Escolar Documentos
Profissional Documentos
Cultura Documentos
SUPREME COURT
Manila
EN BANC
G.R. No. L-45911 April 11, 1979
JOHN GOKONGWEI, JR., petitioner,
vs.
SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE
M. SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO BUNAO,
WALTHRODE B. CONDE, MIGUEL ORTIGAS, ANTONIO PRIETO, SAN
MIGUEL CORPORATION, EMIGDIO TANJUATCO, SR., and EDUARDO R.
VISAYA, respondents.
De Santos, Balgos & Perez for petitioner.
Angara, Abello, Concepcion, Regala, Cruz Law Offices for respondents Sorianos
Siguion Reyna, Montecillo & Ongsiako for respondent San Miguel Corporation.
R. T Capulong for respondent Eduardo R. Visaya.
NOTE: EXCLUDED SEPARATE OPINIONS KAY SUPER LONG
ANTONIO, J.:
The instant petition for certiorari, mandamus and injunction, with prayer for
issuance of writ of preliminary injunction, arose out of two cases filed by
petitioner with the Securities and Exchange Commission, as follows:
SEC CASE NO 1375
On October 22, 1976, petitioner, as stockholder of respondent San Miguel
Corporation, filed with the Securities and Exchange Commission (SEC) a
petition for "declaration of nullity of amended by-laws, cancellation of
certificate of filing of amended by- laws, injunction and damages with prayer
for a preliminary injunction" against the majority of the members of the Board
of Directors and San Miguel Corporation as an unwilling petitioner. The petition,
entitled "John Gokongwei Jr. vs. Andres Soriano, Jr., Jose M. Soriano, Enrique
Zobel, Antonio Roxas, Emeterio Bunao, Walthrode B. Conde, Miguel Ortigas,
Antonio Prieto and San Miguel Corporation", was docketed as SEC Case No.
1375.
for election of directors ... shall be submitted in writing to the Board of Directors
at least five (5) working days before the date of the Annual Meeting" is likewise
unreasonable and oppressive.
It was, therefore, prayed that the amended by-laws be declared null and void
and the certificate of filing thereof be cancelled, and that individual
respondents be made to pay damages, in specified amounts, to petitioner.
On October 28, 1976, in connection with the same case, petitioner filed with
the Securities and Exchange Commission an "Urgent Motion for Production and
Inspection of Documents", alleging that the Secretary of respondent
corporation refused to allow him to inspect its records despite request made by
petitioner for production of certain documents enumerated in the request, and
that respondent corporation had been attempting to suppress information from
its stockholders despite a negative reply by the SEC to its query regarding their
authority to do so. Among the documents requested to be copied were (a)
minutes of the stockholder's meeting field on March 13, 1961, (b) copy of the
management contract between San Miguel Corporation and A. Soriano
Corporation (ANSCOR); (c) latest balance sheet of San Miguel International,
Inc.; (d) authority of the stockholders to invest the funds of respondent
corporation in San Miguel International, Inc.; and (e) lists of salaries,
allowances, bonuses, and other compensation, if any, received by Andres M.
Soriano, Jr. and/or its successor-in-interest.
The "Urgent Motion for Production and Inspection of Documents" was opposed
by respondents, alleging, among others that the motion has no legal basis; that
the demand is not based on good faith; that the motion is premature since the
materiality or relevance of the evidence sought cannot be determined until the
issues are joined, that it fails to show good cause and constitutes continued
harrasment, and that some of the information sought are not part of the
records of the corporation and, therefore, privileged.
During the pendency of the motion for production, respondents San Miguel
Corporation, Enrique Conde, Miguel Ortigas and Antonio Prieto filed their
answer to the petition, denying the substantial allegations therein and stating,
by way of affirmative defenses that "the action taken by the Board of Directors
on September 18, 1976 resulting in the ... amendments is valid and legal
because the power to "amend, modify, repeal or adopt new By-laws" delegated
to said Board on March 13, 1961 and long prior thereto has never been revoked
of SMC"; that contrary to petitioner's claim, "the vote requirement for a valid
delegation of the power to amend, repeal or adopt new by-laws is determined
in relation to the total subscribed capital stock at the time the delegation of
said power is made, not when the Board opts to exercise said delegated
power"; that petitioner has not availed of his intra-corporate remedy for the
nullification of the amendment, which is to secure its repeal by vote of the
stockholders representing a majority of the subscribed capital stock at any
Dissatisfied with the foregoing Order, petitioner moved for its reconsideration.
Meanwhile, on December 10, 1976, while the petition was yet to be heard,
respondent corporation issued a notice of special stockholders' meeting for the
purpose of "ratification and confirmation of the amendment to the By-laws",
setting such meeting for February 10, 1977. This prompted petitioner to ask
respondent Commission for a summary judgment insofar as the first cause of
action is concerned, for the alleged reason that by calling a special
stockholders' meeting for the aforesaid purpose, private respondents admitted
the invalidity of the amendments of September 18, 1976. The motion for
summary judgment was opposed by private respondents. Pending action on the
motion, petitioner filed an "Urgent Motion for the Issuance of a Temporary
Restraining Order", praying that pending the determination of petitioner's
application for the issuance of a preliminary injunction and/or petitioner's
motion for summary judgment, a temporary restraining order be issued,
restraining respondents from holding the special stockholder's meeting as
scheduled. This motion was duly opposed by respondents.
On February 10, 1977, respondent Commission issued an order denying the
motion for issuance of temporary restraining order. After receipt of the order of
denial, respondents conducted the special stockholders' meeting wherein the
amendments to the by-laws were ratified. On February 14, 1977, petitioner filed
a consolidated motion for contempt and for nullification of the special
stockholders' meeting.
A motion for reconsideration of the order denying petitioner's motion for
summary judgment was filed by petitioner before respondent Commission on
March 10, 1977. Petitioner alleges that up to the time of the filing of the instant
petition, the said motion had not yet been scheduled for hearing. Likewise, the
motion for reconsideration of the order granting in part and denying in part
petitioner's motion for production of record had not yet been resolved.
In view of the fact that the annul stockholders' meeting of respondent
corporation had been scheduled for May 10, 1977, petitioner filed with
respondent Commission a Manifestation stating that he intended to run for the
position of director of respondent corporation. Thereafter, respondents filed a
Manifestation with respondent Commission, submitting a Resolution of the
(3) Order No. 451, Series of 1977 (SEC Case No. 1375), denying petitioner's
motion for reconsideration of the order of respondent Commission denying
petitioner's motion for summary judgment;
It is petitioner's assertions, anent the foregoing orders, (1) that respondent
Commission acted with indecent haste and without circumspection in issuing
the aforesaid orders to petitioner's irreparable damage and injury; (2) that it
acted without jurisdiction and in violation of petitioner's right to due process
when it decided en banc an issue not raised before it and still pending before
one of its Commissioners, and without hearing petitioner thereon despite
petitioner's request to have the same calendared for hearing , and (3) that the
respondents acted oppressively against the petitioner in violation of his rights
as a stockholder, warranting immediate judicial intervention.
It is prayed in the supplemental petition that the SEC orders complained of be
declared null and void and that respondent Commission be ordered to allow
petitioner to undertake discovery proceedings relative to San Miguel
International. Inc. and thereafter to decide SEC Cases No. 1375 and 1423 on
the merits.
On May 17, 1977, respondent SEC, Andres M. Soriano, Jr. and Jose M. Soriano
filed their comment, alleging that the petition is without merit for the following
reasons:
(1) that the petitioner the interest he represents are engaged in business
competitive and antagonistic to that of respondent San Miguel Corporation, it
appearing that the owns and controls a greater portion of his SMC stock thru
the Universal Robina Corporation and the Consolidated Foods Corporation,
which corporations are engaged in business directly and substantially
competing with the allied businesses of respondent SMC and of corporations in
which SMC has substantial investments. Further, when CFC and Robina had
accumulated investments. Further, when CFC and Robina had accumulated
shares in SMC, the Board of Directors of SMC realized the clear and present
danger that competitors or antagonistic parties may be elected directors and
thereby have easy and direct access to SMC's business and trade secrets and
plans;
(2) that the amended by law were adopted to preserve and protect respondent
SMC from the clear and present danger that business competitors, if allowed to
become directors, will illegally and unfairly utilize their direct access to its
business secrets and plans for their own private gain to the irreparable
prejudice of respondent SMC, and, ultimately, its stockholders. Further, it is
asserted that membership of a competitor in the Board of Directors is a blatant
disregard of no less that the Constitution and pertinent laws against
combinations in restraint of trade;
(3) that by laws are valid and binding since a corporation has the inherent right
and duty to preserve and protect itself by excluding competitors and
antogonistic parties, under the law of self-preservation, and it should be
allowed a wide latitude in the selection of means to preserve itself;
(4) that the delay in the resolution and disposition of SEC Cases Nos. 1375 and
1423 was due to petitioner's own acts or omissions, since he failed to have the
petition to suspend, pendente lite the amended by-laws calendared for hearing.
It was emphasized that it was only on April 29, 1977 that petitioner calendared
the aforesaid petition for suspension (preliminary injunction) for hearing on May
3, 1977. The instant petition being dated May 4, 1977, it is apparent that
respondent Commission was not given a chance to act "with deliberate
dispatch", and
(5) that, even assuming that the petition was meritorious was, it has become
moot and academic because respondent Commission has acted on the pending
incidents, complained of. It was, therefore, prayed that the petition be
dismissed.
On May 21, 1977, respondent Emigdio G, Tanjuatco, Sr. filed his comment,
alleging that the petition has become moot and academic for the reason,
among others that the acts of private respondent sought to be enjoined have
reference to the annual meeting of the stockholders of respondent San Miguel
Corporation, which was held on may 10, 1977; that in said meeting, in
compliance with the order of respondent Commission, petitioner was allowed to
run and be voted for as director; and that in the same meeting, Item 6 of the
Agenda was discussed, voted upon, ratified and confirmed. Further it was
averred that the questions and issues raised by petitioner are pending in the
Securities and Exchange Commission which has acquired jurisdiction over the
case, and no hearing on the merits has been had; hence the elevation of these
issues before the Supreme Court is premature.
Petitioner filed a reply to the aforesaid comments, stating that the petition
presents justiciable questions for the determination of this Court because (1)
the respondent Commission acted without circumspection, unfairly and
oppresively against petitioner, warranting the intervention of this Court; (2) a
derivative suit, such as the instant case, is not rendered academic by the act of
a majority of stockholders, such that the discussion, ratification and
confirmation of Item 6 of the Agenda of the annual stockholders' meeting of
May 10, 1977 did not render the case moot; that the amendment to the bylaws
which specifically bars petitioner from being a director is void since it deprives
him of his vested rights.
Respondent Commission, thru the Solicitor General, filed a separate comment,
alleging that after receiving a copy of the restraining order issued by this Court
and noting that the restraining order did not foreclose action by it, the
Commission en banc issued Orders Nos. 449, 450 and 451 in SEC Case No.
1375.
In answer to the allegation in the supplemental petition, it states that Order No.
450 which denied deferment of Item 6 of the Agenda of the annual
stockholders' meeting of respondent corporation, took into consideration an
urgent manifestation filed with the Commission by petitioner on May 3, 1977
which prayed, among others, that the discussion of Item 6 of the Agenda be
deferred. The reason given for denial of deferment was that "such action is
within the authority of the corporation as well as falling within the sphere of
stockholders' right to know, deliberate upon and/or to express their wishes
regarding disposition of corporate funds considering that their investments are
the ones directly affected." It was alleged that the main petition has, therefore,
become moot and academic.
On September 29,1977, petitioner filed a second supplemental petition with
prayer for preliminary injunction, alleging that the actuations of respondent
SEC tended to deprive him of his right to due process, and "that all possible
questions on the facts now pending before the respondent Commission are now
before this Honorable Court which has the authority and the competence to act
on them as it may see fit." (Reno, pp. 927-928.)
Petitioner, in his memorandum, submits the following issues for resolution;
(1) whether or not the provisions of the amended by-laws of respondent
corporation, disqualifying a competitor from nomination or election to the
Board of Directors are valid and reasonable;
(2) whether or not respondent SEC gravely abused its discretion in denying
petitioner's request for an examination of the records of San Miguel
International, Inc., a fully owned subsidiary of San Miguel Corporation; and
(3) whether or not respondent SEC committed grave abuse of discretion in
allowing discussion of Item 6 of the Agenda of the Annual Stockholders'
Meeting on May 10, 1977, and the ratification of the investment in a foreign
corporation of the corporate funds, allegedly in violation of section 17-1/2 of
the Corporation Law.
I
Whether or not amended by-laws are valid is purely a legal question which
public interest requires to be resolved
It is the position of the petitioner that "it is not necessary to remand the case to
respondent SEC for an appropriate ruling on the intrinsic validity of the
settled that the doctrine of primary jurisdiction has no application where only a
question of law is involved. 8a Because uniformity may be secured through
review by a single Supreme Court, questions of law may appropriately be
determined in the first instance by courts. 8b In the case at bar, there are facts
which cannot be denied, viz.: that the amended by-laws were adopted by the
Board of Directors of the San Miguel Corporation in the exercise of the power
delegated by the stockholders ostensibly pursuant to section 22 of the
Corporation Law; that in a special meeting on February 10, 1977 held specially
for that purpose, the amended by-laws were ratified by more than 80% of the
stockholders of record; that the foreign investment in the Hongkong Brewery
and Distellery, a beer manufacturing company in Hongkong, was made by the
San Miguel Corporation in 1948; and that in the stockholders' annual meeting
held in 1972 and 1977, all foreign investments and operations of San Miguel
Corporation were ratified by the stockholders.
II
Whether or not the amended by-laws of SMC of disqualifying a competitor from
nomination or election to the Board of Directors of SMC are valid and
reasonable
The validity or reasonableness of a by-law of a corporation in purely a question
of law. 9 Whether the by-law is in conflict with the law of the land, or with the
charter of the corporation, or is in a legal sense unreasonable and therefore
unlawful is a question of law. 10 This rule is subject, however, to the limitation
that where the reasonableness of a by-law is a mere matter of judgment, and
one upon which reasonable minds must necessarily differ, a court would not be
warranted in substituting its judgment instead of the judgment of those who
are authorized to make by-laws and who have exercised their authority. 11
Petitioner claims that the amended by-laws are invalid and unreasonable
because they were tailored to suppress the minority and prevent them from
having representation in the Board", at the same time depriving petitioner of
his "vested right" to be voted for and to vote for a person of his choice as
director.
Upon the other hand, respondents Andres M. Soriano, Jr., Jose M. Soriano and
San Miguel Corporation content that ex. conclusion of a competitor from the
Board is legitimate corporate purpose, considering that being a competitor,
petitioner cannot devote an unselfish and undivided Loyalty to the corporation;
that it is essentially a preventive measure to assure stockholders of San Miguel
Corporation of reasonable protective from the unrestrained self-interest of
those charged with the promotion of the corporate enterprise; that access to
confidential information by a competitor may result either in the promotion of
the interest of the competitor at the expense of the San Miguel Corporation, or
the promotion of both the interests of petitioner and respondent San Miguel
Share Total
prescription that the corporate charter and the by-law shall be subject to
amendment, alteration and modification. 17
It being settled that the corporation has the power to provide for the
qualifications of its directors, the next question that must be considered is
whether the disqualification of a competitor from being elected to the Board of
Directors is a reasonable exercise of corporate authority.
A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE CORPORATION AND ITS
SHAREHOLDERS
Although in the strict and technical sense, directors of a private corporation are
not regarded as trustees, there cannot be any doubt that their character is that
of a fiduciary insofar as the corporation and the stockholders as a body are
concerned. As agents entrusted with the management of the corporation for
the collective benefit of the stockholders, "they occupy a fiduciary relation, and
in this sense the relation is one of trust." 18 "The ordinary trust relationship of
directors of a corporation and stockholders", according to Ashaman v.
Miller, 19 "is not a matter of statutory or technical law. It springs from the fact
that directors have the control and guidance of corporate affairs and property
and hence of the property interests of the stockholders. Equity recognizes that
stockholders are the proprietors of the corporate interests and are ultimately
the only beneficiaries thereof * * *.
Justice Douglas, in Pepper v. Litton, 20 emphatically restated the standard of
fiduciary obligation of the directors of corporations, thus:
A director is a fiduciary. ... Their powers are powers in trust. ...
He who is in such fiduciary position cannot serve himself first
and his cestuis second. ... He cannot manipulate the affairs of
his corporation to their detriment and in disregard of the
standards of common decency. He cannot by the intervention
of a corporate entity violate the ancient precept against
serving two masters ... He cannot utilize his inside information
and strategic position for his own preferment. He cannot
violate rules of fair play by doing indirectly through the
corporation what he could not do so directly. He cannot violate
rules of fair play by doing indirectly though the corporation
what he could not do so directly. He cannot use his power for
his personal advantage and to the detriment of the
stockholders and creditors no matter how absolute in terms
that power may be and no matter how meticulous he is to
satisfy technical requirements. For that power is at all times
subject to the equitable limitation that it may not be exercised
for the aggrandizement, preference or advantage of the
fiduciary to the exclusion or detriment of the cestuis.
21
it was said:
corporation may make by-laws for the qualifications of directors. Thus, it has
been held that an officer of a corporation cannot engage in a business in direct
competition with that of the corporation where he is a director by utilizing
information he has received as such officer, under "the established law that a
director or officer of a corporation may not enter into a competing enterprise
which cripples or injures the business of the corporation of which he is an
officer or director. 26
It is also well established that corporate officers "are not permitted to use their
position of trust and confidence to further their private interests." 27 In a case
where directors of a corporation cancelled a contract of the corporation for
exclusive sale of a foreign firm's products, and after establishing a rival
business, the directors entered into a new contract themselves with the foreign
firm for exclusive sale of its products, the court held that equity would regard
the new contract as an offshoot of the old contract and, therefore, for the
benefit of the corporation, as a "faultless fiduciary may not reap the fruits of his
misconduct to the exclusion of his principal. 28
The doctrine of "corporate opportunity" 29 is precisely a recognition by the
courts that the fiduciary standards could not be upheld where the fiduciary was
acting for two entities with competing interests. This doctrine rests
fundamentally on the unfairness, in particular circumstances, of an officer or
director taking advantage of an opportunity for his own personal profit when
the interest of the corporation justly calls for protection. 30
It is not denied that a member of the Board of Directors of the San Miguel
Corporation has access to sensitive and highly confidential information, such
as: (a) marketing strategies and pricing structure; (b) budget for expansion and
diversification; (c) research and development; and (d) sources of funding,
availability of personnel, proposals of mergers or tie-ups with other firms.
It is obviously to prevent the creation of an opportunity for an officer or director
of San Miguel Corporation, who is also the officer or owner of a competing
corporation, from taking advantage of the information which he acquires as
director to promote his individual or corporate interests to the prejudice of San
Miguel Corporation and its stockholders, that the questioned amendment of the
by-laws was made. Certainly, where two corporations are competitive in a
substantial sense, it would seem improbable, if not impossible, for the director,
if he were to discharge effectively his duty, to satisfy his loyalty to both
corporations and place the performance of his corporation duties above his
personal concerns.
Thus, in McKee & Co. v. First National Bank of San Diego, supra the court
sustained as valid and reasonable an amendment to the by-laws of a bank,
requiring that its directors should not be directors, officers, employees, agents,
The offer and assurance of petitioner that to avoid any possibility of his taking
unfair advantage of his position as director of San Miguel Corporation, he would
absent himself from meetings at which confidential matters would be
discussed, would not detract from the validity and reasonableness of the bylaws here involved. Apart from the impractical results that would ensue from
such arrangement, it would be inconsistent with petitioner's primary motive in
running for board membership which is to protect his investments in San
Miguel Corporation. More important, such a proposed norm of conduct would be
against all accepted principles underlying a director's duty of fidelity to the
corporation, for the policy of the law is to encourage and enforce responsible
corporate management. As explained by Oleck: 31 "The law win not tolerate the
passive attitude of directors ... without active and conscientious participation in
the managerial functions of the company. As directors, it is their duty to control
and supervise the day to day business activities of the company or to
promulgate definite policies and rules of guidance with a vigilant eye toward
seeing to it that these policies are carried out. It is only then that directors may
be said to have fulfilled their duty of fealty to the corporation."
Sound principles of corporate management counsel against sharing sensitive
information with a director whose fiduciary duty of loyalty may well require that
he disclose this information to a competitive arrival. These dangers are
enhanced considerably where the common director such as the petitioner is a
controlling stockholder of two of the competing corporations. It would seem
manifest that in such situations, the director has an economic incentive to
appropriate for the benefit of his own corporation the corporate plans and
policies of the corporation where he sits as director.
Indeed, access by a competitor to confidential information regarding marketing
strategies and pricing policies of San Miguel Corporation would subject the
latter to a competitive disadvantage and unjustly enrich the competitor, for
advance knowledge by the competitor of the strategies for the development of
existing or new markets of existing or new products could enable said
competitor to utilize such knowledge to his advantage. 32
There is another important consideration in determining whether or not the
amended by-laws are reasonable. The Constitution and the law prohibit
combinations in restraint of trade or unfair competition. Thus, section 2 of
Article XIV of the Constitution provides: "The State shall regulate or prohibit
private monopolies when the public interest so requires. No combinations in
restraint of trade or unfair competition shall be snowed."
Article 186 of the Revised Penal Code also provides:
Art. 186. Monopolies and combinations in restraint of trade.
The penalty of prision correccional in its minimum period or a
applied in the case of one stockholder but waived in the case of another, then it
could be reasonably claimed that the by-law was being applied in a
discriminatory manner. However, the by law, by its terms, applies to all
stockholders. The equal protection clause of the Constitution requires only that
the by-law operate equally upon all persons of a class. Besides, before
petitioner can be declared ineligible to run for director, there must be hearing
and evidence must be submitted to bring his case within the ambit of the
disqualification. Sound principles of public policy and management, therefore,
support the view that a by-law which disqualifies a competition from election to
the Board of Directors of another corporation is valid and reasonable.
In the absence of any legal prohibition or overriding public policy, wide latitude
may be accorded to the corporation in adopting measures to protect legitimate
corporation interests. Thus, "where the reasonableness of a by-law is a mere
matter of judgment, and upon which reasonable minds must necessarily differ,
a court would not be warranted in substituting its judgment instead of the
judgment of those who are authorized to make by-laws and who have
expressed their authority. 45
Although it is asserted that the amended by-laws confer on the present Board
powers to perpetua themselves in power such fears appear to be misplaced.
This power, but is very nature, is subject to certain well established limitations.
One of these is inherent in the very convert and definition of the terms
"competition" and "competitor". "Competition" implies a struggle for advantage
between two or more forces, each possessing, in substantially similar if not
Identical degree, certain characteristics essential to the business sought. It
means an independent endeavor of two or more persons to obtain the business
patronage of a third by offering more advantageous terms as an inducement to
secure trade. 46 The test must be whether the business does in fact compete,
not whether it is capable of an indirect and highly unsubstantial duplication of
an isolated or non-characteristics activity. 47 It is, therefore, obvious that not
every person or entity engaged in business of the same kind is a competitor.
Such factors as quantum and place of business, Identity of products and area of
competition should be taken into consideration. It is, therefore, necessary to
show that petitioner's business covers a substantial portion of the same
markets for similar products to the extent of not less than 10% of respondent
corporation's market for competing products. While We here sustain the validity
of the amended by-laws, it does not follow as a necessary consequence that
petitioner is ipso facto disqualified. Consonant with the requirement of due
process, there must be due hearing at which the petitioner must be given the
fullest opportunity to show that he is not covered by the disqualification. As
trustees of the corporation and of the stockholders, it is the responsibility of
directors to act with fairness to the stockholders. 48 Pursuant to this obligation
and to remove any suspicion that this power may be utilized by the incumbent
members of the Board to perpetuate themselves in power, any decision of the
Board to disqualify a candidate for the Board of Directors should be reviewed
by the Securities behind Exchange Commission en banc and its decision shall
were, to all incontents and purposes, the records of the parent even though
subsidiary was not named as a party. 61 mandamus was likewise held proper to
inspect both the subsidiary's and the parent corporation's books upon proof of
sufficient control or dominion by the parent showing the relation of principal or
agent or something similar thereto. 62
On the other hand, mandamus at the suit of a stockholder was refused where
the subsidiary corporation is a separate and distinct corporation domiciled and
with its books and records in another jurisdiction, and is not legally subject to
the control of the parent company, although it owned a vast majority of the
stock of the subsidiary. 63 Likewise, inspection of the books of an allied
corporation by stockholder of the parent company which owns all the stock of
the subsidiary has been refused on the ground that the stockholder was not
within the class of "persons having an interest." 64
In the Nash case, 65 The Supreme Court of New York held that the contractual
right of former stockholders to inspect books and records of the corporation
included the right to inspect corporation's subsidiaries' books and records
which were in corporation's possession and control in its office in New York."
In the Bailey case, 66 stockholders of a corporation were held entitled to inspect
the records of a controlled subsidiary corporation which used the same offices
and had Identical officers and directors.
In his "Urgent Motion for Production and Inspection of Documents" before
respondent SEC, petitioner contended that respondent corporation "had been
attempting to suppress information for the stockholders" and that petitioner,
"as stockholder of respondent corporation, is entitled to copies of some
documents which for some reason or another, respondent corporation is very
reluctant in revealing to the petitioner notwithstanding the fact that no harm
would be caused thereby to the corporation." 67 There is no question that
stockholders are entitled to inspect the books and records of a corporation in
order to investigate the conduct of the management, determine the financial
condition of the corporation, and generally take an account of the stewardship
of the officers and directors. 68
In the case at bar, considering that the foreign subsidiary is wholly owned by
respondent San Miguel Corporation and, therefore, under its control, it would be
more in accord with equity, good faith and fair dealing to construe the statutory
right of petitioner as stockholder to inspect the books and records of the
corporation as extending to books and records of such wholly subsidiary which
are in respondent corporation's possession and control.
IV
Whether or not respondent SEC gravely abused its discretion in allowing the
stockholders of respondent corporation to ratify the investment of corporate
funds in a foreign corporation
Petitioner reiterates his contention in SEC Case No. 1423 that respondent
corporation invested corporate funds in SMI without prior authority of the
stockholders, thus violating section 17-1/2 of the Corporation Law, and alleges
that respondent SEC should have investigated the charge, being a statutory
offense, instead of allowing ratification of the investment by the stockholders.
Respondent SEC's position is that submission of the investment to the
stockholders for ratification is a sound corporate practice and should not be
thwarted but encouraged.
Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds
in any other corporation or business or for any purpose other than the main
purpose for which it was organized" provided that its Board of Directors has
been so authorized by the affirmative vote of stockholders holding shares
entitling them to exercise at least two-thirds of the voting power. If the
investment is made in pursuance of the corporate purpose, it does not need the
approval of the stockholders. It is only when the purchase of shares is done
solely for investment and not to accomplish the purpose of its incorporation
that the vote of approval of the stockholders holding shares entitling them to
exercise at least two-thirds of the voting power is necessary. 69
As stated by respondent corporation, the purchase of beer manufacturing
facilities by SMC was an investment in the same business stated as its main
purpose in its Articles of Incorporation, which is to manufacture and market
beer. It appears that the original investment was made in 1947-1948, when
SMC, then San Miguel Brewery, Inc., purchased a beer brewery in Hongkong
(Hongkong Brewery & Distillery, Ltd.) for the manufacture and marketing of San
Miguel beer thereat. Restructuring of the investment was made in 1970-1971
thru the organization of SMI in Bermuda as a tax free reorganization.
Under these circumstances, the ruling in De la Rama v. Manao Sugar Central
Co., Inc., supra, appears relevant. In said case, one of the issues was the
legality of an investment made by Manao Sugar Central Co., Inc., without prior
resolution approved by the affirmative vote of 2/3 of the stockholders' voting
power, in the Philippine Fiber Processing Co., Inc., a company engaged in the
manufacture of sugar bags. The lower court said that "there is more logic in the
stand that if the investment is made in a corporation whose business is
important to the investing corporation and would aid it in its purpose, to require
authority of the stockholders would be to unduly curtail the power of the Board
of Directors." This Court affirmed the ruling of the court a quo on the matter
and, quoting Prof. Sulpicio S. Guevara, said:
power. This requirement is for the benefit of the stockholders. The stockholders
for whose benefit the requirement was enacted may, therefore, ratify the
investment and its ratification by said stockholders obliterates any defect which
it may have had at the outset. "Mere ultra vires acts", said this Court in
Pirovano, 71 "or those which are not illegal and void ab initio, but are not merely
within the scope of the articles of incorporation, are merely voidable and may
become binding and enforceable when ratified by the stockholders.
Besides, the investment was for the purchase of beer manufacturing
andMARKETING facilities which is apparently relevant to the corporate
purpose. The mere fact that respondent corporation submitted the assailed
investment to the stockholders for ratification at the annual meeting of May 10,
1977 cannot be construed as an admission that respondent corporation had
committed an ultra vires act, considering the common practice of corporations
of periodically submitting for the gratification of their stockholders the acts of
their directors, officers and managers.
Four (4) Justices, namely, Justices Teehankee, Concepcion, Jr., Fernandez and
Guerrero filed a separate opinion, wherein they voted against the validity of the
questioned amended bylaws and that this question should properly be resolved
first by the SEC as the agency of primary jurisdiction. They concur in the result
that petitioner may be allowed to run for and sit as director of respondent SMC
in the scheduled May 6, 1979 election and subsequent elections until
disqualified after proper hearing by the respondent's Board of Directors and
petitioner's disqualification shall have been sustained by respondent SEC en
banc and ultimately by final judgment of this Court.
In resume, subject to the qualifications aforestated judgment is hereby
rendered GRANTING the petition by allowing petitioner to examine the books
and records of San Miguel International, Inc. as specified in the petition. The
petition, insofar as it assails the validity of the amended by- laws and the
ratification of the foreign investment of respondent corporation, for lack of
necessary votes, is hereby DISMISSED. No costs.
The Court voted unanimously to grant the petition insofar as it prays that
petitioner be allowed to examine the books and records of San Miguel
International, Inc., as specified by him.
On the matter of the validity of the amended by-laws of respondent San Miguel
Corporation, six (6) Justices, namely, Justices Barredo, Makasiar, Antonio,
Santos, Abad Santos and De Castro, voted to sustain the validity per se of the
amended by-laws in question and to dismiss the petition without prejudice to
the question of the actual disqualification of petitioner John Gokongwei, Jr. to
run and if elected to sit as director of respondent San Miguel Corporation being
decided, after a new and proper hearing by the Board of Directors of said
corporation, whose decision shall be appealable to the respondent Securities
and Exchange Commission deliberating and acting en banc and ultimately to
this Court. Unless disqualified in the manner herein provided, the prohibition in
the afore-mentioned amended by-laws shall not apply to petitioner.
The afore-mentioned six (6) Justices, together with Justice Fernando, voted to
declare the issue on the validity of the foreign investment of respondent
corporation as moot.
ROMERO, J.:
Chief Justice Fred Ruiz Castro reserved his vote on the validity of the amended
by-laws, pending hearing by this Court on the applicability of section 13(5) of
the Corporation Law to petitioner.
Justice Fernando reserved his vote on the validity of subject amendment to the
by-laws but otherwise concurs in the result.
May the failure of a corporation to file its by-laws within one month from the
date of its incorporation, as mandated by Section 46 of the Corporation Code,
result in its automatic dissolution?
This is the issue raised in this petition for review on certiorari of the
Decision 1 of the Court of Appeals affirming the decision of the Home Insurance
and Guaranty Corporation (HIGC). This quasi-judicial body recognized Loyola
Grand Villas Homeowners Association (LGVHA) as the sole homeowners'
association in Loyola Grand Villas, a dulyREGISTERED subdivision in Quezon
City and Marikina City that was owned and developed by Solid Homes, Inc. It
revoked the certificates ofREGISTRATION issued to Loyola Grand Villas
homeowners (North) Association Incorporated (the North Association for
brevity) and Loyola Grand Villas Homeowners (South) Association Incorporated
(the South Association).
LGVHAI was organized on February 8, 1983 as the association of homeowners
and residents of the Loyola Grand Villas. It was registered with the Home
Financing Corporation, the predecessor of herein respondent HIGC, as the sole
homeowners' organization in the said subdivision under Certificate of
Registration No. 04-197. It was organized by the developer of the subdivision
and its first president was Victorio V. Soliven, himself the owner of the
developer. For unknown reasons, however, LGVHAI did not file its corporate bylaws.
Sometime in 1988, the officers of the LGVHAI tried to register its by-laws. They
failed to do so. 2 To the officers' consternation, they discovered that there were
two other organizations within the subdivision the North Association and the
South Association. According to private respondents, a non-resident and Soliven
himself, respectively headed these associations. They also discovered that
these associations had five (5) registered homeowners each who were also the
incorporators, directors and officers thereof. None of the members of the
LGVHAI was listed as member of the North Association while three (3) members
of LGVHAI were listed as members of the South Association. 3 The North
Association was registered with the HIGC on February 13, 1989 under
Certificate of Registration No. 04-1160 covering Phases West II, East III, West III
and East IV. It submitted its by-laws on December 20, 1988.
In July, 1989, when Soliven inquired about the status of LGVHAI, Atty. Joaquin A.
Bautista, the head of the legal department of the HIGC, informed him that
LGVHAI had been automatically dissolved for two reasons. First, it did not
submit its by-laws within the period required by the Corporation Code and,
second, there was non-user of corporate charter because HIGC had not
received any report on the association's activities. Apparently, this information
resulted in theREGISTRATION of the South Association with the HIGC on July
27, 1989 covering Phases West I, East I and East II. It filed its by-laws on July
26, 1989.
These developments prompted the officers of the LGVHAI to lodge a complaint
with the HIGC. They questioned the revocation of LGVHAI's certificate of
registration without due notice and hearing and concomitantly prayed for the
cancellation of the certificates of registration of the North and South
Associations by reason of the earlier issuance of a certificate of registration in
favor of LGVHAI.
On January 26, 1993, after due notice and hearing, private respondents
obtained a favorable ruling from HIGC Hearing Officer Danilo C. Javier who
disposed of HIGC Case No. RRM-5-89 as follows:
WHEREFORE, judgment is hereby rendered recognizing the Loyola
Grand Villas Homeowners Association, Inc., under Certificate of
Registration No. 04-197 as the duly registered and existing
homeowners association for Loyola Grand Villas homeowners, and
declaring the Certificates of Registration of Loyola Grand Villas
Homeowners (North) Association, Inc. and Loyola Grand Villas
Homeowners (South) Association, Inc. as hereby revoked or cancelled;
that the receivership be terminated and the Receiver is hereby ordered
to render anACCOUNTING and turn-over to Loyola Grand Villas
Homeowners Association, Inc., all assets and records of the Association
now under his custody and possession.
The South Association appealed to the Appeals Board of the HIGC. In its
Resolution of September 8, 1993, the Board 4 dismissed the appeal for lack of
merit.
Rebuffed, the South Association in turn appealed to the Court of Appeals,
raising two issues. First, whether or not LGVHAI's failure to file its by-laws
within the period prescribed by Section 46 of the Corporation Code resulted in
the automatic dissolution of LGVHAI. Second, whether or not two homeowners'
associations may be authorized by the HIGC in one "sprawling subdivision."
However, in the Decision of August 23, 1994 being assailed here, the Court of
Appeals affirmed the Resolution of the HIGC Appeals Board.
In resolving the first issue, the Court of Appeals held that under the Corporation
Code, a private corporation commences to have corporate existence and
juridical personality from the date the Securities and Exchange Commission
(SEC) issues a certificate of incorporation under its official seal. The
requirement for the filing of by-laws under Section 46 of the Corporation Code
within one month from official notice of the issuance of the certificate of
incorporation presupposes that it is already incorporated, although it may file
its by-laws with its articles of incorporation. Elucidating on the effect of a
delayed filing of by-laws, the Court of Appeals said:
We also find nothing in the provisions cited by the petitioner, i.e.,
Section 46 and 22, Corporation Code, or in any other provision of the
Code and other laws which provide or at least imply that failure to file
the by-laws results in an automatic dissolution of the corporation.
While Section 46, in prescribing that by-laws must be adopted within
the period prescribed therein, may be interpreted as a mandatory
provision, particularly because of the use of the word "must," its
resolutory condition "under the hypothesis that (by) the issuance of the
certificate of registration alone the corporate personality is deemed already
formed." It asserts that the Corporation Code provides for a "gradation of
violations of requirements." Hence, Section 22 mandates that the corporation
must be formally organized and should commence transaction within two years
from date of incorporation. Otherwise, the corporation would be deemed
dissolved. On the other hand, if the corporation commences operations but
becomes continuously inoperative for five years, then it may be suspended or
its corporate franchise revoked.
Petitioner concedes that Section 46 and the other provisions of the Corporation
Code do not provide for sanctions for non-filing of the by-laws. However, it
insists that no sanction need be provided "because the mandatory nature of
the provision is so clear that there can be no doubt about its being an essential
attribute of corporate birth." To petitioner, its submission is buttressed by the
facts that the period for compliance is "spelled out distinctly;" that the
certification of the SEC/HIGC must show that the by-laws are not inconsistent
with the Code, and that a copy of the by-laws "has to be attached to the
articles of incorporation." Moreover, no sanction is provided for because "in the
first place, no corporate identity has been completed." Petitioner asserts that
"non-provision for remedy or sanction is itself the tacit proclamation that noncompliance is fatal and no corporate existence had yet evolved," and therefore,
there was "no need to proclaim its demise." 6 In a bid to convince the Court of
its arguments, petitioner stresses that:
. . . the word MUST is used in Sec. 46 in its universal literal meaning
and corollary human implication its compulsion is integrated in its
very essence MUST is always enforceable by the inevitable
consequence that is, "OR ELSE". The use of the word MUST in Sec.
46 is no exception it means file the by-laws within one month after
notice of issuance of certificate of registration OR ELSE. The OR ELSE,
though not specified, is inextricably a part of MUST . Do this or if you
do not you are "Kaput". The importance of the by-laws to corporate
existence compels such meaning for as decreed the by-laws is "the
government" of the corporation. Indeed, how can the corporation do
any lawful act as such without by-laws. Surely, no law is indeed to
create chaos. 7
Petitioner asserts that P.D. No. 902-A cannot exceed the scope and power of the
Corporation Code which itself does not provide sanctions for non-filing of bylaws. For the petitioner, it is "not proper to assess the true meaning of Sec. 46 .
. . on an unauthorized provision on such matter contained in the said decree."
In their comment on the petition, private respondents counter that the
requirement of adoption of by-laws is not mandatory. They point to P.D. No.
902-A as having resolved the issue of whether said requirement is mandatory
MR. MENDOZA. There is a provision in the latter part of the Code which
identifies and describes the consequences of violations of any
provision of this Code. One such consequences is the dissolution of the
corporation for its inability, or perhaps, incurring certain penalties.
MR. FUENTEBELLA. But it will not automatically amount to a dissolution
of the corporation by merely failing to file the by-laws within one
month. Supposing the corporation was late, say, five days, what would
be the mandatory penalty?
MR. MENDOZA. I do not think it will necessarily result in the automatic
or ipso facto dissolution of the corporation. Perhaps, as in the case, as
you suggested, in the case of El Hogar Filipino where a quo
warranto action is brought, one takes into account the gravity of the
violation committed. If the by-laws were late the filing of the by-laws
were late by, perhaps, a day or two, I would suppose that might be a
tolerable delay, but if they are delayed over a period of months as is
happening now because of the absence of a clear requirement that
by-laws must be completed within a specified period of time, the
corporation must suffer certain consequences. 13
This exchange of views demonstrates clearly that automatic corporate
dissolution for failure to file the by-laws on time was never the intention of the
legislature. Moreover, even without resorting to the records of deliberations of
the Batasang Pambansa, the law itself provides the answer to the issue
propounded by petitioner.
Taken as a whole and under the principle that the best interpreter of a statute is
the statute itself (optima statuli interpretatix est ipsum statutum), 14 Section 46
aforequoted reveals the legislative intent to attach a directory, and not
mandatory, meaning for the word "must" in the first sentence thereof. Note
should be taken of the second paragraph of the law which allows the filing of
the by-laws even prior to incorporation. This provision in the same section of
the Code rules out mandatory compliance with the requirement of filing the bylaws "within one (1) month after receipt of official notice of the issuance of its
certificate of incorporation by the Securities and Exchange Commission." It
necessarily follows that failure to file the by-laws within that period does not
imply the "demise" of the corporation. By-laws may be necessary for the
"government" of the corporation but these are subordinate to the articles of
incorporation as well as to the Corporation Code and related statutes. 15 There
are in fact cases where by-laws are unnecessary to corporate existence or to
the valid exercise of corporate powers, thus:
In the absence of charter or statutory provisions to the contrary, bylaws are not necessary either to the existence of a corporation or to
the valid exercise of the powers conferred upon it, certainly in all cases
where the charter sufficiently provides for the government of the body;
and even where the governing statute in express terms confers upon
the corporation the power to adopt by-laws, the failure to exercise the
power will be ascribed to mere nonaction which will not render void
any acts of the corporation which would otherwise be
valid. 16 (Emphasis supplied.)
As Fletcher aptly puts it:
It has been said that the by-laws of a corporation are the rule of its life,
and that until by-laws have been adopted the corporation may not be
able to act for the purposes of its creation, and that the first and most
important duty of the members is to adopt them. This would seem to
follow as a matter of principle from the office and functions of by-laws.
Viewed in this light, the adoption of by-laws is a matter of practical, if
not one of legal, necessity. Moreover, the peculiar circumstances
attending the formation of a corporation may impose the obligation to
adopt certain by-laws, as in the case of a close corporation organized
for specific purposes. And the statute or general laws from which the
corporation derives its corporate existence may expressly require it to
make and adopt by-laws and specify to some extent what they shall
contain and the manner of their adoption. The mere fact, however, of
the existence of power in the corporation to adopt by-laws does not
ordinarily and of necessity make the exercise of such power essential
to its corporate life, or to the validity of any of its acts. 17
Although the Corporation Code requires the filing of by-laws, it does not
expressly provide for the consequences of the non-filing of the same within the
period provided for in Section 46. However, such omission has been rectified by
Presidential Decree No. 902-A, the pertinent provisions on the jurisdiction of the
SEC of which state:
Sec. 6. In order to effectively exercise such jurisdiction, the
Commission shall possess the following powers:
xxx xxx xxx
(1) To suspend, or revoke, after proper notice and hearing, the
franchise or certificate of registration of corporations, partnerships or
associations, upon any of the grounds provided by law, including the
following:
xxx xxx xxx
5. Failure to file by-laws within the required period;
That the corporation involved herein is under the supervision of the HIGC does
not alter the result of this case. The HIGC has taken over the specialized
functions of the former Home Financing Corporation by virtue of Executive
Order No. 90 dated December 17, 1989. 22 With respect to homeowners
associations, the HIGC shall "exercise all the powers, authorities and
responsibilities that are vested on the Securities and Exchange Commission . . .
, the provision of Act 1459, as amended by P.D. 902-A, to the contrary
notwithstanding." 23
WHEREFORE, the instant petition for review on certiorari is hereby DENIED and
the questioned Decision of the Court of Appeals AFFIRMED. This Decision is
immediately executory. Costs against petitioner.
SO ORDERED.
FIRST DIVISION
KAPUNAN, J.:
Through a petition for review on certiorari under Rule 45 of the Revised Rules of
Court, petitioner China Banking Corporation seeks the reversal of the decision
of the Court of Appeals dated 15 August 1994 nullifying the Securities and
Exchange Commission's order and resolution dated 4 June 1993 and 7
December 1993, respectively, for lack of jurisdiction. Similarly impugned is the
Court of Appeals' resolution dated 4 September 1994 which denied petitioner's
motion for reconsideration.
The case unfolds thus:
On 21 August 1974, Galicano Calapatia, Jr. (Calapatia, for brevity) a stockholder
of private respondent Valley Golf & Country Club, Inc. (VGCCI, for brevity),
pledged his Stock Certificate No. 1219 to petitioner China Banking Corporation
(CBC, for brevity). 1
SO ORDERED.
On 9 March 1990, petitioner protested the sale by VGCCI of the subject share of
stock and thereafter filed a case with the Regional Trial Court of Makati for the
nullification of the 10 December 1986 auction and for the issuance of a new
stock certificate in its name. 14
On 18 June 1990, the Regional Trial Court of Makati dismissed the complaint for
lack of jurisdiction over the subject matter on the theory that it involves an
intra-corporate dispute and on 27 August 1990 denied petitioner's motion for
reconsideration.
On 20 September 1990, petitioner filed a complaint with the Securities and
Exchange Commission (SEC) for the nullification of the sale of Calapatia's stock
by VGCCI; the cancellation of any new stock certificate issued pursuant thereto;
for the issuance of a new certificate in petitioner's name; and for damages,
attorney's fees and costs of litigation.
On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision in
favor of VGCCI, stating in the main that "(c)onsidering that the said share is
delinquent, (VGCCI) had valid reason not to transfer the share in the name of
the petitioner in the books of (VGCCI) until liquidation of
delinquency." 15 Consequently, the case was dismissed. 16
On 14 April 1992, Hearing Officer Perea denied petitioner's motion for
reconsideration. 17
Petitioner appealed to the SEC en banc and on 4 June 1993, the Commission
issued an order reversing the decision of its hearing officer. It declared thus:
The Commission en banc believes that appellant-petitioner has
a prior right over the pledged share and because of pledgor's
failure to pay the principal debt upon maturity, appellantpetitioner can proceed with the foreclosure of the pledged
share.
WHEREFORE, premises considered, the Orders of January 3,
1992 and April 14, 1992 are hereby SET ASIDE. The auction
sale conducted by appellee-respondent Club on December 10,
1986 is declared NULL and VOID. Finally, appellee-respondent
18
20
Petitioner moved for reconsideration but the same was denied by the Court of
Appeals in its resolution dated 5 October 1994. 21
Hence, this petition wherein the following issues were raised:
II
ISSUES
WHETHER OR NOT RESPONDENT COURT OF APPEALS (Former
Eighth Division) GRAVELY ERRED WHEN:
1. IT NULLIFIED AND SET ASIDE THE DECISION DATED JUNE 04,
1993 AND ORDER DATED DECEMBER 07, 1993 OF THE
SECURITIES AND EXCHANGE COMMISSION EN BANC, AND
WHEN IT DISMISSED THE COMPLAINT OF PETITIONER AGAINST
RESPONDENT VALLEY GOLF ALL FOR LACK OF JURISDICTION
OVER THE SUBJECT MATTER OF THE CASE;
2. IT FAILED TO AFFIRM THE DECISION OF THE SECURITIES
AND EXCHANGE COMMISSIONEN BANC DATED JUNE 04, 1993
DESPITE PREPONDERANT EVIDENCE SHOWING THAT
PETITIONER IS THE LAWFUL OWNER OF MEMBERSHIP
CERTIFICATE NO. 1219 FOR ONE SHARE OF RESPONDENT
VALLEY GOLF.
The petition is granted.
The basic issue we must first hurdle is which body has jurisdiction over the
controversy, the regular courts or the SEC.
P. D. No. 902-A conferred upon the SEC the following pertinent powers:
may order his/her/its share sold to satisfy the claims of the Club. . ." 26 It is
pursuant to this provision that VGCCI also sold the subject share at public
auction, of which it was the highest bidder. VGCCI caps its argument by
asserting that its corporate by-laws should prevail. The bone of contention,
thus, is the proper interpretation and application of VGCCI's aforequoted bylaws, a subject which irrefutably calls for the special competence of the SEC.
We reiterate herein the sound policy enunciated by the Court in Abejo v. De la
Cruz 27:
6. In the fifties, the Court taking cognizance of the move to
vest jurisdiction in administrative commissions and boards the
power to resolve specialized disputes in the field of labor (as in
corporations, public transportation and public utilities) ruled
that Congress in requiring the Industrial Court's intervention in
the resolution of labor-management controversies likely to
cause strikes or lockouts meant such jurisdiction to be
exclusive, although it did not so expressly state in the law. The
Court held that under the "sense-making and expeditious
doctrine of primary jurisdiction . . . the courts cannot or will
not determine a controversy involving a question which is
within the jurisdiction of an administrative tribunal, where the
question demands the exercise of sound administrative
discretion requiring the special knowledge, experience, and
services of the administrative tribunal to determine technical
and intricate matters of fact, and a uniformity of ruling is
essential to comply with the purposes of the regulatory statute
administered.
In this era of clogged court dockets, the need for specialized
administrative boards or commissions with the special
knowledge, experience and capability to hear and determine
promptly disputes on technical matters or essentially factual
matters, subject to judicial review in case of grave abuse of
discretion, has become well nigh indispensable. Thus, in 1984,
the Court noted that "between the power lodged in an
administrative body and a court, the unmistakable trend has
been to refer it to the former. 'Increasingly, this Court has been
committed to the view that unless the law speaks clearly and
unequivocably, the choice should fall on [an administrative
agency.]'" The Court in the earlier case of Ebon v. De Guzman,
noted that the lawmaking authority, in restoring to the labor
arbiters and the NLRC their jurisdiction to award all kinds of
damages in labor cases, as against the previous P.D.
amendment splitting their jurisdiction with the regular courts,
"evidently, . . . had second thoughts about depriving the Labor
Arbiters and the NLRC of the jurisdiction to award damages in
28
Court review), we can, therefore, unerringly take cognizance of and rule on the
merits of the case.
The procedural niceties settled, we proceed to the merits.
VGCCI assails the validity of the pledge agreement executed by Calapatia in
petitioner's favor. It contends that the same was null and void for lack of
consideration because the pledge agreement was entered into on 21 August
1974 33 but the loan or promissory note which it secured was obtained by
Calapatia much later or only on 3 August 1983.34
VGCCI's contention is unmeritorious.
A careful perusal of the pledge agreement will readily reveal that the
contracting parties explicitly stipulated therein that the said pledge will also
stand as security for any future advancements (or renewals thereof) that
Calapatia (the pledgor) may procure from petitioner:
xxx xxx xxx
This pledge is given as security for the prompt payment when
due of all loans, overdrafts, promissory notes, drafts, bills or
exchange, discounts, and all other obligations of every kind
which have heretofore been contracted, or which may
hereafter be contracted, by the PLEDGOR(S) and/or
DEBTOR(S) or any one of them, in favor of the PLEDGEE,
including discounts of Chinese drafts, bills of exchange,
promissory notes, etc., without any further endorsement by
the PLEDGOR(S) and/or Debtor(s) up to the sum of TWENTY
THOUSAND (P20,000.00) PESOS, together with the accrued
interest thereon, as hereinafter provided, plus the costs,
losses, damages and expenses (including attorney's fees)
which PLEDGEE may incur in connection with the collection
thereof. 35 (Emphasis ours.)
The validity of the pledge agreement between petitioner and Calapatia cannot
thus be held suspect by VGCCI. As candidly explained by petitioner, the
promissory note of 3 August 1983 in the amount of P20,000.00 was but a
renewal of the first promissory note covered by the same pledge agreement.
VGCCI likewise insists that due to Calapatia's failure to settle his delinquent
accounts, it had the right to sell the share in question in accordance with the
express provision found in its by-laws.
MENDOZA, J.:
The Charter and Associate Members shall elect the Directors of the
Association. The candidates receiving the first fourteen (14) highest number of
votes shall be declared and proclaimed elected until their successors are
elected and qualified. GRACE CHRISTIAN HIGH SCHOOL representative is a
permanent Director of the ASSOCIATION.
rise to a vested right and that departure from such practice was justified
because it deprived members of association of their right to elect or to be
voted in office, not to say that allowing the automatic inclusion of a member
representative of petitioner as permanent director [was] contrary to law and
the registered by-laws of respondent association.[8]
The appeals board of the HIGC affirmed the decision of the hearing officer
in its resolution dated September 13, 1990. It cited the opinion of the SEC
based on 92 of the Corporation Code which reads:
92. Election and term of trustees. - Unless otherwise provided in the articles of
incorporation or the by-laws, the board of trustees of non-stock corporations,
which may be more than fifteen (15) in number as may be fixed in their articles
of incorporation or by-laws, shall, as soon as organized, so classify themselves
that the term of office of one-third (1/3) of the number shall expire every year;
and subsequent elections of trustees comprising one-third (1/3) of the board of
trustees shall be held annually and trustees so elected shall have a term of
three (3) years. Trustees thereafter elected to fill vacancies occurring before the
expiration of a particular term shall hold office only for the unexpired period.
The HIGC appeals board denied claims that the school [was] being deprived of
its right to be a member of the Board of Directors of respondent association,
because the fact was that it may nominate as many representatives to the
Associations Board as it may deem appropriate. It said that what is merely
being upheld is the act of the incumbent directors of the Board of correcting a
long standing practice which is not anchored upon any legal basis. [9]
Petitioner appealed to the Court of Appeals but petitioner again lost as the
appellate court on February 9, 1993, affirmed the decision of the HIGC. The
Court of Appeals held that there was no valid amendment of the associations
by-laws because of failure to comply with the requirement of its existing bylaws, prescribing the affirmative vote of the majority of the members of the
association at a regular or special meeting called for the adoption of
amendment to the by-laws. Article XIX of the by-laws provides: [10]
The members of the Association by an affirmative vote of the majority at any
regular or special meeting called for the purpose, may alter, amend, change or
adopt any new by-laws.
This provision of the by-laws actually implements 22 of the Corporation
Law (Act No. 1459) which provides:
22. The owners of a majority of the subscribed capital stock, or a majority of
the members if there be no capital stock, may, at a regular or special meeting
duly called for the purpose, amend or repeal any by-law or adopt new bylaws. The owners of two-thirds of the subscribed capital stock, or two-thirds of
Petitioner disputes the ruling that the provision in question, giving petitioners
representative a permanent seat in the board of the association, is contrary to
law. Petitioner claims that that is not so because there is really no provision of
law
prohibiting
unelected
members
of
boards
of
directors
of
corporations. Referring to 92 of the present Corporation Code, petitioner says:
It is clear that the above provision of the Corporation Code only provides for the
manner of election of the members of the board of trustees of non-stock
corporations which may be more than fifteen in number and which manner of
election is even subject to what is provided in the articles of incorporation or
by-laws of the association thus showing that the above provisions [are] not
even mandatory.
Even a careful perusal of the above provision of the Corporation Code would
not show that it prohibits a non-stock corporation or association from granting
one of its members a permanent seat in its board of directors or trustees. If
there is no such legal prohibition then it is allowable provided it is so provided
in the Articles of Incorporation or in the by-laws as in the instant case.
....
If fact, the truth is that this is allowed and is being practiced by some
corporations duly organized and existing under the laws of the Philippines.
One example is the Pius XII Catholic Center, Inc. Under the by-laws of this
corporation, that whoever is the Archbishop of Manila is considered a member
of the board of trustees without benefit of election.And not only that. He also
automatically sits as the Chairman of the Board of Trustees, again without need
of any election.
Another concrete example is the Cardinal Santos Memorial Hospital, Inc. It is
also provided in the by-laws of this corporation that whoever is the Archbishop
of Manila is considered a member of the board of trustees year after year
without benefit of any election and he also sits automatically as the Chairman
of the Board of Trustees.
It is actually 28 and 29 of the Corporation Law not 92 of the present law or
29 of the former one which require members of the boards of directors of
corporations to be elected. These provisions read:
28. Unless otherwise provided in this Act, the corporate powers of all
corporations formed under this Act shall be exercised, all business conducted
and all property of such corporations controlled and held by a board of not less
than five nor more than eleven directors to be elected from among the holders
of stock or, where there is no stock, from the members of the
office. But in the case of petitioner, there is no reason at all for its
representative to be given a seat in the board.Nor does petitioner claim a right
to such seat by virtue of an office held. In fact it was not given such seat in the
beginning. It was only in 1975 that a proposed amendment to the by-laws
sought to give it one.
Since the provision in question is contrary to law, the fact that for fifteen
years it has not been questioned or challenged but, on the contrary, appears to
have been implemented by the members of the association cannot forestall a
later challenge to its validity. Neither can it attain validity through acquiescence
because, if it is contrary to law, it is beyond the power of the members of the
association to waive its invalidity. For that matter the members of the
association may have formally adopted the provision in question, but their
action would be of no avail because no provision of the by-laws can be adopted
if it is contrary to law.[13]
It is probable that, in allowing petitioners representative to sit on the
board, the members of the association were not aware that this was contrary to
law. It should be noted that they did not actually implement the provision in
question except perhaps insofar as it increased the number of directors from 11
to 15, but certainly not the allowance of petitioners representative as an
unelected member of the board of directors. It is more accurate to say that the
members merely tolerated petitioners representative and tolerance cannot be
considered ratification.
Nor can petitioner claim a vested right to sit in the board on the basis of
practice. Practice, no matter how long continued, cannot give rise to any vested
right if it is contrary to law. Even less tenable is petitioners claim that its right is
coterminus with the existence of the association.[14]
Finally, petitioner questions the authority of the SEC to render an opinion
on the validity of the provision in question. It contends that jurisdiction over this
case is exclusively vested in the HIGC.
But this case was not decided by the SEC but by the HIGC. The HIGC
merely cited as authority for its ruling the opinion of the SEC chairman. The
HIGC could have cited any other authority for the view that under the law
members of the board of directors of a corporation must be elected and it
would be none the worse for doing so.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
laws, had preferential right to buy from the plaintiff said shares at the par value
of P100 a share, plus P90 as dividends corresponding to the year 1922, and
that said offer was refused by the plaintiff. The defendant prayed for a
judgment absolving it from all liability under the complaint and directing the
plaintiff to deliver to the defendant the five shares of stock in question, and to
pay damages in the sum of P500, and the costs.
Upon the issue presented by the pleadings above stated, the cause was
brought on for trial, at the conclusion of which, and on August 21, 1924, the
Honorable N. Capistrano, judge, held that, in his opinion, article 12 of the bylaws of the corporation which gives it preferential right to buy its shares from
retiring stockholders, is in conflict with Act No. 1459 (Corporation Law),
especially with section 35 thereof; and rendered a judgment ordering the
defendant corporation, through its board of directors, toREGISTER in the
books of said corporation the said five shares of stock in the name of the
plaintiff, Henry Fleischer, as the shareholder or owner thereof, instead of the
original owner, Manuel Gonzalez, with costs against the defendant.
The defendant appealed from said judgment, and now makes several
assignment of error, all of which, in substance, raise the question whether or
not article 12 of the by-laws of the corporation is in conflict with the provisions
of the Corporation Law (Act No. 1459).
There is no controversy as to the facts of the present case. They are simple and
may be stated as follows:
That Manuel Gonzalez was the original owner of the five shares of stock in
question, Nos. 16, 17, 18, 19 and 20 of the Botica Nolasco, Inc.; that on March
11, 1923, he assigned and delivered said five shares to the plaintiff, Henry
Fleischer, by accomplishing the form of endorsement provided on the back
thereof, together with other credits, in consideration of a large sum of money
owed by Gonzalez to Fleischer (Exhibits A, B, B-1, B-2, B-3, B-4); that on March
13, 1923, Dr. Eduardo Miciano, who was the secretary-treasurer of said
corporation, offered to buy from Henry Fleischer, on behalf of the corporation,
said shares of stock, at their par value of P100 a share, for P500; that by virtue
of article 12 of the by-laws of Botica Nolasco, Inc., said corporation had the
preferential right to buy from Manuel Gonzalez said shares (Exhibit 2); that the
plaintiff refused to sell them to the defendant; that the plaintiff requested
Doctor Miciano to register said shares in his name; that Doctor Miciano refused
to do so, saying that it would be in contravention of the by-laws of the
corporation.
It also appears from the record that on the 13th day of March, 1923, two days
after the assignment of the shares to the plaintiff, Manuel Gonzales made a
written statement to the Botica Nolasco, Inc., requesting that the five shares of
stock sold by him to Henry Fleischer be noted transferred to Fleischer's name.
xxx
xxx
(7) To make by-laws, not inconsistent with any existing law, for the
fixing or changing of the number of its officers and directors within the
limits prescribed by law, and for the transferring of its stock, the
administration of its corporate affairs, etc.
xxx
xxx
xxx
SEC. 35. The capital stock of stock corporations shall de divided into
shares for which certificates signed by the president or the vicepresident, countersigned by the secretary or clerk and sealed with the
seal of the corporation, shall be issued in accordance with the bylaws. Shares of stock so issued are personal property and may be
transferred by delivery of the certificate indorsed by the owner or his
attorney in fact or other person legally authorized to make the
transfer. No transfer, however, shall be valid, except as between the
parties, until the transfer is entered and noted upon the books of the
corporation so as to show the names of the parties to the transaction,
that date of the transfer, the number of the certificate, and the number
of shares transferred.
No share of stock against which the corporation holds any unpaid claim
shall be transferable on the books of the corporation.
Section 13, paragraph 7, above-quoted, empowers a corporation to make bylaws, not inconsistent with any existing law, for the transferring of its stock. It
follows from said provision, that a by-law adopted by a corporation relating to
transfer of stock should be in harmony with the law on the subject of transfer of
stock. The law on this subject is found in section 35 of Act No. 1459 above
quoted. Said section specifically provides that the shares of stock "are personal
property and may be transferred by delivery of the certificate indorsed by the
owner, etc."Said section 35 defines the nature, character and transferability of
shares of stock. Under said section they are personal property and may be
transferred as therein provided. Said section contemplates no restriction as to
whom they may be transferred or sold. It does not suggest that any
discrimination may be created by the corporation in favor or against a certain
purchaser. The holder of shares, as owner of personal property, is at liberty,
under said section, to dispose of them in favor of whomsoever he pleases,
without any other limitation in this respect, than the general provisions of law.
Therefore, a stock corporation in adopting a by-law governing transfer of shares
of stock should take into consideration the specific provisions of section 35 of
Act No. 1459, and said by-law should be made to harmonize with said
provisions. It should not be inconsistent therewith.
The by-law now in question was adopted under the power conferred upon the
corporation by section 13, paragraph 7, above quoted; but in adopting said bylaw the corporation has transcended the limits fixed by law in the same section,
and has not taken into consideration the provisions of section 35 of Act No.
1459.
As a general rule, the by-laws of a corporation are valid if they are reasonable
and calculated to carry into effect the objects of the corporation, and are not
ROMERO, J.:
Subject of the instant petition for certiorari under Rule 65 of the Rules of Court
is the resolution 1 of public respondent National Labor Relations
Commission 2 rendered on August 4, 1995, affirming in toto the December 7,
1994 decision 3 of Labor Arbiter Pablo C. Espiritu declaring petitioner PMI
Colleges liable to pay private respondent Alejandro Galvan P405,000.00 in
unpaid wages and P40,532.00 as attorney's fees.
A chronicle of the pertinent events on record leading to the filing of the instant
petition is as follows:
On July 7, 1991, petitioner, an educational institution offering courses on basic
seaman's training and other marine-related courses, hired private respondent
as contractual instructor with an agreement that the latter shall be paid at an
hourly rate of P30.00 to P50.00, depending on the description of load subjects
and on the schedule for teaching the same. Pursuant to this engagement,
private respondent then organized classes in marine engineering.
Initially, private respondent and other instructors were compensated for
services rendered during the first three periods of the abovementioned
contract. However, for reasons unknown to private respondent, he stopped
receiving payment for the succeeding rendition of services. This claim of nonpayment was embodied in a letter dated March 3, 1992, written by petitioner's
Acting Director, Casimiro A. Aguinaldo, addressed to its President, Atty.
Santiago Pastor, calling attention to and appealing for the early approval and
release of the salaries of its instructors including that of private respondent. It
appeared further in said letter that the salary of private respondent
corresponding to the shipyard and plant visits and the ongoing on-the-job
training of Class 41 on board MV "Sweet Glory" of Sweet Lines, Inc. was not yet
included. This request of the Acting Director apparently went unheeded.
Repeated demands having likewise failed, private respondent was soon
constrained to file a complaint 4 before the National Capital Region Arbitration
Branch on September 14, 1993 seeking payment for salaries earned from the
following: (1) basic seaman course Classes 41 and 42 for the period covering
October 1991 to September 1992; (2) shipyard and plant visits and on-the-job
training of Classes 41 and 42 for the period covering October 1991 to
September 1992 on board M/V "Sweet Glory" vessel; and (3) as Acting Director
of Seaman Training Course for 3-1/2 months.
The Court entertains no doubt that the foregoing doctrines apply with equal
force in the case at bar.
In any event, granting that we may have to delve into the facts and evidence of
the parties, we still find no puissant justification for us to adjudge both the
Labor Arbiter's and NLRC's appreciation of such evidence as indicative of any
grave abuse of discretion.
First. Petitioner places so much emphasis on its argument that private
respondent did not produce a copy of the contract pursuant to which he
rendered services. This argument is, of course, puerile. The absence of such
copy does not in any manner negate the existence of a contract of employment
since "(C)ontracts shall be obligatory, in whatever form they have
been entered into, provided all the essential requisites for their validity are
present." 9 The only exception to this rule is "when the law requires that a
contract be in some form in order that it may be valid or enforceable, or that a
contract be proved in a certain way." However, there is no requirement under
the law that the contract of employment of the kind entered into by petitioner
with private respondent should be in any particular form. While it may have
been desirable for private respondent to have produced a copy of his contract if
one really exists, but the absence thereof, in any case, does not militate
against his claims inasmuch as:
No particular form of evidence is required to prove the existence of an
employer-employee relationship. Any competent and relevant evidence
to prove the relationship may be admitted. For, if only documentary
evidence would be required to show that relationship, no scheming
employer would ever be brought before the bar of justice, as no
employer would wish to come out with any trace of the illegality he has
authored considering that it should take much weightier proof to
invalidate a written instrument. . . . 10
At any rate, the vouchers prepared by petitioner's own accounting department
and the letter-request of its Acting Director asking for payment of private
respondent's services suffice to support a reasonable conclusion that private
respondent was employed with petitioner. How else could one explain the fact
that private respondent was supposed to be paid the amounts mentioned in
those documents if he were not employed? Petitioner's evidence is wanting in
this respect while private respondent affirmatively stated that the same arose
out of his employment with petitioner. As between the two, the latter is
weightier inasmuch as we accord affirmative testimony greater value than a
negative one. For the foregoing reasons, we find it difficult to agree with
petitioner's assertion that the absence of a copy of the alleged contract should
nullify private respondent's claims.
Neither can we concede that such contract would be invalid just because the
signatory thereon was not the Chairman of the Board which allegedly violated
petitioner's by-laws. Since by-laws operate merely as internal rules among the
stockholders, they cannot affect or prejudice third persons who deal with the
corporation, unless they have knowledge of the same." 11 No proof appears on
record that private respondent ever knew anything about the provisions of said
by-laws. In fact, petitioner itself merely asserts the same without even
bothering to attach a copy or excerpt thereof to show that there is such a
provision. How can it now expect the Labor Arbiter and the NLRC to believe it?
That this allegation has never been denied by private respondent does not
necessarily signify admission of its existence because technicalities of law and
procedure and the rules obtaining in the courts of law do not strictly apply to
proceedings of this nature.
Second. Petitioner bewails the fact that both the Labor Arbiter and the NLRC
accorded due weight to the documents prepared by private respondent since
they are said to be self-serving. "Self-serving evidence" is not to be literally
taken as evidence that serves one's selfish interest. 12 The fact alone that most
of the documents submitted in evidence by private respondent were prepared
by him does not make them self-serving since they have been offered in the
proceedings before the Labor Arbiter and that ample opportunity was given to
petitioner to rebut their veracity and authenticity. Petitioner, however, opted to
merely deny them which denial, ironically, is actually what is considered selfserving evidence 13 and, therefore, deserves scant consideration. In any event,
any denial made by petitioner cannot stand against the affirmative and fairly
detailed manner by which private respondent supported his claims, such as the
places where he conducted his classes, on-the-job training and shipyard and
plant visits; the rate he applied and the duration of said rendition of services;
the fact that he was indeed engaged as a contractual instructor by petitioner;
and that part of his services was not yet remunerated. These evidence, to
reiterate, have never been effectively refuted by petitioner.
Third. As regards the amounts demanded by private respondent, we can only
rely upon the evidence presented which, in this case, consists of the
computation of private respondent, as well as the findings of both the Labor
Arbiter and the NLRC. Petitioner, it must be stressed, presented no satisfactory
proof to the contrary. Absent such proof, we are constrained to rely upon
private respondent's otherwise straightforward explanation of his claims.
Fourth. The absence of a formal hearing or trial before the Labor Arbiter is no
cause for petitioner to impute grave abuse of discretion. Whether to conduct
one or not depends on the sole discretion of the Labor Arbiter, taking into
account the position papers and supporting documents submitted by the
parties on every issue presented. If the Labor Arbiter, in his judgment, is
confident that he can rely on the documents before him, he cannot be faulted
for not conducting a formal trial anymore, unless it would appear that, in view
of the particular circumstances of a case, the documents, without more, are
really insufficient.
As applied to the instant case, we can understand why the Labor Arbiter has
opted not to proceed to trial, considering that private respondent, through
annexes to his position paper, has adequately established that, first of all, he
was an employee of petitioner; second, the nature and character of his
services, and finally, the amounts due him in consideration of his services.
Petitioner, it should be reiterated, failed to controvert them. Actually, it offered
only four documents later in the course of the proceedings. It has only itself to
blame if it did not attach its supporting evidence with its position paper. It
cannot now insist that there be a trial to give it an opportunity to ventilate what
it should have done earlier. Section 3, Rule V of the New Rules of Procedure of
the NLRC is very clear on the matter:
Sec. 3. . . .
These verified position papers . . . shall be accompanied
by all supporting documents including the affidavits of their respective
witnesses which shall take the place of the latter's direct
testimony. The parties shall thereafter not be allowed to allege facts,
or present evidence to prove facts, not referred to and any cause or
causes of action not included in the complaint or position papers,
affidavits and other documents. . . . (Emphasis supplied).
Thus, given the mandate of said rule, petitioner should have foreseen that the
Labor Arbiter, in view of the non-litigious nature of the proceedings before it,
might not proceed at all to trial. Petitioner cannot now be heard to complain of
lack of due process. The following is apropos:
The petitioners should not have assumed that after they submitted
their position papers, the Labor Arbiter would call for a formal trial or
hearing. The holding of a trial is discretionary on the Labor Arbiter, it is
not a matter of right of the parties, especially in this case, where the
private respondents had already presented their documentary
evidence.
xxx xxx xxx
The petitioners did ask in their position paper for a hearing to thresh
out some factual matters pertinent to their case. However, they had no
right or reason to assume that their request would be granted. The
petitioners should have attached to their position paper all the
documents that would prove their claim in case it was decided that no
hearing should be conducted or was necessary. In fact, the rules
require that position papers shall be accompanied by all supporting
documents, including affidavits of witnesses in lieu of their direct
testimony. 14
It must be noted that adequate opportunity was given to petitioner in the
presentation of its evidence, such as when the Labor Arbiter granted
petitioner's Manifestation and Motion 15 dated July 22, 1994 allowing it to
submit four more documents. This opportunity notwithstanding, petitioner still
failed to fully proffer all its evidence which might help the Labor Arbiter in
resolving the issues. What it desired instead, as stated in its petition, 16 was to
"require presentation of witnesses buttressed by relevant documents in support
thereof." But this is precisely the opportunity given to petitioner when the Labor
Arbiter granted its Motion and Manifestation. It should have presented the
documents it was proposing to submit. The affidavits of its witnesses would
have sufficed in lieu of their direct testimony 17 to clarify what it perceives to be
complex factual issues. We rule that the Labor Arbiter and the NLRC were not
remiss in their duty to afford petitioner due process. The essence of due
process is merely that a party be afforded a reasonable opportunity to be heard
and to submit any evidence he may have in support of his defense. 18
WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED
for lack of merit while the resolution of the National Labor Relations
Commission dated August 4, 1995 is hereby AFFIRMED.
SO ORDERED.
SAPPARI K. SAWADJAAN, petitioner, vs. THE HONORABLE COURT OF
APPEALS, THE CIVIL SERVICE COMMISSION and AL-AMANAH
INVESTMENT BANK OF THE PHILIPPINES, respondents.
DECISION
CHICO-NAZARIO, J.:
This is a petition for certiorari under Rule 65 of the Rules of Court of the
Decision[1] of the Court of Appeals of 30 March 1999 affirming Resolutions No.
94-4483 and No. 95-2754 of the Civil Service Commission (CSC) dated 11
August 1994 and 11 April 1995, respectively, which in turn affirmed Resolution
No. 2309 of the Board of Directors of the Al-Amanah Islamic Investment Bank of
the Philippines (AIIBP) dated 13 December 1993, finding petitioner guilty of
On 08
Investigating
the bank Six
as found and
On 11 August 1994, the CSC adopted Resolution No. 94-4483 dismissing the
appeal for lack of merit and affirming Resolution No. 2309 dated 13 December
1993 of the Board of Directors of Islamic Bank.
On 11 April 1995, the CSC adopted Resolution No. 95-2574 denying petitioners
Motion for Reconsideration.
On 16 June 1995, the instant petition was filed with the Honorable Supreme
Court on the following assignment of errors:
I. Public respondent Al-Amanah Islamic Investment Bank of the
Philippines has committed a grave abuse of discretion amounting to excess or
lack of jurisdiction when it initiated and conducted administrative investigation
without a validly promulgated rules of procedure in the adjudication of
administrative cases at the Islamic Bank.
II. Public respondent Civil Service Commission has committed a grave
abuse of discretion amounting to lack of jurisdiction when it prematurely and
falsely assumed jurisdiction of the case not appealed to it, but to the Merit
System Protection Board.
III. Both the Islamic Bank and the Civil Service Commission erred in
finding petitioner Sawadjaan of having deliberately reporting false information
and therefore guilty of Dishonesty and Conduct Prejudicial to the Best Interest
of the Service and penalized with dismissal from the service.
On 04 July 1995, the Honorable Supreme Court En Banc referred this petition to
this Honorable Court pursuant to Revised Administrative Circular No. 1-95,
which took effect on 01 June 1995.
We do not find merit [in] the petition.
Anent the first assignment of error, a reading of the records would reveal that
petitioner raises for the first time the alleged failure of the Islamic Bank [AIIBP]
to promulgate rules of procedure governing the adjudication and disposition of
administrative cases involving its personnel. It is a rule that issues not properly
brought and ventilated below may not be raised for the first time on appeal,
save in exceptional circumstances (Casolita, Sr. v. Court of Appeals, 275 SCRA
257) none of which, however, obtain in this case. Granting arguendo that the
issue is of such exceptional character that the Court may take cognizance of
the same, still, it must fail. Section 26 of Republic Act No. 6848 (1990) provides:
Section 26. Powers of the Board. The Board of Directors shall have the broadest
powers to manage the Islamic Bank, x x x The Board shall adopt policy
guidelines necessary to carry out effectively the provisions of this Charter as
well as internal rules and regulations necessary for the conduct of its Islamic
banking business and all matters related to personnel organization, office
functions and salary administration. (Italics ours)
On the other hand, Item No. 2 of Executive Order No. 26 (1992) entitled
Prescribing Procedure and Sanctions to Ensure Speedy Disposition of
Administrative Cases directs, all administrative agencies to adopt and include
in their respective Rules of Procedure provisions designed to abbreviate
administrative proceedings.
The above two (2) provisions relied upon by petitioner does not require the
Islamic Bank [AIIBP] to promulgate rules of procedure before administrative
discipline may be imposed upon its employees. The internal rules of procedures
ordained to be adopted by the Board refers to that necessary for the conduct of
its Islamic banking business and all matters related to personnel organization,
office functions and salary administration. On the contrary, Section 26 of RA
6848 gives the Board of Directors of the Islamic Bank the broadest powers to
manage the Islamic Bank. This grant of broad powers would be an idle
ceremony if it would be powerless to discipline its employees.
The second assignment of error must likewise fail. The issue is raised for the
first time via this petition for certiorari. Petitioner submitted himself to the
jurisdiction of the CSC. Although he could have raised the alleged lack of
jurisdiction in his Motion for Reconsideration of Resolution No. 94-4483 of the
CSC, he did not do so. By filing the Motion for Reconsideration, he is estopped
from denying the CSCs jurisdiction over him, as it is settled rule that a party
who asks for an affirmative relief cannot later on impugn the action of the
tribunal as without jurisdiction after an adverse result was meted to him.
Although jurisdiction over the subject matter of a case may be objected to at
any stage of the proceedings even on appeal, this particular rule, however,
means that jurisdictional issues in a case can be raised only during the
proceedings in said case and during the appeal of said case (Aragon v. Court of
Appeals, 270 SCRA 603). The case at bar is a petition [for] certiorari and not an
appeal.
But even on the merits the argument must falter. Item No. 1 of CSC Resolution
No. 93-2387 dated 29 June 1993, provides:
Decisions in administrative cases involving officials and employees of the civil
service appealable to the Commission pursuant to Section 47 of Book V of the
Code (i.e., Administrative Code of 1987) including personnel actions such as
contested appointments shall now be appealed directly to the Commission and
not to the MSPB.
In Rubenecia v. Civil Service Commission, 244 SCRA 640, 651, it was
categorically held:
that its registration was being held in abeyance pending certain corrections
being made thereon. Sawadjaan argued that since the AIIBP failed to file its bylaws within 60 days from the passage of Rep. Act No. 6848, as required by Sec.
51 of the said law, the bank and its stockholders had already forfeited its
franchise or charter, including its license to exist and operate as a corporation,
[14]
and thus no longer have the legal standing and personality to initiate an
administrative case.
Sawadjaans counsel subsequently adopted his motion, but requested that
it be treated as a motion for reconsideration. [15] This motion was denied by the
court a quo in its Resolution of 15 December 1999.[16]
Still disheartened, Sawadjaan filed the present petition for certiorari under
Rule 65 of the Rules of Court challenging the above Decision and Resolution of
the Court of Appeals on the ground that the court a quo erred: i) in ignoring the
facts and evidences that the alleged Islamic Bank has no valid by-laws; ii) in
ignoring the facts and evidences that the Islamic Bank lost its juridical
personality as a corporation on 16 April 1990; iii) in ignoring the facts and
evidences that the alleged Islamic Bank and its alleged Board of Directors have
no jurisdiction to act in the manner they did in the absence of a valid by-laws;
iv) in not correcting the acts of the Civil Service Commission who erroneously
rendered the assailed Resolutions No. 94-4483 and No. 95-2754 as a result of
fraud, falsification and/or misrepresentations committed by Farouk A. Carpizo
and his group, including Roberto F. de Ocampo; v) in affirming an
unconscionably harsh and/or excessive penalty; and vi) in failing to consider
newly discovered evidence and reverse its decision accordingly.
Subsequently, petitioner Sawadjaan filed an Ex-parte Urgent Motion for
Additional Extension of Time to File a Reply (to the Comments of Respondent AlAmanah Investment Bank of the Philippines), [17] Reply (to Respondents
Consolidated Comment,)[18] and Reply (to the Alleged Comments of Respondent
Al-Amanah Islamic Bank of the Philippines). [19] On 13 October 2000, he informed
this Court that he had terminated his lawyers services, and, by himself,
prepared and filed the following: 1) Motion for New Trial; [20] 2) Motion to Declare
Respondents in Default and/or Having Waived their Rights to Interpose
Objection to Petitioners Motion for New Trial; [21] 3) Ex-Parte Urgent Motions to
Punish Attorneys Amado D. Valdez, Elpidio J. Vega, Alda G. Reyes, Dominador R.
Isidoro, Jr., and Odilon A. Diaz for Being in Contempt of Court & to Inhibit them
from Appearing in this Case Until they Can Present Valid Evidence of Legal
Authority;[22] 4) Opposition/Reply (to Respondent AIIBPs Alleged Comment);
[23]
5) Ex-Parte Urgent Motion to Punish Atty. Reynaldo A. Pineda for Contempt of
Court and the Issuance of a Commitment Order/Warrant for His Arrest; [24] 6)
Reply/Opposition (To the Formal Notice of Withdrawal of Undersigned Counsel
as Legal Counsel for the Respondent Islamic Bank with Opposition to Petitioners
Motion to Punish Undersigned Counsel for Contempt of Court for the Issuance of
a Warrant of Arrest);[25] 7) Memorandum for Petitioner; [26] 8) Opposition to
SolGens Motion for Clarification with Motion for Default and/or Waiver of
Respondents to File their Memorandum; [27] 9) Motion for Contempt of Court and
Inhibition/Disqualification with Opposition to OGCCs Motion for Extension of
Time to File Memorandum; [28] 10) Motion for Enforcement (In Defense of the
Rule of Law);[29] 11) Motion and Opposition (Motion to Punish OGCCs Attorneys
Amado D. Valdez, Efren B. Gonzales, Alda G. Reyes, Odilon A. Diaz and
Dominador R. Isidoro, Jr., for Contempt of Court and the Issuance of a Warrant
for their Arrest; and Opposition to their Alleged Manifestation and Motion Dated
February 5, 2002);[30] 12) Motion for Reconsideration of Item (a) of Resolution
dated 5 February 2002 with Supplemental Motion for Contempt of Court; [31] 13)
Motion for Reconsideration of Portion of Resolution Dated 12 March 2002; [32] 14)
Ex-Parte Urgent Motion for Extension of Time to File Reply Memorandum (To:
CSC and AIIBPs Memorandum); [33] 15) Reply Memorandum (To: CSCs
Memorandum) With Ex-Parte Urgent Motion for Additional Extension of time to
File Reply Memorandum (To: AIIBPs Memorandum); [34] and 16) Reply
Memorandum (To: OGCCs Memorandum for Respondent AIIBP). [35]
Petitioners efforts are unavailing, and we deny his petition for its
procedural and substantive flaws.
The general rule is that the remedy to obtain reversal or modification of
the judgment on the merits is appeal. This is true even if the error, or one of
the errors, ascribed to the court rendering the judgment is its lack of
jurisdiction over the subject matter, or the exercise of power in excess thereof,
or grave abuse of discretion in the findings of fact or of law set out in the
decision.[36]
The records show that petitioners counsel received the Resolution of the
Court of Appeals denying his motion for reconsideration on 27 December 1999.
The fifteen day reglamentary period to appeal under Rule 45 of the Rules of
Court therefore lapsed on 11 January 2000. On 23 February 2000, over a month
after receipt of the resolution denying his motion for reconsideration, the
petitioner filed his petition for certiorari under Rule 65.
It is settled that a special civil action for certiorari will not lie as a
substitute for the lost remedy of appeal, [37] and though there are
instances[38] where the extraordinary remedy ofcertiorari may be resorted to
despite the availability of an appeal,[39] we find no special reasons for making
out an exception in this case.
Even if we were to overlook this fact in the broader interests of justice and
treat this as a special civil action for certiorari under Rule 65,[40] the petition
would nevertheless be dismissed for failure of the petitioner to show grave
abuse of discretion. Petitioners recurrent argument, tenuous at its very best, is
premised on the fact that since respondent AIIBP failed to file its by-laws within
the designated 60 days from the effectivity of Rep. Act No. 6848, all
proceedings initiated by AIIBP and all actions resulting therefrom are a patent
nullity. Or, in his words, the AIIBP and its officers and Board of Directors,
. . . [H]ave no legal authority nor jurisdiction to manage much less operate the
Islamic Bank, file administrative charges and investigate petitioner in the
manner they did and allegedly passed Board Resolution No. 2309 on December
13, 1993 which is null and void for lack of an (sic) authorized and valid by-laws.
The CIVIL SERVICE COMMISSION was therefore affirming, erroneously, a null
and void Resolution No. 2309 dated December 13, 1993 of the Board of
Directors of Al-Amanah Islamic Investment Bank of the Philippines in CSC
Resolution No. 94-4483 dated August 11, 1994. A motion for reconsideration
thereof was denied by the CSC in its Resolution No. 95-2754 dated April 11,
1995. Both acts/resolutions of the CSC are erroneous, resulting from fraud,
falsifications and misrepresentations of the alleged Chairman and CEO Roberto
F. de Ocampo and the alleged Director Farouk A. Carpizo and his group at the
alleged Islamic Bank.[41]
Nowhere in petitioners voluminous pleadings is there a showing that the
court a quo committed grave abuse of discretion amounting to lack or excess of
jurisdiction reversible by a petition for certiorari. Petitioner already raised the
question of AIIBPs corporate existence and lack of jurisdiction in his Motion for
New Trial/Motion for Reconsideration of 27 May 1997 and was denied by the
Court of Appeals. Despite the volume of pleadings he has submitted thus far,
he has added nothing substantial to his arguments.
The AIIBP was created by Rep. Act No. 6848. It has a main office where it
conducts business, has shareholders, corporate officers, a board of directors,
assets, and personnel. It is, in fact, here represented by the Office of the
Government Corporate Counsel, the principal law office of government-owned
corporations, one of which is respondent bank. [42] At the very least, by its failure
to submit its by-laws on time, the AIIBP may be considered a de
facto corporation[43] whose right to exercise corporate powers may not be
inquired into collaterally in any private suit to which such corporations may be
a party.[44]
Moreover, a corporation which has failed to file its by-laws within the
prescribed period does not ipso facto lose its powers as such. The SEC Rules on
Suspension/Revocation of the Certificate of Registration of Corporations,
[45]
details the procedures and remedies that may be availed of before an order
of revocation can be issued. There is no showing that such a procedure has
been initiated in this case.
In any case, petitioners argument is irrelevant because this case is not a
corporate controversy, but a labor dispute; and it is an employers basic right to
freely select or discharge its employees, if only as a measure of self-protection
against acts inimical to its interest. [46] Regardless of whether AIIBP is a
. . . (I)t is crystal clear that respondent SAPPARI SAWADJAAN was remiss in the
performance of his duties as appraiser/inspector. Had respondent performed his
duties as appraiser/inspector, he could have easily noticed that the property
located at Balintawak, Caloocan City covered by TCT No. C-52576 and which is
one of the properties offered as collateral by CAMEC is encumbered to Divina
Pablico. Had respondent reflected such fact in his appraisal/inspection report on
said property the ISLAMIC BANK would not have approved CAMECs loan of
P500,000.00 in 1987 and CAMECs P5 Million loan in 1988, respondent knowing
fully well the Banks policy of not accepting encumbered properties as collateral.
Respondent SAWADJAANs reprehensible act is further aggravated when he
failed to check and verify from the Registry of Deeds of Marikina the
authenticity of the property located at Mayamot, Antipolo, Rizal covered by TCT
No. N-130671 and which is one of the properties offered as collateral by CAMEC
for its P5 Million loan in 1988. If he only visited and verified with the Register of
Deeds of Marikina the authenticity of TCT No. N-130671 he could have easily
discovered that TCT No. N-130671 is fake and the property described therein
non-existent.
...
This notwithstanding, respondent cannot escape liability. As adverted to earlier,
his failure to perform his official duties resulted to the prejudice and substantial
damage to the ISLAMIC BANK for which he should be held liable for the