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GREAT ASIAN SALES CENTER CORPORATION and TAN CHONG LIN, petitioners, vs.

THE
COURT OF APPEALS and BANCASIA FINANCE AND INVESTMENT CORPORATION, respondents.
D E C I S I O N
CARPIO, J .:
The Case
Before us is a Petition for Review on Certiorari under Rule 45 of the Revised Rules on Civil
Procedure assailing the June 9, 1992 Decision
[1]
of the Court of Appeals
[2]
in CA-G.R. CV No.
20167. The Court of Appeals affirmed the January 26, 1988 Decision
[3]
of the Regional Trial Court of
Manila, Branch 52,
[4]
ordering petitioners Great Asian Sales Center Corporation (Great Asian for brevity)
and Tan Chong Lin to pay, solidarily, respondent Bancasia Finance and Investment Corporation
(Bancasia for brevity) the amount of P1,042,005.00. The Court of Appeals affirmed the trial courts
award of interest and costs of suit but deleted the award of attorneys fees.
The Facts
Great Asian is engaged in the business of buying and selling general merchandise, in particular
household appliances. On March 17, 1981, the board of directors of Great Asian approved a resolution
authorizing its Treasurer and General Manager, Arsenio Lim Piat, Jr. (Arsenio for brevity) to secure a
loan from Bancasia in an amount not to exceed P1.0 million. The board resolution also authorized
Arsenio to sign all papers, documents or promissory notes necessary to secure the loan. On February
10, 1982, the board of directors of Great Asian approved a second resolution authorizing Great Asian to
secure a discounting line with Bancasia in an amount not exceeding P2.0 million. The second board
resolution also designated Arsenio as the authorized signatory to sign all instruments, documents and
checks necessary to secure the discounting line.
On March 4, 1981, Tan Chong Lin signed a Surety Agreement in favor of Bancasia to guarantee,
solidarily, the debts of Great Asian to Bancasia. On January 29, 1982, Tan Chong Lin signed a
Comprehensive and Continuing Surety Agreement in favor of Bancasia to guarantee, solidarily, the debts
of Great Asian to Bancasia. Thus, Tan Chong Lin signed two surety agreements (Surety Agreements
for brevity) in favor of Bancasia.
Great Asian, through its Treasurer and General Manager Arsenio, signed four (4) Deeds of
Assignment of Receivables (Deeds of Assignment for brevity), assigning to Bancasia fifteen (15)
postdated checks. Nine of the checks were payable to Great Asian, three were payable to New Asian
Emp., and the last three were payable to cash. Various customers of Great Asian issued these
postdated checks in payment for appliances and other merchandise.
Great Asian and Bancasia signed the first Deed of Assignment on January 12, 1982 covering four
postdated checks with a total face value of P244,225.82, with maturity dates not later than March 17,
1982. Of these four postdated checks, two were dishonored. Great Asian and Bancasia signed the
second Deed of Assignment also on January 12, 1982 covering four postdated checks with a total face
value of P312,819.00, with maturity dates not later than April 1, 1982. All these four checks were
dishonored. Great Asian and Bancasia signed the third Deed of Assignment on February 11, 1982
covering eight postdated checks with a total face value of P344,475.00, with maturity dates not later than
April 30, 1982. All these eight checks were dishonored. Great Asian and Bancasia signed the fourth
Deed of Assignment on March 5, 1982 covering one postdated check with a face value of P200,000.00,
with maturity date on March 18, 1982. This last check was also dishonored. Great Asian assigned the
postdated checks to Bancasia at a discount rate of less than 24% of the face value of the checks.
Arsenio endorsed all the fifteen dishonored checks by signing his name at the back of the
checks. Eight of the dishonored checks bore the endorsement of Arsenio below the stamped name of
Great Asian Sales Center, while the rest of the dishonored checks just bore the signature of
Arsenio. The drawee banks dishonored the fifteen checks on maturity when deposited for collection by
Bancasia, with any of the following as reason for the dishonor: account closed, payment stopped,
account under garnishment, and insufficiency of funds. The total amount of the fifteen dishonored
checks is P1,042,005.00. Below is a table of the fifteen dishonored checks:
Drawee Bank Check No. Amount Maturity Date
1
st
Deed
Solid Bank C-A097480 P137,500.00 March 16, 1982
Pacific Banking Corp. 23950 P47,211.00 March 17, 1982
2
nd
Deed
Metrobank 030925 P68,722.00 March 19, 1982
030926 P45,230.00 March 19, 1982
Solidbank C-A097478 P140,000.00 March 23, 1982
Pacific Banking Corp. CC 769910 P58,867.00 April 1, 1982
3
rd
Deed
Phil. Trust Company 060835 P21,228.00 April 21, 1982
060836 P22,187.00 April 28, 1982
Allied Banking Corp. 11251624 P41,773.00 April 22, 1982
11251625 P38,592.00 April 29, 1982
Pacific Banking Corp. 237984 P37,886.00 April 23, 1982
237988 P47,385.00 April 28, 1982
237985 P46,748.00 April 30, 1982
Security Bank & Trust Co. 22061 P88,676.00 April 30, 1982
4
th
Deed
Pacific Banking Corp. 860178 P200,000.00 March 18, 1982
After the drawee bank dishonored Check No. 097480 dated March 16, 1982, Bancasia referred
the matter to its lawyer, Atty. Eladia Reyes, who sent by registered mail to Tan Chong Lin a letter dated
March 18, 1982, notifying him of the dishonor and demanding payment from him. Subsequently,
Bancasia sent by personal delivery a letter dated June 16, 1982 to Tan Chong Lin, notifying him of the
dishonor of the fifteen checks and demanding payment from him. Neither Great Asian nor Tan Chong Lin
paid Bancasia the dishonored checks.
On May 21, 1982, Great Asian filed with the then Court of First Instance of Manila a petition for
insolvency, verified under oath by its Corporate Secretary, Mario Tan. Attached to the verified petition
was a Schedule and Inventory of Liabilities and Creditors of Great Asian Sales Center Corporation,
listing Bancasia as one of the creditors of Great Asian in the amount of P1,243,632.00.
On June 23, 1982, Bancasia filed a complaint for collection of a sum of money against Great
Asian and Tan Chong Lin. Bancasia impleaded Tan Chong Lin because of the Surety Agreements he
signed in favor of Bancasia. In its answer, Great Asian denied the material allegations of the complaint
claiming it was unfounded, malicious, baseless, and unlawfully instituted since there was already a
pending insolvency proceedings, although Great Asian subsequently withdrew its petition for voluntary
insolvency. Great Asian further raised the alleged lack of authority of Arsenio to sign the Deeds of
Assignment as well as the absence of consideration and consent of all the parties to the Surety
Agreements signed by Tan Chong Lin.
Ruling of the Trial Court
The trial court rendered its decision on January 26, 1988 with the following findings and
conclusions:
From the foregoing facts and circumstances, the Court finds that the plaintiff has established its
causes of action against the defendants. The Board Resolution (Exh. T), dated March 17, 1981,
authorizing Arsenio Lim Piat, Jr., general manager and treasurer of the defendant Great Asian to apply
and negotiate for a loan accommodation or credit line with the plaintiff Bancasia in an amount not
exceeding One Million Pesos (P1,000,000.00), and the other Board Resolution approved on February 10,
1982, authorizing Arsenio Lim Piat, Jr., to obtain for defendant Asian Center a discounting line with
Bancasia at prevailing discounting rates in an amount not to exceed Two Million Pesos (P2,000,000.00),
both of which were intended to secure money from the plaintiff financing firm to finance the business
operations of defendant Great Asian, and pursuant to which Arsenio Lim Piat, Jr. was able to have the
aforementioned fifteen (15) checks totaling P1,042,005.00 discounted with the plaintiff, which transactions
were obviously known by the beneficiary thereof, defendant Great Asian, as in fact, in its aforementioned
Schedule and Inventory of Liabilities and Creditors (Exh. DD, DD-1) attached to its Verified Petition for
Insolvency, dated May 12, 1982 (pp. 50-56), the defendant Great Asian admitted an existing liability to the
plaintiff, in the amount of P1,243,632.00, secured by it, by way of financing accommodation, from the
said financing institution Bancasia Finance and Investment Corporation, plaintiff herein, sufficiently
establish the liability of the defendant Great Asian to the plaintiff for the amount ofP1,042,005.00 sought
to be recovered by the latter in this case.
[5]

xxx
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the two (2)
defendants ordering the latter, jointly and severally, to pay the former:
(a) The amount of P1,042,005.00, plus interest thereon at the legal rate from the filing of the
complaint until the same is fully paid;
(b) Attorneys fees equivalent to twenty per cent (20%) of the total amount due; and
(c) The costs of suit.
SO ORDERED.
[6]

Ruling of the Court of Appeals
On appeal, the Court of Appeals sustained the decision of the lower court, deleting only the
award of attorneys fees, as follows:
As against appellants bare denial of it, the Court is more inclined to accept the appellees
version, to the effect that the subject deeds of assignment are but individual transactions which -- being
collectively evidentiary of the loan accommodation and/or credit line it granted the appellant corporation --
should not be taken singly and distinct therefrom. In addition to its plausibility, the proposition is, more
importantly, adequately backed by the documentary evidence on record. Aside from the aforesaid Deeds
of Assignment (Exhs. A, D, I, and R) and the Board Resolutions of the appellant corporations
Board of Directors (Exhs. T, U and V), the appellee -- consistent with its theory -- interposed the
Surety Agreements the appellant Tan Chong Lin executed (Exhs. W and X), as well as the demand
letters it served upon the latter as surety (Exhs. Y and Z). It bears emphasis that the second
Resolution of the appellant corporations Board of Directors (Exh. V) even closely coincides with the
execution of the February 11, 1982 and March 5, 1982 Deeds of Assignment (Exhs. I and R). Were
the appellants posturings true, it seems rather strange that the appellant Tan Chong Lin did not even
protest or, at least, make known to the appellee what he -- together with the appellant corporation --
represented to be a corporate larceny to which all of them supposedly fell prey. In the petition for
voluntary insolvency it filed, the appellant corporation, instead, indirectly acknowledged its indebtedness
in terms of financing accommodations to the appellee, in an amount which, while not exactly matching the
sum herein sought to be collected, approximates the same (Exhs. CC, DD and DD-1).
[7]

xxx
The appellants contend that the foregoing warranties enlarged or increased the suretys risk, such
that appellant Tan Chong Lin should be released from his liabilities (pp. 37-44, Appellants Brief). Without
saying more, the appellants position is, however, soundly debunked by the undertaking expressed in the
Comprehensive and Continuing Surety Agreements (Exhs. W and X), to the effect that the xxx
surety/ies, jointly and severally among themselves and likewise with the principal, hereby agree/s and
bind/s himself to pay at maturity all the notes, drafts, bills of exchange, overdrafts and other obligations
which the principal may now or may hereafter owe the creditor xxx. With the possible exception of the
fixed ceiling for the amount of loan obtainable, the surety undertaking in the case at bar is so
comprehensive as to contemplate each and every condition, term or warranty which the principal parties
may have or may be minded to agree on. Having affixed his signature thereto, the appellant Tan Chong
Lin is expected to have, at least, read and understood the same.
xxx
With the foregoing disquisition, the Court sees little or no reason to go into the appellants
remaining assignments of error, save the matter of attorneys fees. For want of a statement of the
rationale therefore in the body of the challenged decision, the trial courts award of attorneys fees should
be deleted and disallowed (Abrogar vs. Intermediate Appellate Court, 157 SCRA 57).
WHEREFORE, the decision appealed from is MODIFIED, to delete the trial courts award of
attorneys fees. The rest is AFFIRMED in toto.
SO ORDERED.
[8]

The Issues
The petition is anchored on the following assigned errors:
1. The respondent Court erred in not holding that the proper parties against whom this
action for collection should be brought are the drawers and indorser of the checks in question, being
the real parties in interest, and not the herein petitioners.
2. The respondent Court erred in not holding that the petitioner-corporation is discharged
from liability for failure of the private respondent to comply with the provisions of the Negotiable
Instruments Law on the dishonor of the checks.
3. The respondent Court erred in its appreciation and interpretation of the effect and legal
consequences of the signing of the deeds of assignment and the subsequent indorsement of the
checks by Arsenio Lim Piat, Jr. in his individual and personal capacity and without stating or
indicating the name of his supposed principal.
4. The respondent Court erred in holding that the assignment of the checks is a loan
accommodation or credit line accorded by the private respondent to petitioner-corporation, and not a
purchase and sale thereof.
5. The respondent Court erred in not holding that there was a material alteration of the risk
assumed by the petitioner-surety under his surety agreement by the terms, conditions, warranties
and obligations assumed by the assignor Arsenio Lim Piat, Jr. under the deeds of assignment or
receivables.
6. The respondent Court erred in holding that the petitioner-corporation impliedly admitted
its liability to private respondent when the former included the latter as one of its creditors in its
petition for voluntary insolvency, although no claim was filed and proved by the private respondent in
the insolvency court.
7. The respondent Court erred in holding the petitioners liable to private respondent on the
transactions in question.
[9]

The issues to be resolved in this petition can be summarized into three:
1. WHETHER ARSENIO HAD AUTHORITY TO EXECUTE THE DEEDS OF ASSIGNMENT
AND THUS BIND GREAT ASIAN;
2. WHETHER GREAT ASIAN IS LIABLE TO BANCASIA UNDER THE DEEDS OF
ASSIGNMENT FOR BREACH OF CONTRACT PURSUANT TO THE CIVIL CODE, INDEPENDENT
OF THE NEGOTIABLE INSTRUMENTS LAW;
3. WHETHER TAN CHONG LIN IS LIABLE TO GREAT ASIAN UNDER THE SURETY
AGREEMENTS.
The Courts Ruling
The petition is bereft of merit.
First Issue: Authority of Arsenio to Sign the Deeds of Assignment
Great Asian asserts that Arsenio signed the Deeds of Assignment and indorsed the checks in his
personal capacity. The primordial question that must be resolved is whether Great Asian authorized
Arsenio to sign the Deeds of Assignment. If Great Asian so authorized Arsenio, then Great Asian is
bound by the Deeds of Assignment and must honor its terms.
The Corporation Code of the Philippines vests in the board of directors the exercise of the
corporate powers of the corporation, save in those instances where the Code requires stockholders
approval for certain specific acts. Section 23 of the Code provides:
SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business conducted
and all property of such corporations controlled and held by the board of directors or trustees x x x.
In the ordinary course of business, a corporation can borrow funds or dispose of assets of the
corporation only on authority of the board of directors. The board of directors normally designates one or
more corporate officers to sign loan documents or deeds of assignment for the corporation.
To secure a credit accommodation from Bancasia, the board of directors of Great Asian adopted
two board resolutions on different dates, the first on March 17, 1981, and the second on February 10,
1982. These two board resolutions, as certified under oath by Great Asians Corporate Secretary Mario
K. Tan, state:
First Board Resolution
RESOLVED, that the Treasurer of the corporation, Mr. Arsenio Lim Piat, Jr., be authorized as he
is authorized to apply for and negotiate for a loan accommodation or credit line in the amount not to
exceed ONE MILLION PESOS (P1,000,000.00), with Bancasia Finance and Investment Corporation, and
likewise to sign any and all papers, documents, and/or promissory notes in connection with said loan
accommodation or credit line, including the power to mortgage such properties of the corporation as may
be needed to effectuate the same.
[10]
(Emphasis supplied)
Second Board Resolution
RESOLVED that Great Asian Sales Center Corp. obtain a discounting line with
BANCASIA FINANCE & INVESTMENT CORPORATION, at prevailing discounting rates, in an amount
not to exceed** TWO MILLION PESOS ONLY (P2,000,000),** Philippine Currency.
RESOLVED FURTHER, that the corporation secure such other forms of credit lines with
BANCASIA FINANCE & INVESTMENT CORPORATION in an amount not to exceed** TWO MILLION
PESOS ONLY (P2,000,000.00),** PESOS, under such terms and conditions as the signatories may deem
fit and proper.
RESOLVED FURTHER, that the following persons be authorized individually, jointly or
collectively to sign, execute and deliver any and all instruments, documents, checks, sureties, etc.
necessary or incidental to secure any of the foregoing obligation:
(signed)
Specimen Signature
1. ARSENIO LIM PIAT, JR._
2. _______________________
3. _______________________
4. _______________________
PROVIDED FINALLY that this authority shall be valid, binding and effective until revoked by the
Board of Directors in the manner prescribed by law, and that BANCASIA FINANCE & INVESTMENT
CORPORATION shall not be bound by any such revocation until such time as it is noticed in writing of
such revocation.
[11]
(Emphasis supplied)
The first board resolution expressly authorizes Arsenio, as Treasurer of Great Asian, to apply for
a loan accommodation or credit line with Bancasia for not more than P1.0 million. Also, the first
resolution explicitly authorizes Arsenio to sign any document, paper or promissory note, including
mortgage deeds over properties of Great Asian, to secure the loan or credit line from Bancasia.
The second board resolution expressly authorizes Great Asian to secure a discounting
line from Bancasia for not more than P2.0 million. The second board resolution also expressly
empowers Arsenio, as the authorized signatory of Great Asian, to sign, execute and deliver any and
all documents, checks x x x necessary or incidental to secure the discounting line. The second
board resolution specifically authorizes Arsenio to secure the discounting line under such terms and
conditions as (he) x x x may deem fit and proper.
As plain as daylight, the two board resolutions clearly authorize Great Asian to secure a loan
or discounting line from Bancasia. The two board resolutions also categorically designate Arsenio as
the authorized signatory to sign and deliver all the implementing documents, including checks, for Great
Asian. There is no iota of doubt whatsoever about the purpose of the two board resolutions, and about
the authority of Arsenio to act and sign for Great Asian. The second board resolution even gave
Arsenio full authority to agree with Bancasia on the terms and conditions of the discounting line. Great
Asian adopted the correct and proper board resolutions to secure a loan or discounting line from
Bancasia, and Bancasia had a right to rely on the two board resolutions of Great Asian. Significantly, the
two board resolutions specifically refer to Bancasia as the financing institution from whom Great Asian will
secure the loan accommodation or discounting line.
Armed with the two board resolutions, Arsenio signed the Deeds of Assignment selling, and
endorsing, the fifteen checks of Great Asian to Bancasia. On the face of the Deeds of Assignment, the
contracting parties are indisputably Great Asian and Bancasia as the names of these entities are
expressly mentioned therein as the assignor and assignee, respectively. Great Asian claims that Arsenio
signed the Deeds of Assignment in his personal capacity because Arsenio signed above his printed
name, below which was the word Assignor, thereby making Arsenio the assignor. Great Asian
conveniently omits to state that the first paragraph of the Deeds expressly contains the following
words: the ASSIGNOR, Great Asian Sales Center, a domestic corporation x x x herein
represented by its Treasurer Arsenio Lim Piat, J r. The assignor is undoubtedly Great Asian,
represented by its Treasurer, Arsenio. The only issue to determine is whether the Deeds of Assignment
are indeed the transactions the board of directors of Great Asian authorized Arsenio to sign under the two
board resolutions.
Under the Deeds of Assignment, Great Asian sold fifteen postdated checks at a discount, over
three months, to Bancasia. The Deeds of Assignment uniformly state that Great Asian,
x x x for valuable consideration received, does hereby SELL, TRANSFER, CONVEY, and
ASSIGN, unto the ASSIGNEE, BANCASIA FINANCE & INVESTMENT CORP., a domestic corporation x
x x, the following ACCOUNTS RECEIVABLES due and payable to it, having an aggregate face value of x
x x.
The Deeds of Assignment enabled Great Asian to generate instant cash from its fifteen checks,
which were still not due and demandable then. In short, instead of waiting for the maturity dates of the
fifteen postdated checks, Great Asian sold the checks to Bancasia at less than the total face value of the
checks. In exchange for receiving an amount less than the face value of the checks, Great Asian
obtained immediately much needed cash. Over three months, Great Asian entered into four transactions
of this nature with Bancasia, showing that Great Asian availed of a discounting line with Bancasia.
In the financing industry, the term discounting line means a credit facility with a financing
company or bank, which allows a business entity to sell, on a continuing basis, its accounts receivable at
a discount.
[12]
The term discount means the sale of a receivable at less than its face value. The purpose
of a discounting line is to enable a business entity to generate instant cash out of its receivables which
are still to mature at future dates. The financing company or bank which buys the receivables makes its
profit out of the difference between the face value of the receivable and the discounted price. Thus,
Section 3 (a) of the Financing Company Act of 1998 provides:
Financing companies are corporations x x x primarily organized for the purpose of extending
credit facilities to consumers and to industrial, commercial or agricultural enterprises by discounting or
factoring commercial papers or accounts receivable, or by buying and selling contracts, leases,
chattel mortgages, or other evidences of indebtedness, or by financial leasing of movable as well as
immovable property. (Emphasis supplied)
This definition of financing companies is substantially the same definition as in the old Financing
Company Act (R.A. No. 5980).
[13]

Moreover, Section 1 (h) of the New Rules and Regulations adopted by the Securities and
Exchange Commission to implement the Financing Company Act of 1998 states:
Discounting is a type of receivables financing whereby evidences of indebtedness of a third
party, such as installment contracts, promissory notes and similar instruments, are purchased by,
or assigned to, a financing company in an amount or for a consideration less than their face
value. (Emphasis supplied)
Likewise, this definition of discounting is an exact reproduction of the definition of discounting
in the implementing rules of the old Finance Company Act.
Clearly, the discounting arrangements entered into by Arsenio under the Deeds of Assignment
were the very transactions envisioned in the two board resolutions of Great Asian to raise funds for its
business. Arsenio acted completely within the limits of his authority under the two board
resolutions. Arsenio did exactly what the board of directors of Great Asian directed and authorized him to
do.
Arsenio had all the proper and necessary authority from the board of directors of Great Asian to
sign the Deeds of Assignment and to endorse the fifteen postdated checks. Arsenio signed the Deeds of
Assignment as agent and authorized signatory of Great Asian under an authority expressly granted by its
board of directors. The signature of Arsenio on the Deeds of Assignment is effectively also the signature
of the board of directors of Great Asian, binding on the board of directors and on Great Asian
itself. Evidently, Great Asian shows its bad faith in disowning the Deeds of Assignment signed by its own
Treasurer, after receiving valuable consideration for the checks assigned under the Deeds.
Second Issue: Breach of Contract by Great Asian
Bancasias complaint against Great Asian is founded on the latters breach of contract under the
Deeds of Assignment. The Deeds of Assignment uniformly stipulate
[14]
as follows:
If for any reason the receivables or any part thereof cannot be paid by the obligor/s, the
ASSIGNOR unconditionally and irrevocably agrees to pay the same, assuming the liability to pay, by
way of penalty three per cent (3%) of the total amount unpaid, for the period of delay until the same is
fully paid.
In case of any litigation which the ASSIGNEE may institute to enforce the terms of this
agreement, the ASSIGNOR shall be liable for all the costs, plus attorneys fees equivalent to twenty-five
(25%) per cent of the total amount due. Further thereto, the ASSIGNOR agrees that any and all actions
which may be instituted relative hereto shall be filed before the proper courts of the City of Manila, all
other appropriate venues being hereby waived.
The last Deed of Assignment
[15]
contains the following added stipulation:
xxx Likewise, it is hereby understood that the warranties which the ASSIGNOR hereby made are
deemed part of the consideration for this transaction, such that any violation of any one, some, or all of
said warranties shall be deemed as deliberate misrepresentation on the part of the ASSIGNOR. In such
event, the monetary obligation herein conveyed unto the ASSIGNEE shall be conclusively deemed
defaulted, giving rise to the immediate responsibility on the part of the ASSIGNOR to make good said
obligation, and making the ASSIGNOR liable to pay the penalty stipulated hereinabove as if the original
obligor/s of the receivables actually defaulted. xxx
Obviously, there is one vital suspensive condition in the Deeds of Assignment. That is, in case
the drawers fail to pay the checks on maturity, Great Asian obligated itself to pay Bancasia the full face
value of the dishonored checks, including penalty and attorneys fees. The failure of the drawers to pay
the checks is a suspensive condition,
[16]
the happening of which gives rise to Bancasias right to demand
payment from Great Asian. This conditional obligation of Great Asian arises from its written contracts with
Bancasia as embodied in the Deeds of Assignment. Article 1157 of the Civil Code provides that -
Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.
By express provision in the Deeds of Assignment, Great Asian unconditionally obligated itself to
pay Bancasia the full value of the dishonored checks. In short, Great Asian sold the postdated checks
on with recourse basis against itself. This is an obligation that Great Asian is bound to faithfully comply
because it has the force of law as between Great Asian and Bancasia. Article 1159 of the Civil Code
further provides that -
Obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith.
Great Asian and Bancasia agreed on this specific with recourse stipulation, despite the fact that
the receivables were negotiable instruments with the endorsement of Arsenio. The contracting parties
had the right to adopt the with recourse stipulation which is separate and distinct from the warranties of
an endorser under the Negotiable Instruments Law. Article 1306 of the Civil Code provides that
The contracting parties may establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law, morals, good customs, public order, or
public policy.
The explicit with recourse stipulation against Great Asian effectively enlarges, by agreement of
the parties, the liability of Great Asian beyond that of a mere endorser of a negotiable instrument. Thus,
whether or not Bancasia gives notice of dishonor to Great Asian, the latter remains liable to Bancasia
because of the with recourse stipulation which is independent of the warranties of an endorser under the
Negotiable Instruments Law.
There is nothing in the Negotiable Instruments Law or in the Financing Company Act (old or new),
that prohibits Great Asian and Bancasia parties from adopting the with recourse stipulation uniformly
found in the Deeds of Assignment. Instead of being negotiated, a negotiable instrument may be
assigned.
[17]
Assignment of a negotiable instrument is actually the principal mode of conveying accounts
receivable under the Financing Company Act. Since in discounting of receivables the assignee is
subrogated as creditor of the receivable, the endorsement of the negotiable instrument becomes
necessary to enable the assignee to collect from the drawer. This is particularly true with checks because
collecting banks will not accept checks unless endorsed by the payee. The purpose of the endorsement
is merely to facilitate collection of the proceeds of the checks.
The purpose of the endorsement is not to make the assignee finance company a holder in due
course because policy considerations militate against according finance companies the rights of a holder
in due course.
[18]
Otherwise, consumers who purchase appliances on installment, giving their promissory
notes or checks to the seller, will have no defense against the finance company should the appliances
later turn out to be defective. Thus, the endorsement does not operate to make the finance company a
holder in due course. For its own protection, therefore, the finance company usually requires the
assignor, in a separate and distinct contract, to pay the finance company in the event of dishonor of the
notes or checks.
As endorsee of Great Asian, Bancasia had the option to proceed against Great Asian under the
Negotiable Instruments Law. Had it so proceeded, the Negotiable Instruments Law would have governed
Bancasias cause of action. Bancasia, however, did not choose this route. Instead, Bancasia decided to
sue Great Asian for breach of contract under the Civil Code, a right that Bancasia had under the
express with recourse stipulation in the Deeds of Assignment.
The exercise by Bancasia of its option to sue for breach of contract under the Civil Code will not
leave Great Asian holding an empty bag. Great Asian, after paying Bancasia, is subrogated back as
creditor of the receivables. Great Asian can then proceed against the drawers who issued the
checks. Even if Bancasia failed to give timely notice of dishonor, still there would be no prejudice
whatever to Great Asian. Under the Negotiable Instruments Law, notice of dishonor is not required if the
drawer has no right to expect or require the bank to honor the check, or if the drawer has countermanded
payment.
[19]
In the instant case, all the checks were dishonored for any of the following reasons: account
closed, account under garnishment, insufficiency of funds, or payment stopped. In the first three
instances, the drawers had no right to expect or require the bank to honor the checks, and in the last
instance, the drawers had countermanded payment.
Moreover, under common law, delay in notice of dishonor, where such notice is required,
discharges the drawer only to the extent of the loss caused by the delay.
[20]
This rule finds application in
this jurisdiction pursuant to Section 196 of the Negotiable Instruments Law which states, Any case not
provided for in this Act shall be governed by the provisions of existing legislation, or in default thereof, by
the rules of the Law Merchant. Under Section 186 of the Negotiable Instruments Law, delay in the
presentment of checks discharges the drawer. However, Section 186 refers only to delay in presentment
of checks but is silent on delay in giving notice of dishonor. Consequently, the common law or Law
Merchant can supply this gap in accordance with Section 196 of the Negotiable Instruments Law.
One other issue raised by Great Asian, that of lack of consideration for the Deeds of Assignment,
is completely unsubstantiated. The Deeds of Assignment uniformly provide that the fifteen postdated
checks were assigned to Bancasia for valuable consideration. Moreover, Article 1354 of the Civil Code
states that, Although the cause is not stated in the contract, it is presumed that it exists and is lawful,
unless the debtor proves the contrary. The record is devoid of any showing on the part of Great Asian
rebutting this presumption. On the other hand, Bancasias Loan Section Manager, Cynthia Maclan,
testified that Bancasia paid Great Asian a consideration at the discount rate of less than 24% of the face
value of the postdated checks.
[21]
Moreover, in its verified petition for voluntary insolvency, Great Asian
admitted its debt to Bancasia when it listed Bancasia as one of its creditors, an extra-judicial admission
that Bancasia proved when it formally offered in evidence the verified petition for insolvency.
[22]
The
Insolvency Law requires the petitioner to submit a schedule of debts that must contain a full and true
statement of all his debts and liabilities.
[23]
The Insolvency Law even requires the petitioner to state in his
verification that the schedule of debts contains a full, correct and true discovery of all my debts and
liabilities x x x.
[24]
Great Asian cannot now claim that the listing of Bancasia as a creditor was not an
admission of its debt to Bancasia but merely an acknowledgment that Bancasia had sent a demand letter
to Great Asian.
Great Asian, moreover, claims that the assignment of the checks is not a loan accommodation
but a sale of the checks. With the sale, ownership of the checks passed to Bancasia, which must now,
according to Great Asian, sue the drawers and indorser of the check who are the parties primarily liable
on the checks. Great Asian forgets that under the Deeds of Assignment, Great Asian expressly
undertook to pay the full value of the checks in case of dishonor. Again, we reiterate that this obligation
of Great Asian is separate and distinct from its warranties as indorser under the Negotiable Instruments
Law.
Great Asian is, however, correct in saying that the assignment of the checks is a sale, or more
properly a discounting, of the checks and not a loan accommodation. However, it is precisely because
the transaction is a sale or a discounting of receivables, embodied in separate Deeds of Assignment, that
the relevant provisions of the Civil Code are applicable and not the Negotiable Instruments Law.
At any rate, there is indeed a fine distinction between a discounting line and a loan
accommodation. If the accounts receivable, like postdated checks, are sold for a consideration less than
their face value, the transaction is one of discounting, and is subject to the provisions of the Financing
Company Act. The assignee is immediately subrogated as creditor of the accounts receivable. However,
if the accounts receivable are merely used as collateral for the loan, the transaction is only a simple loan,
and the lender is not subrogated as creditor until there is a default and the collateral is foreclosed.
In summary, Great Asians four contracts assigning its fifteen postdated checks to Bancasia
expressly stipulate the suspensive condition that in the event the drawers of the checks fail to pay, Great
Asian itself will pay Bancasia. Since the common condition in the contracts had transpired, an obligation
on the part of Great Asian arose from the four contracts, and that obligation is to pay Bancasia the full
value of the checks, including the stipulated penalty and attorneys fees.
Third Issue: The liability of surety Tan Chong Lin
Tan Chong Lin, the President of Great Asian, is being sued in his personal capacity based on the
Surety Agreements he signed wherein he solidarily held himself liable with Great Asian for the payment of
its debts to Bancasia. The Surety Agreements contain the following common condition:
Upon failure of the Principal to pay at maturity, with or without demand, any of the obligations
above mentioned, or in case of the Principals failure promptly to respond to any other lawful demand
made by the Creditor, its successors, administrators or assigns, both the Principal and the Surety/ies shall
be considered in default and the Surety/ies agree/s to pay jointly and severally to the Creditor all
outstanding obligations of the Principal, whether due or not due, and whether held by the Creditor as
Principal or agent, and it is agreed that a certified statement by the Creditor as to the amount due from
the Principal shall be accepted by the Surety/ies as correct and final for all legal intents and purposes.
Indisputably, Tan Chong Lin explicitly and unconditionally bound himself to pay Bancasia,
solidarily with Great Asian, if the drawers of the checks fail to pay on due date. The condition on which
Tan Chong Lins obligation hinged had happened. As surety, Tan Chong Lin automatically became liable
for the entire obligation to the same extent as Great Asian.
Tan Chong Lin, however, contends that the following warranties in the Deeds of Assignment
enlarge or increase his risks under the Surety Agreements:
The ASSIGNOR warrants:
1. the soundness of the receivables herein assigned;
2. that said receivables are duly noted in its books and are supported by appropriate documents;
3. that said receivables are genuine, valid and subsisting;
4. that said receivables represent bona fide sale of goods, merchandise, and/or services
rendered in the ordinary course of its business transactions;
5. that the obligors of the receivables herein assigned are solvent;
6. that it has valid and genuine title to and indefeasible right to dispose of said accounts;
7. that said receivables are free from all liens and encumbrances;
8. that the said receivables are freely and legally transferable, and that the obligor/s therein will
not interpose any objection to this assignment, and has in fact given his/their consent hereto.
Tan Chong Lin maintains that these warranties in the Deeds of Assignment materially altered his
obligations under the Surety Agreements, and therefore he is released from any liability to
Bancasia. Under Article 1215 of the Civil Code, what releases a solidary debtor is a novation,
compensation, confusion or remission of the debt made by the creditor with any of the solidary
debtors. These warranties, however, are the usual warranties made by one who discounts receivables
with a financing company or bank. The Surety Agreements, written on the letter head of Bancasia
Finance & Investment Corporation, uniformly state that Great Asian Sales Center x x x has obtained
and/or desires to obtain loans, overdrafts, discounts and/or other forms of credits from
Bancasia. Tan Chong Lin was clearly on notice that he was holding himself as surety of Great Asian
which was discounting postdated checks issued by its buyers of goods and merchandise. Moreover, Tan
Chong Lin, as President of Great Asian, cannot feign ignorance of Great Asians business activities or
discounting transactions with Bancasia. Thus, the warranties do not increase or enlarge the risks of Tan
Chong Lin under the Surety Agreements. There is, moreover, no novation of the debt of Great Asian that
would warrant release of the surety.
In any event, the provisions of the Surety Agreements are broad enough to include the
obligations of Great Asian to Bancasia under the warranties. The first Surety Agreement states that:
x x x herein Surety/ies, jointly and severally among themselves and likewise with principal,
hereby agree/s and bind/s himself/themselves to pay at maturity all the notes, drafts, bills of
exchange, overdraft and other obligations of every kind which the Principal may now or may
hereafter owe the Creditor, including extensions or renewals thereof in the sum *** ONE MILLION
ONLY*** PESOS (P1,000,000.00), Philippine Currency, plus stipulated interest thereon at the rate of
sixteen percent (16%) per annum, or at such increased rate of interest which the Creditor may charge on
the Principals obligations or renewals or the reduced amount thereof, plus all the costs and expenses
which the Creditor may incur in connection therewith.
x x x
Upon failure of the Principal to pay at maturity, with or without demand, any of the
obligations above mentioned, or in case of the Principals failure promptly to respond to any other
lawful demand made by the Creditor, its successors, administrators or assigns, both the Principal and
the Surety/ies shall be considered in default and the Surety/ies agree/s to pay jointly and severally to
the Creditor all outstanding obligations of the Principal, whether due or not due, and whether held by
the Creditor as Principal or agent, and it is agreed that a certified statement by the Creditor as to the
amount due from the Principal shall be accepted by the Surety/ies as correct and final for all legal intents
and purposes. (Emphasis supplied)
The second Surety Agreement contains the following provisions:
x x x herein Surety/ies, jointly and severally among themselves and likewise with PRINCIPAL,
hereby agree and bind themselves to pay at maturity all the notes, drafts, bills of exchange,
overdraft and other obligations of every kind which the PRINCIPAL may now or may hereafter owe
the Creditor, including extensions and/or renewals thereof in the principal sum not to exceed
TWO MILLION (P2,000,000.00) PESOS, Philippine Currency, plus stipulated interest thereon, or such
increased or decreased rate of interest which the Creditor may charge on the principal sum outstanding
pursuant to the rules and regulations which the Monetary Board may from time to time promulgate,
together with all the cost and expenses which the CREDITOR may incur in connection therewith.
If for any reason whatsoever, the PRINCIPAL should fail to pay at maturity any of the obligations
or amounts due to the CREDITOR, or if for any reason whatsoever the PRINCIPAL fails to promptly
respond to and comply with any other lawful demand made by the CREDITOR, or if for any reason
whatsoever any obligation of the PRINCIPAL in favor of any person or entity should be considered as
defaulted, then both the PRINCIPAL and the SURETY/IES shall be considered in default under the terms
of this Agreement. Pursuant thereto, the SURETY/IES agree/s to pay jointly and severally with the
PRINCIPAL, all outstanding obligations of the CREDITOR, whether due or not due, and whether
owing to the PRINCIPAL in its personal capacity or as agent of any person, endorsee, assignee or
transferee. x x x. (Emphasis supplied)
Article 1207 of the Civil Code provides, xxx There is a solidary liability only when the obligation
expressly so states, or when the law or nature of the obligation requires solidarity. The stipulations in the
Surety Agreements undeniably mandate the solidary liability of Tan Chong Lin with Great
Asian. Moreover, the stipulations in the Surety Agreements are sufficiently broad, expressly
encompassing all the notes, drafts, bills of exchange, overdraft and other obligations of every kind
which the PRINCIPAL may now or may hereafter owe the Creditor. Consequently, Tan Chong Lin
must be held solidarily liable with Great Asian for the nonpayment of the fifteen dishonored checks,
including penalty and attorneys fees in accordance with the Deeds of Assignment.
The Deeds of Assignment stipulate that in case of suit Great Asian shall pay attorneys fees
equivalent to 25% of the outstanding debt. The award of attorneys fees in the instant case is
justified,
[25]
not only because of such stipulation, but also because Great Asian and Tan Chong Lin acted
in gross and evident bad faith in refusing to pay Bancasias plainly valid, just and demandable claim. We
deem it just and equitable that the stipulated attorneys fee should be awarded to Bancasia.
The Deeds of Assignment also provide for a 3% penalty on the total amount due in case of failure
to pay, but the Deeds are silent on whether this penalty is a running monthly or annual penalty. Thus, the
3% penalty can only be considered as a one-time penalty. Moreover, the Deeds of Assignment do not
provide for interest if Great Asian fails to pay. We can only award Bancasia legal interest at 12% interest
per annum, and only from the time it filed the complaint because the records do not show that Bancasia
made a written demand on Great Asian prior to filing the complaint.
[26]
Bancasia made an extrajudicial
demand on Tan Chong Lin, the surety, but not on the principal debtor, Great Asian.
WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 20167 is
AFFIRMED with MODIFICATION. Petitioners are ordered to pay, solidarily, private respondent the
following amounts: (a) P1,042,005.00 plus 3% penalty thereon, (b) interest on the total outstanding
amount in item (a) at the legal rate of 12% per annum from the filing of the complaint until the same is
fully paid, (c) attorneys fees equivalent to 25% of the total amount in item (a), including interest at 12%
per annum on the outstanding amount of the attorneys fees from the finality of this judgment until the
same is fully paid, and (c) costs of suit.
SO ORDERED.
FACTS:
March 17, 1981: Great Asian BOD approved a resolution authorizing its Treasurer and General
Manager, Arsenio Lim Piat, Jr. (Arsenio) to secure a loan, not exceeding 1M, from Bancasia
February 10, 1982: Great Asian BOD approved a resolution authorizing Great Asian to secure a
discounting line with Bancasia in an amount not exceeding P2M
also designated Arsenio as the authorized signatory to sign all instruments, documents and checks
necessary to secure the discounting line
Tan Chong Lin signed 2 surety agreements in favor of Bancasia
Great Asian, through its Treasurer and General Manager Arsenio, signed 4 Deeds of Assignment of
Receivables (Deeds of Assignment), assigning to Bancasia 15 postdated checks:
9 checks were payable to Great Asian
3 were payable to "New Asian Emp."
3 were payable to cash
various customers of Great Asian issued these postdated checks in payment for appliances and
other merchandise.
Deed of Assignments of assignment:
January 12, 1982: 4 post-dated checks of P244,225.82 maturing March 17, 1982, 2 were dishonored
January 12, 1982: 4 post-dated checks of P312,819 maturing April 1, 1982, all 4 were dishonored
February 11, 1982: 8 postdated checks of P344,475 maturing April 30, 1982, all 8 checks were
dishonored
March 5, 1982: 1 postdated checks of P200K maturing March 18, 1982 also dishonored
Great Asian assigned the postdated checks to Bancasia at a discount rate of less than 24% of the
face value of the checks
Arsenio endorsed all the 15 dishonored checks by signing his name at the back of the checks
8 dishonored checks bore the endorsement of Arsenio below the stamped name of "Great Asian
Sales Center"
7 dishonored checks just bore the signature of Arsenio
The drawee banks dishonored the 15 checks on maturity when deposited for collection by Bancasia,
with any of the following as reason for the dishonor:
"account closed"
"payment stopped"
"account under garnishment"
"insufficiency of funds
March 18, 1982: Bancasia's lawyer,Atty. Eladia Reyes, sent by registered mail to Tan Chong Lin a
letter notifying him of the dishonor and demanding payment from him
June 16, 1982: Bancasia sent by personal delivery a letter to Tan Chong Lin
May 21, 1982: Great Asian filed a case before the CFI for insolvency listing Bancasia as one of the
creditors of Great Asian in the amount of P1,243,632.00
June 23, 1982: Bancasia filed a complaint for collection of a sum of money against Great Asian and
Tan Chong Lin
CFI: favored Bancasia ordering Great Asian and Tan Chong Lin to pay jointly and severally
CA: deleted atty. fees
ISSUE: W/N Bancasia and Tang Chon Lin should be held liable under the Civil Code because it was a
separate and distinct deed of assignment


HELD: YES. Affirmed with Modification
As plain as daylight, the two board resolutions clearly authorize Great Asian to secure a loan or
discounting line from Bancasia
Clearly, the discounting arrangements entered into by Arsenio under the Deeds of Assignment were
the very transactions envisioned in the two board resolutions of Great Asian to raise funds for its
business.
There is nothing in the Negotiable Instruments Law or in the Financing Company Act (old or new),
that prohibits Great Asian and Bancasia parties from adopting the with recourse stipulation uniformly
found in the Deeds of Assignment. Instead of being negotiated, a negotiable instrument may be
assigned.
the endorsement does not operate to make the finance company a holder in due course. For its own
protection, therefore, the finance company usually requires the assignor, in a separate and distinct
contract, to pay the finance company in the event of dishonor of the notes or checks. (only security)
Otherwise, consumers who purchase appliances on installment, giving their promissory notes or
checks to the seller, will have no defense against the finance company should the applianceslater turn
out to be defective
As endorsee of Great Asian, Bancasia had the option to proceed against Great Asian under the
Negotiable Instruments Law. Had it so proceeded, the Negotiable Instruments Law would have
governed Bancasias cause of action. Bancasia, however, did not choose this route.
Instead, Bancasia decided to sue Great Asian for breach of contract under the Civil Code, a right that
Bancasia had under the express with recourse stipulation in the Deeds of Assignment.
Great Asian, after paying Bancasia, is subrogated back as creditor of the receivables. Great Asian
can then proceed against the drawers who issued the checks. Even if Bancasia failed to give timely
notice of dishonor, still there would be no prejudice whatever to Great Asian.
Under the Negotiable Instruments Law, notice of dishonor is not required if the drawer has no right to
expect or require the bank to honor the check, or if the drawer has countermanded payment
In the instant case, all the checks were dishonored for any of the following reasons:
"account closed"
"account under garnishment"
"insufficiency of funds"
drawers had no right to expect or require the bank to honor the checks
"payment stopped"
drawers had countermanded payment
Moreover, under common law, delay in notice of dishonor, where such notice is required, discharges
the drawer only to the extent of the loss caused by the delay.
Again, we reiterate that this obligation of Great Asian is separate and distinct from its warranties as
indorser under the Negotiable Instruments Law.Civil Code are applicable and not the
Negotiable Instruments Law.
separate Deeds of Assignment - provisions of the Civil Code are applicable (NOT
NegotiableInstruments Law)
Great Asians four contracts assigning its fifteen postdated checks to Bancasia expressly stipulate the
suspensive condition that in the event the drawers of the checks fail to pay, Great Asian itself will pay
Bancasia
The stipulations in the Surety Agreements undeniably mandate the solidary liability of Tan Chong Lin
with Great Asian
Moreover, the stipulations in the Surety Agreements are sufficiently broad, expressly encompassing
"all the notes, drafts, bills of exchange, overdraft and other obligations of every kind which the
PRINCIPAL may now or may hereafter owe the Creditor"
[G.R. No. 144661 and 144797. June 15, 2005]
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. SPOUSES FRANCISCO ONG
and LETICIA ONG,respondents.
D E C I S I O N
GARCIA, J .:
Appealed to this Court by way of a petition for review on certiorari are the Decision
[1]
dated
March 5, 1999 and Resolution dated July 19, 2000 of the Court of Appeals in CA-G.R. CV No.
54919, affirming in toto an earlier decision of the Regional Trial Court at Cagayan de Oro City,
Branch 23, which ruled in favor of herein respondents, the Spouses Francisco Ong and Leticia
Ong, in a suit for breach of contract and/or specific performance with prayer for writ of preliminary
injunction and damages thereat commenced by them against petitionerDevelopment Bank of
the Philippines (DBP).
Petitioner filed by registered mail a motion for extension time to submit petition, paying the
corresponding docket fees therefor by money order. Upon receipt of the motion, the Court
docketed the case as G.R. No. 144797. Before actual receipt of said motion, however, petitioner
personally filed its petition, which was docketed with a lower number as G.R. No. 144661. What
then appears to be two (2) cases before us are actually just one, now the subject of this decision.
The facts are simple and undisputed:
Petitioners foreclosed asset, formerly owned by one Enrique Abada under TCT No. T-4786 and
located at Corrales Extension, Cagayan de Oro City is the subject of this controversy. On May
25, 1988, respondent Francisco Ong with the conformity of his wife Leticia Ong, addressed a
written offer to petitioner thru its branch manager at Cagayan de Oro City to buy the subject
property on a negotiated sale basis and submitted his best and last offer to purchase
[2]
under
the following terms:
PURCHASE PRICE P136,000.00
DOWNPAYMENT .. 14,000.00
BALANCE P122,000.00
TERM: C A S H MODE OF PAYMENT: Payable upon ejection of occupants on the property
subject of my offer.
I/We am/are depositing the amount of P14,000.00 in cash/check to accompany my/our offer, it
being expressly understood, however, that the same does not bind the DBP to the offer until after
my/our receipt of its approval by the higher authorities of the bank. Should the bank receive an
offer from a third-party buyer higher by more than 5% or at more advantageous term
accompanied by a deposit of at least 10% of the offered price, or a higher offer from the former-
owner for at least the updated Total Claim of the Bank accompanied by a minimum deposit of
20% of the purchase price, the Bank may favorably consider the higher offer and thereafter
refund my/our deposit within three (3) working days after the determination of the most
advantageous offer.
The foregoing offer was duly NOTED by petitioners branch head at its Cagayan de Oro City
Branch, Jose Z. Lagrito (Lagrito, for brevity), and Official Receipt No. 3081947 was issued for the
amount of P14,000.00 as respondents deposit.
In a letter dated October 21, 1988
[3]
, sent to respondents via registered mail, Lagrito informed the
spouses that the bank recently received an offer from another interested third-party-buyer of the
same property at the same price and term, but better and more advantageous to the Bank
considering that the buyer will assume the responsibility at her expense for the ejectment of
present occupants in the said property . Nonetheless, respondents were given in the same letter
three (3) days within which to match the said offer, failing in which the Bank will immediately
award the said property to the other buyer, in which event respondents deposit of P14,000.00
shall be refunded to them upon surrender of O.R. No. 3081947.
In yet another written offer dated October 28, 1988
[4]
, respondents matched the said offer of the
second interested buyer by assuming the responsibility at my/our own expense for the ejection of
squatters/occupants, if any, on the property.
On April 7, 1989, there was a conference between respondents, together with their counsel, and
the bank whereat respondents were informed why the sale could not be awarded to them.
Thereafter, in a letter dated September 6, 1990
[5]
, respondents were notified that the property
would instead be offered for public bidding on September 24, 1990 at ten 10:00 oclock in the
morning.
Feeling aggrieved by such turn of events, respondents filed with the Regional Trial Court at
Cagayan de Oro City a complaint for breach of contract and/or specific performance against
petitioner. Thereat, the complaint was docketed as Civil Case No. 90-422 which was raffled to
Branch 23 of the court.
After pre-trial, the parties agreed to submit the case for judgment based on the pleadings.
Accordingly, the trial court required them to submit simultaneously their respective memoranda
within thirty (30) days. Only petitioner filed its memorandum.
In a decision
[6]
dated April 25, 1995, the trial court dismissed the complaint finding that there was
no perfected contract of sale between the parties, hence, there is no breach to speak of since
there was no contract from the very beginning. However, upon respondents motion for
reconsideration, the trial court vacated its judgment and set the case for the reception of
evidence. This time, only the respondents adduced their evidence consisting of the lone
testimony of respondent Francisco Ong and the documents identified by him in the course
thereof.
In his testimony, Ong gave the respondents version of what supposedly transpired in their
transaction with petitioner. According to him, he and his wife went to the bank branch at Cabayan
de Oro City and looked for Roy Palasan, a bank clerk thereat and told the latter that they were
interested to buy two (2) lots. Palasan went to talk to Lagrito, the branch manager. Palasan
returned to the spouses and informed them that the branch manager agreed to sell the property
to them. Palasan further told them that they will be required to pay ten (10%) percent of the
purchase price as downpayment, adding that if they were to pay the purchase price in cash, they
would be entitled to a ten (10%) percent discount. After some computations, respondents
rounded up the purchase price at P136,000.00 and pegged the downpayment therefor
at P14,000.00. They were then required by Palasan to sign a bank form supposedly to express
their firm offer to purchase the subject property. But since the form signed by them contains the
statement that the approval of higher authorities of the bank is required to close the deal,
respondents queried Palasan about it. Palasan, however, told them that the documents were
only for formality purposes, and further assured them that the branch manager has already
agreed to sell the subject property to them.
Having completed the presentation of their evidence, respondents rested their case. For its part,
petitioner no longer adduced any evidence but merely opted to formally offer its documentary
exhibits. Thereafter, the case was submitted for resolution.
On September 26, 1996, the trial court came out with a new decision,
[7]
this time rendering
judgment for the respondents, as follows:
WHEREFORE, by reason of preponderance of evidence, the Court hereby finds in favor of the
plaintiffs as against the defendant and hereby orders the defendant:
1. To execute a final sale of the lot subject matter of the contract of sale at the original agreed
price of P136,000.00;
2. Defendant to accept the balance of the purchase price from the plaintiffs;
3. Defendant to pay moral damages in the amount of P30,000.00;
4. Defendant to refund the amount of P10,000.00 actual litigation expenses; and to pay
attorneys fees in the amount of P20,000.00.
SO ORDERED.
Therefrom, petitioner went on appeal to the Court of Appeals in CA-G.R. CV No. 54919, and, on
March 5, 1999, the appellate court rendered the herein assailed decision
[8]
affirming in toto that of
the trial court, thus:
ACCORDINGLY, the foregoing premises considered, the appealed decision is hereby
AFFIRMED in toto.
SO ORDERED.
With its motion for reconsideration of the same decision having been denied by the Court of
Appeals in its equally challenged resolution of July 19, 2000,
[9]
petitioner is now with us thru the
present recourse on the following grounds:
A.
THAT THE RESPONDENTS INTRODUCTION OF PAROL EVIDENCE TO PROVE THE
ALLEGED MEETING OF MINDS BETWEEN THE PARTIES WAS NOT SANCTIONED BY RULE
130, SEC. 9, RULES OF COURT, CONTRARY TO THE FINDINGS OF THE LOWER COURTS,
CONSIDERING THAT THERE WAS NO WRITTEN CONTRACT THAT WAS EVER EXECUTED
BY THE PARTIES IN THIS CASE, BUT MERELY UNILATERAL WRITTEN COMMUNICATIONS,
AT BEST CONSTITUTING OFFERS AND COUNTER-OFFERS.
B.
THAT THE QUANTUM OF PROOF IS WANTING TO PROVE THE ALLEGED PERFECTION OF
CONTRACT OF SALE BETWEEN THE PARTIES BASED ON THE SOLE,
UNCORROBORATED, ORAL TESTIMONY THUS FAR PRESENTED BY THE RESPONDENTS.
C.
THAT THE BURDEN OF PROOF THAT THERE WAS PERFECTION OF THE CONTRACT OF
SALE BETWEEN THE PARTIES BASICALLY REST WITH THE RESPONDENTS,
NOTWITHSTANDING THE NON-OBJECTION ON THE PART OF HEREIN PETITIONER
DURING THE INTRODUCTION OF THAT PAROL EVIDENCE; THE ADMISSIBILITY OF
PETITIONERS (sic.) PAROL EVIDENCE DOES NOT AUTOMATICALLY RIPEN THE
TESTIMONY AS A TRUTH RESPECTING A MATTER OF FACT AS ITS CREDIBILITY AND
TRUSTWORTHINESS AND WEIGHT ARE STILL SUBJECT TO JUDICIAL SCRUTINY AND
APPRECIATION.
D.
THAT THERE WAS ACTUALLY OPPOSITION ON THE PART OF THE PETITIONER TO THE
CONTENTS OF THE ORAL TESTIMONY OF THE RESPONDENT REGARDING THE
ALLEGED PERFECTION OF CONTRACT OF SALE BECAUSE THE PETITIONER HAD
ALREADY INTERPOSED THEIR DEFENSES WHEN IT FILED A MEMORANDUM ATTACHING
THEREIN THE DOCUMENTARY AS WELL AS DECLARATIONS IN ITS PLEADINGS ON THE
NON-PERFECTION OF SUCH CONTRACT WHEN THE CASE WAS THEN SUBMITTED FOR
JUDGMENT ON THE PLEADINGS, AS AGREED BY THE PARTIES DURING THE PRE-TRIAL,
AND SUCH EVIDENCES WERE ALREADY PASSED UPON BY THE COURT WHEN IT
RENDERED A JUDGMENT DATED APRIL 25, 1995.
We GRANT the petition.
At the very core of the controversy is the question of whether or not there actually was a
perfected contract of sale between petitioner and respondents, for which the Court may compel
petitioner to issue a board resolution approving the sale and to execute the final deed of sale in
respondents favor, and/or hold petitioner liable for a breach thereof. Needless to state, without a
perfected contract of sale, there could be no cause of action for specific performance or breach
thereof.
The trial court went on one direction by ruling in its earlier decision of April 25, 1995 that there
was no perfected contract, but upon respondents motion for reconsideration, went exactly the
opposite path by completely reversing itself in its herein challenged decision of September 26,
1996.
Apparently, the trial courts ruling that there was already a perfected contract of sale was
premised on its following factual findings:
1. That plaintiff [respondents] made a downpayment in a check that was subsequently
encashed by the defendant [petitioner] bank;
2. That the sister-in-law of plaintiff [respondents] entered into the same arrangement and was
able to buy the property she wanted to buy from defendant [petitioner] bank;
3. That defendant [petitioner] never presented any witness to rebut the positive and clear
testimony of plaintiff [respondents] that it was a perfected contract of sale entered into by the
former with the defendant [petitioner] bank.
[10]

Sustaining the foregoing factual findings of the trial court, the appellate court wrote in its assailed
decision of March 5, 1999:
This positive and clear testimony of [respondent] Ong was not objected to nor rebutted by the
[petiotioner]. Notably, the bank personnel involved in the transaction, namely, Roy Palasan and
the Branch Manager of the [petitioners] Cagayan de Oro Branch, Joe Lagrito, were never
presented to refute the testimony of the [respondents] that the bank has agreed to sell the
property to the [respondents]. Suffice it to state that [respondents] were entitled to rely on the
representation of Lagrito who, after all, is the banks manager. Under the premise that a bank is
bound by the obligation contracted by its officers, the contract of sale between [petitioner] and the
[respondents] was perfected when Palasan and Lagrito communicated the approval of the sale of
the lot to the [respondents].
Significantly, the unrebutted testimony of Francisco Ong reveals that Norma Silfavan,
[respondents] sister, made a similar offer to the [petitioner] under the same terms and conditions
as to that of the [respondents], and was likewise assured by the same bank personnel that her
offer, along with the [respondents] offer was already approved. Eventually, the transaction
resulted in a consummated sale between Silfavan and DBP. Under these premises, We can not
see any reason why the [petitioner] did not accord the same treatment to the [respondents] who
were similarly situated.
Evidently, the two (2) courts below were convinced that the actuation of Palasan, a mere bank
clerk, upon which respondents relied in believing that their offer to purchase was already
approved by the bank manager, would bind the bank to a perfected contract of sale between the
parties in this case. The Court of Appeals further added that the acceptance of the offer to
purchase was sufficiently established from theparol evidence adduced by respondents during the
trial.
We do not agree.
Concededly, in petitions for review on certiorari, our task is not to review once again the factual
findings of the Court of Appeals and the trial court, but to determine if, on the basis of the facts
thus found, the conclusions of law reached are correct or not.
Judging from the findings of the two (2) courts below and the testimony of respondent Francisco
Ong himself, it appears clear to us that the transaction between the respondents and the
petitioner was limited to Palasan, one of the clerks of petitioners branch in Cagayan de Oro City.
Lagrito, the branch manager, had no personal or direct communication with respondents to
express his alleged consent to the sale transaction. Thus, the undisputed evidence showed that it
was Palasan, a mere bank clerk, and not the branch manager himself who assured respondents
that theirs was a closed deal.
We are very much aware of our pronouncement in Rural Bank of Milaor vs. Ocfemia,
[11]
involving
a mandamus suit where the supposed buyer of a foreclosed property from a bank sought a court
order to compel the bank to issue the required board resolution confirming the sale between the
parties therein. There, this Court, speaking thru Mr. Justice Artemio Panganiban, stated:
Notwithstanding the putative authority of the manager to bind the bank in the Deed of Sale,
petitioner has failed to file an answer to the Petition below within the reglementary period, let
alone present evidence controverting such authority. Indeed, when one of herein respondents,
Marife S. Nio, went to the bank to ask for the board resolution, she was merely told to bring the
receipts. The bank failed to categorically declare that Tena had no authority. This Court stresses
the following:
. . . Corporate transactions would speedily come to a standstill were every person dealing with a
corporation held duty-bound to disbelieve every act of its responsible officers, no matter how
regular they should appear on their face. This Court has observed in Ramirez vs. Orientalist Co.,
38 Phil. 634, 654-655, that
In passing upon the liability of a corporation in cases of this kind it is always well to keep in mind
the situation as it presents itself to the third party with whom the contract is made. Naturally he
can have little or no information as to what occurs in corporate meetings; and he must necessarily
rely upon the external manifestation of corporate consent. The integrity of commercial
transactions can only be maintained by holding the corporation strictly to the liability fixed upon it
by its agents in accordance with law; and we would be sorry to announce a doctrine which would
permit the property of man in the city of Paris to be whisked out of his hands and carried into a
remote quarter of the earth without recourse against the corporation whose name and authority
had been used in the manner disclosed in this case. As already observed, it is familiar doctrine
that if a corporation knowingly permits one of its officers, or any other agent, to do acts within the
scope of an apparent authority, and thus holds him out to the public as possessing power to do
those acts, the corporation will, as against any one who has in good faith dealt with the
corporation through such agent, be estopped from denying his authority; and where it is said 'if
the corporation permits this means the same as 'if the thing is permitted by the directing power of
the corporation.
[12]

In this light, the bank is estopped from questioning the authority of the bank manager to enter into
the contract of sale. If a corporation knowingly permits one of its officers or any other agent to act
within the scope of an apparent authority, it holds the agent out to the public as possessing the
power to do those acts; thus, the corporation will, as against anyone who has in good faith dealt
with it through such agent, be estopped from denying the agent's authority.
[13]

Unquestionably, petitioner has authorized Tena to enter into the Deed of Sale. Accordingly, it has
a clear legal duty to issue the board resolution sought by respondents. Having authorized her to
sell the property, it behooves the bank to confirm the Deed of Sale so that the buyers may enjoy
its full use.
There is, however, a striking and very material difference between the aforecited case and the
one at bar. For, unlike in Milaor where it was the branch manager who approved the sale for and
in behalf of the bank, here, there is absolutely no approval whatsoever by any responsible bank
officer of the petitioner. True it is that the signature of branch manager Lagrito appears below the
typewritten word NOTED at the bottom of respondents offer to purchase dated May 25,
1988.
[14]
By no stretch of imagination, however, can the mere NOTING of such an offer be taken
to mean an approval of the supposed sale. Quite the contrary, the very circumstance that the
offer to purchase was merely NOTED by the branch manager and not approved, is a clear
indication that there is no perfected contract of sale to speak of.
The representation of Roy Palasan, a mere clerk at petitioners Cagayan de Oro City branch, that
the manager had already approved the sale, even if true, cannot bind the petitioner bank to a
contract of sale with respondents, it being obvious to us that such a clerk is not among the bank
officers upon whom such putative authority may be reposed by a third party. There is, thus, no
legal basis to bind petitioner into any valid contract of sale with the respondents, given the
absolute absence of any approval or consent by any responsible officer of petitioner bank.
And because there is here no perfected contract of sale between the parties, respondents action
for breach of contract and/or specific performance is simply without any leg to stand on and must
therefore fall.
We also disagree with the Court of Appeals that the encashment of the check representing
the P14,000.00 deposit in relation to respondents offer to purchase is an indication or proof of
perfection of a contract of sale. It must be noted that the very documents
[15]
signed by the
respondents as their offer to purchase unmistakably state that the deposit shall only form part of
the purchase price if the offer to purchase is approved, it being expressly understood xxx that the
same (i.e., the deposit) does not bind DBP to the offer until my/our receipt of its approval by
higher authorities of the bank. It may be so that the official receipt issued therefor by the
petitioner termed such deposit as a downpayment. But the very written offers of the respondents
unequivocably and invariably speak of such amount as deposit, above deposit, we are
depositing the amount of P14,000.00. Since there never was any approval or acceptance by the
higher authorities of petitioner of respondents offer to purchase, the encashment of the check
can not in any way represent partial payment of any purchase price.
With the hard reality that no approval or acceptance of respondents offer to buy exists in this
case, any independent transaction between petitioner and another third-party, like the one
involving respondents sister, would be irrelevant and immaterial insofar as respondents own
transaction with the petitioner is concerned. Besides, apart from saying that respondents sister
made a similar offer to the [petitioner] under the same terms and conditions as to that of the
[respondents], and was likewise assured by the same bank personnel that her offer xxx was
already approved, which eventually resulted into a consummated sale between (the sister) and
DBP, the Court of Appeals made no finding that the sisters transaction with the petitioner was
made exactly under the same circumstances obtaining in the present case. In any event,
petitioners favorable action on the offer of respondents sister is hardly, if ever, relevant and
determinative in the resolution of the legal issue presented in this case.
In sum, we cannot, in law, sustain the herein challenged issuances of the Court of Appeals.
WHEREFORE, the instant petition is GRANTED and the assailed decision and resolution of the
Court of Appeals REVERSED and SET ASIDE. The complaint filed in this case is accordingly
DISMISSED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 144805 June 8, 2006
EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners,
vs.
ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION),
ETEROUTREMER, S.A. and FAR EAST BANK & TRUST COMPANY, Respondents.
D E C I S I O N
CALLEJO, SR., J .:
On appeal via a Petition for Review on Certiorari is the Decision
1
of the Court of Appeals (CA) in
CA-G.R. CV No. 51022, which affirmed the Decision of the Regional Trial Court (RTC), Pasig
City, Branch 165, in Civil Case No. 54887, as well as the Resolution
2
of the CA denying the
motion for reconsideration thereof.
The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine
laws. Since 1950, it had been engaged in the manufacture of roofing materials and pipe products.
Its manufacturing operations were conducted on eight parcels of land with a total area of 47,233
square meters. The properties, located in Mandaluyong City, Metro Manila, were covered by
Transfer Certificates of Title Nos. 451117, 451118, 451119, 451120, 451121, 451122, 451124
and 451125 under the name of Far East Bank & Trust Company, as trustee. Ninety (90%)
percent of the shares of stocks of EC were owned by Eteroutremer S.A. Corporation (ESAC), a
corporation organized and registered under the laws of Belgium.
3
Jack Glanville, an Australian
citizen, was the General Manager and President of EC, while Claude Frederick Delsaux was the
Regional Director for Asia of ESAC. Both had their offices in Belgium.
In 1986, the management of ESAC grew concerned about the political situation in the Philippines
and wanted to stop its operations in the country. The Committee for Asia of ESAC instructed
Michael Adams, a member of ECs Board of Directors, to dispose of the eight parcels of land.
Adams engaged the services of realtor/broker Lauro G. Marquez so that the properties could be
offered for sale to prospective buyers. Glanville later showed the properties to Marquez.
Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo B.
Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter dated September 12, 1986, Marquez
declared that he was authorized to sell the properties for P27,000,000.00 and that the terms of
the sale were subject to negotiation.
4

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo Litonjua,
Jr., and his brother Antonio K. Litonjua. The Litonjua siblings offered to buy the property
for P20,000,000.00 cash. Marquez apprised Glanville of the Litonjua siblings offer and relayed
the same to Delsaux in Belgium, but the latter did not respond. On October 28, 1986, Glanville
telexed Delsaux in Belgium, inquiring on his position/ counterproposal to the offer of the Litonjua
siblings. It was only on February 12, 1987 that Delsaux sent a telex to Glanville stating that,
based on the "Belgian/Swiss decision," the final offer was "US$1,000,000.00 and P2,500,000.00
to cover all existing obligations prior to final liquidation."
5

Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua, Jr.
accepted the counterproposal of Delsaux. Marquez conferred with Glanville, and in a Letter dated
February 26, 1987, confirmed that the Litonjua siblings had accepted the counter-proposal of
Delsaux. He also stated that the Litonjua siblings would confirm full payment within 90 days after
execution and preparation of all documents of sale, together with the necessary governmental
clearances.
6

The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank & Trust
Company, Ermita Branch, and drafted an Escrow Agreement to expedite the sale.
7

Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale would
be implemented. In a telex dated April 22, 1987, Glanville informed Delsaux that he had met with
the buyer, which had given him the impression that "he is prepared to press for a satisfactory
conclusion to the sale."
8
He also emphasized to Delsaux that the buyers were concerned
because they would incur expenses in bank commitment fees as a consequence of prolonged
period of inaction.
9

Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of the
Philippines, the political situation in the Philippines had improved. Marquez received a telephone
call from Glanville, advising that the sale would no longer proceed. Glanville followed it up with a
Letter dated May 7, 1987, confirming that he had been instructed by his principal to inform
Marquez that "the decision has been taken at a Board Meeting not to sell the properties on which
Eternit Corporation is situated."
10

Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC Regional Office
had decided not to proceed with the sale of the subject land, to wit:
May 22, 1987
Mr. L.G. Marquez
L.G. Marquez, Inc.
334 Makati Stock Exchange Bldg.
6767 Ayala Avenue
Makati, Metro Manila
Philippines
Dear Sir:
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to proceed with the sale of the
land which was proposed to you.
The Committee for Asia of our Group met recently (meeting every six months) and examined the
position as far as the Philippines are (sic) concerned. Considering [the] new political situation
since the departure of MR. MARCOS and a certain stabilization in the Philippines, the Committee
has decided not to stop our operations in Manila. In fact, production has started again last week,
and (sic) to recognize the participation in the Corporation.
We regret that we could not make a deal with you this time, but in case the policy would change
at a later state, we would consult you again.
x x x
Yours sincerely,
(Sgd.)
C.F. DELSAUX
cc. To: J. GLANVILLE (Eternit Corp.)
11

When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding
payment for damages they had suffered on account of the aborted sale. EC, however, rejected
their demand.
The Litonjuas then filed a complaint for specific performance and damages against EC (now the
Eterton Multi-Resources Corporation) and the Far East Bank & Trust Company, and ESAC in the
RTC of Pasig City. An amended complaint was filed, in which defendant EC was substituted by
Eterton Multi-Resources Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and
Deogracias G. Eufemio were impleaded as additional defendants on account of their purchase of
ESAC shares of stocks and were the controlling stockholders of EC.
In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not doing
business in the Philippines, it cannot be subject to the jurisdiction of Philippine courts; the Board
and stockholders of EC never approved any resolution to sell subject properties nor authorized
Marquez to sell the same; and the telex dated October 28, 1986 of Jack Glanville was his own
personal making which did not bind EC.
On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed the
amended complaint.
12
The fallo of the decision reads:
WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources
Corporation and Eteroutremer, S.A. is dismissed on the ground that there is no valid and binding
sale between the plaintiffs and said defendants.
The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of
cause of action.
The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and
Eteroutremer, S.A. is also dismissed for lack of merit.
13

The trial court declared that since the authority of the agents/realtors was not in writing, the sale
is void and not merely unenforceable, and as such, could not have been ratified by the principal.
In any event, such ratification cannot be given any retroactive effect. Plaintiffs could not assume
that defendants had agreed to sell the property without a clear authorization from the corporation
concerned, that is, through resolutions of the Board of Directors and stockholders. The trial court
also pointed out that the supposed sale involves substantially all the assets of defendant EC
which would result in the eventual total cessation of its operation.
14

The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court erred in
concluding that the real estate broker in the instant case needed a written authority from appellee
corporation and/or that said broker had no such written authority; and (2) the lower court
committed grave error of law in holding that appellee corporation is not legally bound for specific
performance and/or damages in the absence of an enabling resolution of the board of
directors."
15
They averred that Marquez acted merely as a broker or go-between and not as agent
of the corporation; hence, it was not necessary for him to be empowered as such by any written
authority. They further claimed that an agency by estoppel was created when the corporation
clothed Marquez with apparent authority to negotiate for the sale of the properties. However,
since it was a bilateral contract to buy and sell, it was equivalent to a perfected contract of sale,
which the corporation was obliged to consummate.
In reply, EC alleged that Marquez had no written authority from the Board of Directors to bind it;
neither were Glanville and Delsaux authorized by its board of directors to offer the property for
sale. Since the sale involved substantially all of the corporations assets, it would necessarily
need the authority from the stockholders.
On June 16, 2000, the CA rendered judgment affirming the decision of the RTC.
16
The Litonjuas
filed a motion for reconsideration, which was also denied by the appellate court.
The CA ruled that Marquez, who was a real estate broker, was a special agent within the purview
of Article 1874 of the New Civil Code. Under Section 23 of the Corporation Code, he needed a
special authority from ECs board of directors to bind such corporation to the sale of its properties.
Delsaux, who was merely the representative of ESAC (the majority stockholder of EC) had no
authority to bind the latter. The CA pointed out that Delsaux was not even a member of the board
of directors of EC. Moreover, the Litonjuas failed to prove that an agency by estoppel had been
created between the parties.
In the instant petition for review, petitioners aver that
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED
CONTRACT OF SALE.
II
THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT
MARQUEZ NEEDED A WRITTEN AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE
SALE CAN BE PERFECTED.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX
HAVE THE NECESSARY AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT THE
VERY LEAST, WERE KNOWINGLY PERMITTED BY RESPONDENT ETERNIT TO DO ACTS
WITHIN THE SCOPE OF AN APPARENT AUTHORITY, AND THUS HELD THEM OUT TO THE
PUBLIC AS POSSESSING POWER TO SELL THE SAID PROPERTIES.
17

Petitioners maintain that, based on the facts of the case, there was a perfected contract of sale of
the parcels of land and the improvements thereon for "US$1,000,000.00 plus P2,500,000.00 to
cover obligations prior to final liquidation." Petitioners insist that they had accepted the counter-
offer of respondent EC and that before the counter-offer was withdrawn by respondents, the
acceptance was made known to them through real estate broker Marquez.
Petitioners assert that there was no need for a written authority from the Board of Directors of EC
for Marquez to validly act as broker/middleman/intermediary. As broker, Marquez was not an
ordinary agent because his authority was of a special and limited character in most respects. His
only job as a broker was to look for a buyer and to bring together the parties to the transaction.
He was not authorized to sell the properties or to make a binding contract to respondent EC;
hence, petitioners argue, Article 1874 of the New Civil Code does not apply.
In any event, petitioners aver, what is important and decisive was that Marquez was able to
communicate both the offer and counter-offer and their acceptance of respondent ECs counter-
offer, resulting in a perfected contract of sale.
Petitioners posit that the testimonial and documentary evidence on record amply shows that
Glanville, who was the President and General Manager of respondent EC, and Delsaux, who was
the Managing Director for ESAC Asia, had the necessary authority to sell the subject property or,
at least, had been allowed by respondent EC to hold themselves out in the public as having the
power to sell the subject properties. Petitioners identified such evidence, thus:
1. The testimony of Marquez that he was chosen by Glanville as the then President and General
Manager of Eternit, to sell the properties of said corporation to any interested party, which
authority, as hereinabove discussed, need not be in writing.
2. The fact that the NEGOTIATIONS for the sale of the subject properties spanned SEVERAL
MONTHS, from 1986 to 1987;
3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the
Petitioners;
4. The GOOD FAITH of Petitioners in believing Eternits offer to sell the properties as evidenced
by the Petitioners ACCEPTANCE of the counter-offer;
5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the Security Bank
and that an ESCROW agreement was drafted over the subject properties;
6. Glanvilles telex to Delsaux inquiring "WHEN WE (Respondents) WILL IMPLEMENT ACTION
TO BUY AND SELL";
7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced the fact that
Petitioners offer was allegedly REJECTED by both Glanville and Delsaux.
18

Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to
petitioners offer and thereafter reject such offer unless they were authorized to do so by
respondent EC. Petitioners insist that Delsaux confirmed his authority to sell the properties in his
letter to Marquez, to wit:
Dear Sir,
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to proceed with the sale of the
land which was proposed to you.
The Committee for Asia of our Group met recently (meeting every six months) and examined the
position as far as the Philippines are (sic) concerned. Considering the new political situation since
the departure of MR. MARCOS and a certain stabilization in the Philippines, the Committee has
decided not to stop our operations in Manila[.] [I]n fact production started again last week, and
(sic) to reorganize the participation in the Corporation.
We regret that we could not make a deal with you this time, but in case the policy would change
at a later stage we would consult you again.
In the meantime, I remain
Yours sincerely,
C.F. DELSAUX
19

Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were
knowingly permitted by respondent EC to sell the properties within the scope of an apparent
authority. Petitioners insist that respondents held themselves to the public as possessing power
to sell the subject properties.
By way of comment, respondents aver that the issues raised by the petitioners are factual, hence,
are proscribed by Rule 45 of the Rules of Court. On the merits of the petition, respondents EC
(now EMC) and ESAC reiterate their submissions in the CA. They maintain that Glanville,
Delsaux and Marquez had no authority from the stockholders of respondent EC and its Board of
Directors to offer the properties for sale to the petitioners, or to any other person or entity for that
matter. They assert that the decision and resolution of the CA are in accord with law and the
evidence on record, and should be affirmed in toto.
Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and
Delsaux, conformed to the written authority of Marquez to sell the properties. The authority of
Glanville and Delsaux to bind respondent EC is evidenced by the fact that Glanville and Delsaux
negotiated for the sale of 90% of stocks of respondent EC to Ruperto Tan on June 1, 1997. Given
the significance of their positions and their duties in respondent EC at the time of the transaction,
and the fact that respondent ESAC owns 90% of the shares of stock of respondent EC, a formal
resolution of the Board of Directors would be a mere ceremonial formality. What is important,
petitioners maintain, is that Marquez was able to communicate the offer of respondent EC and
the petitioners acceptance thereof. There was no time that they acted without the knowledge of
respondents. In fact, respondent EC never repudiated the acts of Glanville, Marquez and
Delsaux.
The petition has no merit.
Anent the first issue, we agree with the contention of respondents that the issues raised by
petitioner in this case are factual. Whether or not Marquez, Glanville, and Delsaux were
authorized by respondent EC to act as its agents relative to the sale of the properties of
respondent EC, and if so, the boundaries of their authority as agents, is a question of fact. In the
absence of express written terms creating the relationship of an agency, the existence of an
agency is a fact question.
20
Whether an agency by estoppel was created or whether a person
acted within the bounds of his apparent authority, and whether the principal is estopped to deny
the apparent authority of its agent are, likewise, questions of fact to be resolved on the basis of
the evidence on record.
21
The findings of the trial court on such issues, as affirmed by the CA, are
conclusive on the Court, absent evidence that the trial and appellate courts ignored,
misconstrued, or misapplied facts and circumstances of substance which, if considered, would
warrant a modification or reversal of the outcome of the case.
22

It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the Rules
of Court because the Court is not a trier of facts. It is not to re-examine and assess the evidence
on record, whether testimonial and documentary. There are, however, recognized exceptions
where the Court may delve into and resolve factual issues, namely:
(1) When the conclusion is a finding grounded entirely on speculations, surmises, or conjectures;
(2) when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5)
when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings,
went beyond the issues of the case and the same is contrary to the admissions of both appellant
and appellee; (7) when the findings of the Court of Appeals are contrary to those of the trial court;
(8) when the findings of fact are conclusions without citation of specific evidence on which they
are based; (9) when the Court of Appeals manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would justify a different conclusion; and
(10) when the findings of fact of the Court of Appeals are premised on the absence of evidence
and are contradicted by the evidence on record.
23

We have reviewed the records thoroughly and find that the petitioners failed to establish that the
instant case falls under any of the foregoing exceptions. Indeed, the assailed decision of the
Court of Appeals is supported by the evidence on record and the law.
It was the duty of the petitioners to prove that respondent EC had decided to sell its properties
and that it had empowered Adams, Glanville and Delsaux or Marquez to offer the properties for
sale to prospective buyers and to accept any counter-offer. Petitioners likewise failed to prove
that their counter-offer had been accepted by respondent EC, through Glanville and Delsaux. It
must be stressed that when specific performance is sought of a contract made with an agent, the
agency must be established by clear, certain and specific proof.
24

Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the
Philippines, provides:
SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of directors or
trustees to be elected from among the holders of stocks, or where there is no stock, from among
the members of the corporation, who shall hold office for one (1) year and until their successors
are elected and qualified.
Indeed, a corporation is a juridical person separate and distinct from its members or stockholders
and is not affected by the personal rights,
obligations and transactions of the latter.
25
It may act only through its board of directors or, when
authorized either by its by-laws or by its board resolution, through its officers or agents in the
normal course of business. The general principles of agency govern the relation between the
corporation and its officers or agents, subject to the articles of incorporation, by-laws, or relevant
provisions of law.
26

Under Section 36 of the Corporation Code, a corporation may sell or convey its real properties,
subject to the limitations prescribed by law and the Constitution, as follows:
SEC. 36. Corporate powers and capacity. Every corporation incorporated under this Code has
the power and capacity:
x x x x
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise
deal with such real and personal property, including securities and bonds of other corporations,
as the transaction of a lawful business of the corporation may reasonably and necessarily require,
subject to the limitations prescribed by the law and the Constitution.
The property of a corporation, however, is not the property of the stockholders or members, and
as such, may not be sold without express authority from the board of directors.
27
Physical acts,
like the offering of the properties of the corporation for sale, or the acceptance of a counter-offer
of prospective buyers of such properties and the execution of the deed of sale covering such
property, can be performed by the corporation only by officers or agents duly authorized for the
purpose by corporate by-laws or by specific acts of the board of directors.
28
Absent such valid
delegation/authorization, the rule is that the declarations of an individual director relating to the
affairs of the corporation, but not in the course of, or connected with, the performance of
authorized duties of such director, are not binding on the corporation.
29

While a corporation may appoint agents to negotiate for the sale of its real properties, the final
say will have to be with the board of directors through its officers and agents as authorized by a
board resolution or by its by-laws.
30
An unauthorized act of an officer of the corporation is not
binding on it unless the latter ratifies the same expressly or impliedly by its board of directors. Any
sale of real property of a corporation by a person purporting to be an agent thereof but without
written authority from the corporation is null and void. The declarations of the agent alone are
generally insufficient to establish the fact or extent of his/her authority.
31

By the contract of agency, a person binds himself to render some service or to do something in
representation on behalf of another, with the consent or authority of the latter.
32
Consent of both
principal and agent is necessary to create an agency. The principal must intend that the agent
shall act for him; the agent must intend to accept the authority and act on it, and the intention of
the parties must find expression either in words or conduct between them.
33

An agency may be expressed or implied from the act of the principal, from his silence or lack of
action, or his failure to repudiate the agency knowing that another person is acting on his behalf
without authority. Acceptance by the agent may be expressed, or implied from his acts which
carry out the agency, or from his silence or inaction according to the circumstances.
34
Agency
may be oral unless the law requires a specific form.
35
However, to create or convey real rights
over immovable property, a special power of attorney is necessary.
36
Thus, when a sale of a
piece of land or any portion thereof is through an agent, the authority of the latter shall be in
writing, otherwise, the sale shall be void.
37

In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of the
Board of Directors of respondent EC empowering Marquez, Glanville or Delsaux as its agents, to
sell, let alone offer for sale, for and in its behalf, the eight parcels of land owned by respondent
EC including the improvements thereon. The bare fact that Delsaux may have been authorized to
sell to Ruperto Tan the shares of stock of respondent ESAC, on June 1, 1997, cannot be used as
basis for petitioners claim that he had likewise been authorized by respondent EC to sell the
parcels of land.
Moreover, the evidence of petitioners shows that Adams and Glanville acted on the authority of
Delsaux, who, in turn, acted on the authority of respondent ESAC, through its Committee for
Asia,
38
the Board of Directors of respondent ESAC,
39
and the Belgian/Swiss component of the
management of respondent ESAC.
40
As such, Adams and Glanville engaged the services of
Marquez to offer to sell the properties to prospective buyers. Thus, on September 12, 1986,
Marquez wrote the petitioner that he was authorized to offer for sale the property
forP27,000,000.00 and the other terms of the sale subject to negotiations. When petitioners
offered to purchase the property for P20,000,000.00, through Marquez, the latter relayed
petitioners offer to Glanville; Glanville had to send a telex to Delsaux to inquire the position of
respondent ESAC to petitioners offer. However, as admitted by petitioners in their Memorandum,
Delsaux was unable to reply immediately to the telex of Glanville because Delsaux had to wait for
confirmation from respondent ESAC.
41
When Delsaux finally responded to Glanville on February
12, 1987, he made it clear that, based on the "Belgian/Swiss decision" the final offer of
respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to cover all existing obligations prior
to final liquidation.
42
The offer of Delsaux emanated only from the "Belgian/Swiss decision," and
not the entire management or Board of Directors of respondent ESAC. While it is true that
petitioners accepted the counter-offer of respondent ESAC, respondent EC was not a party to the
transaction between them; hence, EC was not bound by such acceptance.
While Glanville was the President and General Manager of respondent EC, and Adams and
Delsaux were members of its Board of Directors, the three acted for and in behalf of respondent
ESAC, and not as duly authorized agents of respondent EC; a board resolution evincing the grant
of such authority is needed to bind EC to any agreement regarding the sale of the subject
properties. Such board resolution is not a mere formality but is a condition sine qua non to bind
respondent EC. Admittedly, respondent ESAC owned 90% of the shares of stocks of respondent
EC; however, the mere fact that a corporation owns a majority of the shares of stocks of another,
or even all of such shares of stocks, taken alone, will not justify their being treated as one
corporation.
43

It bears stressing that in an agent-principal relationship, the personality of the principal is
extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes the
principal, authorized to perform all acts which the latter would have him do. Such a relationship
can only be effected with the consent of the principal, which must not, in any way, be compelled
by law or by any court.
44

The petitioners cannot feign ignorance of the absence of any regular and valid authority of
respondent EC empowering Adams, Glanville or Delsaux to offer the properties for sale and to
sell the said properties to the petitioners. A person dealing with a known agent is not authorized,
under any circumstances, blindly to trust the agents; statements as to the extent of his powers;
such person must not act negligently but must use reasonable diligence and prudence to
ascertain whether the agent acts within the scope of his authority.
45
The settled rule is that,
persons dealing with an assumed agent are bound at their peril, and if they would hold the
principal liable, to ascertain not only the fact of agency but also the nature and extent of authority,
and in case either is controverted, the burden of proof is upon them to prove it.
46
In this case, the
petitioners failed to discharge their burden; hence, petitioners are not entitled to damages from
respondent EC.
It appears that Marquez acted not only as real estate broker for the petitioners but also as their
agent. As gleaned from the letter of Marquez to Glanville, on February 26, 1987, he confirmed, for
and in behalf of the petitioners, that the latter had accepted such offer to sell the land and the
improvements thereon. However, we agree with the ruling of the appellate court that Marquez
had no authority to bind respondent EC to sell the subject properties. A real estate broker is one
who negotiates the sale of real properties. His business, generally speaking, is only to find a
purchaser who is willing to buy the land upon terms fixed by the owner. He has no authority to
bind the principal by signing a contract of sale. Indeed, an authority to find a purchaser of real
property does not include an authority to sell.
47

Equally barren of merit is petitioners contention that respondent EC is estopped to deny the
existence of a principal-agency relationship between it and Glanville or Delsaux. For an agency
by estoppel to exist, the following must be established: (1) the principal manifested a
representation of the agents authority or knowlingly allowed the agent to assume such authority;
(2) the third person, in good faith, relied upon such representation; (3) relying upon such
representation, such third person has changed his position to his detriment.
48
An agency by
estoppel, which is similar to the doctrine of apparent authority, requires proof of reliance upon the
representations, and that, in turn, needs proof that the representations predated the action taken
in reliance.
49
Such proof is lacking in this case. In their communications to the petitioners,
Glanville and Delsaux positively and unequivocally declared that they were acting for and in
behalf of respondent ESAC.
Neither may respondent EC be deemed to have ratified the transactions between the petitioners
and respondent ESAC, through Glanville, Delsaux and Marquez. The transactions and the
various communications inter se were never submitted to the Board of Directors of respondent
EC for ratification.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the
petitioners.
SO ORDERED.

G.R. No. 76801 August 11, 1995
LOPEZ REALTY, INC., AND ASUNCION LOPEZ GONZALES, petitioners,
vs.
FLORENTINA FONTECHA, ET AL., AND THE NATIONAL LABOR RELATIONS
COMMISSION, respondents.

PUNO, J .:
The controversy at bench arose from a complaint filed by private respondents,
1
namely, Florentina
Fontecha, Mila Refuerzo, Marcial Mamaril, Perfecto Bautista, Edward Mamaril, Marissa Pascual and Allan
Pimentel, against their employer Lopez Realty Incorporated (petitioner) and its majority stockholder,
Asuncion Lopez Gonzales, for alleged non-payment of their gratuity pay and other benefits.
2
The case
was docketed as NLRC-NCR Case No. 2-2176-82.
Lopez Realty, Inc., is a corporation engaged in real estate business, while petitioner Asuncion Lopez
Gonzales is one of its majority shareholders. Her interest in the company vis-a-vis the other shareholders
is as follows:
1 Asuncion Lopez Gonzales 7831 shares
2 Teresita Lopez Marquez 7830 shares
3 Arturo F. Lopez 7830 shares
4 Rosendo de Leon 4 shares
5 Benjamin Bernardino 1 share
6 Leo Rivera 1 share
Except for Arturo F. Lopez, the rest of the shareholders also sit as members of the Board of
Directors.
As found by the Labor arbiter.
3
sometime in 1978, Arturo Lopez submitted a proposal relative to
the distribution of certain assets of petitioner corporation among its three (3) main shareholders.
The proposal had three (3) aspects, viz: (1) the sale of assets of the company to pay for its
obligations; (2) the transfer of certain assets of the company to its three (3) main shareholders,
while some other assets shall remain with the company; and (3) the reduction of employees with
provision for their gratuity pay. The proposal was deliberated upon and approved in a special
meeting of the board of directors held on April 17, 1978.
It appears that petitioner corporation approved two (2) resolutions providing for the gratuity pay of
its employees, viz: (a) Resolution No. 6, Series of 1980, passed by the stockholders in a special
meeting held on September 8, 1980, resolving to set aside, twice a year, a certain sum of money
for the gratuity pay of itsretiring employees and to create a Gratuity Fund for the said
contingency; and (b) Resolution No. 10,Series of 1980, setting aside the amount of P157,750.00
as Gratuity Fund covering the period from 1950 up to 1980.
Meanwhile, on July 28, 1981, board member and majority stockholder Teresita Lopez Marquez
died.
On August 17, 1981, except for Asuncion Lopez Gonzales who was then abroad, the remaining
members of the Board of Directors, namely: Rosendo de Leon, Benjamin Bernardino, and Leo
Rivera, convened a special meeting and passed a resolution which reads:
Resolved, as it is hereby resolved that the gratuity (pay) of the employees be given as
follows:
(a) Those who will be laid off be given the full amount of gratuity;
(b) Those who will be retained will receive 25% of their gratuity (pay) due on September
1, 1981, and another 25% on January 1, 1982, and 50% to be retained by the office in
the meantime. (emphasis supplied)
Private respondents were the retained employees of petitioner corporation. In a letter, dated
August 31, 1981, private respondents requested for the full payment of their gratuity pay. Their
request was granted in a special meeting held on September 1, 1981. The relevant, portion of the
minutes of the said board meeting reads:
In view of the request of the employees contained in the letter dated August 31, 1981, it
was also decided that, all those remaining employees will receive another 25% (of their
gratuity) on or before October 15, 1981 and another 25% on or before the end of
November, 1981 of their respective gratuity.
At that, time, however, petitioner Asuncion Lopez Gonzales was still abroad. Allegedly, while she
was still out of the country, she sent a cablegram to the corporation, objecting to certain matters
taken up by the board in her absence, such as the sale of some of the assets of the corporation.
Upon her return, she flied a derivative suit with the Securities and Exchange Commission (SEC)
against majority shareholder Arturo F. Lopez.
Notwithstanding the "corporate squabble" between petitioner Asuncion Lopez Gonzales and
Arturo Lopez, the first two (2) installments of the gratuity pay of private respondents Florentina
Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista were paid by petitioner
corporation.
Also, petitioner corporation had prepared the cash vouchers and checks for the third installments
of gratuity pay of said private respondents (Florentina Fontecha, Mila Refuerzo, Marcial Mamaril
and Perfecto Bautista). For some reason, said vouchers were cancelled by petitioner Asuncion
Lopez Gonzales.
Likewise, the first, second and third installments of gratuity pay of the rest of private respondents,
particularly, Edward Mamaril, Marissa Pascual and Allan Pimentel, were prepared but cancelled
by petitioner Asuncion Lopez Gonzales. Despite private respondents' repeated demands for their
gratuity pay, corporation refused to pay the same.
4

On July 23, 1984, Labor Arbiter Raymundo R. Valenzuela rendered judgment in favor of private
respondents.
5

Petitioners appealed the adverse ruling of the Labor arbiter to public respondent National Labor
Relations Commission. The appeal focused on the alleged non-ratification and non-approval of
the assailed August 17, 1981 and September 1, 1981 Board Resolutions during the Annual
Stockholders' Meeting held on March 1, 1982. Petitioners further insisted that the payment of the
gratuity to some of the private respondents was a mere "mistake" on the part of petitioner
corporation since, pursuant to Resolution No. 6, dated September 8, 1980, and Resolution No.
10, dated October 6, 1980, said gratuity pay should be given only upon the employees'
retirement.
On November 20, 1985, public respondent, through its Second Division, dismissed the appeal for
lack of merit, the pertinent portion of which states:
6

We cannot agree with the contention of respondents (petitioners') that the Labor Arbiter a
quocommitted abuse of discretion in his decision.
Respondents' (petitioners') contention that, the two (2) resolutions dated 17 August 1981
and 1 September 1981 . . . which were not approved in the annual stockholders meeting
had no force and effect, deserves scant consideration. The records show that the
stockholders did not revoke nor nullify these resolutions granting gratuities to
complainants.
On record, it appears that the said resolutions arose from the legitimate creation of the
Board of Directors who steered the corporate affairs of the corporation. . . .
Respondents' (petitioners') allegation that the three (3) complainants, Mila E. Refuerzo,
Marissa S. Pascual and Edward Mamaril, who had resigned after filing the complaint on
February 8, 1982, were precluded to (sic) receive gratuity because the said resolutions
referred to only retiring employee could not be given credence. A reading of Resolutions
dated 17 August 1981 and 1 September 1981 disclosed that there were periods
mentioned for the payment of complainants' gratuities. This disproves respondents'
argument allowing gratuities upon retirement of employees. Additionally, the proposed
distribution of assets (Exh. C-1) filed by Mr. Arturo F. Lopez also made mention of
gratuity pay, " . . . (wherein) an employee who desires to resign from the LRI will be given
the gratuity pay he or she earned." (Emphasis supplied) Let us be reminded, too, that the
complainants' resignation was not voluntary but it was pressurized (sic) due to "power
struggle" which was evident between Arturo Lopez and Asuncion Gonzales.
The respondents' (petitioners') contention of a mistake to have been committed in
granting the first two (2) installments of gratuities to complainants Perfecto Bautista,
Florentina Fontecha, Marcial Mamaril and Mila Refuerzo, (has) no legal leg to stand on.
The record is bereft of any evidence that the Board of Directors had passed a resolution
nor is there any minutes of whatever nature proving mistakes in the award of damages
(sic).
With regard to the award of service incentive leave and others, the Commission finds no
cogent reason to disturb the appealed decision.
We affirm.
WHEREFORE, let the appealed decision be, as it is hereby, AFFIRMED and let the
instant appeal (be) dismissed for lack of merit.
SO ORDERED.
Petitioners reconsidered.
7
In their motion for reconsideration, petitioners assailed the validity of
the board resolutions passed on August 17, 1981 and September 1, 1981, respectively, and
claimed, for the first time, that petitioner Asuncion Lopez Gonzales was not notified of the special
board meetings held on said dates. The motion for reconsideration was denied by the Second
Division on July 24, 1986.
On September 4, 1986, petitioners filed another motion for reconsideration. Again, the motion
was denied by public respondent in a Minute Resolution dated November 19, 1986.
8

Hence, the petition. As prayed for, we issued a Temporary Restraining Order,
9
enjoining public
respondent from enforcing or executing the Resolution, dated November 20, 1986 (sic), in NLRC-
NCR-2-2176-82.
10

The sole issue is whether or not public respondent acted with grave abuse of discretion in holding
that private respondents are entitled to receive their gratuity pay under the assailed board
resolutions dated August 17, 1951 and September 1, 1981.
Petitioners contend that the board resolutions passed on August 17, 1981 and September 1,
1981, granting gratuity pay to their retained employees, are ultra vires on the ground that
petitioner Asuncion Lopez Gonzales was not duly notified of the said special meetings. They
aver, further, that said board resolutions were not ratified by the stockholders of the corporation
pursuant to Section 28 1/2 of the Corporation Law (Section 40 of the Corporation Code). They
also insist that the gratuity pay must be given only to the retiring employees, to the exclusion of
the retained employees or those who voluntarily resigned from their posts.
At the outset, we note that petitioners allegation on lack of notice to petitioner Asuncion Lopez
Gonzales was raised for the first time in the in their motion for reconsideration filed before public
respondent National Labor Relations Commission, or after said public respondent had affirmed
the decision of the labor arbiter. To stress, in their appeal before the NLRC, petitioners never
raised the issue of lack of notice to Asuncion Lopez Gonzales. The appeal dealt with (a) the
failure of the stockholders to ratify the assailed resolutions and (b) the alleged "mistake"
committed by petitioner corporation in giving the gratuity pay to some of its employees who are
yet to retire from employment.
In their comment,
11
private respondents maintain that the new ground of lack of notice was not
raised before the labor arbiter, hence, petitioners are barred from raising the same on appeal.
Private respondents claim, further, that such failure on the part of petitioners, had deprived them
the opportunity to present evidence that, in a subsequent special board meeting held on
September 29, 1981, the subject resolution dated September 1, 1981, was unanimously
approved by the board of directors of petitioner corporation, including petitioner Asuncion Lopez
Gonzales.
12

Indeed, it would be offensive to the basic rules of fair play and justice to allow petitioners to raise
questions which have not been passed upon by the labor arbiter and the public respondent
NLRC. It is well settled that questions not raised in the lower courts cannot, be raised for the first
time on appeal.
13
Hence, petitioners may not invoke any other ground, other than those it
specified at the labor arbiter level, to impugn the validity of the subject resolutions.
We now come to petitioners' argument that the resolutions passed by the board of directors
during the special meetings on August 1, 1981, and September 1, 1981, were ultra vires for lack
of notice.
The general rule is that a corporation, through its board of directors, should act in the manner and
within the formalities, if any, prescribed by its charter or by the general law.
14
Thus, directors
must act as a body in a meeting called pursuant to the law or the corporation's by-laws,
otherwise, any action taken therein may be questioned by any objecting director or
shareholder.
15

Be that as it may, jurisprudence
16
tells us that an action of the board of directors during a
meeting, which was illegal for lack of notice, may be ratified either expressly, by the action of the
directors in subsequent legal meeting, or impliedly, by the corporation's subsequent course of
conduct. Thus, in one case,
17
it was held:
. . . In 2 Fletcher, Cyclopedia of the Law of Private Corporations (Perm. Ed.) sec. 429, at
page 290, it is stated:
Thus, acts of directors at a meeting which was illegal because of want of
notice may be ratified by the directors at a subsequent legal meeting, or
by the corporations course of conduct
. . .
Fletcher, supra, further states in sec. 762, at page 1073-1074:
Ratification by directors may be by an express resolution or vote to that
effect, or it may be implied from adoption of the act, acceptance or
acquiescence. Ratification may be effected by a resolution or vote of the
board of directors expressly ratifying previous acts either of corporate
officers or agents; but it is not necessary, ordinarily, to show a meeting
and formal action by the board of directors in order to establish a
ratification.
In American Casualty Co., v. Dakota Tractor and Equipment Co., 234 F. Supp. 606, 611
(D.N.D. 1964), the court stated:
Moreover, the unauthorized acts of an officer of a corporation may be
ratified by the corporation by conduct implying approval and adoption of
the act in question. Such ratification may be express or may be inferred
from silence and inaction.
In the case at bench, it was established that petitioner corporation did not issue any resolution
revoking nor nullifying the board resolutions granting gratuity pay to private respondents. Instead,
they paid the gratuity pay, particularly, the first two (2) installments thereof, of private respondents
Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista.
Despite the alleged lack of notice to petitioner Asuncion Lopez Gonzales at that time the assailed
resolutions were passed, we can glean from the records that she was aware of the corporation's
obligation under the said resolutions. More importantly, she acquiesced thereto. As pointed out by
private respondents, petitioner Asuncion Lopez Gonzales affixed her signature on Cash Voucher
Nos. 81-10-510 and 81-10-506, both dated October 15, 1981, evidencing the 2nd installment of
the gratuity pay of private respondents Mila Refuerzo and Florentina Fontecha.
18

We hold, therefore, that the conduct of petitioners after the passage of resolutions dated August,
17, 1951 and September 1, 1981, had estopped them from assailing the validity of said board
resolutions.
Assuming, arguendo, that there was no notice given to Asuncion Lopez Gonzalez during the
special meetings held on August 17, 1981 and September 1, 1981, it is erroneous to state that
the resolutions passed by the board during the said meetings were ultra vires. In legal parlance,
"ultra vires" act refers to one which is not within the corporate powers conferred by the
Corporation Code or articles of incorporation or not necessary or incidental in the exercise of the
powers so conferred.
19

The assailed resolutions before us cover a subject which concerns the benefit and welfare of the
company's employees. To stress, providing gratuity pay for its employees is one of the express
powers of the corporation under the Corporation Code, hence, petitioners cannot invoke the
doctrine of ultra vires to avoid any liability arising from the issuance the subject resolutions.
20

We reject petitioners' allegation that private respondents, namely, Mila Refuerzo, Marissa
Pascual and Edward Mamaril who resigned from petitioner corporation after the filing of the case,
are precluded from receiving their gratuity pay. Pursuant to board resolutions dated August 17,
1981 and September 1, 1981, respectively, petitioner corporation obliged itself to give the gratuity
pay of its retained employees in four (4) installments: on September 1, 1981; October 15, 1981;
November, 1981; and January 1, 1982. Hence, at the time the aforenamed private respondents
tendered their resignation, the aforementioned private respondents were already entitled to
receive their gratuity pay.
Petitioners try to convince us that the subject resolutions had no force and effect in view of the
non-approval thereof during the Annual Stockholders' Meeting held on March 1, 1982. To
strengthen their position, petitioners cite section 28 1/2 of the Corporation Law (Section 40 of the
Corporation Code). We are not persuaded.
The cited provision is not applicable to the case at bench as it refers to the sale, lease, exchange
or disposition of all or substantially all of the corporation's assets, including its goodwill. In such a
case, the action taken by the board of directors requires the authorization of the stockholders on
record.
It will be observed that, except far Arturo Lopez, the stockholders of petitioner corporation also sit
as members of the board of directors. Under the circumstances in field, it will be illogical and
superfluous to require the stockholders' approval of the subject resolutions. Thus, even without
the stockholders' approval of the subject resolutions, petitioners are still liable to pay private
respondents' gratuity pay.
IN VIEW WHEREOF, the instant petition is DISMISSED for lack of merit and the temporary
restraining order we issued on February 9, 1987 is LIFTED. Accordingly, the assailed resolution
of the National Labor Relations Commission in NLRC-NCR-2176-82 is AFFIRMED. This decision
is immediately executory. Costs against petitioners.
SO ORDERED
G.R. No. 137619 February 6, 2001
REYNALDO L. LAUREANO, petitioner,
vs.
BORMAHECO, INC. and EDGARDO C. CRUZ, respondents.
GONZAGA-REYES, J .:
This is a Petition for Review on Certiorari under Rule 45 seeking to set aside the decision
1
of the Court of
Appeals
2
which dismissed the Petition for Certiorari in CA-G.R. SP No. 45908.
The antecedents of this case are as follows:
3

On December 11, 1962, the spouses Reynaldo Laureano and Florencia Laureano obtained various credit
accommodations from the Philippine National Cooperative Bank (PNCB, for brevity), and, as a security
therefor, constituted a real estate mortgage upon two (2) lots located at Bel-Air, Makati City, with Transfer
Certificate of Title Nos. 59664 and 59665. The Laureano spouses failed to pay their indebtedness.
Consequently, PNCB filed a verified application for extra-judicial foreclosure of the real estate mortgage
with the Office of the Sheriff of the Regional Trial Court of Makati. On February 20, 1984, a public auction
sale was conducted by the Sheriff, and the two lots were purchased by the PNCB as the highest bidder.
On the same day, a Certificate of Sale was issued in favor of the bank and registered with the Register of
Deeds of Makati City.1wphi1.nt
The Laureano spouses failed to redeem the two lots within the one-year period. On March 20, 1985,
ownership was consolidated in the name of the PNCB, and new titles with TCT Nos. 136823 and 136824
were issued.
On September 26, 1988, PNCB sold several properties including the two lots to Bormaheco, Inc.
(Bormaheco, for brevity). Immediately thereafter, new titles with TCT Nos. 157724 and 157725 were
issued in favor of Bormaheco.
On October 20, 1988, Bormaheco filed with the Regional Trial Court of Makati
4
and Ex parte Petition for
the Issuance of Writ of Possession (hereafter ex parte petition) for the two lots, docketed as LRC Case
No. M-1530. The RTC of Makati ordered the service of a copy of the ex parte petition upon the Laureano
spouses. Reynaldo Laureano filed a Motion to Dismiss the ex parte petition on the ground of lack of
jurisdiction of the RTC of Makati over the subject matter of the case. The RTC of Makati denied the
Motion to Dismiss, and this was challenged by Reynaldo Laureano in a Petition for Certiorari filed with the
Court of Appeals (CA-G.R. SP No. 16284). The Court of Appeals dismissed the petition, and denied the
corresponding Motion for Reconsideration. The decision of the Court of Appeals was further challenged
by Laureano in a Petition for Review filed with the Supreme Court (G.R. No. 87813), but the High Court
sustained the said decision and denied the petition in a Resolution dated November 23, 1989. The
petitioner's Motion for Reconsideration was denied with finality on January 22, 1990.
On January 18, 1989, LIDECO Corporation filed a Motion for Intervention and to Admit Attached
Complaint in Intervention in LRC Case No. M-1530, alleging that it is the owner and possessor of two
buildings constructed on the two lots subject of the ex parte petition for the issuance of writ of possession.
The complaint for intervention was initially admitted by the RTC, but was stricken off upon motion by
Bormaheco alleging that LIDECO Corporation was not a duly registered corporation, and hence had no
legal personality. Laureano Investment and Development Corporation, the majority of the stock of which
is held by the Laureano spouses, filed an Urgent Motion to Substitute Party Intervenor (LIDECO
Corporation) and to Adopt Complaint in Intervention and All Pleadings, but this was denied by the RTC.
Laureano Investment and Development Corporation assailed the two RTC Orders
5
in a Petition for
Certiorari filed with the Court of Appeals (C.A. G.R. No. 22763). The Court of Appeals dismissed the
petition, and such dismissal was questioned by Laureano Investment and Development Corporation in
the Petition for Review filed with the Supreme Court (G.R. No. 100468).
In the meantime, on October 24, 1991, the RTC of Makati, Branch 141, issued an order granting the ex
partepetition for the issuance of a writ of possession. On 8 November 1991, Bormaheco, Inc. filed a
motion for execution of the RTC Order. Three days later, Reynaldo Laureano filed an Urgent Motion to
Dismiss Petition and To Strike Pleadings Filed by Bormaheco on the ground of lack of legal capacity of
Bormaheco, Inc. to file the ex parte petition. The resolution of these motions was held in abeyance by the
RTC in deference to the case pending with the Supreme Court (G.R. No. 100468). On May 6, 1997, the
Supreme Court denied the Petition for Review in G.R. 100468.
On September 25, 1997, the RTC of Makati
6
issued the contested Order directing the issuance of a Writ
of Execution/Possession in favor Bormaheco, Inc. Reynaldo Laureano filed a Motion for Reconsideration
which was denied by the RTC in the contested Order dated November 4, 1997.
On November 10, 1997, Reynaldo Laureano filed a Petition for Certiorari with the Court of Appeals to
annul the two RTC Orders (dated September 25, 1997 and November 4, 1997).
7
The Petition was
dismissed by the Court of Appeals in a Decision promulgated on June 18, 1998. The Motion for
Reconsideration filed by Laureano was denied on February 18, 1999. Hence this petition.
The issues, as set forth by the petitioner in his Memorandum, are as follows:
8

I.
Did not the Court of Appeals err as a matter of law when it affirmed the trial court's Order of September
25, 1997 and Order of November 4, 1997, and failed to hold as violative of due process the issuance by
the trial court of the Order of September 25, 1997 (which finally approved and granted Bormaheco, Inc.'s
Petition for the Issuance of Writ of Possession, etc.) when petitioner's "Urgent Motion To Dismiss Petition
and To Strike Pleadings Filed by Bormaheco, Inc." was still pending and unresolved?
II.
Did not the Court of Appeals err as a matter of law when it did not hold that the trial court had denied
petitioner his right to a hearing?
We rule on both issues in the negative. The appellate court committed no error in dismissing the Petition
for Certiorari in CA-G.R. SP No. 45908, and in affirming the questioned orders of the trial court.
After a careful examination of the records of the proceedings of this case, we fail to see any violation of
due process by the regional trial court. A second look at the antecedents is in order.
The Philippine National Cooperative Bank foreclosed the real estate mortgage executed by the Laureano
spouses on the two lots. For failure of the said spouses to redeem the properties during the one-year
period, ownership of the lots was consolidated in the name of the PNCB, the purchaser in the foreclosure
sale. New titles with TCT Nos. 136823 and 136824 were issued under PNCB's name.
As the purchaser of the properties in the extra-judicial foreclosure sale, the PNCB is entitled to a writ of
possession therefor. The law on extra-judicial foreclosure of mortgage
9
provides that a purchaser in an
extra-judicial foreclosure sale may take possession of the foreclosed property even before the expiration
of the redemption period, provided he furnishes the necessary bond. Possession of the property may be
obtained by filing an ex parte motion with the regional trial court of the province or place where the
property or part thereof is situated.
10
Upon filing of the motion and the required bond, it becomes a
ministerial duty of the court to order the issuance of a writ of possession in favor of the purchaser.
11
After
the expiration of the one-year period without redemption being effected by the property owner, the right of
the purchaser to the possession of the foreclosed property becomes absolute. The basis of this right to
possession is the purchaser's ownership of the property.
12
Mere filing of an ex parte motion for the
issuance of the writ of possession would suffice,
13
and no bond is required.
14

Instead of seeking the issuance of a writ of possession, however, PNCB sold the two lots to private
respondent Bormaheco, Inc. By virtue of the sale, Bormaheco became the new owner of the lots, entitled
to all rights and interests its predecessor PNCB has therein, including the right to a writ of possession.
On October 20, 1988, Bormaheco, Inc. filed an Ex-parte Petition for the issuance of a Writ of Possession.
By the nature of the petition
15
, no notice needed to be served upon interested in the subject property.
Hence, there was no necessity of giving notice to the Laureano spouses, especially since they already
lost all their interests in the properties when they failed to redeem the same. Nonetheless, the RTC of
Makati ordered the service of a copy of the petition upon the Laureano spouses.
16
Reynaldo Laureano, as
an oppositor, even moved to dismiss the ex parte petition on the ground of lack of jurisdiction of the court
over the subject matter of the case. The RTC denied the Motion to Dismiss, so Laureano went up to the
Court of Appeals on Certiorari. The petition for certiorari (CA-G.R. SP No. 16284) was dismissed by the
Court of Appeals, and the Petition for Review of the dismissal was denied by this Court for lack of merit
(G.R. No. 87813).
On October 24, 1990, the ex parte petition for the issuance of a writ of possession was granted by the
RTC of Makati. Subsequently, Bormaheco, Inc. filed a Motion for Execution thereof. On September, 11,
1991, Reynaldo Laureano filed another motion to dismiss, this time denominated as an Urgent Motion to
Dismiss Petition and to Strike Pleadings Filed Pleadings Filed by Bormaheco, on the ground of lack of
legal capacity of Bormaheco, Inc. to file the petition.
The proceedings of the ex parte petition were even held in abeyance when an intervention sought by
LIDECO corporation and a subsequent motion to substitute LIDECO as intervenor filed by Laureano
Investment and Development Corporation were both denied by the RTC of Makati, and the latter
corporation, again, went up to the Court of Appeals on certiorari. The Petition for Certiorari (CA-G.R. SP
No. 22763) was dismissed by the Court of Appeals, and the corresponding Petition for Review (G.R. No.
100468) filed with this Court was denied.
A few months thereafter, the RTC of Makati issued the questioned order dated September 25, 1997,
which resolved the motions pending before the said court, including the motion for execution filed by
Bormaheco and the supplemental motion to dismiss the ex parte petition filed by Reynaldo Laureano. The
Urgent Motion to Dismiss earlier filed by Laureano was not among the motions listed to be resolved in the
Order. Nevertheless, the ground raised in the Urgent Motion to Dismiss, i.e. the lack of legal personality
of Bormaheco, Inc., and hence, lack of legal capacity to file the ex parte petition, was addressed by the
RTC, to wit:
xxx To put the issues in their proper perspective, it is best that the motions filed by the oppositor
Reynaldo Laureano be first resolved. The motions adverted to above sought the dismissal of the
petition on the sole ground that BORMAHECO, Inc. was not yet in existence as [a] corporation at
the time of the filing of the petition on 21 October 1988. xxx
xxx xxx xxx
It is now to late in the day to question the legal personality of the petitioner. Such legal infirmity
had been cured by the formal registration of BORMAHECO, INC. as a corporate name with the
Securities and Exchange Commission on 13 March 1991. Its predecessor was Border Machinery
and Heavy Equipment Co., Inc. which used BORMAHECO, INC. as an acronym. Thus, on 1
October 1950, the articles of incorporation of Border Machinery and Heavy Equipment Co., Inc.
was amended and it specifically used BORMAHECO, INC. as its acronym. In said amended
articles of incorporation, it was certified:
"FIRST. That the name [of] said corporation shall be BORDER MACHINERY AND
HEAVY EQUIPMENT CO., INC. (BORMAHECO, INC.)"
In a larger sense, BORMAHECO, INC. had been registered with the Securities and Exchange
Commission upon filing of the said amended articles of incorporation with the Securities and
Exchange Commission in 1950. This Court therefore denies the oppositor's motions adverted to
above. xxx xxx
A Motion for Reconsideration (of the September 25, 1997 RTC Order) filed by Laureano was denied by
the lower court in the contested Order dated November 4, 1997. Laureano questioned the two RTC
Orders by way of a Petition for Certiorari with the Court of Appeals, and the issue set forth in the Urgent
Motion to Dismiss was resolved anew by the appellate court, to wit:
We are, on the other hand, satisfied that the private respondent was incorporated as early as
February 23, 1951 by the SEC as "Border Machinery and Heavy Equipment Company, Inc." with
a corporate life of fifty (50) years. The by-laws of the Border Machinery x x was registered with
the SEC on April 21, 1951. The business name of the private respondent, in turn, was registered
with the Bureau of Domestic Trade in 1978 as BORMAHECO; as BORMAHECO, Inc. in 1983;
and as BORMAHECO, Incorporated in 1988. Aside from that, the private respondent was given
business permits by the Mayor of Makati, in the name of BORMAHECO, Inc. in 1988 and
BORMAHECO, Inc. in 1991.
The amendment or change of corporate name of Border Machinery x x to BORMAHECO, Inc.,
was approved by the SEC on March 13, 1991.
Certainly, the amendment did not make the private respondent a new corporation, but it just
continued its operation and remained as the original corporation of 1951. An authorized change in
the name of a corporation has no more effect upon its identity as a change of name of a natural
person. The rights of the corporation were not affected and neither were the obligations lessened
or added.
xxx xxx xxx
The Petition for Certiorari was dismissed by the Court of Appeals. Still unfazed, the petitioner now comes
to us through this petition for review, alleging lack of due process in the proceedings which transpired in
the courts below.
As aforestated, we fail to see the lack of due process claimed by the petitioner. On the contrary, the
petitioner has been afforded more than what is due. The petitioner was given notice despite the petition
being ex parte. He was allowed opposition despite his lack of interest over the subject properties. He
caused the delay of the ex partepetition through legal maneuverings, and in fact, managed to reach this
Court at least three times in the process. A simple ex parte petition for the issuance of a writ of
possession has become a protracted litigation and, to date, has been pending for more than twelve (12)
years. What is manifest, therefore, is the abuse by the petitioner of the legal processes, effectively
defeating justice which has long been denied the private respondent. This Court will not countenance
such practice of the petitioner and his counsel.
Upon the claim of forum shopping, the private respondent has listed down a number of cases filed by the
spouses Reynaldo and Florencia Laureano, allegedly involving the same properties, and is asking this
Court to declare the Laureano spouses guilty of forum shopping. This is the second time that this Court
has encountered this long list of cases, the first instance being in the case of Laureano Investment and
Development Corporation vs. Court of Appeals
17
. Unfortunately, as in the aforecited case, Bormaheco did
not go beyond the enumeration of the cases, leaving its allegation of forum shopping bare and
unsubstantiated. Without any showing that the cases listed have identity of parties, causes of action and
reliefs sought,
18
neither can we make any valid determination as to whether the rules on non-forum
shopping were violated.
WHEREFORE, premises considered, the petition is hereby DENIED for utter lack of merit, and the
questioned decision of the Court of Appeals is AFFIRMED. The counsel for the petitioner, Atty. Eduardo
R. Robles, is hereby ADMONISHED to be more circumspect in his availment of legal processes, and any
future indiscretion shall be dealt with more severely. Treble costs against the petitioner.1wphi1.nt
SO ORDERED.

[G.R. No. 117897. May 14, 1997]
ISLAMIC DIRECTORATE OF THE PHILIPPINES, MANUEL F. PEREA and SECURITIES &
EXCHANGE COMMISSION, petitioners, vs. COURT OF APPEALS and IGLESIA NI
CRISTO, respondents.
D E C I S I O N
HERMOSISIMA, JR., J .:
The subject of this petition for review is the Decision of the public respondent Court of
Appeals,
[1]
dated October 28, 1994, setting aside the portion of the Decision of the Securities and
Exchange Commission (SEC, for short) in SEC Case No. 4012 which declared null and void the sale of
two (2) parcels of land in Quezon City covered by the Deed of Absolute Sale entered into by and between
private respondent Iglesia Ni Cristo (INC, for short) and the Islamic Directorate of the Philippines, Inc.,
Carpizo Group, (IDP, for short).
The following facts appear of record.
Petitioner IDP-Tamano Group alleges that sometime in 1971, Islamic leaders of all Muslim major
tribal groups in the Philippines headed by Dean Cesar Adib Majul organized and incorporated the
ISLAMIC DIRECTORATE OF THE PHILIPPINES (IDP), the primary purpose of which is to establish an
Islamic Center in Quezon City for the construction of a Mosque (prayer place), Madrasah (Arabic
School), and other religious infrastructures so as to facilitate the effective practice of Islamic faith in the
area.
[2]

Towards this end, that is, in the same year, the Libyan government donated money to the IDP to
purchase land at Culiat, Tandang Sora, Quezon City, to be used as a Center for the Islamic
populace. The land, with an area of 49,652 square meters, was covered by two titles: Transfer Certificate
of Title Nos. RT-26520 (176616)
[3]
and RT-26521 (170567),
[4]
both registered in the name of IDP.
It appears that in 1971, the Board of Trustees of the IDP was composed of the following per Article 6
of its Articles of Incorporation:
Senator Mamintal Tamano
[5]

Congressman Ali Dimaporo
Congressman Salipada Pendatun
Dean Cesar Adib Majul
Sultan Harun Al-Rashid Lucman
Delegate Ahmad Alonto
Commissioner Datu Mama Sinsuat
Mayor Aminkadra Abubakar
[6]

According to the petitioner, in 1972, after the purchase of the land by the Libyan government in the
name of IDP, Martial Law was declared by the late President Ferdinand Marcos. Most of the members of
the 1971 Board of Trustees like Senators Mamintal Tamano, Salipada Pendatun, Ahmad Alonto, and
Congressman Al-Rashid Lucman flew to the Middle East to escape political persecution.
Thereafter, two Muslim groups sprung, the Carpizo Group, headed by Engineer Farouk Carpizo, and
the Abbas Group, led by Mrs. Zorayda Tamano and Atty. Firdaussi Abbas. Both groups claimed to be the
legitimate IDP. Significantly, on October 3, 1986, the SEC, in a suit between these two contending
groups, came out with a Decision in SEC Case No. 2687 declaring the election of both the Carpizo Group
and the Abbas Group as IDP board members to be null and void. The dispositive portion of the SEC
Decision reads:
WHEREFORE, judgment is hereby rendered declaring the elections of both the petitioners
[7]
and
respondents
[8]
as null and void for being violative of the Articles of Incorporation of petitioner
corporation. With the nullification of the election of the respondents, the approved by-laws which they
certified to this Commission as members of the Board of Trustees must necessarily be likewise declared
null and void. However, before any election of the members of the Board of Trustees could be
conducted, there must be an approved by-laws to govern the internal government of the association
including the conduct of election. And since the election of both petitioners and respondents have been
declared null and void, a vacuum is created as to who should adopt the by-laws and certify its
adoption. To remedy this unfortunate situation that the association has found itself in, the members of the
petitioning corporation are hereby authorized to prepare and adopt their by-laws for submission to the
Commission. Once approved, an election of the members of the Board of Trustees shall immediately be
called pursuant to the approved by-laws.
SO ORDERED.
[9]

Neither group, however, took the necessary steps prescribed by the SEC in its October 3, 1986
Decision, and, thus, no valid election of the members of the Board of Trustees of IDP was ever
called. Although the Carpizo Group
[10]
attempted to submit a set of by-laws, the SEC found that, aside
from Engineer Farouk Carpizo and Atty. Musib Buat, those who prepared and adopted the by-laws were
not bona fide members of the IDP, thus rendering the adoption of the by-laws likewise null and void.
On April 20, 1989, without having been properly elected as new members of the Board of Trustees of
IDP, the Carpizo Group caused to be signed an alleged Board Resolution
[11]
of the IDP, authorizing the
sale of the subject two parcels of land to the private respondent INC for a consideration
of P22,343,400.00, which sale was evidenced by a Deed of Absolute Sale
[12]
dated April 20, 1989.
On May 30, 1991, the petitioner 1971 IDP Board of Trustees headed by former Senator
Mamintal Tamano, or the Tamano Group, filed a petition before the SEC, docketed as SEC Case No.
4012, seeking to declare null and void the Deed of Absolute Sale signed by the Carpizo Group and the
INC since the group of Engineer Carpizo was not the legitimate Board of Trustees of the IDP.
Meanwhile, private respondent INC, pursuant to the Deed of Absolute Sale executed in its favor, filed
an action for Specific Performance with Damages against the vendor, Carpizo Group, before Branch 81
of the Regional Trial Court of Quezon City, docketed as Civil Case No. Q-90-6937, to compel said group
to clear the property of squatters and deliver complete and full physical possession thereof to
INC. Likewise, INC filed a motion in the same case to compel one Mrs. Leticia P. Ligon to produce and
surrender to the Register of Deeds of Quezon City the owners duplicate copy of TCT Nos. RT-26521 and
RT-26520 covering the aforementioned two parcels of land, so that the sale in INCs favor may be
registered and new titles issued in the name of INC. Mrs. Ligon was alleged to be the mortgagee of the
two parcels of land executed in her favor by certain Abdulrahman R.T. Linzag and Rowaida Busran-
Sampaco claimed to be in behalf of the Carpizo Group.
The IDP-Tamano Group, on June 11, 1991, sought to intervene in Civil Case No. Q-90-6937
averring, inter alia:
xxx xxx xxx
2. That the Intervenor has filed a case before the Securities and Exchange Commission (SEC) against
Mr. Farouk Carpizo, et, al., who, through false schemes and machinations, succeeded in executing the
Deed of Sale between the IDP and the Iglesia Ni Kristo (plaintiff in the instant case) and which Deed of
Sale is the subject of the case at bar;
3. That the said case before the SEC is docketed as Case No. 04012, the main issue of which is whether
or not the aforesaid Deed of Sale between IDP and the Iglesia ni Kristo is null and void, hence,
Intervenors legal interest in the instant case. A copy of the said case is hereto attached as Annex A;
4. That, furthermore, Intervenor herein is the duly constituted body which can lawfully and legally
represent the Islamic Directorate of the Philippines;
xxx xxx xxx.
[13]

Private respondent INC opposed the motion arguing, inter alia, that the issue sought to be litigated
by way of intervention is an intra-corporate dispute which falls under the jurisdiction of the SEC.
[14]

Judge Celia Lipana-Reyes of Branch 81, Regional Trial Court of Quezon City, denied petitioners
motion to intervene on the ground of lack of juridical personality of the IDP-Tamano Group and that the
issues being raised by way of intervention are intra-corporate in nature, jurisdiction thereto properly
pertaining to the SEC.
[15]

Apprised of the pendency of SEC Case No. 4012 involving the controverted status of the IDP-
Carpizo Group but without waiting for the outcome of said case, Judge Reyes, on September 12, 1991,
rendered Partial Judgment in Civil Case No. Q-90-6937 ordering the IDP-Carpizo Group to comply with its
obligation under the Deed of Sale of clearing the subject lots of squatters and of delivering the actual
possession thereof to INC.
[16]

Thereupon, Judge Reyes in another Order, dated March 2, 1992, pertaining also to Civil Case No.
Q-90-6937, treated INC as the rightful owner of the real properties and disposed as follows:
WHEREFORE, Leticia P. Ligon is hereby ordered to produce and/or surrender to plaintiff
[17]
the owners
copy of RT-26521 (170567) and RT-26520 (176616) in open court for the registration of the Deed of
Absolute Sale in the latters name and the annotation of the mortgage executed in her favor by herein
defendant Islamic Directorate of the Philippines on the new transfer certificate of title to be issued to
plaintiff.
SO ORDERED.
[18]

On April 6, 1992, the above Order was amended by Judge Reyes directing Ligon to deliver the
owners duplicate copies of TCT Nos. RT-26521 (170567) and RT-26520 (176616) to the Register of
Deeds of Quezon City for the purposes stated in the Order of March 2, 1992.
[19]

Mortgagee Ligon went to the Court of Appeals, thru a petition for certiorari, docketed as CA-G.R. No.
SP-27973, assailing the foregoing Orders of Judge Reyes. The appellate court dismissed her petition on
October 28, 1992.
[20]

Undaunted, Ligon filed a petition for review before the Supreme Court which was docketed as G.R.
No. 107751.
In the meantime, the SEC, on July 5, 1993, finally came out with a Decision in SEC Case No. 4012
in this wise:
1. Declaring the by-laws submitted by the respondents
[21]
as unauthorized, and hence, null and void.
2. Declaring the sale of the two (2) parcels of land in Quezon City covered by the Deed of Absolute Sale
entered into by Iglesia ni Kristo and the Islamic Directorate of the Philippines, Inc.
[22]
null and void.
3. Declaring the election of the Board of Directors
[23]
of the corporation from 1986 to 1991 as null and
void;
4. Declaring the acceptance of the respondents, except Farouk Carpizo and Musnib Buat, as members of
the IDP null and void.
No pronouncement as to cost.
SO ORDERED.
[24]

Private respondent INC filed a Motion for Intervention, dated September 7, 1993, in SEC Case No.
4012, but the same was denied on account of the fact that the decision of the case had become final and
executory, no appeal having been taken therefrom.
[25]

INC elevated SEC Case No. 4012 to the public respondent Court of Appeals by way of a special civil
action for certiorari, docketed as CA-G.R. SP No. 33295. On October 28, 1994, the court a
quo promulgated a Decision in CA-G.R. SP No. 33295 granting INCs petition. The portion of the SEC
Decision in SEC Case No. 4012 which declared the sale of the two (2) lots in question to INC as void was
ordered set aside by the Court of Appeals.
Thus, the IDP-Tamano Group brought the instant petition for review, dated December 21, 1994,
submitting that the Court of Appeals gravely erred in:
1) Not upholding the jurisdiction of the SEC to declare the nullity of the sale;
2) Encouraging multiplicity of suits; and
3) Not applying the principles of estoppel and laches.
[26]

While the above petition was pending, however, the Supreme Court rendered judgment in G.R. No.
107751 on the petition filed by Mrs. Leticia P. Ligon. The Decision, dated June 1, 1995, denied the Ligon
petition and affirmed the October 28, 1992 Decision of the Court of Appeals in CA-G.R. No. SP-27973
which sustained the Order of Judge Reyes compelling mortgagee Ligon to surrender the owners
duplicate copies of TCT Nos. RT-26521 (170567) and RT-26520 (176616) to the Register of Deeds of
Quezon City so that the Deed of Absolute Sale in INCs favor may be properly registered.
Before we rule upon the main issue posited in this petition, we would like to point out that our
disposition in G.R. No. 107751 entitled, Ligon v. Court of Appeals, promulgated on June 1, 1995, in no
wise constitutes res judicata such that the petition under consideration would be barred if it were the
case. Quite the contrary, the requisites of res judicata do not obtain in the case at bench.
Section 49, Rule 39 of the Revised Rules of Court lays down the dual aspects of res judicata in
actions in personam, to wit:
Effect of judgment. - The effect of a judgment or final order rendered by a court or judge of the
Philippines, having jurisdiction to pronounce the judgment or order, may be as follows:
xxx xxx
xxx
(b) In other cases the judgment or order is, with respect to the matter directly adjudged or as to
any other matter that could have been raised in relation thereto, conclusive between the parties
and their successors in interest by title subsequent to the commencement of the action or
special proceeding, litigating for the same thing and under the same title and in the same
capacity;
(c) In any other litigation between the same parties or their successors in interest, that only is
deemed to have been adjudged in a former judgment which appears upon its face to have been
so adjudged, or which was actually and necessarily included therein or necessary thereto.
Section 49(b) enunciates the first concept of res judicata known as bar by prior judgment, whereas,
Section 49(c) is referred to as conclusiveness of judgment.
There is bar by former judgment when, between the first case where the judgment was rendered,
and the second case where such judgment is invoked, there is identity of parties, subject matter and
cause of action. When the three identities are present, the judgment on the merits rendered in the first
constitutes an absolute bar to the subsequent action. But where between the first case wherein judgment
is rendered and the second case wherein such judgment is invoked, there is only identity of parties but
there is no identity of cause of action, the judgment is conclusive in the second case, only as to those
matters actually and directly controverted and determined, and not as to matters merely involved
therein. This is what is termed conclusiveness of judgment.
[27]

Neither of these concepts of res judicata find relevant application in the case at bench. While there
may be identity of subject matter (IDP property) in both cases, there is no identity of parties. The principal
parties in G.R. No. 107751 were mortgagee Leticia P. Ligon, as petitioner, and the Iglesia Ni Cristo, as
private respondent. The IDP, as represented by the 1971 Board of Trustees or the Tamano Group, was
only made an ancillary party in G.R. No. 107751 as intervenor.
[28]
It was never originally a principal party
thereto. It must be noted that intervention is not an independent action, but is merely collateral,
accessory, or ancillary to the principal action. It is just an interlocutory proceeding dependent on or
subsidiary to the case between the original parties.
[29]
Indeed, the IDP-Tamano Group cannot be
considered a principal party in G.R. No. 107751 for purposes of applying the principle of res
judicata since the contrary goes against the true import of the action of intervention as a mere subsidiary
proceeding without an independent life apart from the principal action as well as the intrinsic character of
the intervenor as a mere subordinate party in the main case whose right may be said to be only in aid of
the right of the original party.
[30]
It is only in the present case, actually, where the IDP-Tamano Group
became a principal party, as petitioner, with the Iglesia Ni Cristo, as private respondent. Clearly, there is
no identity of parties in both cases.
In this connection, although it is true that Civil Case No. Q-90-6937, which gave rise to G.R. No.
107751, was entitled, Iglesia Ni Kristo, Plaintiff v. Islamic Directorate of the Philippines,
Defendant,
[31]
the IDP can not be considered essentially a formal party thereto for the simple reason that
it was not duly represented by a legitimate Board of Trustees in that case. As a necessary consequence,
Civil Case No. Q-90-6937, a case for Specific Performance with Damages, a mere action in personam,
did not become final and executory insofar as the true IDP is concerned since petitioner corporation, for
want of legitimate representation, was effectively deprived of its day in court in said case. Res inter alios
judicatae nullum aliis praejudicium faciunt. Matters adjudged in a cause do not prejudice those who were
not parties to it.
[32]
Elsewise put, no person (natural or juridical) shall be affected by a proceeding to which
he is a stranger.
[33]

Granting arguendo, that IDP may be considered a principal party in Ligon, res judicata as a bar by
former judgment will still not set in on the ground that the cause of action in the two cases are
different. The cause of action in G.R. No. 107751 is the surrender of the owners duplicate copy of the
transfer certificates of title to the rightful possessor thereof, whereas the cause of action in the present
case is the validity of the Carpizo Group-INC Deed of Absolute Sale.
Res Judicata in the form of conclusiveness of judgment cannot likewise apply for the reason that
any mention at all in Ligon as to the validity of the disputed Carpizo Board-INC sale may only be deemed
incidental to the resolution of the primary issue posed in said case which is: Who between Ligon and INC
has the better right of possession over the owners duplicate copy of the TCTs covering the IDP
property? G.R. No. 107751 cannot be considered determinative and conclusive on the matter of the
validity of the sale for this particular issue was not the principal thrust of Ligon. To rule otherwise would
be to cause grave and irreparable injustice to IDP which never gave its consent to the sale, thru a
legitimate Board of Trustees.
In any case, while it is true that the principle of res judicata is a fundamental component of our
judicial system, it should be disregarded if its rigid application would involve the sacrifice of justice to
technicality.
[34]

The main question though in this petition is: Did the Court of Appeals commit reversible error in
setting aside that portion of the SECs Decision in SEC Case No. 4012 which declared the sale of two (2)
parcels of land in Quezon City between the IDP-Carpizo Group and private respondent INC null and
void?
We rule in the affirmative.
There can be no question as to the authority of the SEC to pass upon the issue as to who among the
different contending groups is the legitimate Board of Trustees of the IDP since this is a matter properly
falling within the original and exclusive jurisdiction of the SEC by virtue of Sections 3 and 5(c) of
Presidential Decree No. 902-A:
Section 3. The Commission shall have absolute jurisdiction, supervision and control over all
corporations, partnerships or associations, who are the grantees of primary franchises and/or a license or
permit issued by the government to operate in the Philippines xxx xxx.
x x x x x
x x x x
Section 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange
Commission over corporations, partnerships and other forms of associations registered with it as
expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear
and decide cases involving:
x x x x x
x x x x
c) Controversies in the selection or appointment of directors, trustees, officers, or managers of such
corporations, partnerships or associations. x x x.
If the SEC can declare who is the legitimate IDP Board, then by parity of reasoning, it can also declare
who is not the legitimate IDP Board. This is precisely what the SEC did in SEC Case No. 4012 when it
adjudged the election of the Carpizo Group to the IDP Board of Trustees to be null and void.
[35]
By this
ruling, the SEC in effect made the unequivocal finding that the IDP-Carpizo Group is a bogus Board of
Trustees. Consequently, the Carpizo Group is bereft of any authority whatsoever to bind IDP in any kind
of transaction including the sale or disposition of IDP property.
It must be noted that SEC Case No. 4012 is not the first case wherein the SEC had the opportunity
to pass upon the status of the Carpizo Group. As far back as October 3, 1986, the SEC, in Case No.
2687,
[36]
in a suit between the Carpizo Group and the Abbas Group, already declared the election of the
Carpizo Group (as well as the Abbas Group) to the IDP Board as null and void for being violative of the
Articles of Incorporation.
[37]
Nothing thus becomes more settled than that the IDP-Carpizo Group with
whom private respondent INC contracted is a fake Board.
Premises considered, all acts carried out by the Carpizo Board, particularly the sale of the Tandang
Sora property, allegedly in the name of the IDP, have to be struck down for having been done without the
consent of the IDP thru a legitimate Board of Trustees. Article 1318 of the New Civil Code lays down the
essential requisites of contracts:
There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
All these elements must be present to constitute a valid contract. For, where even one is absent, the
contract is void. As succinctly put by Tolentino, consent is essential for the existence of a contract, and
where it is wanting, the contract is non-existent.
[38]
In this case, the IDP, owner of the subject parcels of
land, never gave its consent, thru a legitimate Board of Trustees, to the disputed Deed of Absolute Sale
executed in favor of INC. This is, therefore, a case not only of vitiated consent, but one where consent on
the part of one of the supposed contracting parties is totally wanting. Ineluctably, the subject sale is void
and produces no effect whatsoever.
The Carpizo Group-INC sale is further deemed null and void ab initio because of the Carpizo
Groups failure to comply with Section 40 of the Corporation Code pertaining to the disposition of all or
substantially all assets of the corporation:
Sec. 40. Sale or other disposition of assets. - Subject to the provisions of existing laws on illegal
combinations and monopolies, a corporation may, by a majority vote of its board of directors or trustees,
sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and
assets, including its goodwill, upon terms and conditions and for such consideration, which may be
money, stocks, bonds or other instruments for the payment of money or other property or consideration,
as its board of directors or trustees may deem expedient, when authorized by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock; or in case of non-stock corporation,
by the vote of at least two-thirds (2/3) of the members, in a stockholders or members meeting duly called
for the purpose. Written notice of the proposed action and of the time and place of the meeting shall be
addressed to each stockholder or member at his place of residence as shown on the books of the
corporation and deposited to the addressee in the post office with postage prepaid, or served
personally: Provided, That any dissenting stockholder may exercise his appraisal right under the
conditions provided in this Code.
A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if
thereby the corporation would be rendered incapable of continuing the business or accomplishing the
purpose for which it was incorporated.
x x x x x
x x x x.
The Tandang Sora property, it appears from the records, constitutes the only property of the
IDP. Hence, its sale to a third-party is a sale or disposition of all the corporate property and assets of IDP
falling squarely within the contemplation of the foregoing section. For the sale to be valid, the majority
vote of the legitimate Board of Trustees, concurred in by the vote of at least 2/3 of the bona fide members
of the corporation should have been obtained. These twin requirements were not met as the Carpizo
Group which voted to sell the Tandang Sora property was a fake Board of Trustees, and those whose
names and signatures were affixed by the Carpizo Group together with the sham Board Resolution
authorizing the negotiation for the sale were, from all indications, not bona fide members of the IDP as
they were made to appear to be. Apparently, there are only fifteen (15) official members of the petitioner
corporation including the eight (8) members of the Board of Trustees.
[39]

All told, the disputed Deed of Absolute Sale executed by the fake Carpizo Board and private
respondent INC was intrinsically void ab initio.
Private respondent INC nevertheless questions the authority of the SEC to nullify the sale for being
made outside of its jurisdiction, the same not being an intra-corporate dispute.
The resolution of the question as to whether or not the SEC had jurisdiction to declare the subject
sale null and void is rendered moot and academic by the inherent nullity of the highly dubious sale due to
lack of consent of the IDP, owner of the subject property. No end of substantial justice will be served if
we reverse the SECs conclusion on the matter, and remand the case to the regular courts for further
litigation over an issue which is already determinable based on what we have in the records.
It is unfortunate that private respondent INC opposed the motion for intervention filed by the 1971
Board of Trustees in Civil Case No. Q-90-6937, a case for Specific Performance with Damages between
INC and the Carpizo Group on the subject Deed of Absolute Sale. The legitimate IDP Board could have
been granted ample opportunity before the regional trial court to shed light on the true status of the
Carpizo Board and settled the matter as to the validity of the sale then and there. But INC, wanting to
acquire the property at all costs and threatened by the participation of the legitimate IDP Board in the civil
suit, argued for the denial of the motion averring, inter alia, that the issue sought to be litigated by the
movant is intra-corporate in nature and outside the jurisdiction of the regional trial court.
[40]
As a result, the
motion for intervention was denied. When the Decision in SEC Case No. 4012, came out nullifying the
sale, INC came forward, this time, quibbling over the issue that it is the regional trial court, and not the
SEC, which has jurisdiction to rule on the validity of the sale. INC is here trifling with the courts. We
cannot put a premium on this clever legal maneuverings of private respondent which, if countenanced,
would result in a failure of justice.
Furthermore, the Court observed that the INC bought the questioned property from the Carpizo
Group without even seeing the owners duplicate copy of the titles covering the property. This is very
strange considering that the subject lot is a large piece of real property in Quezon City worth millions, and
that under the Torrens System of Registration, the minimum requirement for one to be a good faith buyer
for value is that the vendee at least sees the owners duplicate copy of the title and relies upon the
same.
[41]
The private respondent presumably knowledgeable on the aforesaid working of the Torrens
System, did not take heed of this and nevertheless went through with the sale with undue haste. The
unexplained eagerness of INC to buy this valuable piece of land in Quezon City without even being
presented with the owners copy of the titles casts very serious doubt on the rightfulness of its position as
vendee in the transaction.
WHEREFORE, the petition is GRANTED. The Decision of the public respondent Court of Appeals
dated October 28, 1994 in CA-G.R. SP No. 33295 is SET ASIDE. The Decision of the Securities and
Exchange Commission dated July 5, 1993 in SEC Case No. 4012 is REINSTATED. The Register of
Deeds of Quezon City is hereby ordered to cancel the registration of the Deed of Absolute Sale in the
name of respondent Iglesia Ni Cristo, if one has already been made. If new titles have been issued in the
name of Iglesia Ni Cristo, the register of Deeds is hereby ordered to cancel the same, and issue new
ones in the name of petitioner Islamic Directorate of the Philippines. Petitioner corporation is ordered to
return to private respondent whatever amount has been initially paid by INC as consideration for the
property with legal interest, if the same was actually received by IDP. Otherwise, INC may run after
Engineer Farouk Carpizo and his group for the amount of money paid.
SO ORDERED.
Islamic Directorate of the Philippines vs. CA Case Digest
Islamic Directorate of the Philippines vs. Court of Appeals
[GR 117897, 14 May 1997]

Facts: Sometime in 1971, Islamic leaders of all Muslim major tribal groups in the Philippines headed by
Dean Cesar Adib Majul organized and incorporated the ISLAMIC DIRECTORATE OF THE PHILIPPINES
(IDP), the primary purpose of which is to establish an Islamic Center in Quezon City for, the construction
of a "Mosque (prayer place, Madrasah (Arabic School), and other religious infrastructures" so as to
facilitate the effective practice of Islamic faith in the area. Towards this end, that is, in the same year, the
Libyan government donated money to the IDP to purchase land at Culiat, Tandang Sora, Quezon City, to
be used as a Center for the Islamic populace. The land, with an area of 49,652 square meters, we
covered by two titles: TCTs RT-26520 (176616) and RT-26521 (170567), both registered in the name of
IDP. In 1971, the Board of Trustees of the IDP was composed of Senator Mamintal Tamano,
Congressman Ali Dimaporo, Congressman Salipada Pendatun, Dean Cesar Adib Majul, Sultan Harun Al-
Rashid Lucman, Delegate Ahmad Alonto, Commissioner Datu Mama Sinsuat and Mayor Aminkadra
Abubakar. In 1972, after the purchase of the land by the Libyan government in the name of IDP, Martial
Law was declared by the late President Ferdinand Marcos.

Most of the members of the 1971 Board of Trustees like Senators Mamintal Tamano, Salipada Pendatun,
Ahmad Alonto, and Congressman Al-Rashid Lucman flew to the Middle East to escape political
persecution. Thereafter, two Muslim groups sprung, the Carpizo Group, headed by Engineer Farouk
Carpizo, and the Abbas Group, led by Mrs. Zorayda Tamano and Atty. Firdaussi Abbas. Both groups
claimed to be the legitimate IDP. Significantly, on 3 October 1986, the SEC, in a suit between these two
contending groups, came out with a Decision in SEC Case 2687 declaring the election of both the
Carpizo Group and the Abbas Group as IDP board members to be null and void. Neither group, however,
took the necessary steps prescribed by the SEC in its 3 October 1986 Decision, and no valid election of
the members of the Board of Trustees of IDP was ever called. Although the Carpizo Group attempted to
submit a set of by-laws, the SEC found that, aside from that Engineer Farouk Carpizo and Atty. Musib
Buat, those who prepared and adopted the by-laws were not bona fide members of the IDP, thus
rendering the adoption of the by-laws likewise null and void. On 20 April 1989, without having been
properly elected as new members of the Board of Trustees of IDP, the Carpizo Group caused to be
signed an alleged Board Resolution of the IDP, authorizing the sale of the subject two parcels of land to
the Iglesia ni Cristo (INC) for a consideration of P22,343,400.00, which sale was evidenced by a Deed of
Absolute Sale 12 dated 20 April 1989. On 30 May 1991, the 1971 IDP Board of Trustees headed by
former Senator Mamintal Tamano, or the Tamano Group, filed a petition before the SEC (SEC Case
4012) seeking to declare null and void the Deed of Absolute Sale signed by the Carpizo Group and the
INC since the group of Engineer Carpizo was not the legitimate Board of Trustees of the IDP.

Meanwhile, INC, pursuant to the Deed of Absolute Sale executed in its favor, filed an action for Specific
Performance with Damages against the vendor, Carpizo Group, before Branch 81 of the Regional Trial
Court of Quezon City (Civil Case Q-90-6937) to compel said group to clear the property of squatters and
deliver complete and full physical possession thereof to INC. Likewise, INC filed a motion in the same
case to compel one Mrs. Leticia P. Ligon to produce and surrender to the Register of Deeds of Quezon
City the owner's duplicate copy of TCTs RT-26521 and RT-26520 covering the two parcels of land, so
that the sale in INC's favor may be registered and new titles issued in the name of INC. Mrs. Ligon was
alleged to be the mortgagee of the two parcels of land executed in her favor by certain Abdulrahman R.T.
Linzag and Rowaida Busran-Sampaco claimed to be in behalf of the Carpizo Group. Judge Celia Lipana-
Reyes of Branch 81, Regional Trial Court of Quezon City, denied IDP's motion to intervene on the ground
of lack of juridical personality of the IDP-Tamano Group and that the issues being raised by way of
intervention are intra-corporate in nature, jurisdiction thereto properly pertaining to the SEC. Apprised of
the pendency of SEC Case 4012 involving the controverted status of the IDP-Carpizo Group but without
waiting for the outcome of said case, Judge Reyes, on 12 September 1991, rendered Partial Judgment in
Civil Case Q-90-6937 ordering the IDP-Carpizo Group to comply with its obligation under the Deed of
Sale of clearing the subject lots of squatters and of delivering the actual possession thereof to INC.
Thereupon Judge Reyes in another Order, dated 2 March 1992, pertaining also to Civil Case Q-90-6937,
treated INC as the rightful owner of the real properties and disposed. On 6 April 1992, the Order was
amended by Judge Reyes directing Ligon "to deliver the owner's duplicate copies of TCT Nos. RT-26521
(170567) and RT-26520 (176616) to the Register of Deeds of Quezon City for the purposes stated in the
Order of March 2, 1992." Mortgagee Ligon went to the Court of Appeals, thru a petition for certiorari (CA-
GR SP-27973), assailing the Orders of Judge Reyes. The appellate court dismissed her petition on 28
October 1992. Undaunted, Ligon filed a petition for review before the Supreme Court (GR 107751).

In the meantime, the SEC, on 5 July 1993, finally came out with a Decision in SEC Case 4012, Declaring
the by-laws submitted by the IDP-Caprizo group as unauthorized, and hence, null and void; declaring the
sale of the two (2) parcels of land in Quezon City covered by the Deed of Absolute Sale entered into by
Iglesia ni Kristo and the Islamic Directorate of the Philippines, Inc. null and void; declaring the election of
the Board of Directors 23 of the corporation from 1986 to 1991 as null and void; and Declaring the
acceptance of the respondents, except Farouk Carpizo and Musnib Buat, as members of the IDP null and
void. The INC filed a Motion for Intervention, dated 7 September 1993, in SEC Case 4012, but the same
was denied on account of the fact that the decision of the case had become final and executory, no
appeal having been taken therefrom. INC elevated SEC Case 4012 to the Court of Appeals by way of a
special civil action for certiorari (CA-GR SP 33295). On 28 October 1994, the appeallate court
promulgated a Decision granting INC's petition. The portion of the SEC Decision in SEC Case 4012 which
declared the sale of the two (2) lots in question to INC as void was ordered set aside by the Court of
Appeals. Thus, the IDP-Tamano Group brought the petition for review, dated 21 December 1994, to the
Supreme Court. While the petition was pending, however, the Supreme Court rendered judgment in GR
107751 on the petition filed by Mrs. Leticia P. Ligon. The Decision, dated 1 June 1995, denied the Ligon
petition and affirmed the 28 October 1992 Decision of the Court of Appeals in CA-GR SP-27973 which
sustained the Order of Judge Reyes compelling mortgagee Ligon to surrender the owner's duplicate
copies of TCTs RT-26521 (170567) and RT-26520 (176616) to the Register of Deeds of Quezon City so
that the Deed of Absolute Sale in INC's favor may be properly registered.

Issue: Whether the Tandang Sora property was legitimately sold to the INC.

Held: As far back as 3 October 1986, the SEC, in Case 2687, in a suit between the Carpizo Group and
the Abbas Group, already declared the election of the Carpizo Group (as well as the Abbas Group) to the
IDP Board as null and void for being violative of the Articles of Incorporation. Nothing thus becomes more
settled than that the IDP-Carpizo Group with whom INC contracted is a fake Board. Premises considered,
all acts carried out by the Carpizo Board, particularly the sale of the Tandang Sora property, allegedly in
the name of the IDP, have to be struck down for having been done without the consent of the IDP thru a
legitimate Board of Trustees. Article 1318 of the New Civil Code lays down the essential requisites of
contracts, and where all these elements must be present to constitute a valid contract. For, where even
one is absent, the contract is void. Specifically, consent is essential for the existence of a contract, and
where it is wanting, the contract is non-existent. Herein, the IDP, owner of the subject parcels of land,
never gave its consent, thru a legitimate Board of Trustees, to the disputed Deed of Absolute Sale
executed in favor of INC. This is, therefore, a case not only of vitiated consent, but one where consent on
the part of one of the supposed contracting parties is totally wanting. Ineluctably, the subject sale is void
and produces no effect whatsoever. The Carpizo Group-INC sale is further deemed null and void ab initio
because of the Carpizo Group's failure to comply with Section 40 of the Corporation Code pertaining to
the disposition of all or substantially all assets of the corporation. The Tandang Sora property, it appears
from the records, constitutes the only property of the IDP. Hence, its sale to a third-party is a sale or
disposition of all the corporate property and assets of IDP falling squarely within the contemplation of the
foregoing section. For the sale to be valid, the majority vote of the legitimate Board of Trustees, concurred
in by the vote of at least 2/3 of the bona fide members of the corporation should have been obtained.
These twin requirements were no met as the Carpizo Group which voted to sell the Tandang Sora
property was a fake Board of Trustees, and those whose names and signatures were affixed by the
Carpizo Group together with the sham Board Resolution authorizing the negotiation for the sale were,
from all indications, not bona fide members of the IDP as they were made to appear to be. Apparently,
there are only 15 official members of the IDP including the 8 members of the Board of Trustees. All told,
the disputed Deed of Absolute Sale executed by the fake Carpizo Board and INC was intrinsically void ab
initio.