbiters and NLRCs appreciation of such evidence as indicative of any
grave abuse of discretion.
First. Petitioner places so much emphasis on its argument that private
respondent did not produce a copy of the contract pursuant to which he
rendered services. This argument is, of course, puerile. The absence of such
copy does not in any manner negate the existence of a contract of employment
since (C)ontracts shall be obligatory, in whatever form they have been entered
into, provided all the essential requisites for their validity are present. The only
[9]

exception to this rule is when the law requires that a contract be in some form
in order that it may be valid or enforceable, or that a contract be proved in a
certain way. However, there is no requirement under the law that the contract
of employment of the kind entered into by petitioner with private respondent
should be in any particular form. While it may have been desirable for private
respondent to have produced a copy of his contract if one really exists, but the
absence thereof, in any case, does not militate against his claims inasmuch as:

No particular form of evidence is required to prove the existence of an employer-

employee relationship. Any competent and relevant evidence to prove the relationship
may be admitted. For, if only documentary evidence would be required to show that
relationship, no scheming employer would ever be brought before the bar of justice,
as no employer would wish to come out with any trace of the illegality he has
authored considering that it should take much weightier proof to invalidate a written
instrument. x x x[10]

At any rate, the vouchers prepared by petitioners own accounting

department and the letter-request of its Acting Director asking for payment of
private respondents services suffice to support a reasonable conclusion that
private respondent was employed with petitioner. How else could one explain
the fact that private respondent was supposed to be paid the amounts
mentioned in those documents if he were not employed? Petitioners evidence
is wanting in this respect while private respondent affirmatively stated that the
same arose out of his employment with petitioner. As between the two, the latter
is weightier inasmuch as we accord affirmative testimony greater value than a
negative one. For the foregoing reasons, we find it difficult to agree with
petitioners assertion that the absence of a copy of the alleged contract should
nullify private respondents claims.
Neither can we concede that such contract would be invalid just because
the signatory thereon was not the Chairman of the Board which allegedly
violated petitioners by-laws. Since by-laws operate merely as internal rules
among the stockholders, they cannot affect or prejudice third persons who deal
with the corporation, unless they have knowledge of the same. No proof [11]

appears on record that private respondent ever knew anything about the
provisions of said by-laws. In fact, petitioner itself merely asserts the same
without even bothering to attach a copy or excerpt thereof to show that there is
such a provision. How can it now expect the Labor Arbiter and the NLRC to
believe it? That this allegation has never been denied by private respondent
does not necessarily signify admission of its existence because technicalities
of law and procedure and the rules obtaining in the courts of law do not strictly
apply to proceedings of this nature.
Second. Petitioner bewails the fact that both the Labor Arbiter and the
NLRC accorded due weight to the documents prepared by private respondent
since they are said to be self-serving. Self-serving evidence is not to be literally
taken as evidence that serves ones selfish interest. The fact alone that most
[12]

of the documents submitted in evidence by private respondent were prepared

by him does not make them self-serving since they have been offered in the
proceedings before the Labor Arbiter and that ample opportunity was given to
petitioner to rebut their veracity and authenticity. Petitioner, however, opted to
merely deny them which denial, ironically, is actually what is considered self-
serving evidence and, therefore, deserves scant consideration. In any event,
[13]

any denial made by petitioner cannot stand against the affirmative and fairly
detailed manner by which private respondent supported his claims, such as the
places where he conducted his classes, on-the-job training and shipyard and
plant visits; the rate he applied and the duration of said rendition of services;
the fact that he was indeed engaged as a contractual instructor by petitioner;
and that part of his services was not yet remunerated. These evidence, to
reiterate, have never been effectively refuted by petitioner.
Third. As regards the amounts demanded by private respondent, we can
only rely upon the evidence presented which, in this case, consists of the
computation of private respondent as well as the findings of both the Labor
Arbiter and the NLRC. Petitioner, it must be stressed, presented no satisfactory
proof to the contrary. Absent such proof, we are constrained to rely upon private
respondents otherwise straightforward explanation of his claims.
Fourth. The absence of a formal hearing or trial before the Labor Arbiter is
no cause for petitioner to impute grave abuse of discretion. Whether to conduct
one or not depends on the sole discretion of the Labor Arbiter, taking into
account the position papers and supporting documents submitted by the parties
on every issue presented. If the Labor Arbiter, in his judgment, is confident that
he can rely on the documents before him, he cannot be faulted for not
conducting a formal trial anymore, unless it would appear that, in view of the
particular circumstances of a case, the documents, without more, are really
insufficient.
As applied to the instant case, we can understand why the Labor Arbiter
has opted not to proceed to trial, considering that private respondent, through
annexes to his position paper, has adequately established that, first of all, he
was an employee of petitioner; second, the nature and character of his services,
and finally, the amounts due him in consideration of his services. Petitioner, it
should be reiterated, failed to controvert them. Actually, it offered only four
documents later in the course of the proceedings. It has only itself to blame if it
did not attach its supporting evidence with its position paper. It cannot now insist
that there be a trial to give it an opportunity to ventilate what it should have done
earlier. Section 3, Rule V of the New Rules of Procedure of the NLRC is very
clear on the matter:

Section 3. x x x

These verified position papers x x x shall be accompanied by all supporting

documents including the affidavits of their respective witnesses which shall take the
place of the latters direct testimony. The parties shall thereafter not be allowed to
allege facts, or present evidence to prove facts, not referred to and any cause or causes
of action not included in the complaint or position papers, affidavits and other
documents. x x x (Emphasis supplied).

Thus, given the mandate of said rule, petitioner should have foreseen that
the Labor Arbiter, in view of the non-litigious nature of the proceedings before
it, might not proceed at all to trial. Petitioner cannot now be heard to complain
of lack of due process. The following is apropos:

The petitioners should not have assumed that after they submitted their position
papers, the Labor Arbiter would call for a formal trial or hearing. The holding of a
trial is discretionary on the Labor Arbiter, it is not a matter of right of the parties,
especially in this case, where the private respondents had already presented their
documentary evidence.

xxx

The petitioners did ask in their position paper for a hearing to thresh out some factual
matters pertinent to their case. However, they had no right or reason to assume that
their request would be granted. The petitioners should have attached to their position
paper all the documents that would prove their claim in case it was decided that no
hearing should be conducted or was necessary. In fact, the rules require that position
papers shall be accompanied by all supporting documents, including affidavits of
witnesses in lieu of their direct testimony.
[14]

It must be noted that adequate opportunity was given to petitioner in the

presentation of its evidence, such as when the Labor Arbiter granted petitioners
Manifestation and Motion dated July 22, 1994 allowing it to submit four more
[15]

documents. This opportunity notwithstanding, petitioner still failed to fully proffer

all its evidence which might help the Labor Arbiter in resolving the issues. What
it desired instead, as stated in its petition, was to require presentation of
[16]

witnesses buttressed by relevant documents in support thereof. But this is

precisely the opportunity given to petitioner when the Labor Arbiter granted its
Motion and Manifestation. It should have presented the documents it was
proposing to submit. The affidavits of its witnesses would have sufficed in lieu
of their direct testimony to clarify what it perceives to be complex factual
[17]

issues. We rule that the Labor Arbiter and the NLRC were not remiss in their
duty to afford petitioner due process. The essence of due process is merely that
a party be afforded a reasonable opportunity to be heard and to submit any
evidence he may have in support of his defense. [18]

WHEREFORE, in view of the foregoing, the instant petition is hereby

DISMISSED for lack of merit while the resolution of the National Labor Relations
Commission dated August 4, 1995 is hereby AFFIRMED.
SO ORDERED.
Regalado, (Chairman), Puno, and Mendoza, JJ., concur.
Torres, Jr., J., on leave.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 91478 February 7, 1991

ROSITA PEÑA petitioner,

vs.
THE COURT OF APPEALS, SPOUSES RISING T. YAP and CATALINA YAP, PAMPANGA BUS
CO., INC., JESUS DOMINGO, JOAQUIN BRIONES, SALVADOR BERNARDEZ, MARCELINO
ENRIQUEZ and EDGARDO A. ZABAT, respondents.

Cesar L. Villanueva for petitioner.

Martin N. Roque for private respondents.

GANCAYCO, J.:

The validity of the redemption of a foreclosed real property is the center of this controversy.

The facts as found by the respondent court are not disputed.

A reading of the records shows that [Pampanga Bus Co.] PAMBUSCO, original owners of
the lots in question under TCT Nos. 4314, 4315 and 4316, mortgaged the same to the
Development Bank of the Philippines (DBP) on January 3, 1962 in consideration of the
amount of P935,000.00. This mortgage was foreclosed. In the foreclosure sale under Act No.
3135 held on October 25, 1974, the said properties were awarded to Rosita Peña as highest
bidder. A certificate of sale was issued in her favor by the Senior Deputy Sheriff of
Pampanga, Edgardo A. Zabat, upon payment of the sum of P128,000.00 to the Office of the
Provincial Sheriff (Exh. 23). The certificate of sale was registered on October 29, 1974 (Exh.
G).

On November 19, 1974, the board of directors of PAMBUSCO, through three (3) out of its
five (5) directors, resolved to assign its right of redemption over the aforesaid lots and
authorized one of its members, Atty. Joaquin Briones "to execute and sign a Deed of
Assignment for and in behalf of PAMBUSCO in favor of any interested party . . ." (Exh. 24).
Consequently, on March 18, 1975, Briones executed a Deed of Assignment of
PAMBUSCO's redemption right over the subject lots in favor of Marcelino Enriquez (Exh.
25). The latter then redeemed the said properties and a certificate of redemption dated
August 15, 1975 was issued in his favor by Sheriff Zabat upon payment of the sum of one
hundred forty thousand, four hundred seventy four pesos P140,474.00) to the Office of the
Provincial Sheriff of Pampanga (Exh. 26).

A day after the aforesaid certificate was issued, Enriquez executed a deed of absolute sale
of the subject properties in favor of plaintiffs-appellants, the spouses Rising T. Yap and
Catalina Lugue, for the sum of P140,000.00 (Exh. F).
On August 18, 1975, a levy on attachment in favor of Capitol Allied Trading was entered as
an additional encumbrance on TCT Nos. 4314, 4315 and 4316 and a Notice of a
pending consulta was also annotated on the same titles concerning the Allied Trading case
entitled Dante Gutierrez, et al. vs. PAMBUSCO (Civil Case No. 4310) in which the
registrability of the aforesaid lots in the name of the spouses Yap was sought to be resolved
(Exh. 20-F). The certificate of sale issued by the Sheriff in favor of defendant Peña, the
resolution of the PAMBUSCO's board of directors assigning its redemption rights to any
interested party, the deed of assignment PAMBUSCO executed in favor of Marcelino B.
Enriquez, the certificate of redemption issued by the Sheriff in favor of Enriquez as well as
the deed of absolute sale of the subject lots executed by Enriquez in favor of the plaintiffs-
appellants were all annotated on the same certificates of title likewise on August 18, 1975.
Also, on the same date, the Office of the Provincial Sheriff of San Fernando, Pampanga
informed defendant-appellee by registered mail "that the properties under TCT Nos. 4314,
4315 and 4316 . . . . were all redeemed by Mr. Marcelino B. Enriquez on August 15,1975 . . .
;" and that she may now get her money at the Sheriffs Office (Exh. J and J-1).

On September 8, 1975, Peña wrote the Sheriff notifying him that the redemption was not
valid as it was made under a void deed of assignment. She then requested the recall of the
said redemption and a restraint on any registration or transaction regarding the lots in
question (Exh. 27).

On Sept. 10, 1975, the CFI Branch III, Pampanga in the aforementioned Civil Case No.
4310, entitled Dante Gutierrez, et al. vs. PAMBUSCO, et al., ordered the Register of Deeds
of Pampanga . . . to desist from registering or noting in his registry of property . . . any of the
following documents under contract, until further orders:

(a) Deed of Assignment dated March 18, 1975 executed by the defendant Pampanga Bus
Company in virtue of a resolution of its Board of Directors in favor of defendant Marcelino
Enriquez;

(b) A Certificate of Redemption issued by defendant Deputy Sheriff Edgardo Zabat in favor of
defendant Marcelino Enriquez dated August 15, 1975;

(c) Deed of Sale dated August 16, 1975 executed by defendant Marcelino Enriquez in favor
of defendant Rising Yap. (Original Record, p. 244)

On November 17, 1975, the Land Registration Commission opined under LRC Resolution
No. 1029 that "the levy on attachment in favor of Capitol Allied Trading (represented by
Dante Gutierrez) should be carried over on the new title that would be issued in the name of
Rising Yap in the event that he is able to present the owner's duplicates of the certificates of
title herein involved" (Exh. G).

Meanwhile, defendant Peña, through counsel, wrote the Sheriff asking for the execution of a
deed of final sale in her favor on the ground that "the one (1) year period of redemption has
long elapsed without any valid redemption having been exercised;" hence she "will now
refuse to receive the redemption money . . . (Exh. 28).

On Dec. 30, 1977, plaintiff Yap wrote defendant Peña asking payment of back rentals in the
amount of P42,750.00 "for the use and occupancy of the land and house located at Sta.
Lucia, San Fernando, Pampanga," and informing her of an increase in monthly rental to
P2,000; otherwise, to vacate the premises or face an eviction cum collection suit (Exh. D).
 In the meantime, the subject lots, formerly under TCT Nos. 4314, 4315 and 4316 were
registered on June 16, 1978 in the name of the spouses Yap under TCT Nos. 148983-R,
148984-R and 148985-R, with an annotation of a levy on attachment in favor of Capitol Allied
Trading. The LRC Resolution No. 1029 allowing the conditioned registration of the subject
lots in the name of the spouses Yap was also annotated on TCT No. 4315 on June 16, 1978
and the notice of a pending consulta noted thereon on August 18, 1975 was cancelled on the
same date.

No Trial on the merits was held concerning Civil Case No. 4310. In an order dated February
17, 1983, the case was dismissed without prejudice.

Despite the foregoing, defendant-appellee Peña remained in possession of the lots in

question hence, the spouses Yap were prompted to file the instant case.1

The antecedents of the present petition are as follows:

Plaintiffs-appellants, the spouses Rising T. Yap and Catalina Lugue, are the registered
owners of the lots in question under Transfer Certificate of Title (TCT) Nos. 148983-R,
148984-R, 148985-R. In the complaint filed on December 15, 1978, appellants sought to
recover possession over the subject lands from defendants Rosita Peña and Washington
Distillery on the ground that being registered owners, they have to enforce their right to
possession against defendants who have been allegedly in unlawful possession thereof
since October 1974 "when the previous owners assigned (their) right to collect rentals . . . in
favor of plaintiffs" (Record, p. 5). The amount claimed as damages is pegged on the total
amount of unpaid rentals from October 1974 (as taken from the allegations in the complaint)
up to December 1978 at a monthly rate of P1,500.00 'and the further sum of P2,000.00 a
month from January 1979 until the defendants finally vacate the . . . premises in question
with interest at the legal rate (Record, p. 61).

In their answer, defendants Rosita Peña and Washington Distillery denied the material
allegations of the complaint and by way of an affirmative and special defense asserted that
Peña is now the legitimate owner of the subject lands for having purchased the same in a
foreclosure proceeding instituted by the DBP . . . against PAMBUSCO . . . and no valid
redemption having been effected within the period provided by law. It was contended that
plaintiffs could not have acquired ownership over the subject properties under a deed of
absolute sale executed in their favor by one Marcelino B. Enriquez who likewise could not
have become [the] owner of the properties in question by redeeming the same on August 18,
1975 (Exh. 26) under an alleged[ly] void deed of assignment executed in his favor on March
18, 1975 by the original owners of the land in question, the PAMBUSCO. The defense was
that since the deed of assignment executed by PAMBUSCO in favor of Enriquez was void ab
initio for being an ultra vires act of its board of directors and, for being without any valuable
consideration, it could not have had any legal effect; hence, all the acts which flowed from it
and all the rights and obligations which derived from the aforesaid void deed are likewise
void and without any legal effect.

Further, it was alleged in the same Answer that plaintiffs are buyers in bad faith because
they have caused the titles of the subject properties with the Register of Deeds to be issued
in their names despite an order from the then CFI, Br. III, Pampanga in Civil Case No. 4310,
entitled Dante Gutierrez, et al. vs. Pampanga Bus Company, Inc., et al., to desist from
registering or noting in his registry of property . . . any of the above-mentioned documents
under contest, until further orders. (Record, p. 11).
For its part, defendant Washington Distillery stated that it has never occupied the subject lots
hence they should not have been impleaded in the complaint.

The defendants, therefore, prayed that the complaint be dismissed; that the deed of
assignment executed in favor of Marcelino Enriquez, the certificate of redemption issued by
the Provincial Sheriff also in favor of Marcelino Enriquez, and the deed of sale of these
parcels of land executed by Marcelino Enriquez in favor of the plaintiffs herein be all declared
null and void; and further, that TCT Nos. 148983-R, 148984-R and 148985-R, covering these
parcels issued in the plaintiffs name be cancelled and, in lieu thereof, corresponding
certificates of title over these same parcels be issued in the name of defendant Rosita Peña.

Thereafter, the defendants with prior leave of court filed a third-party complaint third-party
defendants PAMBUSCO, Jesus Domingo, Joaquin Briones, Salvador Bernardez (as
members of the Board of Directors of PAMBUSCO), Marcelino Enriquez, and Deputy Sheriff
Edgardo Zabat of Pampanga. All these third-party defendants, how ever, were declared as in
default for failure to file their answer, except Edgardo Zabat who did file his answer but failed
to appear at the pre-trial.

After trial, a decision was rendered by the court in favor of the defendants-appellees, to wit:

WHEREFORE, and in view of all the foregoing, judgment is hereby rendered

dismissing the complaint filed by the plaintiffs against the defendants and declaring
as null and void the following:

(a) The resolution of the Board of Directors of PAMBUSCO approved on November

19, 1974 assigning the PAMBUSCO's right of redemption concerning the parcels
involved herein

(b) The deed of assignment dated March 18, 1975 executed in favor of Marcelino
Enriquez pursuant to the resolution referred to in the preceding paragraph;

(c) The certificate of redemption dated August 15, 1975 issued by Deputy Sheriff
Edgardo Zabat in favor of Marcelino Enriquez concerning these parcels;

(d) The deed of absolute sale dated August 15, 1975 executed by Marcelino
Enriquez in favor of the plaintiffs concerning the same parcels and

(e) TCT Nos. 148983-R, 148984-R and 148985-R of the Register of Deeds of
Pampanga in the name of the plaintiffs also covering these parcels.

Third-party defendant Edgardo Zabat, in his capacity as Deputy Sheriff of Pampanga

is directed to execute in favor of defendant Rosita Peña the corresponding certificate
of final sale involving the parcels bought by her in the auction sale of October 25,
1974 for which a certificate of sale had been issued to her.

Finally, the third-party defendants herein except Deputy Sheriff Edgardo Zabat are
hereby ordered to pay the defendants/third party plaintiffs, jointly and severally, the
amount of P10,000.00 as attorney's fees plus costs.2
Thus, an appeal from said judgment of the trial court was interposed by private respondents to the
Court of Appeals wherein in due course a decision was rendered on June 20, 1989, the dispositive
part of which reads as follows:

WHEREFORE, premises considered, the judgment of the trial court on appeal is

REVERSED. Defendant-appellee Peña is hereby ordered to vacate the lands in question
and pay the plaintiffs-appellants the accrued rentals from October, 1974 in the amount of
P1,500.00 per month up to December, 1978 and the amount of P2,000.00 per month
thereafter, until appellee finally vacate (sic) the premises with interest at the legal rate.

SO ORDERED.3

A motion for reconsideration filed by the appellee was denied in a resolution dated December 27,
1989.

Hence, this petition for review on certiorari of said decision and resolution of the appellate court
predicated on the following assigned errors:

First Assignment of Error

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE TRIAL

COURT HAD NO JURISDICTION TO RULE ON THE VALIDITY OF THE QUESTIONED
RESOLUTION AND TRANSFERS.

Second Assignment of Error

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAS

NO LEGAL STANDING TO ASSAIL THE VALIDITY OF THE QUESTIONED RESOLUTION
AND THE SERIES OF SUCCEEDING TRANSACTIONS LEADING TO THE
REGISTRATION OF THE SUBJECT PROPERTIES IN FAVOR OF THE RESPONDENTS
YAP.

Third Assignment of Error

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE

RESOLUTION OF RESPONDENT PAMBUSCO, ADOPTED ON 19 NOVEMBER 1974,
ASSIGNING ITS RIGHT OF REDEMPTION IS NOT VOID OR AT THE VERY LEAST
LEGALLY DEFECTIVE.

Fourth Assignment of Error

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF

ASSIGNMENT, DATED 8 MARCH 1975, IN FAVOR OF RESPONDENT ENRIQUEZ IS NOT
VOID OR AT THE VERY LEAST VOIDABLE OR RESCISSIBLE.

Fifth Assignment of Error

THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE

QUESTIONED DEED OF ASSIGNMENT, DATED 8 MARCH 1975, WAS VOID AB
INITIO FOR FAILING TO COMPLY WITH THE FORMALITIES MANDATORILY REQUIRED
UNDER THE LAW FOR DONATIONS.
 Sixth Assignment of Error

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENTS

YAP ARE PURCHASERS IN GOOD FAITH AND IN FURTHER HOLDING THAT IT WAS
TOO LATE FOR PETITIONER TO INTERPOSE THE ISSUE THAT RESPONDENTS YAP
WERE PURCHASERS IN BAD FAITH.

Seventh Assignment of Error

THE RESPONDENT COURT OF APPEALS ERRED IN REVERSING THE DECISION OF

THE TRIAL COURT.4

The petition is impressed with merit.

First, the preliminary issues.

The respondent court ruled that the trial court has no jurisdiction to annul the board resolution as the
matter falls within the jurisdiction of the Securities and Exchange Commission (SEC) and that
petitioner did not have the proper standing to have the same declared null and void.

In Philex Mining Corporation vs. Reyes,5

this Court held that it is the fact of relationship between the parties that determines the proper and
exclusive jurisdiction of the SEC to hear and decide intra-corporate disputes; that unless the
controversy has arisen between and among stockholders of the corporation, or between the
stockholders and the officers of the corporation, then the case is not within the jurisdiction of the
SEC. Where the issue involves a party who is neither a stockholder or officer of the corporation, the
same is not within the jurisdiction of the SEC.

In Union Glass & Container Corporation vs. Securities and Exchange Commission,6 this Court
defined the relationships which are covered within "intra-corporate disputes" under Presidential
Decree No. 902-A, as amended, as follows:

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

In this case, neither petitioner nor respondents Yap spouses are stockholders or officers of
PAMBUSCO. Consequently, the issue of the validity of the series of transactions resulting in the
subject properties being registered in the names of respondents Yap may be resolved only by the
regular courts.

Respondent court held that petitioner being a stranger to the questioned resolution and series of
succeeding transactions has no legal standing to question their validity.

In Teves vs. People's Homesite and Housing Corporation,7 this Court held:
 We note however, in reading the complaint that the plaintiff is seeking the declaration of the
nullity of the deed of sale, not as a party in the deed, or because she is obliged principally or
subsidiarily under the deed, but because she has an interest that is affected by the
deed. This Court has held that a person who is not a party obliged principally or subsidiarily
in a contract may exercise an action for nullity of the contract if he is prejudiced in his rights
with respect to one of the contracting parties, and can show the detriment which would
positively result to him from the contract in which he had no intervention, Indeed, in the case
now before Us, the complaint alleges facts which show that plaintiff suffered detriment as a
result of the deed of sale entered into by and between defendant PHHC and defendant
Melisenda L. Santos. We believe that the plaintiff should be given a chance to present
evidence to establish that she suffered detriment and that she is entitled to relief. (Emphasis
supplied.)

There can be no question in this case that the questioned resolution and series of transactions
resulting in the registration of the properties in the name of respondent Yap spouses adversely
affected the rights of petitioner to the said properties. Consequently, petitioner has the legal standing
to question the validity of said resolution and transactions.

As to the question of validity of the board resolution of respondent PAMBUSCO adopted on

November 19, 1974, Section 4, Article III of the amended by-laws of respondent PAMBUSCO,
provides as follows:

Sec. 4. Notices of regular and special meetings of the Board of Directors shall be mailed to
each Director not less than five days before any such meeting, and notices of special
meeting shall state the purpose or purposes thereof Notices of regular meetings shall be
sent by the Secretary and notices of special meetings by the President or Directors issuing
the call. No failure or irregularity of notice of meeting shall invalidate any regular meeting or
proceeding thereat; Provided a quorum of the Board is present, nor of any special
meeting; Provided at least four Directors are present. (Emphasis supplied.)8

The trial court in finding the resolution void held as follows:

On the other hand, this Court finds merit in the position taken by the defendants that the
questioned resolution should be declared invalid it having been approved in a meeting
attended by only 3 of the 5 members of the Board of Directors of PAMBUSCO which
attendance is short of the number required by the by-laws of the corporation.

xxx xxx xxx

In the meeting of November 19, 1974 when the questioned resolution was approved, the
three members of the Board of Directors of PAMBUSCO who were present were Jesus
Domingo, Joaquin Briones, and Salvador Bernardez The remaining 2 others, namely: Judge
Pio Marcos and Alfredo Mamuyac were both absent therefrom.

As it becomes clear that the resolution approved on November 19, 1974 is null and void it
having been approved by only 3 of the members of the Board of Directors who were the only
ones present at the said meeting, the deed of assignment subsequently executed in favor of
Marcelino Enriquez pursuant to this resolution also becomes null and void. . . .9

However, the respondent court overturning said legal conclusions of the trial court made the
following disquisition:
 It should be noted that the provision in Section 4, Article III of PAMBUSCO's amended by-
laws would apply only in case of a failure to notify the members of the board of directors on
the holding of a special meeting, . . . .

In the instant case, however, there was no proof whatsoever, either by way of documentary
or testimonial evidence, that there was such a failure or irregularity of notice as to make the
aforecited provision apply. There was not even such an allegation in the Answer that should
have necessitated a proof thereof. The fact alone that only three (3) out of five (5) members
of the board of directors attended the subject special meeting, was not enough to declare the
aforesaid proceeding void ab initio, much less the board resolution borne out of it, when
there was no proof of irregularity nor failure of notice and when the defense made in the
Answer did not touch upon the said failure of attendance. Therefore, the judgment declaring
the nullity of the subject board resolution must be set aside for lack of proof.

Moreover, there is no categorical declaration in the by-laws that a failure to comply with the
attendance requirement in a special meeting should make all the acts of the board therein
null and void ab initio. A cursory reading of the subject provision, as aforequoted, would
show that its framers only intended to make voidable a board meeting held without the
necessary compliance with the attendance requirement in the by-laws. Just the use of the
word "invalidate" already denotes a legal imputation of validity to the questioned board
meeting absent its invalidation in the proceedings prescribed by the corporation's by-laws
and/or the general incorporation law. More significantly, it should be noted that even if the
subject special meeting is itself declared void, it does not follow that the acts of the board
therein are ipso facto void and without any legal effect. Without the declaration of nullity of
the subject board proceedings, its validity should be maintained and the acts borne out of it
should be presumed valid. Considering that the subject special board meeting has not been
declared void in a proper proceeding, nor even in the trial by the court below, there is no
reason why the acts of the board in the said special meeting should be treated as void AB.
initio. . . .10

The Court disagrees.

The by-laws of a corporation are its own private laws which substantially have the same effect as the
laws of the corporation. They are in effect, written, into the charter. In this sense they become part of
the fundamental law of the corporation with which the corporation and its directors and officers must
comply.11

Apparently, only three (3) out of five (5) members of the board of directors of respondent
PAMBUSCO convened on November 19, 1974 by virtue of a prior notice of a special meeting. There
was no quorum to validly transact business since, under Section 4 of the amended by-laws
hereinabove reproduced, at least four (4) members must be present to constitute a quorum in a
special meeting of the board of directors of respondent PAMBUSCO.

Under Section 25 of the Corporation Code of the Philippines, the articles of incorporation or by-laws
of the corporation may fix a greater number than the majority of the number of board members to
constitute the quorum necessary for the valid transaction of business. Any number less than the
number provided in the articles or by-laws therein cannot constitute a quorum and any act therein
would not bind the corporation; all that the attending directors could do is to adjourn.12

Moreover, the records show that respondent PAMBUSCO ceased to operate as of November 15,
1949 as evidenced by a letter of the SEC to said corporation dated April 17, 1980.13 Being a dormant
corporation for several years, it was highly irregular, if not anomalous, for a group of three (3)
individuals representing themselves to be the directors of respondent PAMBUSCO to pass a
resolution disposing of the only remaining asset of the corporation in favor of a former corporate
officer.

As a matter of fact, the three (3) alleged directors who attended the special meeting on November
19, 1974 were not listed as directors of respondent PAMBUSCO in the latest general information
sheet of respondent PAMBUSCO filed with the SEC dated 18 March 1951.14 Similarly, the latest list
of stockholders of respondent PAMBUSCO on file with the SEC does not show that the said alleged
directors were among the stockholders of respondent PAMBUSCO.15

Under Section 30 of the then applicable Corporation Law, only persons who own at least one (1)
share in their own right may qualify to be directors of a corporation. Further, under Section 28 1/2 of
the said law, the sale or disposition of an and/or substantially all properties of the corporation
requires, in addition to a proper board resolution, the affirmative votes of the stockholders holding at
least two-thirds (2/3) of the voting power in the corporation in a meeting duly called for that purpose.
No doubt, the questioned resolution was not confirmed at a subsequent stockholders meeting duly
called for the purpose by the affirmative votes of the stockholders holding at least two-thirds (2/3) of
the voting power in the corporation. The same requirement is found in Section 40 of the present
Corporation Code.

It is also undisputed that at the time of the passage of the questioned resolution, respondent
PAMBUSCO was insolvent and its only remaining asset was its right of redemption over the subject
properties. Since the disposition of said redemption right of respondent PAMBUSCO by virtue of the
questioned resolution was not approved by the required number of stockholders under the law, the
said resolution, as well as the subsequent assignment executed on March 8, 1975 assigning to
respondent Enriquez the said right of redemption, should be struck down as null and void.

Respondent court, in upholding the questioned deed of assignment, which appears to be without any
consideration at all, held that the consideration thereof is the liberality of the respondent
PAMBUSCO in favor of its former corporate officer, respondent Enriquez, for services rendered.
Assuming this to be so, then as correctly argued by petitioner, it is not just an ordinary deed of
assignment, but is in fact a donation. Under Article 725 of the Civil Code, in order to be valid, such a
donation must be made in a public document and the acceptance must be made in the same or in a
separate instrument. In the latter case, the donor shall be notified of the acceptance in an authentic
form and such step must be noted in both instruments.16

Non-compliance with this requirement renders the donation null and

void.17 Since undeniably the deed of assignment dated March 8, 1975 in question,18 shows that there
was no acceptance of the donation in the same and in a separate document, the said deed of
assignment is thus void ab initio and of no force and effect.

WHEREFORE, the petition is GRANTED. The questioned decision of the respondent Court of
Appeals dated June 20, 1989 and its resolution dated December 27, 1989 are hereby REVERSED
AND SET ASIDE and another judgment is hereby rendered AFFIRMING in toto the decision of the
trial court.

SO ORDERED.

Narvasa, Cruz, Griño-Aquino and Medialdea, JJ., concur.

 [Syllabus]

FIRST DIVISION

[G.R. No. 101699. March 13, 1996]

BENJAMIN A. SANTOS, petitioner, vs. NATIONAL LABOR RELATIONS

COMMISSION, HON. LABOR ARBITER FRUCTUOSO T.
AURELLANO and MELVIN D. MILLENA, respondents.

DECISION
VITUG, J.:

In a petition for certiorari under Rule 65 of the Rules of Court, petitioner

Benjamin A. Santos, former President of the Mana Mining and Development
Corporation (MMDC), questions the resolution of the National Labor Relations
Commission (NLRC) affirming the decision of the Labor Arbiter Fructouso T.
Aurellano who, having held illegal the termination of employment of private
respondent Melvin D. Millena, has ordered petitioner MMDC, as well as its
president (herein petitioner) and the executive vice-president in their personal
capacities, to pay Millena his monetary claims.
Private respondent, on 01 October 1985, was hired to be the project
accountant for MMDCs mining operations in Gatbo, Bacon, Sorsogon. On 12
August 1986, private respondent sent to Mr. Gil Abao, the MMDC corporate
treasurer, a memorandum calling the latters attention to the failure of the
company to comply with the withholding tax requirements of, and to make the
corresponding monthly remittances to, the Bureau of Internal Revenue (BIR) on
account of delayed payments of accrued salaries to the companys laborers and
employees. [1]

In a letter, dated 08 September 1986, Abano advised private respondent

thusly:

Regarding Gatbo operations, as you also are aware, the rainy season is now upon us
and the peace and order condition in Sorsogon has deteriorated. It is therefore, the
boards decision that it would be useless for us to continue operations, especially if we
will always be in the hole, so to speak. Our first funds receipts will be used to pay all
our debts. We will stop production until the advent of the dry season, and until the
insurgency problem clears. We will undertake only necessary maintenance and repair
work and will keep our overhead down to the minimum manageable level. Until we
resume full-scale operations, we will not need a project accountant as there will be
very little paper work at the site, which can be easily handled at Makati.

We appreciate the work you have done for Mana and we will not hesitate to take you
back when we resume work at Gatbo. However it would be unfair to you if we kept
you in the payroll and deprive you of the opportunity to earn more, during this period
of Manas crisis. [2]

Private respondent expressed shock over the termination of his

employment. He complained that he would not have resigned from the Sycip,
Gorres & Velayo accounting firm, where he was already a senior staff auditor,
had it not been for the assurance of a continuos job by MMDCs Engr. Rodillano
E. Velasquez. Private respondent requested that he be reimbursed the
advances he had made for the company and be paid his accrued
salaries/claims. [3]

The claim was not heeded; on 20 October 1986, private respondent filed
with the NLRC Regional Arbitration, Branch No. V, in Legazpi City, a complaint
for illegal dismissal, unpaid salaries, 13th month pay, overtime pay, separation
pay and incentive leave pay against MMDC and its two top officials, namely,
herein petitioner Benjamin A. Santos (the President) and Rodillano A.
Velasquez (the executive vice-president). In his complaint-affidavit (position
paper), submitted on 27 October 1986, Millena alleged, among other things,
that his dismissal was merely an offshoot of his letter of 12 August 1986 to Abao
about the companys inability to pay its workers and to remit withholding taxes
to the BIR.[4]

A copy of the notice and summons was served on therein respondent

(MMDC, Santos and Velasquez) on 29 October 1986. At the initial hearing
[5]

on 14 November 1986 before the Labor Arbiter, only the complaint, Millena,
appeared; however, Atty. Romeo Perez, in representation of the respondents,
requested by telegram that the hearing be reset to 01 December 1986.
Although the request was granted by the Labor Arbiter, private respondent was
allowed, nevertheless, to present his evidence ex-parte at that initial hearing.
The scheduled 01st December 1986 hearing was itself later reset to 19
December 1986. On 05 December 1986, the NLRC in Legazpi City again
received a telegram from Atty. Perez asking for fifteen (15) days within which
to submit the respondents position paper. On 19 December 1986, Atty. Perez
sent yet another telegram seeking a further postponement of the hearing and
asking for a period until 15 January 1987 within which to submit the position
paper.
 On 15 January 1987, Atty. Perez advised the NLRC in Legazpi City that the
position paper had finally been transmitted through the mail and that he was
submitting the case for resolution without further hearing. The position paper
was received by the Legazpi City NLRC office on 19 January 1987.
Complainant Millena filed, on 26 February 1987, his rejoinder to the position
paper.
On 27 July 1988, Labor Arbiter Fructouso T. Aurellano, finding no valid
cause for terminating complainants employment, ruled, citing this Courts
pronouncement in Construction & Development Corporation of the Philippines
vs. Leogardo, Jr. that a partial closure of an establishment due to losses was
[6]

a retrenchment measure that rendered the employer liable for unpaid salaries
and other monetary claims. The Labor Arbiter adjudged:

WHEREFORE, the respondents are hereby ordered to pay the petitioner the amount
of P37,132.25 corresponding to the latters unpaid salaries and advances: P5,400.00 for
petitioners 13th month pay; P3,340.95 as service incentive leave pay; and P5,400.00
as separation pay. The respondents are further ordered to pay the petitioner 10% of the
monetary awards as attorneys fees.

All other claims are dismissed for lack of sufficient evidence.

SO ORDERED. [7]

Alleging abuse of discretion by the Labor Arbiter, the company and its co-
respondents filed a motion for reconsideration and/or appeal. The motion/
[8]

appeal was forthwith indorsed to the Executive Director of the NLRC in Manila.
In a resolution, dated 04 September 1989, the NLRC affirmed the decision
[9]

of the Labor Arbiter. It held that the reasons relied upon by MMDC and its co-
respondents in the dismissal of Millena, i.e., the rainy season, deteriorating
peace and order situation and little paperwork, were not causes mentioned
under Article 282 of the Labor Code of the Philippines and that Millena, being a
regular employee, was shielded by the tenurial clause mandated under the
law.[10]

A writ of execution correspondingly issued; however, it was returned

unsatisfied for the failure of the sheriff to locate the offices of the corporation in
the address indicated. Another writ of execution and an order of garnishment
was thereupon served on petitioner at his residence.
Contending that he had been denied due process, petitioner filed a motion
for reconsideration of the NLRC s resolution along with a prayer for the quashal
of the writ of execution and order of garnishment. He averred that he had never
received any notice, summons or even a copy of the complaint; hence, he said,
the Labor Arbiter at no time had acquired jurisdiction over him.
On 16 August 1991, the NLRC dismissed the motion for reconsideration.
[11]

Citing Section 2, Rule 13, and Section 13, Rule 14, of the Rules of Court, it
[12] [13]

ruled that the Regional Arbitration office had not, in fact, been remiss in the
observance of the legal processes for acquiring jurisdiction over the case and
over the persons of the respondents therein. The NLRC was also convinced
that Atty. Perez had been the authorized counsel of MMDC and its two most
ranking officers.
In holding petitioner personally liable for private respondents claim, the
NLRC cited Article 289 of the Labor Code and the ruling in A.C. Ransom Labor
[14]

Union-CCLU vs. NLRC to the effect that (t)he responsible officer of an

[15]

employer corporation (could) be held personally, not to say even criminally,

liable for non-payment of backwages, and that of Gudez vs. NLRC which [16]

amplified that where the employer corporation (was) no longer existing and
unable to satisfy the judgment in favor of the employee, the officer should be
liable for acting on behalf of the corporation.
In the instant petition for certiorari, petitioner Santos reiterates that he
should not have been adjudged personally liable by public respondents, the
latter not having validly acquired jurisdiction over his person whether by
personal service of summons or by substituted service under Rule 19 of the
Rules of Court.
Petitioner s contention is unacceptable. The fact that Atty. Romeo B. Perez
has been able to timely ask for a deferment of the initial hearing on 14
November 1986, coupled with his subsequent active participation in the
proceedings, should disprove the supposed want of service of legal process.
Although as a rule, modes of service of summons are strictly followed in order
that the court may acquire jurisdiction over the person of a defendant, such
[17]

procedural modes, however, are liberally construed in quasi-judicial

proceedings, substantial compliance with the same being considered
adequate. Moreover, jurisdiction over the person of the defendant in civil
[18]

cases is acquired not only by service of summons but also by voluntary

appearance in court and submission to its authority. Appearance by a legal
[19]

advocate is such voluntary submission to a courts jurisdiction. It may be made

[20]

not only by actual physical appearance but likewise by the submission of

pleadings in compliance with the order of the court or tribunal.
To say that petitioner did not authorize Atty. Perez to represent him in the
case is to unduly tax credulity. Like the Solicitor General, the Court likewise
[21]

considers it unlikely that Atty. Perez would have been so irresponsible as to

represent petitioner if he were not, in fact, authorized. Atty. Perez is an officer
[22]

of the court, and he must be presumed to have acted with due propriety. The
employment of a counsel or the authority to employ an attorney, it might be
pointed out, need not be proved in writing; such fact could inferred from
circumstantial evidence. Petitioner was not just an ordinary official of the
[23]

MMDC; he was the President of the company.

Petitioner, in any event, argues that public respondents have gravely
abused their discretion in finding petitioner solidarily liable with MMDC even (in)
the absence of bad faith and malice on his part. There is merit in this plea.
[24]

A corporation is a juridical entity with legal personality separate and distinct

from those acting for and in its behalf and, in general, from the people
comprising it. The rule is that obligations incurred by the corporation, acting
through its directors, officers and employees, are its sole liabilities.
Nevertheless, being a mere fiction of law, peculiar situations or valid grounds
can exist to warrant, albeit done sparingly, the disregard of its independent
being and the lifting of the corporate veil. As a rule, this situation might arise
[25]

when a corporation is used to evade a just and due obligation or to justify a

wrong, to shield or perpetrate fraud, to carry out similar other unjustifiable
[26] [27]

aims or intentions, or as a subterfuge to commit injustice and so circumvent the

law. In Tramat Mercantile, Inc., vs. Court of Appeals, the Court has collated
[28] [29]

the settled instances when, without necessarily piercing the veil of corporate
fiction, personal civil liability can also be said to lawfully attach to a corporate
director, trustee or officer; to wit: When

(1) He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or
gross negligence in directing its affairs, or (c) for conflict of interest, resulting in
damages to the corporation, its stockholders or other persons;

(2) He consents to the issuance of watered stocks or who, having knowledge thereof,
does not forthwith file with the corporate secretary his written objection thereto;

(3) He agrees to hold himself personally and solidarily liable with the corporation; or

(4) He is made, by a specific provision of law, to personally answer for his corporate
action.

The case of petitioner is way off these exceptional instances. It is not even
shown that petitioner has had a direct hand in the dismissal of private
respondent enough to attribute to him (petitioner) a patently unlawful act while
acting for the corporation. Neither can Article 289 of the Labor Code be
[30]

applied since this law specifically refers only to the imposition of penalties under
the Code. It is undisputed that the termination of petitioners employment has,
instead, been due, collectively, to the need for a further mitigation of losses, the
onset of the rainy season, the insurgency problem in Sorsogon and the lack of
funds to further support the mining operation in Gatbo.
It is true, there were various cases when corporate officers were themselves
held by the Court to be personally accountable for the payment of wages and
money claims to its employees. In A.C. Ransom Labor Union-CCLU vs.
NLRC, for instance, the Court ruled that under the Minimum Wage Law, the
[31]

responsible officer of an employer corporation could be held personally liable

for nonpayment of backwages for (i)f the policy of the law were otherwise, the
corporation employer (would) have devious ways for evading payment of
backwages. In the absence of a clear identification of the officer directly
responsible for failure to pay the backwages, the Court considered the
President of the corporation as such officer. The case was cited in Chua vs.
NLRC in holding personally liable the vice-president of the company, being
[32]

the highest and most ranking official of the corporation next to the President
who was dismissed for the latters claim for unpaid wages.
A review of the above exceptional cases would readily disclose the
attendance of facts and circumstances that could rightly sanction personal
liability on the part of the company officer. In A.C. Ransom, the corporate entity
was a family corporation and execution against it could not be implemented
because of the disposition posthaste of its leviable assets evidently in order to
evade its just and due obligations. The doctrine of piercing the veil of corporate
fiction was thus clearly appropriate. Chua likewise involved another family
corporation, and this time the conflict was between two brothers occupying the
highest ranking positions in the company. There were incontrovertible facts
which pointed to extreme personal animosity that resulted, evidently in bad
faith, in the easing out from the company of one of the brothers by the other.
The basic rule is still that which can be deduced from the Courts
pronouncement in Sunio vs. National Labor Relations Commission; thus: [33]

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

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

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

The Court, to be sure, did appear to have deviated somewhat in Gudez

vs. NLRC; however, it should be clear from our recent pronouncement in Mam
[34]

Realty Development Corporation and Manuel Centeno vs. NLRC that [35]

the Sunio doctrine still prevails.

WHEREFORE, the instant petition for certiorari is given DUE COURSE and
the decision of the Labor Arbiter, affirmed by the NLRC, is hereby MODIFIED
insofar as it holds herein petitioner Benjamin Santos personally liable with Mana
Mining and Development Corporation, which portion of the questioned
judgment is now SET ASIDE. In all other respects, the questioned decision
remains unaffected. No costs.
SO ORDERED.
Padilla (Chairman), Bellosillo, Kapunan, and Hermosisima, Jr., JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-18216 October 30, 1962

STOCKHOLDERS OF F. GUANZON AND SONS, INC., petitioners-appellants,

vs.
REGISTER OF DEEDS OF MANILA, respondent-appellee.

Ramon C. Fernando for petitioners-appellants.

Office of the Solicitor General for respondent-appellee.

BAUTISTA ANGELO, J.:

On September 19, 1960, the five stockholders of the F. Guanzon and Sons, Inc. executed a
certificate of liquidation of the assets of the corporation reciting, among other things, that by virtue of
a resolution of the stockholders adopted on September 17, 1960, dissolving the corporation, they
have distributed among themselves in proportion to their shareholdings, as liquidating dividends, the
assets of said corporation, including real properties located in Manila.

The certificate of liquidation, when presented to the Register of Deeds of Manila, was denied
registration on seven grounds, of which the following were disputed by the stockholders:

3. The number of parcels not certified to in the acknowledgment;

5. P430.50 Reg. fees need be paid;

6. P940.45 documentary stamps need be attached to the document;

7. The judgment of the Court approving the dissolution and directing the disposition of the
assets of the corporation need be presented (Rules of Court, Rule 104, Sec. 3).

Deciding the consulta elevated by the stockholders, the Commissioner of Land Registration
overruled ground No. 7 and sustained requirements Nos. 3, 5 and 6.

The stockholders interposed the present appeal.

As correctly stated by the Commissioner of Land Registration, the propriety or impropriety of the
three grounds on which the denial of the registration of the certificate of liquidation was predicated
hinges on whether or not that certificate merely involves a distribution of the corporation's assets or
should be considered a transfer or conveyance.

Appellants contend that the certificate of liquidation is not a conveyance or transfer but merely a
distribution of the assets of the corporation which has ceased to exist for having been dissolved.
This is apparent in the minutes for dissolution attached to the document. Not being a conveyance
the certificate need not contain a statement of the number of parcel of land involved in the
distribution in the acknowledgment appearing therein. Hence the amount of documentary stamps to
be affixed thereon should only be P0.30 and not P940.45, as required by the register of deeds.
Neither is it correct to require appellants to pay the amount of P430.50 as registration fee.

The Commissioner of Land Registration, however, entertained a different opinion. He concurred in

the view expressed by the register of deed to the effect that the certificate of liquidation in question,
though it involves a distribution of the corporation's assets, in the last analysis represents a transfer
of said assets from the corporation to the stockholders. Hence, in substance it is a transfer or
conveyance.

We agree with the opinion of these two officials. A corporation is a juridical person distinct from the
members composing it. Properties registered in the name of the corporation are owned by it as an
entity separate and distinct from its members. While shares of stock constitute personal property
they do not represent property of the corporation. The corporation has property of its own which
consists chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75; Morrow v. Gould, 145 Iowa
1, 123 N.W. 743). A share of stock only typifies an aliquot part of the corporation's property, or the
right to share in its proceeds to that extent when distributed according to law and equity (Hall &
Faley v. Alabama Terminal, 173 Ala 398, 56 So., 235), but its holder is not the owner of any part of
the capital of the corporation (Bradley v. Bauder 36 Ohio St., 28). Nor is he entitled to the
possession of any definite portion of its property or assets (Gottfried v. Miller, 104 U.S., 521; Jones
v. Davis, 35 Ohio St., 474). The stockholder is not a co-owner or tenant in common of the corporate
property (Halton v. Hohnston, 166 Ala 317, 51 So 992).

On the basis of the foregoing authorities, it is clear that the act of liquidation made by the
stockholders of the F. Guanzon and Sons, Inc. of the latter's assets is not and cannot be considered
a partition of community property, but rather a transfer or conveyance of the title of its assets to the
individual stockholders. Indeed, since the purpose of the liquidation, as well as the distribution of the
assets of the corporation, is to transfer their title from the corporation to the stockholders in
proportion to their shareholdings, — and this is in effect the purpose which they seek to obtain from
the Register of Deeds of Manila, — that transfer cannot be effected without the corresponding deed
of conveyance from the corporation to the stockholders. It is, therefore, fair and logical to consider
the certificate of liquidation as one in the nature of a transfer or conveyance.

WHEREFORE, we affirm the resolution appealed from, with costs against appellants.

Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and Makalintal, JJ., concur.
Barrera, J., took no part.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-42780 January 17, 1936

MANILA GAS CORPORATION, plaintiff-appellant,

vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.

DeWitt, Perkins and Ponce Enrile for appellant.

Office of the Solicitor-General Hilado for appellee.

MALCOLM, J.:

This is an action brought by the Manila Gas Corporation against the Collector of Internal Revenue
for the recovery of P56,757.37, which the plaintiff was required by the defendant to deduct and
withhold from the various sums paid it to foreign corporations as dividends and interest on bonds
and other indebtedness and which the plaintiff paid under protest. On the trial court dismissing the
complaint, with costs, the plaintiff appealed assigning as the principal errors alleged to have been
committed the following:

1. The trial court erred in holding that the dividends paid by the plaintiff corporation were
subject to income tax in the hands of its stockholders, because to impose the tax thereon
would be to impose a tax on the plaintiff, in violation of the terms of its franchise, and would,
moreover, be oppressive and inequitable.

2. The trial court erred in not holding that the interest on bonds and other indebtedness of the
plaintiff corporation, paid by it outside of the Philippine Islands to corporations not residing
therein, were not, on the part of the recipients thereof, income from Philippine sources, and
hence not subject to Philippine income tax.

The facts, as stated by the appellant and as accepted by the appellee, may be summarized as
follows: The plaintiff is a corporation organized under the laws of the Philippine Islands. It operates a
gas plant in the City of Manila and furnishes gas service to the people of the metropolis and
surrounding municipalities by virtue of a franchise granted to it by the Philippine Government.
Associated with the plaintiff are the Islands Gas and Electric Company domiciled in New York,
United States, and the General Finance Company domiciled in Zurich, Switzerland. Neither of these
last mentioned corporations is resident in the Philippines.

For the years 1930, 1931, and 1932, dividends in the sum of P1,348,847.50 were paid by the plaintiff
to the Islands Gas and Electric Company in the capacity of stockholders upon which withholding
income taxes were paid to the defendant totalling P40,460.03 For the same years interest on bonds
in the sum of P411,600 was paid by the plaintiff to the Islands Gas and Electric Company upon
which withholding income taxes were paid to the defendant totalling P12,348. Finally for the stated
time period, interest on other indebtedness in the sum of P131,644,90 was paid by the plaintiff to the
Islands Gas and Electric Company and the General Finance Company respectively upon which
withholding income taxes were paid to the defendant totalling P3,949.34.
Some uncertainty existing regarding the place of payment, we will not go into this factor of the case
at this point, except to remark that the bonds and other tokens of indebtedness are not to be found in
the record. However, Exhibits E, F, and G, certified correct by the Treasurer of the Manila Gas
Corporation, purport to prove that the place of payment was the United States and Switzerland.

The appeal naturally divides into two subjects, one covered by the first assigned error, and the other
by the second assigned error. We shall discuss these subjects and errors in order.

1. Appellant first contends that the dividends paid by it to its stockholders, the Islands Gas
and Electric Company , were not subject to tax because to impose a tax thereon would be to
do so on the plaintiff corporation, in violation of the terms of its franchise and would,
moreover, be oppressive and inequitable. This argument is predicated on the constitutional
provision that no law impairing the obligation of contracts shall be enacted. The particular
portion of the franchise which is invoked provides:

The grantee shall annually on the fifth day of January of each year pay to the City of
Manila and the municipalities in the Province of Rizal in which gas is sold, two and
one half per centum of the gross receipts within said city and municipalities,
respectively, during the preceding year. Said payment shall be in lieu of all taxes,
Insular, provincial and municipal, except taxes on the real estate, buildings, plant,
machinery, and other personal property belonging to the grantee.

The trial judge was of the opinion that the instant case was governed by our previous
decision in the case of Philippine Telephone and Telegraph Co., vs. Collector of Internal
Revenue ([1933], 58 Phil. 639). In this view we concur. It is true that the tax exemption
provision relating to the Manila Gas Corporation hereinbefore quoted differs in phraseology
from the tax exemption provision to be found in the franchise of the Telephone and
Telegraph Company, but the ratio decidendi of the two cases is substantially the same. As
there held and as now confirmed, a corporation has a personality distinct from that of its
stockholders, enabling the taxing power to reach the latter when they receive dividends from
the corporation. It must be considered as settled in this jurisdiction that dividends of a
domestic corporation, which are paid and delivered in cash to foreign corporations as
stockholders, are subject to the payment in the income tax, the exemption clause in the
charter of the corporation notwithstanding.

For the foreign reasons, we are led to sustain the decision of the trial court and to overrule
appellant's first assigned error.

2. In support of its second assignment of error, appellant contends that, as the Islands Gas
and Electric Company and the General Finance Company are domiciled in the United States
and Switzerland respectively, and as the interest on the bonds and other indebtedness
earned by said corporations has been paid in their respective domiciles, this is not income
from Philippine sources within the meaning of the Philippine Income Tax Law. Citing sections
10 (a) and 13 (e) of Act No. 2833, the Income Tax Law, appellant asserts that their
applicability has been squarely determined by decisions of this court in the cases of Manila
Railroad Co. vs. Collector of Internal Revenue (No. 31196, promulgated December 2, 1929,
nor reported), and Philippine Railway Co. vs. Posadas (No. 38766, promulgated October 30,
1933 [58 Phil., 968]) wherein it was held that interest paid to non-resident individuals or
corporations is not income from Philippine sources, and hence not subject to the Philippine
Income Tax. The Solicitor-General answers with the observation that the cited decisions
interpreted the Income Tax Law before it was amended by Act No. 3761 to cover the interest
on bonds and other obligations or securities paid "within or without the Philippine Islands."
 Appellant rebuts this argument by "assuming, for the sake of the argument, that by the
amendment introduced to section 13 of Act No. 2833 by Act No. 3761 the Legislature
intended the interest from Philippine sources and so is subject to tax," but with the necessary
sequel that the amendatory statute is invalid and unconstitutional as being the power of the
Legislature to enact.

Taking first under observation that last point, it is to be observed that neither in the pleadings, the
decision of the trial court, nor the assignment of errors, was the question of the validity of Act No.
3761 raised. Under such circumstances, and no jurisdictional issue being involved, we do not feel
that it is the duty of the court to pass on the constitutional question, and accordingly will refrain from
doing so. (Cadwaller-Gibson Lumber Co. vs. Del Rosario [1913], 26 Phil., 192; Macondray and
Co. vs. Benito and Ocampo, P. 137, ante; State vs. Burke [1912], 175 Ala., 561.)

As to the applicability of the local cases cited and of the Porto Rican case of Domenech vs. United
Porto Rican Sugar co. ([1932], 62 F. [2d], 552), we need only observe that these cases announced
good law, but that each he must be decided on its particular facts. In other words, in the opinion of
the majority of the court, the facts at bar and the facts in those cases can be clearly differentiated.
Also, in the case at bar there is some uncertainty concerning the place of payment, which under one
view could be considered the Philippines and under another view the United States and Switzerland,
but which cannot be definitely determined without the necessary documentary evidence before, us.

The approved doctrine is that no state may tax anything not within its jurisdiction without violating the
due process clause of the constitution. The taxing power of a state does not extend beyond its
territorial limits, but within such it may tax persons, property, income, or business. If an interest in
property is taxed, the situs of either the property or interest must be found within the state. If an
income is taxed, the recipient thereof must have a domicile within the state or the property or
business out of which the income issues must be situated within the state so that the income may be
said to have a situs therein. Personal property may be separated from its owner, and he may be
taxed on its account at the place where the property is although it is not the place of his own
domicile and even though he is not a citizen or resident of the state which imposes the tax. But debts
owing by corporations are obligations of the debtors, and only possess value in the hands of the
creditors. (Farmers Loan Co. vs. Minnesota [1930], 280 U.S., 204; Union Refrigerator Transit
Co. vs. Kentucky [1905], 199 U.S., 194 State Tax on Foreign held Bonds [1873, 15 Wall., 300;
Bick vs. Beach [1907], 206 U. S., 392; State ex rel. Manitowoc Gas Co. vs. Wig. Tax Comm. [1915],
161 Wis., 111; United States Revenue Act of 1932, sec. 143.)

These views concerning situs for taxation purposes apply as well to an organized, unincorporated
territory or to a Commonwealth having the status of the Philippines.

Pushing to one side that portion of Act No. 3761 which permits taxation of interest on bonds and
other indebtedness paid without the Philippine Islands, the question is if the income was derived
from sources within the Philippine Islands.

In the judgment of the majority of the court, the question should be answered in the affirmative. The
Manila Gas Corporation operates its business entirely within the Philippines. Its earnings, therefore
come from local sources. The place of material delivery of the interest to the foreign corporations
paid out of the revenue of the domestic corporation is of no particular moment. The place of payment
even if conceded to be outside of tho country cannot alter the fact that the income was derived from
the Philippines. The word "source" conveys only one idea, that of origin, and the origin of the income
was the Philippines.
In synthesis, therefore, we hold that conditions have not been provided which justify the court in
passing on the constitutional question suggested; that the facts while somewhat obscure differ from
the facts to be found in the cases relied upon, and that the Collector of Internal Revenue was
justified in withholding income taxes on interest on bonds and other indebtedness paid to non-
resident corporations because this income was received from sources within the Philippine Islands
as authorized by the Income Tax Law. For the foregoing reasons, the second assigned error will be
overruled.

Before concluding, it is but fair to state that the writer's opinion on the first subject and the first
assigned error herein discussed is accurately set forth, but that his opinion on the second subject
and the second assigned error is not accurately reflected, because on this last division his views
coincide with those of the appellant. However, in the interest of the prompt disposition of this case,
the decision has been written up in accordance with instructions received from the court.

Judgment affirmed, with the cost of this instance assessed against the appellant.

Hull, Vickers, Imperial, Butte, and Recto, JJ., concur.

Separate Opinions

VILLA-REAL, J., concurring and dissenting:

I concur with the majority decision regarding the disposition of the second error, but dissent as to its
disposition of the first error. In my opinion, the exemption clause to be found in the charter of the
plaintiff is broader in scope than that to be found in the charter of the Philippine Telephone and
Telegraph Company, thus making inapplicable the decision of this court in the case of Philippine
Telephone and Telegraph Co. vs. Collector of Internal Revenue (58 Phil., 639).

ABAD SANTOS, J., concurring in part and dissenting in part:

I am of opinion that the first assignment of error should be sustained and the judgment below
reversed in that respect.

The franchise held by the appellant corporation contains a stipulation by the Government to the
effect that the payment by the corporation to the entities named in the franchise of two and one-half
per centum of its gross receipts, shall be in lieu of all taxes, except taxes on the real estate,
buildings, plant, machinery and other personal property belonging to the corporation. The dividends
paid by the appellant corporation to its stockholders were a part of its earnings and as such not
subject to tax under the terms of the franchise. The franchise in this case is a contract, the obligation
of which can not be impaired.

I agree with the majority of the court that the second assignment of error should be overruled, and
the judgment affirmed in that particular.

Section 13 (e) of Act No. 2833, as amended by Act No. 3761, expressly provides for the imposition
of a tax "... upon the income derived from interest upon bonds and mortgages, or deeds of trust,
notes, or other interest-bearing obligations of a domestic or resident foreign corporation, ..." The
income derived from the interest on bonds and other indebtedness of the appellant corporation, is
clearly within the purview of the statute. The power of the legislature to impose such a tax must be
recognized. As stated by Justice Bradley in United States vs. Erie R. Co. (106 U.S., 327; 27 Law.
ed., 151, 153) : "... The tax laid upon their bonds was intended to affect the owners of the bonds, and
whilst the companies were directed to pay it, they were authorized to retain the amount from the
installments due to the bondholders, whether citizens or aliens. The objection that Congress had no
power to tax non-resident aliens, is met by the fact that the tax was not assessed against them
personally, but against the rem, the credit, the debt due to them. Congress has the right to tax all
property within the jurisdiction of the United States, with certain exceptions not necessary to be
noted. The money due to non-resident bondholders in this case was in the United States in the
hands of the company before it could be transmitted to London, or other place where the
bondholders resided. Whilst here it was liable to taxation. Congress, by the internal revenue law, by
way of tax., stopped a part of the money before its transmission, namely; 5 per cent of it. Plausible
grounds for levying such a tax might be assigned. It might be said that the creditor is protected by
our laws in the enjoyment of the debt; that the whole machinery of our courts and the physical power
of the government are placed at his disposal for its security and collection."

AVANCEÑA, C.J., dissenting:

I do not agree with the majority opinion with respect to the appellant's second assignment of error,
which in my opinion should be sustained. The question involved in this error has been clearly
decided by this court in the case of Manila Railroad Co. vs. Collector of Internal Revenue (G.R. No.
31196, promulgated December 2, 1929, not reported). In said case it was held that interest on bonds
purchased outside the Philippine Islands by non-residents of the Islands cannot be considered
derived from sources within the Islands. The amendment of the law introduced by Act no. 3761 as to
the place of payment of interest does not affect the aspect of the question raised in this error if the
interest on which the tax in the present case has been collected is not derived from sources within
the Islands, as it is not so in fact, in accordance with the doctrine laid down in said case of Manila
Railroad Co. vs. Collector of Internal Revenue.

GODDARD, J., dissenting:

The tax exemption and commutation clause in the plaintiffs franchise provides that:

The grantee shall annually on the 5th day of January of each year pay to the City of Manila and to
the municipalities in the Province of Rizal in which gas is sold, two and one half per centum of the
gross receipts within said city and municipalities, respectively, during the preceding year. Said
payment shall be in lieu of all tax, Insular, provincial and municipal, except taxes on the real estate,
buildings, plant, machinery, and other personal property belonging to the grantee.

This franchise is a contract between the Government and the grantees thereof, whose rights have
been acquired by the plaintiff corporation. In Manila Railroad Co. vs. Rafferty (40 Phil., 224, 230),
this court held that "... Once granted, a charter becomes a private contract ...." Article 1091 of the
Civil Code provides that "Obligations arising from contract shall have the force of law between the
contracting parties and must be performed in accordance with their stipulations." It follows that as
the plaintiff corporation has paid to the City of Manila and to the municipalities of Rizal, where gas is
sold by it, the franchise tax stipulated in the contract, the Government has no legal right to impose
another tax on its earnings.

The case of Farrington vs. Tennessee (95 U.S., 679; 24 Law. ed., 558), is almost in exact parallel
with the case at bar. The facts of that case were as follows: The Union and Planters' Bank of
Memphis was duly organized under the charter granted by the Legislature of Tennessee, by two
Acts, respectively dated March 20, 1858, and February 12, 1869. Since its organization it continued
doing a regular banking business. Its capital subscribed and paid in amounted to $675,000, divided
into 6,750 shares of $100 each. Farrington, the plaintiff in error, was the owner of 150 shares, of the
value of $15,000.
The tenth section of the charter of the bank declared:

That said Company shall pay to the State an annual tax of one-half of one per cent on each
share of the capital stock subscribe, which shall be in lieu of all other taxes.

The State of Tennessee and the County of Shelby, claiming the right under the Revenue Law of the
State, to tax the stock of the plaintiff in error, a stockholder of the bank, assessed and taxed it for the
year 1872. It was assessed at its per value. The tax imposed by the State was forty cents on the
$100, making the state tax $60. The county tax was $1.20 on the $100, making the county tax $180.

The plaintiff in error denied the right of the State and County to impose these taxes. He claimed;

(1) That the 10th section of the charter was a contract between the State and the bank;

(2) That any other tax than that therein specified was expressly forbidden, and.

(3) That the revenue laws imposing the taxes in question impaired the obligation of the
contract.

The Supreme Court of Tennessee adjudge the taxes to be valid and the plaintiff in error thereupon
removed the case to the Federal Supreme Court for review.

In upholding all of the contentions of the plaintiff in error, and pronouncing invalid the taxes involved
as impairing the obligation of the contract created by the franchise, the United States Supreme court
said:

This case turns upon the construction to be given to the 10th section of the charter of the
bank. . . .

xxx xxx xxx

When this charter was granted, the State might have been silent as to taxation. In that case,
the power would have been unfettered. (Bk. vs. Billings, 4 Pet., 514.) It might have reserved
the power as to some things, and yielded it as to others. It had the power to make its own
terms or to refuse the charter. It chose to stipulate for a specified tax on the and declared
and bound itself that this tax should be "in lieu of all other taxes."

There is no question before us as to the tax imposed on the shares by the charter. But the
State has by her revenue imposed another and an additional tax on these same shares. This
is one of those "other taxes" which it had stipulated to forego. The identity of the thing doubly
taxed is not affected by the fact that in one case the tax is to be paid vicariously by the bank,
and in the other by the owner of the share himself. The thing thus taxed is to the same, and
the second tax is expressly forbidden by the contract of the parties. After the most careful
consideration, we can come to no other conclusion. Such, we think, must have been the
understanding and intent of the parties when the charter was granted and the bank was
organized. Any other view would ignore the covenant that the tax specified should be "in lieu
of all other taxes." It would blot those terms from the context, and construe it as if they were
not a part of it. . . .

xxx xxx xxx

 The decree of the Supreme Court of Tennessee is reversed and the case will be remanded,
with directions to enter a decree in favor of the plaintiff in error. (Farrington vs. Tennessee,
95 U.S., 679; 24 Law. ed., 560, 561.)

That case, it will be observed, is almost in exact parallel with the case at bar. Both cases deal with
tax commutation provided for in a franchise granted by the State. In both cases the State
covenanted that the tax specified in the franchise should be in lieu of all other taxes. In both cases
the additional tax which the tax authorities sought to impose was a revenue tax. In both cases the
tax provided for in the franchise was paid by the corporation, and the tax which the authorities
attempted to collect were imposed on the stockholders. In the Farrington case the provision in the
Federal Constitution that "No State shall ... pass any ... law impairing the obligation of contracts" was
applied; in this case the provision of our Organic Law that "no law impairing the obligation of
contracts shall be enacted" is involved. It will be observed further, that in the Farrington case the
franchise was granted to a corporation, yet the court held that the court mutation provision of the
franchise extended to the individual stockholders. In the case at bar, while the plaintiff the present
owner of the franchise. is a corporation, the original grantees were natural persons; hence there is
more reason for holding in the present case that the mutation provision in the franchise granted by
the Philippine Government should extend to the stockholders of plaintiff corporation.

The Farrington Case, decided in 1878, was by a divided court. Eighteen years — later in 1896 — the
State of Tennessee sought to have the decision in that case reviewed, on the ground that the court
did not consider the other portions of the charter which, according to the State, were material. The
Supreme Court — this time unanimously — declined to reverse its view as expressed in the
Farrington decision, saying.

We do not think under the circumstances that we ought now to come to a different
conclusion upon the question of exemption from that which was arrived at by this court in
the Farrington Case. As the whole charter was then before the court, we are not prepared to
say that its force was misunderstood, or that there was an omission by the court to consider
all the language of the exemption clause simply because a portion of its omitted in the
quotation from the record made in the opinion therein delivered. We are not inclined,
therefore, to overrule or distinguish the Farrington Case, and we must now told that the
charter clause of exemption limits the amount of tax on each share of stock in the hands of
the shareholder, and that any subsequent revenue law of the state which imposes an
additional tax on such shares in the hands or shareholders, impairs the obligation of the
contract, and is void. This compels us to reverse the judgments herein against the
shareholders. (Bank of Commerce vs. Tennessee, 16 U.S. 134; 40 Law. ed., 645, 648.)

The doctrine of the Farrington Case is now the settled rule of the highest court of the United States.
The first assignment of error should therefore be sustained.

As to the second assignment of error I concur with the dissenting opinion of the Chief Justice for the
reasons set forth therein. Consequently that assignment of error should also be sustained.

The trial court erred in not holding that interest received by a non-resident corporation, outside the
Philippine Islands, is not income from Philippine sources and so not subject to income tax.

In view of the above I am of the opinion that the appealed decision should be reversed and another
entered by this courts ordering the defendant to pay the plaintiff the sum of P40,460.03, the amount
of withholding taxes paid on account of interest on bonds and other indebtedness, or a total of
P56,757.37.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 58168 December 19, 1989

CONCEPCION MAGSAYSAY-LABRADOR, SOLEDAD MAGSAYSAY-CABRERA, LUISA

MAGSAYSAY-CORPUZ, assisted be her husband, Dr. Jose Corpuz, FELICIDAD P.
MAGSAYSAY, and MERCEDES MAGSAYSAY-DIAZ, petitioners,
vs.
THE COURT OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY, Special Administratrix
of the Estate of the late Genaro F. Magsaysay respondents.

FERNAN, C.J.:

In this petition for review on certiorari, petitioners seek to reverse and set aside [1] the decision of
the Court of Appeals dated July l3, 1981, 1 affirming that of the Court of First Instance of Zambales
and Olongapo City which denied petitioners' motion to intervene in an annulment suit filed by herein
private respondent, and [2] its resolution dated September 7, 1981, denying their motion for
reconsideration.

Petitioners are raising a purely legal question; whether or not respondent Court of Appeals correctly
denied their motion for intervention.

The facts are not controverted.

On February 9, 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of the estate
of the late Senator Genaro Magsaysay, brought before the then Court of First Instance of Olongapo
an action against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas Manufacturer's
Bank (FILMANBANK) and the Register of Deeds of Zambales. In her complaint, she alleged that in
1958, she and her husband acquired, thru conjugal funds, a parcel of land with improvements,
known as "Pequena Island", covered by TCT No. 3258; that after the death of her husband, she
discovered [a] an annotation at the back of TCT No. 3258 that "the land was acquired by her
husband from his separate capital;" [b] the registration of a Deed of Assignment dated June 25, 1976
purportedly executed by the late Senator in favor of SUBIC, as a result of which TCT No. 3258 was
cancelled and TCT No. 22431 issued in the name of SUBIC; and [c] the registration of Deed of
Mortgage dated April 28, 1977 in the amount of P 2,700,000.00 executed by SUBIC in favor of
FILMANBANK; that the foregoing acts were void and done in an attempt to defraud the conjugal
partnership considering that the land is conjugal, her marital consent to the annotation on TCT No.
3258 was not obtained, the change made by the Register of Deeds of the titleholders was effected
without the approval of the Commissioner of Land Registration and that the late Senator did not
execute the purported Deed of Assignment or his consent thereto, if obtained, was secured by
mistake, violence and intimidation. She further alleged that the assignment in favor of SUBIC was
without consideration and consequently null and void. She prayed that the Deed of Assignment and
the Deed of Mortgage be annulled and that the Register of Deeds be ordered to cancel TCT No.
22431 and to issue a new title in her favor.

On March 7, 1979, herein petitioners, sisters of the late senator, filed a motion for intervention on the
ground that on June 20, 1978, their brother conveyed to them one-half (1/2 ) of his shareholdings in
SUBIC or a total of 416,566.6 shares and as assignees of around 41 % of the total outstanding
shares of such stocks of SUBIC, they have a substantial and legal interest in the subject matter of
litigation and that they have a legal interest in the success of the suit with respect to SUBIC.

On July 26, 1979, the court denied the motion for intervention, and ruled that petitioners have no
legal interest whatsoever in the matter in litigation and their being alleged assignees or transferees
of certain shares in SUBIC cannot legally entitle them to intervene because SUBIC has a personality
separate and distinct from its stockholders.

On appeal, respondent Court of Appeals found no factual or legal justification to disturb the findings
of the lower court. The appellate court further stated that whatever claims the petitioners have
against the late Senator or against SUBIC for that matter can be ventilated in a separate proceeding,
such that with the denial of the motion for intervention, they are not left without any remedy or
judicial relief under existing law.

Petitioners' motion for reconsideration was denied. Hence, the instant recourse.

Petitioners anchor their right to intervene on the purported assignment made by the late Senator of a
certain portion of his shareholdings to them as evidenced by a Deed of Sale dated June 20,
1978. 2 Such transfer, petitioners posit, clothes them with an interest, protected by law, in the matter
of litigation.

Invoking the principle enunciated in the case of PNB v. Phil. Veg. Oil Co., 49 Phil. 857,862 & 853
(1927), 3petitioners strongly argue that their ownership of 41.66% of the entire outstanding capital
stock of SUBIC entitles them to a significant vote in the corporate affairs; that they are affected by
the action of the widow of their late brother for it concerns the only tangible asset of the corporation
and that it appears that they are more vitally interested in the outcome of the case than SUBIC.

Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, this Court affirms the
respondent court's holding that petitioners herein have no legal interest in the subject matter in
litigation so as to entitle them to intervene in the proceedings below. In the case of Batama Farmers'
Cooperative Marketing Association, Inc. v. Rosal, 4 we held: "As clearly stated in Section 2 of Rule
12 of the Rules of Court, to be permitted to intervene in a pending action, the party must have a legal
interest in the matter in litigation, or in the success of either of the parties or an interest against both,
or he must be so situated as to be adversely affected by a distribution or other disposition of the
property in the custody of the court or an officer thereof ."

To allow intervention, [a] it must be shown that the movant has legal interest in the matter in
litigation, or otherwise qualified; and [b] consideration must be given as to whether the adjudication
of the rights of the original parties may be delayed or prejudiced, or whether the intervenor's rights
may be protected in a separate proceeding or not. Both requirements must concur as the first is not
more important than the second. 5

The interest which entitles a person to intervene in a suit between other parties must be in the matter
in litigation and of such direct and immediate character that the intervenor will either gain or lose by
the direct legal operation and effect of the judgment. Otherwise, if persons not parties of the action
could be allowed to intervene, proceedings will become unnecessarily complicated, expensive and
interminable. And this is not the policy of the law. 6

The words "an interest in the subject" mean a direct interest in the cause of action as pleaded, and
which would put the intervenor in a legal position to litigate a fact alleged in the complaint, without
the establishment of which plaintiff could not recover. 7
Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote, conjectural,
consequential and collateral. At the very least, their interest is purely inchoate, or in sheer
expectancy of a right in the management of the corporation and to share in the profits thereof and in
the properties and assets thereof on dissolution, after payment of the corporate debts and
obligations.

While a share of stock represents a proportionate or aliquot interest in the property of the
corporation, it does not vest the owner thereof with any legal right or title to any of the property, his
interest in the corporate property being equitable or beneficial in nature. Shareholders are in no legal
sense the owners of corporate property, which is owned by the corporation as a distinct legal
person. 8

Petitioners further contend that the availability of other remedies, as declared by the Court of
appeals, is totally immaterial to the availability of the remedy of intervention.

We cannot give credit to such averment. As earlier stated, that the movant's interest may be
protected in a separate proceeding is a factor to be considered in allowing or disallowing a motion
for intervention. It is significant to note at this juncture that as per records, there are four pending
cases involving the parties herein, enumerated as follows: [1] Special Proceedings No. 122122
before the CFI of Manila, Branch XXII, entitled "Concepcion Magsaysay-Labrador, et al. v. Subic
Land Corp., et al.", involving the validity of the transfer by the late Genaro Magsaysay of one-half of
his shareholdings in Subic Land Corporation; [2] Civil Case No. 2577-0 before the CFI of Zambales,
Branch III, "Adelaida Rodriguez-Magsaysay v. Panganiban, etc.; Concepcion Labrador, et al.
Intervenors", seeking to annul the purported Deed of Assignment in favor of SUBIC and its
annotation at the back of TCT No. 3258 in the name of respondent's deceased husband; [3] SEC
Case No. 001770, filed by respondent praying, among other things that she be declared in her
capacity as the surviving spouse and administratrix of the estate of Genaro Magsaysay as the sole
subscriber and stockholder of SUBIC. There, petitioners, by motion, sought to intervene. Their
motion to reconsider the denial of their motion to intervene was granted; [4] SP No. Q-26739 before
the CFI of Rizal, Branch IV, petitioners herein filing a contingent claim pursuant to Section 5, Rule
86, Revised Rules of Court. 9 Petitioners' interests are no doubt amply protected in these cases.

Neither do we lend credence to petitioners' argument that they are more interested in the outcome of
the case than the corporation-assignee, owing to the fact that the latter is willing to compromise with
widow-respondent and since a compromise involves the giving of reciprocal concessions, the only
conceivable concession the corporation may give is a total or partial relinquishment of the corporate
assets. 10

Such claim all the more bolsters the contingent nature of petitioners' interest in the subject of
litigation.

The factual findings of the trial court are clear on this point. The petitioners cannot claim the right to
intervene on the strength of the transfer of shares allegedly executed by the late Senator. The
corporation did not keep books and records. 11 Perforce, no transfer was ever recorded, much less
effected as to prejudice third parties. The transfer must be registered in the books of the corporation
to affect third persons. The law on corporations is explicit. Section 63 of the Corporation Code
provides, thus: "No transfer, however, shall be valid, except as between the parties, until the transfer
is recorded in the books of the corporation showing the names of the parties to the transaction, the
date of the transfer, the number of the certificate or certificates and the number of shares
transferred."
And even assuming arguendo that there was a valid transfer, petitioners are nonetheless barred
from intervening inasmuch as their rights can be ventilated and amply protected in another
proceeding.

WHEREFORE, the instant petition is hereby DENIED. Costs against petitioners.

SO ORDERED.

Gutierrez, Jr., Bidin and Corte's, JJ., concur.

Feliciano, J., is on leave.

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 82797 February 27, 1991

GOOD EARTH EMPORIUM INC., and LIM KA PING, petitioners,

vs.
HONORABLE COURT OF APPEALS and ROCES-REYES REALTY INC., respondents.

A.E. Dacanay for petitioners.

Antonio Quintos Law Office for private respondent.

PARAS, J.:

This is a petition for review on certiorari of the December 29, 1987 decision * of the Court of Appeals
in CA-G.R. No. 11960 entitled "ROCES-REYES REALTY, INC. vs. HONORABLE JUDGE
REGIONAL TRIAL COURT OF MANILA, BRANCH 44, GOOD EARTH EMPORIUM, INC. and LIM
KA PING" reversing the decision of respondent Judge ** of the Regional Trial Court of Manila,
Branch 44 in Civil Case No. 85-30484, which reversed the resolution of the Metropolitan Trial Court
Of Manila, Branch 28 in Civil Case No. 09639, *** denying herein petitioners' motion to quash the alias writ of execution
issued against them.

As gathered from the records, the antecedent facts of this case, are as follows:

A Lease Contract, dated October 16, 1981, was entered into by and between ROCES-REYES
REALTY, INC., as lessor, and GOOD EARTH EMPORIUM, INC., as lessee, for a term of three years
beginning November 1, 1981 and ending October 31, 1984 at a monthly rental of P65,000.00 (Rollo,
p. 32; Annex "C" of Petition). The building which was the subject of the contract of lease is a five-
storey building located at the corner of Rizal Avenue and Bustos Street in Sta. Cruz, Manila.

From March 1983, up to the time the complaint was filed, the lessee had defaulted in the payment of
rentals, as a consequence of which, private respondent ROCES-REYES REALTY, INC., (hereinafter
designated as ROCES for brevity) filed on October 14, 1984, an ejectment case (Unlawful Detainer)
against herein petitioners, GOOD EARTH EMPORIUM, INC. and LIM KA PING, hereinafter
designated as GEE, (Rollo, p. 21; Annex "B" of the Petition). After the latter had tendered their
responsive pleading, the lower court (MTC, Manila) on motion of Roces rendered judgment on the
pleadings dated April 17, 1984, the dispositive portion of which states:

Judgment is hereby rendered ordering defendants (herein petitioners) and all persons
claiming title under him to vacate the premises and surrender the same to the plaintiffs
(herein respondents); ordering the defendants to pay the plaintiffs the rental of P65,000.00 a
month beginning March 1983 up to the time defendants actually vacate the premises and
deliver possession to the plaintiff; to pay attorney's fees in the amount of P5,000.00 and to
pay the costs of this suit. (Rollo, p. 111; Memorandum of Respondents)
On May 16, 1984, Roces filed a motion for execution which was opposed by GEE on May 28, 1984
simultaneous with the latter's filing of a Notice of Appeal (Rollo, p. 112, Ibid.). On June 13, 1984, the
trial court resolved such motion ruling:

After considering the motion for the issuance of a writ of execution filed by counsel for the
plaintiff (herein respondents) and the opposition filed in relation thereto and finding that the
defendant failed to file the necessary supersedeas bond, this court resolved to grant the
same for being meritorious. (Rollo, p. 112)

On June 14, 1984, a writ of execution was issued by the lower court. Meanwhile, the appeal was
assigned to the Regional Trial Court (Manila) Branch XLVI. However, on August 15, 1984, GEE thru
counsel filed with the Regional Trial Court of Manila, a motion to withdraw appeal citing as reason
that they are satisfied with the decision of the Metropolitan Trial Court of Manila, Branch XXVIII,
which said court granted in its Order of August 27, 1984 and the records were remanded to the trial
court (Rollo, p. 32; CA Decision). Upon an ex-parte Motion of ROCES, the trial court issued
an Alias Writ of Execution dated February 25, 1985 (Rollo, p. 104; Annex "D" of Petitioner's
Memorandum), which was implemented on February 27, 1985. GEE thru counsel filed a motion to
quash the writ of execution and notice of levy and an urgent Ex-parte Supplemental Motion for the
issuance of a restraining order, on March 7, and 20, 1985, respectively. On March 21, 1985, the
lower court issued a restraining order to the sheriff to hold the execution of the judgment pending
hearing on the motion to quash the writ of execution (Rollo, p. 22; RTC Decision). While said motion
was pending resolution, GEE filed a Petition for Relief from judgment before another court, Regional
Trial Court of Manila, Branch IX, which petition was docketed as Civil Case No. 80-30019, but the
petition was dismissed and the injunctive writ issued in connection therewith set aside. Both parties
appealed to the Court of Appeals; GEE on the order of dismissal and Roces on denial of his motion
for indemnity, both docketed as CA-G.R. No. 15873-CV. Going back to the original case, the
Metropolitan Trial Court after hearing and disposing some other incidents, promulgated the
questioned Resolution, dated April 8, 1985, the dispositive portion of which reads as follows:

Premises considered, the motion to quash the writ is hereby denied for lack of merit.

The restraining orders issued on March 11 and 23, 1985 are hereby recalled, lifted and set
aside. (Rollo, p. 20, MTC Decision)

GEE appealed and by coincidence. was raffled to the same Court, RTC Branch IX. Roces moved to
dismiss the appeal but the Court denied the motion. On certiorari, the Court of Appeals dismissed
Roces' petition and remanded the case to the RTC. Meantime, Branch IX became vacant and the
case was re-raffled to Branch XLIV.

On April 6, 1987, the Regional Trial Court of Manila, finding that the amount of P1 million evidenced
by Exhibit "I" and another P1 million evidenced by the pacto de retro sale instrument (Exhibit "2")
were in full satisfaction of the judgment obligation, reversed the decision of the Municipal Trial Court,
the dispositive portion of which reads:

Premises considered, judgment is hereby rendered reversing the Resolution appealed from
quashing the writ of execution and ordering the cancellation of the notice of levy and
declaring the judgment debt as having been fully paid and/or Liquidated. (Rollo, p. 29).

On further appeal, the Court of Appeals reversed the decision of the Regional Trial Court and
reinstated the Resolution of the Metropolitan Trial Court of Manila, the dispositive portion of which is
as follows:
 WHEREFORE, the judgment appealed from is hereby REVERSED and the Resolution dated
April 8, 1985, of the Metropolitan Trial Court of Manila Branch XXXIII is hereby
REINSTATED. No pronouncement as to costs. (Rollo, p. 40).

GEE's Motion for Reconsideration of April 5, 1988 was denied (Rollo, p. 43). Hence, this petition.

The main issue in this case is whether or not there was full satisfaction of the judgment debt in favor
of respondent corporation which would justify the quashing of the Writ of Execution.

A careful study of the common exhibits (Exhibits 1/A and 2/B) shows that nowhere in any of said
exhibits was there any writing alluding to or referring to any settlement between the parties of
petitioners' judgment obligation (Rollo, pp. 45-48).

Moreover, there is no indication in the receipt, Exhibit "1", that it was in payment, full or partial, of the
judgment obligation. Likewise, there is no indication in the pacto de retro sale which was drawn in
favor of Jesus Marcos Roces and Marcos V. Roces and not the respondent corporation, that the
obligation embodied therein had something to do with petitioners' judgment obligation with
respondent corporation.

Finding that the common exhibit, Exhibit 1/A had been signed by persons other than judgment
creditors (Roces-Reyes Realty, Inc.) coupled with the fact that said exhibit was not even alleged by
GEE and Lim Ka Ping in their original motion to quash the alias writ of execution (Rollo, p. 37) but
produced only during the hearing (Ibid.) which production resulted in petitioners having to
claim belatedly that there was an "overpayment" of about half a million pesos (Rollo, pp. 25-27) and
remarking on the utter absence of any writing in Exhibits "1/A" and "2/B" to indicate payment of the
judgment debt, respondent Appellate Court correctly concluded that there was in fact no payment of
the judgment debt. As aptly observed by the said court:

What immediately catches one's attention is the total absence of any writing alluding to or
referring to any settlement between the parties of private respondents' (petitioners') judgment
obligation. In moving for the dismissal of the appeal Lim Ka Ping who was then assisted by
counsel simply stated that defendants (herein petitioners) are satisfied with the decision of
the Metropolitan Trial Court (Records of CA, p. 54).

Notably, in private respondents' (petitioners') Motion to Quash the Writ of Execution and
Notice of Levy dated March 7, 1985, there is absolutely no reference to the alleged payment
of one million pesos as evidenced by Exhibit 1 dated September 20, 1984. As pointed out by
petitioner (respondent corporation) this was brought out by Linda Panutat, Manager of Good
Earth only in the course of the latter's testimony. (Rollo, p. 37)

Article 1240 of the Civil Code of the Philippines provides that:

Payment shall be made to the person in whose favor the obligation has been constituted, or
his successor in interest, or any person authorized to receive it.

In the case at bar, the supposed payments were not made to Roces-Reyes Realty, Inc. or to its
successor in interest nor is there positive evidence that the payment was made to a person
authorized to receive it. No such proof was submitted but merely inferred by the Regional Trial Court
(Rollo, p. 25) from Marcos Roces having signed the Lease Contract as President which was
witnessed by Jesus Marcos Roces. The latter, however, was no longer President or even an officer
of Roces-Reyes Realty, Inc. at the time he received the money (Exhibit "1") and signed the sale
with pacto de retro (Exhibit "2"). He, in fact, denied being in possession of authority to receive
payment for the respondent corporation nor does the receipt show that he signed in the same
capacity as he did in the Lease Contract at a time when he was President for respondent corporation
(Rollo, p. 20, MTC decision).

On the other hand, Jesus Marcos Roces testified that the amount of P1 million evidenced by the
receipt (Exhibit "1") is the payment for a loan extended by him and Marcos Roces in favor of Lim Ka
Ping. The assertion is home by the receipt itself whereby they acknowledged payment of the loan in
their names and in no other capacity.

A corporation has a personality distinct and separate from its individual stockholders or members.
Being an officer or stockholder of a corporation does not make one's property also of the
corporation, and vice-versa, for they are separate entities (Traders Royal Bank v. CA-G.R. No.
78412, September 26, 1989; Cruz v. Dalisay, 152 SCRA 482). Shareowners are in no legal sense
the owners of corporate property (or credits) which is owned by the corporation as a distinct legal
person (Concepcion Magsaysay-Labrador v. CA-G.R. No. 58168, December 19, 1989). As a
consequence of the separate juridical personality of a corporation, the corporate debt or credit is not
the debt or credit of the stockholder, nor is the stockholder's debt or credit that of the corporation
(Prof. Jose Nolledo's "The Corporation Code of the Philippines, p. 5, 1988 Edition, citing Professor
Ballantine).

The absence of a note to evidence the loan is explained by Jesus Marcos Roces who testified that
the IOU was subsequently delivered to private respondents (Rollo, pp. 97-98). Contrary to the
Regional Trial Court's premise that it was incumbent upon respondent corporation to prove that the
amount was delivered to the Roces brothers in the payment of the loan in the latter's favor, the
delivery of the amount to and the receipt thereof by the Roces brothers in their names raises the
presumption that the said amount was due to them. There is a disputable presumption that money
1âwphi 1

paid by one to the other was due to the latter (Sec. 5(f) Rule 131, Rules of Court). It is for GEE and
Lim Ka Ping to prove otherwise. In other words, it is for the latter to prove that the payments made
were for the satisfaction of their judgment debt and not vice versa.

The fact that at the time payment was made to the two Roces brothers, GEE was also indebted to
respondent corporation for a larger amount, is not supportive of the Regional Trial Court's
conclusions that the payment was in favor of the latter, especially in the case at bar where the
amount was not receipted for by respondent corporation and there is absolutely no indication in the
receipt from which it can be reasonably inferred, that said payment was in satisfaction of the
judgment debt. Likewise, no such inference can be made from the execution of the pacto de
retro sale which was not made in favor of respondent corporation but in favor of the two Roces
brothers in their individual capacities without any reference to the judgment obligation in favor of
respondent corporation.

In addition, the totality of the amount covered by the receipt (Exhibit "1/A") and that of the sale
with pacto de retro(Exhibit "2/B") all in the sum of P2 million, far exceeds petitioners' judgment
obligation in favor of respondent corporation in the sum of P1,560,000.00 by P440,000.00, which
militates against the claim of petitioner that the aforesaid amount (P2M) was in full payment of the
judgment obligation.

Petitioners' explanation that the excess is interest and advance rentals for an extension of the lease
contract (Rollo, pp. 25-28) is belied by the absence of any interest awarded in the case and of any
agreement as to the extension of the lease nor was there any such pretense in the Motion to Quash
the Alias Writ of Execution.
Petitioners' averments that the respondent court had gravely abused its discretion in arriving at the
assailed factual findings as contrary to the evidence and applicable decisions of this Honorable
Court are therefore, patently unfounded. Respondent court was correct in stating that it "cannot go
beyond what appears in the documents submitted by petitioners themselves (Exhibits "1" and "2") in
the absence of clear and convincing evidence" that would support its claim that the judgment
obligation has indeed been fully satisfied which would warrant the quashal of the Alias Writ of
Execution.

It has been an established rule that when the existence of a debt is fully established by the evidence
(which has been done in this case), the burden of proving that it has been extinguished by payment
devolves upon the debtor who offers such a defense to the claim of the plaintiff creditor (herein
respondent corporation) (Chua Chienco v. Vargas, 11 Phil. 219; Ramos v. Ledesma, 12 Phil. 656;
Pinon v. De Osorio, 30 Phil. 365). For indeed, it is well-entrenched in Our jurisprudence that each
party in a case must prove his own affirmative allegations by the degree of evidence required by law
(Stronghold Insurance Co. v. CA, G.R. No. 83376, May 29,1989; Tai Tong Chuache & Co. v.
Insurance Commission, 158 SCRA 366).

The appellate court cannot, therefore, be said to have gravely abused its discretion in finding lack of
convincing and reliable evidence to establish payment of the judgment obligation as claimed by
petitioner. The burden of evidence resting on the petitioners to establish the facts upon which their
action is premised has not been satisfactorily discharged and therefore, they have to bear the
consequences.

PREMISES CONSIDERED, the petition is hereby DENIED and the Decision of the Respondent
court is hereby AFFIRMED, reinstating the April 8, 1985 Resolution of the Metropolitan Trial Court of
Manila.

SO ORDERED.

Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-30188 October 2, 1928

FELIPE TAYKO, EDUARDO BUENO, BAUTISTA TAYKO, BERNARDO SOLDE and VICENTE
ELUM, petitioners,
vs.
NICOLAS CAPISTRANO, acting as Judge of First Instance of Oriental Negros. ALFREDO B.
CACNIO, as Provincial Fiscal of Oriental Negros, and JUAN GADIANI, respondents.

Abad Santos, Camus and Delgado and Teopisto Guingona for petitioners.
Araneta and Zaragoza for respondents.
The respondent Judge in his own behalf.

OSTRAND, J.:

This is a petition for a writ of prohibition enjoining the respondent judge from making cognizance of
certain civil and criminal election cases in which the petitioners are parties.

The petitioners allege that the respondent judge, previous to this date, was appointed judge of the
Court of First Instance of Oriental Negros, to hold office during good behavior and until he should
reach the age of 65 years; that he now has reached that age and, therefore, under the provisions of
section 148 of the Administrative Code as amended, is disqualified from acting as a judge of the
Court of First Instance. The petitioners further allege that in view of the many election protests and
criminal cases for violation of the election law filed in the Court of First Instance of Oriental Negros
arising in the Court of First Instance of Oriental Negros arising from the last election of June 5, 1928,
the Honorable Sixto de la Costa was duly designated and acted as auxiliary judge of the Province of
Oriental Negros; that between the auxiliary judge and the respondent judge herein there was an
understanding, and the assignment of the said auxiliary judge was made with this understanding,
that the said auxiliary judge so designated would hear and take cognizance of all election protests
and criminal actions then pending or to filed arising from the said last general election, and that the
respondent Honorable Nicolas Capistrano would try and hear the ordinary cases pending in the said
court, but, notwithstanding this understanding or agreement, the respondent judge tried and is still
trying to take cognizance of the election protests an criminal actions in said court; that the
respondent judge declared in open court that he will try the criminal cases herein mentioned for the
reason that the auxiliary judge refused to try the same on the ground that the preliminary
investigations were held before him, when, in truth and in fact, the said auxiliary judge did not make
the statement imputed to him and was and is still willing to try the election protests and criminal
cases for violation of the election law pending in the court of the Province of Oriental Negros; that
the respondent Honorable Nicolas Capistrano, in spite of the fact that he was holding and is now
pretending to hold the office of judge of the Court of First Instance of Oriental Negros, took great
interest and active part in the filing of criminal charges against the petitioners herein to the
unjustifiable extent of appointing a deputy fiscal, who then filed the proper informations, when the
provincial fiscal refused to file criminal charges against the petitioners for violation of the election law
for lack of sufficient evidence to sustain the same; that said respondent is neither a judge de
jure nor de facto, but that, notwithstanding this fact, he continues to hold the office of judge of the
Court of First Instance of Oriental Negros and pretends to be duly qualified and acting judge of the
said province; and that he has tried, and continues to try, to act as such judge and that there is
reasonable ground to believe that he will take cognizance of the cases in question unless he be
restrained by order of this court; that in acting as a duly qualified judge notwithstanding the facts
alleged in the fifth, sixth, and seventh paragraphs hereof, the respondent judge acted and is about to
act without and in excess of jurisdiction and also after the loss of jurisdiction.

To this petition the respondents demur on the ground that the facts stated in that (1) none of the
facts alleged in the petition divest the respondent judge of his jurisdiction to take cognizance of the
cases referred to in the complaint, and (2) even admitting as true, for the sake of this demurrer, the
facts alleged in paragraph 7 of the petition, the respondent judge is still a de facto judge and his title
to the office and his jurisdiction to hear the cases referred to in the petition cannot be questioned by
prohibition, as this writ, even when directed against persons acting as judges, cannot be treated as a
substitute for quo warranto, or be rightfully called upon to perform any of the functions of that writ.

The ground upon which the petition rests may be reduced to three propositions. (1) That the
assignment of the Auxiliary Judge, Sixto de la Costa, to Dumaguete was made with the
understanding that the he was to hear and take cognizance of all election contests and criminal
causes for violation of the election law and that the respondent judge was to take cognizance of the
ordinary cases and that there was an understanding between them that this arrangement was to be
followed.

(2) That the respondent judge took great interest and an active part in the filing of the
criminal charges against the petitioners herein to the unjustifiable extent of appointing a
deputy fiscal who filed the proper informations when the regular provincial fiscal refused to
file them for lack of sufficient evidence.

(3) That the respondent judge is already over 65 years of age and has, therefore,
automatically ceased as judge of the Court of First Instance of Oriental Negros and that he is
neither a judge de jure nor de facto.

(a) But little need be said as to the first proposition. A writ of prohibition to a judge of
an interior court will only lie in cases where he acts without or in excess of his
jurisdiction (section 226, Code of Civil Procedure), and it is obvious that a mere
"understanding" as to the distribution of cases for trial did not deprive the respondent
judge of the jurisdiction conferred upon him by law. It may be noted that it is not
alleged that another judge had taken cognizance of the cases in question or that they
had been definitely assigned to trial before such other judge.

(b) The second proposition is equally untenable. That the respondent judge took
1awph!l.net

great interest and an active part in the filing of the criminal charges against the
petitioners to the extent of appointing a deputy fiscal when the regular provincial
fiscal refused to file the proper informations, did not disqualify him from trying the
case in question. Section 1679 of the Administrative Code provides that "when a
provincial fiscal shall be disqualified by personal interest to act in a particular case or
when for any reason he shall be unable, or shall fail, to discharge any of the duties of
his position, the judge of the Court of First Instance of the province shall appoint an
acting provincial fiscal, . . . ." (Emphasis ours.)

The determination of the question as to whether the fiscal has failed to discharge his
duty in the prosecution of a crime must necessarily, to a large extent, lie within the
 sound discretion of the presiding judge, and there is no allegation in the petition that
such discretion was abused in the present instance. It is true that it is stated that the
appointment of the acting fiscal was "unjustifiable," but that is only a conclusion of
law and not an allegation of facts upon which such a conclusion can be formed and
may, therefore, be disregarded. It follows that in appointing an acting fiscal, the
respondent judge was well within his jurisdiction.

(c) The third ground upon which the petition is based is the most important and
merits some consideration. It is well settled that the title to the office of a judge,
whether de jure or de facto, can only be determined in a proceeding in the nature
of quo warranto and cannot be tested by prohibition. But counsel for the petitioners
maintains that the respondent judge is neither a judge de jure nor de factoand that,
therefore, prohibition will lie. In this, counsel is undoubtedly mistaken.

The respondent judge has been duly appointed to the office of Judge of the Court of First Instance of
Oriental Negros, but section 148 of the Administrative Code, as amended, provides that "Judges of
the Court of First Instance and auxiliary judges shall be appointed to serve until they shall reach the
age of sixty-five years." In view of this provision and assuming, as we must, that the allegations of
the petition are true, it is evident that the respondent is no longer a judge de jure, but we do not think
that it can be successfully disputed that he is still a judge de facto.

Briefly defined, a de facto judge is one who exercises the duties of a judicial office under color of an
appointment or election thereto (Brown vs. O'Connell, 36 Conn., 432). He differs, on the one hand,
from a mere usurper who undertakes to act officially without any color of right, and on the other
hand, from a judge de jure who is in all respects legally appointed and qualified and whose term of
office has not expired (State vs. Carroll, 38 Conn., 449; Denny vs. Matton, 2 Allen [Mass.], 361; Van
Slyke vs. Farmers' Mut. Fire Ins. Co., 39 Wis., 390).

Apart from any constitutional or statutory regulation on the subject there seems to be a
general rule of law that an incumbent of an office will hold over after the conclusion of his
term until the elction and qualification of a successor (22 R. C. L., pp. 554-5). When a judge
in good faith remains in office after his title has ended, he is a de facto officer (Sheehan's
Case, 122 Mass., 445).

Applying the principles stated to the facts set forth in the petition before us, we cannot escape the
conclusion that, on the assumption that said facts are true, the respondent judge must be considered
a judge de facto. His term of office may have expired, but his successor has not been appointed,
and as good faith is presumed, he must be regarded as holding over in good faith. The contention of
counsel for the petitioners that the auxiliary judge present in the district must be considered the
regular judge seems obviously erroneous.

In these circumstances the remedy prayed for cannot be granted. "The rightful authority of a judge,
in the full exercise of his public judicial function, cannot be questioned by any merely private suitor,
nor by any other, excepting in the form especially provided by law. A judge de facto assumes the
exercise of a part of the prerogative of sovereignty, and the legality of that assumption is open to the
attack of the sovereign power alone. Accordingly, it is a well established principle, dating from the
earliest period and repeatedly confirmed by an unbroken current of decisions, that the official acts of
a de facto judge are just as valid for all purposes as those of a de jure judge, so far as the public or
third persons who are interested therein are concerned. The rule is the same in civil criminal cases.
The principle is one founded in policy and convenience, for the right of no one claiming a title or
interest under or through the proceedings of an officer having an apparent authority to act would be
safe, if it were necessary in every case to examine the legality of the title of such officer up to its
original source, and the title or interest of such person were held to be invalidated by some
accidental defect or flaw in the appointment, election or qualification of such officer, or in the rights of
those from whom his appointment or election emanated; nor could the supremacy of the laws be
maintained, or their execution enforced, if the acts of the judge having a colorable, but not a legal
title, were to be deemed invalid. As in the case of judges of courts of record, the acts of a justice de
facto cannot be called in question in any suit to which he is not a party. The official acts of a de
facto justice cannot b attacked collaterally. An exception to the general rule that the title of a person
assuming to act as judge cannot be questioned in a suit before him is generally recognized in the
case of a special judge, and it is held that a party to an action before a special judge may question
his title to the office of a judge on the proceedings before him, and that the judgment will be reversed
on appeal, where proper exceptions are taken, if the person assuming to act as special judge is not
a judge de jure. The title of a de facto officer cannot be indirectly questioned in a proceeding to
obtain a writ of prohibition to prevent him from doing an official act nor in a suit to enjoin the
collection of a judgment rendered by him. Having at least colorable right to the office his title can be
determined only in a quo warranto proceeding or information in the nature of a quo warranto at suit
of the sovereign." (15 R. C. L., pp. 519-521.)

The demurrer to the petition is sustained, and inasmuch as it is evident that the weakness of the
petition cannot be cured by amendment the present proceedings are hereby dismissed with the
costs against the petitioners jointly and severally. The preliminary injunction hereinbefore issued is
dissolved. So ordered.

Avanceña, C. J., Johnson, Street, Malcolm, Villamor, Romualdez, and Villa-Real, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-21114 November 28, 1967

FEDERICO FERNANDEZ, plaintiff-appellant,

vs.
P. CUERVA and CO., defendant-appellee.

Gerardo P. Moreno, Jr. for plaintiff-appellant.

N.O. Bueno for defendant-appellee.

ZALDIVAR, J.:

This is an appeal from the order of the Court of First Instance of Manila, dated January 29, 1963, in
its Civil Case No. 52946, dismissing the complaint upon the ground that the action in the first two
causes of action had prescribed and that it had no jurisdiction over the third cause of action.

It appears that plaintiff Federico Fernandez was employed as salesman by defendant P. Cuerva &
Co. from March, 1949 to October, 1959. After his separation from the service, plaintiff filed a claim,
on July 26, 1960, before Regional Office No. 4 of the Department of Labor,1 docketed as L. S. Case
No. 2940, to recover unpaid salaries and commissions, and separation pay.

During the pendency of said case, or on December 17, 1962, plaintiff again instituted a similar
complaint against the same defendant with the Court of First Instance of Manila (Civil Case No.
52946) alleging, among others, that he was employed by defendant company as salesman in March,
1949 with a salary of P200.00 per month that beginning June, 1955 until the termination of his
services in October, 1959, his salary was increased to, P300.00 monthly and was given, in addition,
a commission of 10% on his sales; that the increase of P100.00 a month and the 10% commission
were not actually received by him as there was a verbal understanding between him and defendant
company that the same would be retained by the latter as bond or deposit for the goods being
handled by the former; and that because plaintiff was separated from the service in October, 1959,
he sought to recover the sum of P5,300.00 representing the P100.00 monthly deductions from his
salary; P4,770.00 corresponding to his 10% commissions that were withheld, and P1,500.00 as
separation pay, or the total sum of P11,570.00. These three items were respectively the subject
matter of the first, second and third causes of action of the complaint.

On January 2, 1963, defendant filed a motion to dismiss the complaint upon the grounds that the
actions had prescribed and that the court had no jurisdiction over the case. The court below, after
allowing the parties to submit their respective memorandum on the questions of prescription and
jurisdiction, dismissed the case, in an order issued on January 29, 1963, holding that because the
claim of plaintiff in the first two causes of action amounting to P10,070.00 represented the sum total
of unauthorized deductions from his salaries and withheld commissions, under Section 10,
paragraph (f) of Republic Act No. 602, otherwise known as the Minimum Wage Law, the action to
recover the same was already barred under Section 17 of said Act inasmuch as it was not brought
within three years from the time the right of action accrued; and that because the remaining claim of
plaintiff was limited to his separation pay amounting only to P1,500.00, the action to collect the same
was not within the original jurisdiction of the court.
On February 1, 1963, plaintiff moved to reconsider the above-mentioned order, advancing as his
main argument the fact that his having filed a similar claim with Regional Office No. 4 of the
Department of Labor had suspended the running of the prescriptive period insofar as his claim for
refund of unauthorized deductions and withheld commissions was concerned — which were the
subject matters of the first and second causes of action that were dismissed by the court. The
defendant filed an opposition to the motion for reconsideration. In an order dated February 15, 1963,
the court denied plaintiff's motion for reconsideration. Hence this appeal by the plaintiff direct to this
Court on purely questions of law.

We are in accord with the court a quo that the law applicable to the case at bar is Republic Act 602
because the bond or deposit sought to be recovered by appellant was actually the sum total of the
unauthorized deductions from his salaries and withheld commissions under Section 10 thereof.
Under Section 17 of said law, "any action . . . to enforce any cause of action under this Act may be
commenced within three years after the cause of action accrued, and every such action shall be
forever barred unless commenced within three years after the cause of action accrued." Since a right
of action accrues only from the moment the right to commence the action comes into existence, and
prescription begins to run from that time,2 the question to be resolved is: When did the right of action
of plaintiff accrue?

To answer the foregoing query, it is meet to recall that while the amounts withheld by defendant
were actually deductions from plaintiff's salaries and unpaid commissions, they were, however,
constituted as a bond or a deposit to answer for any liability that he might incur in connection with
the goods handled by him. The bond and/or deposit was thus answerable for merchandise entrusted
to plaintiff during the period of his employment with defendant. It was, therefore, not feasible for
plaintiff to demand every month or every payday, or during the period of his employment with the
company the return or refund of those amounts withheld as contended by defendant, because the
undertaking for which the bond or deposit was constituted was still subsisting. And so the right of
plaintiff to commence an action for the return or refund of the amounts representing such bond or
deposit would accrue only when the same was no longer needed, and the time when it was no
longer needed only came in October 1959 when plaintiff was separated from the service. Having
ceased to be employed by the defendant, the bond put up by plaintiff thereby became unnecessary
or useless.

It would seem, however, that even if We count from October, 1959 in computing the prescriptive
period, plaintiff's action to recover the amount held by defendant as bond is already barred because
more than three years had elapsed by the time plaintiff instituted the present case in the court below
on December 17, 1962. The record, however, shows that on July 26, 1960, plaintiff filed a similar
claim against the defendant with Regional Office No. 4 of the Department of Labor.

At this juncture, the question posed is: Did the filing by plaintiff of that claim with the regional office of
the Department of Labor suspend the running of the period of prescription?

Defendant answers the question in the negative. While defendant does not question the applicability
to the case at bar of Article 1155 of the Civil Code, which provides that the "prescription of actions is
interrupted when they are filed before the Court," nevertheless, it contends that inasmuch as
plaintiff's claim was lodged with the regional office of the Department of Labor, which is not a court,
the same could not be considered a judicial demand that would suspend the running of the
prescriptive period.

We do not agree with defendant. It is true that the claim filed by plaintiff with the regional office of the
Department of Labor is not a judicial demand in the same sense of the term "judicial demand"
because the same was not instituted in a court of justice. Judicial notice, however, should be taken
that on December 10, 1956, Reorganization Plan No. 20-A was promulgated pursuant to Republic
Act 997, and under Section 25 of said reorganization plan each regional office of the Department of
Labor was vested with original and exclusive jurisdiction over all cases affecting all money claims
arising from violations of labor standards on working conditions such as unpaid wages,
underpayment, overtime and separation pay, etc., to the exclusion of courts.3 Consequently, when
plaintiff wanted to enforce his claim after his dismissal from the service in October, 1959, he had no
choice but to file the same with Regional Office No. 4 of the Department of Labor which was the
agency then empowered to take cognizance of the claim. He could not institute the action to recover
his claim in the court of justice because of the provisions of Reorganization Plan No. 20-A. At least it
may be said that on July 26, 1960, when plaintiff filed his claim with Regional Office. No. 4 of the
Department of Labor, he acted in accordance with the procedure that was then prescribed under
authority of law. Under the circumstances, We believe that the filing by plaintiff of his claim before
the regional office of the Department of Labor had the attributes of a judicial demand. And We say
this because under the provisions of Section 25 of Reorganization Plan No. 20-A each regional
office of the Department of Labor was invested with jurisdiction, similar to that of a court, to receive,
determine, and adjudicate claims arising out of employer-employee relations as specified in said
section. We quote Section 25 of Reorganization Plan No. 20-A:

Each Regional Office shall have original and exclusive jurisdiction over all cases affecting all
money claims arising from violations of labor standards on working conditions, including but
not restrictive to: unpaid wages, underpayment, overtime, separation pay, and maternity
leave of employees/laborers and unpaid wages, overtime, separation pay, vacation pay, and
payment for medical services of domestic held. (Emphasis supplied)

It can be gathered from a reading of the above-quoted Section 25 of Reorganization Plan No. 20-A
that some sort of judicial powers was conferred upon the regional offices of the Department of Labor
over money claims mentioned in said section. Certainly, it can be considered that filing a money
claim before a regional office of the Department of Labor pursuant to Section 25 of Reorganization
Plan No. 20-A is like filing a complaint in court to enforce said money claim. We believe that the filing
of a claim before an administrative agency which is vested with authority to decide said claim would
produce the effect of a judicial demand for the purpose of interrupting the running of the period of
prescription. The purpose of the law on prescription and the statute of limitations is to protect the
person who is diligent and vigilant in asserting his right, and conversely to punish the person who
sleeps on his right.4Indeed, it cannot be said that in the case before Us the plaintiff had slept on his
right, because shortly after he was separated from the service by the defendant he filed his claim
before the agency of the government that was at the time clothed with exclusive authority to pass
upon his claim.

We have taken note of the fact that on June 30, 1961, Section 25 of Reorganization Plan No. 20-A
had been declared unconstitutional by this Court in the case of Corominas, et al. v. The Labor
Standards Commission, et al., supra. It appears, however, that the plaintiff had filed his claim before
Regional Office No. 4 of the Department of Labor on July 26, 1960, or about one year before said
Section 25 had been declared unconstitutional. The circumstance that Section 25 of Reorganization
Plan No. 20-A had been declared unconstitutional should not be counted against the defendant in
the present case. In the case of Manila Motor Co., Inc. v. Flores, 99 Phil., 738, this Court upheld the
right of a party under the Moratorium Law which had accrued in his favor before said law was
declared unconstitutional by this Court in the case of Rutter v. Esteban, 93 Phil., 68. This Court, in its
decision in the Manila Motor case, quoted the following doctrine:

[t]here are several instances wherein courts, out of equity, have relaxed its operation (cf.
note in Cooley's Constitutional Limitations 8th ed., p. 383 and Notes 53 A.L.R., 273) or
qualified its effects "since the actual existence of a statute prior to such declaration is an
operative fact, and may have consequences which cannot justly be ignored" (Chicot County
 vs. Baster, 308 U.S., 371) and a realistic approach is eroding the general doctrine (Warring
vs. Colpoys 136 Am. Law Rep., 1025, 1030).

We believe that it is only fair and just that the foregoing doctrine should be applied in favor of the
plaintiff in the present case.

We have noted in the record that it was precisely because Section 25 of Reorganization Plan No.
20-A was declared unconstitutional by this Court on June 30, 1961 that the plaintiff, without awaiting
the action of Regional Office No. 4 of the Department of Labor on the claim that he filed on July 26,
1960, instituted his action in the present case in the court below on December 17, 1962. The move
of plaintiff was precisely intended to protect his right of action from the adverse effect of the decision
of this Court. The Regional Office No. 4 of the Department of Labor dismissed plaintiff's claim on
January 16, 1963 upon the ground that it had no more jurisdiction to pass upon the claim as a result
of the ruling of this Court in the Corominas case.

Considering that from October, 1959 when plaintiff was separated from the service up to July 26,
1960 when he filed his claim with Regional Office No. 4 of the Department of Labor only eight
months had elapsed, and that since July 26, 1960 until the filing of the complaint in the court below
on December 17, 1962 the running of prescriptive period was deemed interrupted, it is clear that
plaintiff's action to enforce his claim was not yet barred by the statute of limitations when he filed his
complaint in the court below. Plaintiff's action may be considered as brought before the court still
within the period of three years from the time his right of action accrued in accordance with the
provisions of Section 17 of Republic Act 602 (Minimum Wage Law). Only about nine months of the
three-year period provided in Section 17 of Republic Act 602 may be considered as having lapsed
when plaintiff commenced his action in the court below. And considering further that the amount
sought to be recovered in the complaint is more than P10,000.00, it follows that the court a quo has
the exclusive and original jurisdiction to entertain the action of the plaintiff. The lower court,
therefore, erred when it dismissed plaintiff's complaint.

WHEREFORE, the order appealed from is set aside, and this case is remanded to the court below
for further proceedings, with costs against the defendant-appellee. It is so ordered.

Dizon, Makalintal, Bengzon, J.P., Sanchez, Castro and Angeles, JJ., concur.
Concepcion, C.J., and Reyes, J.B.L., J., took no part.

Separate Opinions

FERNANDO, J., concurring:

The opinion of the Court penned by Justice Zaldivar, notable for its thorough and comprehensive
character, deserves full concurrence. That I readily give.1 In view however of what for me is the full
acceptance by this Court that a legislative or executive measure subsequently annulled on
constitutional grounds, while necessarily devoid as a source of legal right, should be considered as
a fact from which legal consequences may attach, I would like to add a few, words.

Where the assailed legislative or executive act is found by the judiciary to be contrary to the
Constitution, it is null and void. As the new Civil Code puts it: "When the courts declare a law to be
inconsistent with the Constitution, the former shall be void and the latter shall govern. Administrative
or executive acts, orders and regulations shall be valid only when they are not contrary to the laws or
the Constitution."2 The above provision of the Civil Code reflects the orthodox view that an
unconstitutional act, whether legislative or executive, is not a law, confers no rights, imposes no
duties, and affords no protection.3 This doctrine admits of qualifications, however. As the American
Supreme Court stated: "The actual existence of a statue prior to such a determination [of
constitutionality], is an operative fact and may have consequences which cannot always be erased
by a new judicial declaration. The effect of the subsequent ruling as to invalidity may have to be
considered in various aspects, — with respect to particular regulations, individual and corporate, and
particular conduct, private and official."4

The orthodox view finds support in the well-settled doctrine that the Constitution is supreme and
provides the measure for the validity of legislative or executive acts. Clearly then, neither the
legislative nor the executive branch, and for that matter, much less, this Court, has power under the
Constitution to act contrary to its terms. Any attempted exercise of power in violation of its provisions
is to that extent unwarranted and null.

The growing awareness of the role of the judiciary as the governmental organ which has the final
say on whether or not a legislative or executive measure is valid leads to a more appreciative
attitude of the emerging concept that a declaration of nullity may have legal consequences which the
more orthodox view would deny. That for a period of time such a statute, treaty, executive order, or
ordinance was in "actual existence" appears to be indisputable. What is more appropriate and logical
then than to consider it as "an operative fact." With Araneta v. Hill,5 Manila Motor Co. v. Flores,6 and
now this decision, such a view has much more than propriety and logic in its favor. It is now settled
law. That is as it ought to be.

Considering that it is one of the basic presuppositions of our constitutional polity, that the act of any
branch of the government is subject to judicial scrutiny, the effect of which maybe to invalidate it for
being unconstitutional. it is far from realistic, to say the least, to disregard completely its existence.
More specifically, as the then Justice, now Chief Justice, Concepcion noted, while the validity of
Reorganization Plan No. 20-A was debatable, it was nevertheless "presumed valid until otherwise
held by final judgment of a competent court." Both reason and authority thus concur in the view that
to treat the matter as if such an executive regulation had never been would be far from satisfying the
ends of justice, not to say common sense.7 To repeat, the opinion of the Court commends itself for
full and unqualified approval.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-2598 June 29, 1950

C. ARNOLD HALL and BRADLEY P. HALL, petitioners,

vs.
EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte, FRED BROWN, EMMA
BROWN, HIPOLITA CAPUCIONG, in his capacity as receiver of the Far Eastern Lumber and
Commercial Co., Inc.,respondents.

Claro M. Recto for petitioners.

Ramon Diokno and Jose W. Diokno for respondents.

BENGZON, J.:

This is petition to set aside all the proceedings had in civil case No. 381 of the Court of First Instance
of Leyte and to enjoin the respondent judge from further acting upon the same.

Facts: (1) on May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the respondents
Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella, signed and acknowledged
in Leyte, the article of incorporation of the Far Eastern Lumber and Commercial Co., Inc., organized
to engage in a general lumber business to carry on as general contractors, operators and managers,
etc. Attached to the article was an affidavit of the treasurer stating that 23,428 shares of stock had
been subscribed and fully paid with certain properties transferred to the corporation described in a
list appended thereto.

(2) Immediately after the execution of said articles of incorporation, the corporation proceeded to do
business with the adoption of by-laws and the election of its officers.

(3) On December 2, 1947, the said articles of incorporation were filed in the office of the Securities
and Exchange Commissioner, for the issuance of the corresponding certificate of incorporation.

(4) On March 22, 1948, pending action on the articles of incorporation by the aforesaid governmental
office, the respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella filed
before the Court of First Instance of Leyte the civil case numbered 381, entitled "Fred Brown et
al. vs. Arnold C. Hall et al.", alleging among other things that the Far Eastern Lumber and
Commercial Co. was an unregistered partnership; that they wished to have it dissolved because of
bitter dissension among the members, mismanagement and fraud by the managers and heavy
financial losses.

(5) The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion to dismiss,
contesting the court's jurisdiction and the sufficiently of the cause of action.

(6) After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution of the company; and
at the request of plaintiffs, appointed of the properties thereof, upon the filing of a P20,000 bond.
(7) The defendants therein (petitioners herein) offered to file a counter-bond for the discharge of the
receiver, but the respondent judge refused to accept the offer and to discharge the receiver.
Whereupon, the present special civil action was instituted in this court. It is based upon two main
propositions, to wit:

(a) The court had no jurisdiction in civil case No. 381 to decree the dissolution of the company,
because it being a de facto corporation, dissolution thereof may only be ordered in a quo
warranto proceeding instituted in accordance with section 19 of the Corporation Law.

(b) Inasmuch as respondents Fred Brown and Emma Brown had signed the article of incorporation
but only a partnership.

Discussion: The second proposition may at once be dismissed. All the parties are informed that the
Securities and Exchange Commission has not, so far, issued the corresponding certificate of
incorporation. All of them know, or sought to know, that the personality of a corporation begins to
exist only from the moment such certificate is issued — not before (sec. 11, Corporation Law). The
complaining associates have not represented to the others that they were incorporated any more
than the latter had made similar representations to them. And as nobody was led to believe anything
to his prejudice and damage, the principle of estoppel does not apply. Obviously this is not an
instance requiring the enforcement of contracts with the corporation through the rule of estoppel.

The first proposition above stated is premised on the theory that, inasmuch as the Far Eastern
Lumber and Commercial Co., is a de facto corporation, section 19 of the Corporation Law applies,
and therefore the court had not jurisdiction to take cognizance of said civil case number 381. Section
19 reads as follows:

. . . The due incorporation of any corporations claiming in good faith to be a corporation

under this Act and its right to exercise corporate powers shall not be inquired into collaterally
in any private suit to which the corporation may be a party, but such inquiry may be had at
the suit of the Insular Government on information of the Attorney-General.

There are least two reasons why this section does not govern the situation. Not having obtained the
certificate of incorporation, the Far Eastern Lumber and Commercial Co. — even its stockholders —
may not probably claim "in good faith" to be a corporation.

Under our statue it is to be noted (Corporation Law, sec. 11) that it is the issuance of a
certificate of incorporation by the Director of the Bureau of Commerce and Industry which
calls a corporation into being. The immunity if collateral attack is granted to corporations
"claiming in good faith to be a corporation under this act." Such a claim is compatible with the
existence of errors and irregularities; but not with a total or substantial disregard of the law.
Unless there has been an evident attempt to comply with the law the claim to be a
corporation "under this act" could not be made "in good faith." (Fisher on the Philippine Law
of Stock Corporations, p. 75. See also Humphreys vs. Drew, 59 Fla., 295; 52 So., 362.)

Second, this is not a suit in which the corporation is a party. This is a litigation between stockholders
of the alleged corporation, for the purpose of obtaining its dissolution. Even the existence of a de
jure corporation may be terminated in a private suit for its dissolution between stockholders, without
the intervention of the state.

There might be room for argument on the right of minority stockholders to sue for dissolution;1 but
that question does not affect the court's jurisdiction, and is a matter for decision by the judge, subject
to review on appeal. Whkch brings us to one principal reason why this petition may not prosper,
namely: the petitioners have their remedy by appealing the order of dissolution at the proper time.

There is a secondary issue in connection with the appointment of a receiver. But it must be admitted
that receivership is proper in proceedings for dissolution of a company or corporation, and it was no
error to reject the counter-bond, the court having declared the dissolution. As to the amount of the
bond to be demanded of the receiver, much depends upon the discretion of the trial court, which in
this instance we do not believe has been clearly abused.

Judgment: The petition will, therefore, be dismissed, with costs. The preliminary injunction heretofore
issued will be dissolved.

Ozaeta, Pablo, Tuason, Montemayor, and Reyes, JJ., concur.

Footnotes

1Cf. Thompson on Corporations, 3rd. ed., secs. 6455-6457. But the suit might be viewed as
one of the rescission of contract, the agreement between incorporators being contractual in
nature. Fisher op. cit., p. 14.