[G.R. No. 117188.

August 7, 1997]

LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION,

INC., petitioner,
vs. HON.
COURT
OF
APPEALS,
HOME INSURANCE AND GUARANTY CORPORATION, EMDEN
ENCARNACION and HORATIO AYCARDO, respondents.
DECISION
ROMERO, J.:
May the failure of a corporation to file its by-laws within one month from the date of
its incorporation, as mandated by Section 46 of the Corporation Code, result in its
automatic dissolution?
This is the issue raised in this petition for review on certiorari of the Decision[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 duly registered subdivision in Quezon City and Marikina City that was owned
and developed by Solid Homes, Inc. It revoked the certificates of registration issued to
Loyola Grand Villas Homeowners (North) Association Incorporated (the North
Association for brevity) and Loyola Grand Villas Homeowners (South) Association
Incorporated (the South Association).
LGVHAI was organized on February 8, 1983 as the association of homeowners and
residents of the Loyola Grand Villas. It was registered with the Home Financing
Corporation, the predecessor of herein respondent HIGC, as the sole homeowners
organization in the said subdivision under Certificate of Registration No. 04-197. It was
organized by the developer of the subdivision and its first president was Victorio V.
Soliven, himself the owner of the developer. For unknown reasons, however, LGVHAI
did not file its corporate by-laws.
Sometime in 1988, the officers of the LGVHAI tried to register its by-laws. They
failed to do so.[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 associations
activities. Apparently, this information resulted in the registration of the South
Association with the HIGC on July 27, 1989 covering Phases West I, East I and East 11.
It filed its by-laws on July 26, 1989.
These developments prompted the officers of the LGVHAI to lodge a complaint with
the HIGC. They questioned the revocation of LGVHAIs certificate of registration without
due notice and hearing and concomitantly prayed for the cancellation of the certificates of
registration of the North and South Associations by reason of the earlier issuance of a
certificate of registration in favor of LGVHAI.
On January 26, 1993, after due notice and hearing, private respondents obtained a
favorable ruling from HIGC Hearing Officer Danilo C. Javier who disposed of HIGC
Case No. RRM-5-89 as follows:
WHEREFORE, judgment is hereby rendered recognizing the Loyola Grand Villas
Homeowners Association, Inc., under Certificate of Registration No. 04-197 as the duly
registered and existing homeowners association for Loyola Grand Villas homeowners,
and declaring the Certificates of Registration of Loyola Grand Villas Homeowners
(North) Association, Inc. and Loyola Grand Villas Homeowners (South) Association, Inc.
as hereby revoked or cancelled; that the receivership be terminated and the Receiver is
hereby ordered to render an accounting and turn-over to Loyola Grand Villas
Homeowners Association, Inc., all assets and records of the Association now under his
custody and possession.
The South Association appealed to the Appeals Board of the HIGC. In its Resolution
of September 8, 1993, the Board[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 LGVHAIs failure to file its by-laws within the period
prescribed by Section 46 of the Corporation Code resulted in the automatic dissolution of
LGVHAI. Second,whether or not two homeowners associations may be authorized by the
HIGC in one sprawling subdivision. However, in the Decision of August 23, 1994 being
assailed here, the Court of Appeals affirmed the Resolution of the HIGC Appeals Board.
In resolving the first issue, the Court of Appeals held that under the Corporation
Code, a private corporation commences to have corporate existence and juridical
personality from the date the Securities and Exchange Commission (SEC) issues a
certificate of incorporation under its official seal. The requirement for the filing of bylaws under Section 46 of the Corporation Code within one month from official notice of
the issuance of the certificate of incorporation presupposes that it is already incorporated,
although it may file its by-laws with its articles of incorporation. Elucidating on the effect
of a delayed filing of by-laws, the Court of Appeals said:

We also find nothing in the provisions cited by the petitioner, i.e., Sections 46 and 22,
Corporation Code, or in any other provision of the Code and other laws which provide or
at least imply that failure to file the by-laws results in an automatic dissolution of the
corporation. While Section 46, in prescribing that by-laws must be adopted within the
period prescribed therein, may be interpreted as a mandatory provision, particularly
because of the use of the word must, its meaning cannot be stretched to support the
argument that automatic dissolution results from non-compliance.
We realize that Section 46 or other provisions of the Corporation Code are silent on the
result of the failure to adopt and file the by-laws within the required period. Thus, Section
46 and other related provisions of the Corporation Code are to be construed with Section
6 (1) of P.D. 902-A. This section empowers the SEC to suspend or revoke certificates of
registration on the grounds listed therein. Among the grounds stated is the failure to file
by-laws (see also II Campos: The Corporation Code, 1990 ed., pp. 124-125). Such
suspension or revocation, the same section provides, should be made upon proper notice
and hearing. Although P.D. 902-A refers to the SEC, the same principles and procedures
apply to the public respondent HIGC as it exercises its power to revoke or suspend the
certificates of registration or homeowners associations. (Section 2 [a], E.O. 535, series
1979, transferred the powers and authorities of the SEC over homeowners associations to
the HIGC.)
We also do not agree with the petitioners interpretation that Section 46, Corporation Code
prevails over Section 6, P.D. 902-A and that the latter is invalid because it contravenes the
former. There is no basis for such interpretation considering that these two provisions are
not inconsistent with each other. They are, in fact, complementary to each other so that
one cannot be considered as invalidating the other.
The Court of Appeals added that, as there was no showing that the registration of
LGVHAI had been validly revoked, it continued to be the duly registered homeowners
association in the Loyola Grand Villas. More importantly, the South Association did not
dispute the fact that LGVHAI had been organized and that, thereafter, it transacted
business within the period prescribed by law.
On the second issue, the Court of Appeals reiterated its previous ruling [5] that the
HIGC has the authority to order the holding of a referendum to determine which of two
contending associations should represent the entire community, village or subdivision.
Undaunted, the South Association filed the instant petition for review
on certiorari. It elevates as sole issue for resolution the first issue it had raised before the
Court of Appeals, i.e., whether or not the LGVHAIs failure to file its by-laws within the
period prescribed by Section 46 of the Corporation Code had the effect of automatically
dissolving the said corporation.
Petitioner contends that, since Section 46 uses the word must with respect to the
filing of by-laws, noncompliance therewith would result in self-extinction either due to
non-occurrence of a suspensive condition or the occurrence of a resolutory condition
under the hypothesis that (by) the issuance of the certificate of registration alone the
corporate personality is deemed already formed. It asserts that the Corporation Code

provides for a gradation of violations of requirements. Hence, Section 22 mandates that

the corporation must be formally organized and should commence transactions within
two years from date of incorporation. Otherwise, the corporation would be deemed
dissolved. On the other hand, if the corporation commences operations but becomes
continuously inoperative for five years, then it may be suspended or its corporate
franchise revoked.
Petitioner concedes that Section 46 and the other provisions of the Corporation Code
do not provide for sanctions for non-filing of the by-laws. However, it insists that no
sanction need be provided because the mandatory nature of the provision is so clear that
there can be no doubt about its being an essential attribute of corporate birth. To
petitioner, its submission is buttressed by the facts that the period for compliance is
spelled out distinctly; that the certification of the SEC/HIGC must show that the by-laws
are not inconsistent with the Code, and that a copy of the by-laws has to be attached to
the articles of incorporation. Moreover, no sanction is provided for because in the first
place, no corporate identity has been completed. Petitioner asserts that non-provision for
remedy or sanction is itself the tacit proclamation that non-compliance is fatal and no
corporate existence had yet evolved, and therefore, there was no need to proclaim its
demise.[6] In a bid to convince the Court of its arguments, petitioner stresses that:
x x x the word MUST is used in Sec. 46 in its universal literal meaning and corollary
human implication its compulsion is integrated in its very essenceMUST is always
enforceable by the inevitable consequence that is, OR ELSE. The use of the
word MUST in Sec. 46 is no exception it means file the by-laws within one month after
notice of issuance of certificate of registration OR ELSE. The OR ELSE, though not
specified, is inextricably a part of MUST. Do this or if you do not you are Kaput. The
importance of the by-laws to corporate existence compels such meaning for as decreed
the by-laws is `the government of the corporation. Indeed, how can the corporation do
any lawful act as such without by-laws. Surely, no law is intended to create chaos.[7]
Petitioner asserts that P.D. No. 902-A cannot exceed the scope and power of
the Corporation Code which itself does not providesanctions for non-filing of bylaws. For the petitioner, it is not proper to assess the true meaning of Sec. 46 x x x on an
unauthorized provision on such matter contained in the said decree.
In their comment on the petition, private respondents counter that the requirement of
adoption of by-laws is not mandatory. They point to P.D. No. 902-A as having resolved
the issue of whether said requirement is mandatory or merely directory. Citing Chung Ka
Bio v. Intermediate Appellate Court,[8] private respondents contend that Section
6(I) of that decree provides that non-filing of by-laws is only a ground for suspension or
revocation of the certificate of registration of corporations and, therefore, it may not
result in automatic dissolution of the corporation. Moreover, the adoption and filing of
by-laws is a condition subsequent which does not affect the corporate personality of a
corporation like the LGVHAI. This is so because Section 9 of the Corporation Code
provides that the corporate existence and juridical personality of a corporation begins
from the date the SEC issues a certificate of incorporation under its official seal.
Consequently, even if the by-laws have not yet been filed, a corporation may be

considered a de facto corporation. To emphasize the fact the LGVHAI was registered as
the sole homeowners association in the Loyola Grand Villas, private respondents point
out that membership in the LGVHAI was an unconditional restriction in the deeds of sale
signed by lot buyers.
In its reply to private respondents comment on the petition, petitioner reiterates its
argument that the word must in Section 46 of the Corporation Code is mandatory. It adds
that, before the ruling in Chung Ka Bio v. Intermediate Appellate Court could be applied
to this case, this Court must first resolve the issue of whether or not the provisions of P.D.
No. 902-A prescribing the rules and regulations to implement the Corporation Code can
rise above and change the substantive provisions of the Code.
The pertinent provision of the Corporation Code that is the focal point of controversy
in this case states:
Sec. 46. Adoption of by-laws. Every corporation formed under this Code, must within
one (1) month after receipt of official notice of the issuance of its certificate of
incorporation by the Securities and Exchange Commission, adopt a code of by-laws for
its government not inconsistent with this Code. For the adoption of by-laws by the
corporation, the affirmative vote of the stockholders representing at least a majority of the
outstanding capital stock, or of at least a majority of the members, in the case of nonstock corporations, shall be necessary. The by-laws shall be signed by the stockholders or
members voting for them and shall be kept in the principal office of the corporation,
subject to the stockholders or members voting for them and shall be kept in the principal
office of the corporation, subject to inspection of the stockholders or members during
office hours; and a copy thereof, shall be filed with the Securities and Exchange
Commission which shall be attached to the original articles of incorporation.
Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted and
filed prior to incorporation; in such case, such by-laws shall be approved and signed by
all the incorporators and submitted to the Securities and Exchange Commission, together
with the articles of incorporation.
In all cases, by-laws shall be effective only upon the issuance by the Securities and
Exchange Commission of a certification that the by-laws are not inconsistent with this
Code.
The Securities and Exchange Commission shall not accept for filing the by-laws or any
amendment thereto of any bank, banking institution, building and loan association, trust
company, insurance company, public utility, educational institution or other special
corporations governed by special laws, unless accompanied by a certificate of the
appropriate government agency to the effect that such by-laws or amendments are in
accordance with law.
As correctly postulated by the petitioner, interpretation of this provision of law
begins with the determination of the meaning and import of the word must in this
section. Ordinarily, the word must connotes an imperative act or operates to impose a

duty which may be enforced.[9] It is synonymous with ought which connotes compulsion
or mandatoriness.[10] However, the word must in a statute, like shall, is not always
imperative. It may be consistent with an exercise of discretion. In this jurisdiction, the
tendency has been to interpret shall as the context or a reasonable construction of the
statute in which it is used demands or requires. [11] This is equally true as regards the word
must.Thus, if the language of a statute considered as a whole and with due regard to its
nature and object reveals that the legislature intended to use the words shall and must to
be directory, they should be given that meaning.[12]
In this respect, the following portions of the deliberations of the Batasang Pambansa
No. 68 are illuminating:
MR. FUENTEBELLA. Thank you, Mr. Speaker.
On page 34, referring to the adoption of by-laws, are we made to
understand here, Mr. Speaker, that by-laws must immediately be filed
within one month after the issuance? In other words, would this be
mandatory or directory in character?
MR. MENDOZA. This is mandatory.
MR. FUENTEBELLA. It being mandatory, Mr. Speaker, what would be
the effect of the failure of the corporation to file these by-laws within one
month?
MR. MENDOZA. There is a provision in the latter part of the Code
which identifies and describes the consequences of violations of any
provision of this Code. One such consequence is the dissolution of the
corporation for its inability, or perhaps, incurring certain penalties.
MR. FUENTEBELLA. But it will not automatically amount to a
dissolution of the corporation by merely failing to file the by-laws within
one month. Supposing the corporation was late, say, five days, what would
be the mandatory penalty?
MR. MENDOZA. I do not think it will necessarily result in the
automatic or ipso facto dissolution of the corporation. Perhaps, as in the
case, as you suggested, in the case of El Hogar Filipino where a quo
warranto action is brought, one takes into account the gravity of the
violation committed. If the by-laws were late the filing of the by-laws were
late by, perhaps, a day or two, I would suppose that might be a tolerable
delay, but if they are delayed over a period of months as is happening now
because of the absence of a clear requirement that by-laws must be
completed within a specified period of time, the corporation must suffer
certain consequences.[13]
This exchange of views demonstrates clearly that automatic corporate dissolution for
failure to file the by-laws on time was never the intention of the legislature. Moreover,
even without resorting to the records of deliberations of the Batasang Pambansa, the law
itself provides the answer to the issue propounded by petitioner.

Taken as a whole and under the principle that the best interpreter of a statute is the
statute itself (optima statuli interpretatix est ipsum statutum),[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 priorto incorporation. This provision
in the same section of the Code rules out mandatory compliance with the requirement of
filing the by-laws within one (1) month after receipt of official notice of the issuance of
its certificate of incorporation by the Securities and Exchange Commission. It necessarily
follows that failure to file the by-laws within that period does not imply the demise of the
corporation. By-laws may be necessary for the government of the corporation but these
are subordinate to the articles of incorporation as well as to the Corporation Code and
related statutes.[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, by-laws are not necessary
either to the existence of a corporation or to the valid exercise of the powers conferred
upon it, certainly in all cases where the charter sufficiently provides for the government
of the body; and even where the governing statute in express terms confers upon the
corporation the power to adopt by-laws, the failure to exercise the power will be
ascribed to mere nonaction which will not render void any acts of the corporation
which would otherwise be valid.[16] (Italics 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 bylaws 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 bylaws 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. 902A, the pertinent provisions on the jurisdiction of the SEC of which state:
SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall possess
the following powers:

xxx xxx xxx xxx

(l) To suspend, or revoke, after proper notice and hearing, the franchise or certificate
of registration of corporations, partnerships or associations, upon any of the grounds
provided by law, including the following:
xxx xxx xxx xxx
5. Failure to file by-laws within the required period;
xxx xxx xxx xxx
In the exercise of the foregoing authority and jurisdiction of the Commissions or by a
Commissioner or by such other bodies, boards, committees and/or any officer as may be
created or designated by the Commission for the purpose. The decision, ruling or order of
any such Commissioner, bodies, boards, committees and/or officer may be appealed to
the Commission sitting en banc within thirty (30) days after receipt by the appellant of
notice of such decision, ruling or order. The Commission shall promulgate rules of
procedures to govern the proceedings, hearings and appeals of cases falling within its
jurisdiction.
The aggrieved party may appeal the order, decision or ruling of the Commission
sitting en banc to the Supreme Court by petition for review in accordance with the
pertinent provisions of the Rules of Court.
Even under the foregoing express grant of power and authority, there can be
no automatic corporate dissolution simply because the incorporators failed to abide by
the required filing of by-laws embodied in Section 46 of the Corporation Code. There is
no outright demise of corporate existence. Proper notice and hearing are cardinal
components of due process in any democratic institution, agency or society. In other
words, the incorporators must be given the chance to explain their neglect or omission
and remedy the same.
That the failure to file by-laws is not provided for by the Corporation Code but in
another law is of no moment. P.D. No. 902-A, which took effect immediately after its
promulgation on March 11, 1976, is very much apposite to the Code. Accordingly, the
provisions abovequoted supply the law governing the situation in the case at bar,
inasmuch as the Corporation Code and P.D. No. 902-A are statutes in pari
materia. Interpretare et concordare legibus est optimus interpretandi. Every statute
must be so construed and harmonized with other statutes as to form a uniform system of
jurisprudence.[18]
As the rules and regulations or private laws enacted by the corporation to regulate,
govern and control its own actions, affairs and concerns and its stockholders or members
and directors and officers with relation thereto and among themselves in their relation to
it,[19] by-laws are indispensable to corporations in this jurisdiction. These may not be
essential to corporate birth but certainly, these are required by law for an orderly

governance and management of corporations. Nonetheless, failure to file them within the
period required by law by no means tolls the automatic dissolution of a corporation.
In this regard, private respondents are correct in relying on the pronouncements of
this Court in Chung Ka Bio v. Intermediate Appellate Court,[20] as follows:
x x x. Moreover, failure to file the by-laws does not automatically operate to dissolve a
corporation but is now considered only a ground for such dissolution.
Section 19 of the Corporation Law, part of which is now Section 22 of the Corporation
Code, provided that the powers of the corporation would cease if it did not formally
organize and commence the transaction of its business or the continuation of its works
within two years from date of its incorporation. Section 20, which has been reproduced
with some modifications in Section 46 of the Corporation Code, expressly declared that
every corporation formed under this Act, must within one month after the filing of the
articles of incorporation with the Securities and Exchange Commission, adopt a code of
by-laws. Whether this provision should be given mandatory or only directory effect
remained a controversial question until it became academic with the adoption of PD 902A. Under this decree, it is now clear that the failure to file by-laws within the required
period is only a ground for suspension or revocation of the certificate of registration of
corporations.
Non-filing of the by-laws will not result in automatic dissolution of the corporation.
Under Section 6(I) of PD 902-A, the SEC is empowered to suspend or revoke, after
proper notice and hearing, the franchise or certificate of registration of a corporation on
the ground inter alia of failure to file by-laws within the required period. It is clear from
this provision that there must first of all be a hearing to determine the existence of the
ground, and secondly, assuming such finding, the penalty is not necessarily revocation
but may be only suspension of the charter. In fact, under the rules and regulations of the
SEC, failure to file the by-laws on time may be penalized merely with the imposition of
an administrative fine without affecting the corporate existence of the erring firm.
It should be stressed in this connection that substantial compliance with conditions
subsequent will suffice to perfect corporate personality. Organization and commencement
of transaction of corporate business are but conditions subsequent and not prerequisites
for acquisition of corporate personality. The adoption and filing of by-laws is also a
condition subsequent. Under Section 19 of the Corporation Code, a corporation
commences its corporate existence and juridical personality and is deemed incorporated
from the date the Securities and Exchange Commission issues certificate of incorporation
under its official seal. This may be done even before the filing of the by-laws, which
under Section 46 of the Corporation Code, must be adopted within one month after
receipt of official notice of the issuance of its certificate of incorporation.[21]
That the corporation involved herein is under the supervision of the HIGC does not
alter the result of this case. The HIGC has taken over the specialized functions of the
former Home Financing Corporation by virtue of Executive Order No. 90 dated
December 17, 1986.[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 x x x, the provision of Act 1459, as amended by P.D. 902-A, to
the contrary notwithstanding.[23]
WHEREFORE, the instant petition for review on certiorari is hereby DENIED and
the questioned Decision of the Court of Appeals AFFIRMED. This Decision is
immediately executory. Costs against petitioner.
SO ORDERED.

[G.R. No. 108905. October 23, 1997]

GRACE CHRISTIAN HIGH SCHOOL, petitioner, vs. THE COURT OF APPEALS,

GRACE VILLAGE ASSOCIATION, INC., ALEJANDRO G. BELTRAN,
and ERNESTO L. GO, respondents.
DECISION
MENDOZA, J.:
The question for decision in this case is the right of petitioners representative to sit in
the board of directors of respondent Grace Village Association, Inc. as a permanent
member thereof. For fifteen years from 1975 until 1989 petitioners representative had
been recognized as a permanent director of the association. But on February 13, 1990,
petitioner received notice from the associations committee on election that the latter was
reexamining (actually, reconsidering) the right of petitioners representative to continue as
an unelected member of the board. As the board denied petitioners request to be allowed
representation without election, petitioner brought an action for mandamus in the Home
Insurance and Guaranty Corporation. Its action was dismissed by the hearing officer
whose decision was subsequently affirmed by the appeals board. Petitioner appealed to
the Court of Appeals, which in turn upheld the decision of the HIGCs appeals
board. Hence this petition for review based on the following contentions:
1. The Petitioner herein has already acquired a vested right to a permanent seat in the
Board of Directors of Grace Village Association;
2. The amended By-laws of the Association drafted and promulgated by a Committee on
December 20, 1975 is valid and binding; and
3. The Practice of tolerating the automatic inclusion of petitioner as a permanent member
of the Board of Directors of the Association without the benefit of election is allowed
under the law.[1]
Briefly stated, the facts are as follows:

Petitioner Grace Christian High School is an educational institution offering

preparatory, kindergarten and secondary courses at the Grace Village in Quezon
City. Private respondent Grace Village Association, Inc., on the other hand, is an
organization of lot and/or building owners, lessees and residents at Grace Village, while
private respondents Alejandro G. Beltran and Ernesto L. Go were its president and
chairman of the committee on election, respectively, in 1990, when this suit was brought.
As adopted in 1968, the by-laws of the association provided in Article IV, as follows:
The annual meeting of the members of the Association shall be held on the first Sunday
of January in each calendar year at the principal office of the Association at 2:00 P.M.
where they shall elect by plurality vote and by secret balloting, the Board of Directors,
composed of eleven (11) members to serve for one (1) year until their successors are duly
elected and have qualified.[2]
It appears, that on December 20, 1975, a committee of the board of directors
prepared a draft of an amendment to the by-laws, reading as follows:[3]
VI. ANNUAL MEETING
The Annual Meeting of the members of the Association shall be held on the second
Thursday of January of each year. Each Charter or Associate Member of the Association
is entitled to vote. He shall be entitled to as many votes as he has acquired thru his
monthly membership fees only computed on a ratio of TEN (P10.00) PESOS for one
vote.
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.
This draft was never presented to the general membership for
approval. Nevertheless, from 1975, after it was presumably submitted to the board, up to
1990, petitioner was given a permanent seat in the board of directors of the
association. On February 13, 1990, the associations committee on election in a letter
informed James Tan, principal of the school, that it was the sentiment that all directors
should be elected by members of the association because to make a person or entity a
permanent Director would deprive the right of voters to vote for fifteen (15) members of
the Board, and it is undemocratic for a person or entity to hold office in perpetuity. [4] For
this reason, Tan was told that the proposal to make the Grace Christian High School
representative as a permanent director of the association, although previously tolerated in
the past elections should be reexamined. Following this advice, notices were sent to the
members of the association that the provision on election of directors of the 1968 by-laws
of the association would be observed.

Petitioner requested the chairman of the election committee to change the notice of
election by following the procedure in previous elections, claiming that the notice issued
for the 1990 elections ran counter to the practice in previous years and was in violation of
the by-laws (of 1975) and unlawfully deprive[d] Grace Christian High School of its
vested right [to] a permanent seat in the board.[5]
As the association denied its request, the school brought suit for mandamus in the
Home Insurance and Guaranty Corporation to compel the board of directors of the
association to recognize its right to a permanent seat in the board. Petitioner based its
claim on the following portion of the proposed amendment which, it contended, had
become part of the by-laws of the association as Article VI, paragraph 2, thereof:
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.
It appears that the opinion of the Securities and Exchange Commission on the
validity of this provision was sought by the association and that in reply to the query, the
SEC rendered an opinion to the effect that the practice of allowing unelected members in
the board was contrary to the existing by-laws of the association and to 92 of the
Corporation Code (B.P. Blg. 68).
Private respondent association cited the SEC opinion in its answer. Additionally, the
association contended that the basis of the petition for mandamus was merely a proposed
by-laws which has not yet been approved by competent authority nor registered with the
SEC or HIGC. It argued that the by-laws which was registered with the SEC on January
16, 1969 should be the prevailing by-laws of the association and not the proposed
amended by-laws.[6]
In reply, petitioner maintained that the amended by-laws is valid and binding and that
the association was estopped from questioning the by-laws.[7]
A preliminary conference was held on March 29, 1990 but nothing substantial was
agreed upon. The parties merely agreed that the board of directors of the association
should meet on April 17, 1990 and April 24, 1990 for the purpose of discussing the
amendment of the by-laws and a possible amicable settlement of the case. A meeting was
held on April 17, 1990, but the parties failed to reach an agreement.Instead, the board
adopted a resolution declaring the 1975 provision null and void for lack of approval by
members of the association and the 1968 by-laws to be effective.
On June 20, 1990, the hearing officer of the HIGC rendered a decision dismissing
petitioners action. The hearing officer held that the amended by-laws, upon which
petitioner based its claim, [was] merely a proposed by-laws which, although implemented
in the past, had not yet been ratified by the members of the association nor approved by
competent authority; that, on the contrary, in the meeting held on April 17, 1990, the
directors of the association declared the proposed by-law dated December 20, 1975
prepared by the committee on by-laws . . . null and void and the by-laws of December 17,
1968 as the prevailing by-laws under which the association is to operate until such time

that the proposed amendments to the by-laws are approved and ratified by a majority of
the members of the association and duly filed and approved by the pertinent government
agency. The hearing officer rejected petitioners contention that it had acquired a vested
right to a permanent seat in the board of directors. He held that past practice in election of
directors could not give 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 onethird (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 by-laws, 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 bylaws.
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 by-laws. The owners of two-thirds
of the subscribed capital stock, or two-thirds of the members if there be no capital stock,
may delegate to the board of directors the power to amend or repeal any by-law or to
adopt new by-laws:Provided, however, That any power delegated to the board of
directors to amend or repeal any by-law or adopt new by-laws shall be considered as
revoked whenever a majority of the stockholders or of the members of the corporation
shall so vote at a regular or special meeting. And provided, further, That the Director of
the Bureau of Commerce and Industry shall not hereafter file an amendment to the bylaws of any bank, banking institution or building and loan association, unless
accompanied by certificate of the Bank Commissioner to the effect that such amendments
are in accordance with law.
The proposed amendment to the by-laws was never approved by the majority of the
members of the association as required by these provisions of the law and by-laws. But
petitioner contends that the members of the committee which prepared the proposed
amendment were duly authorized to do so and that because the members of the
association thereafter implemented the provision for fifteen years, the proposed
amendment for all intents and purposes should be considered to have been ratified by
them. Petitioner contends:[11]
Considering, therefore, that the agents or committee were duly authorized to draft the
amended by-laws and the acts done by the agents were in accordance with such authority,
the acts of the agents from the very beginning were lawful and binding on the
homeowners (the principals) per se without need of any ratification or adoption. The
more has the amended by-laws become binding on the homeowners when the
homeowners followed and implemented the provisions of the amended by-laws. This is
not merely tantamount to tacit ratification of the acts done by duly authorized agents but
express approval and confirmation of what the agents did pursuant to the authority
granted to them.
Corollarily, petitioner claims that it has acquired a vested right to a permanent seat in
the board. Says petitioner:
The right of the petitioner to an automatic membership in the board of the Association
was granted by the members of the Association themselves and this grant has been
implemented by members of the board themselves all through the years. Outside the
present membership of the board, not a single member of the Association has registered
any desire to remove the right of herein petitioner to an automatic membership in the
board. If there is anybody who has the right to take away such right of the petitioner, it
would be the individual members of the Association through a referendum and not the
present board some of the members of which are motivated by personal interest.
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 bylaws 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 corporation: Provided, however, That in corporations, other than
banks, in which the United States has or may have a vested interest, pursuant to the
powers granted or delegated by the Trading with the Enemy Act, as amended, and similar
Acts of Congress of the United States relating to the same subject, or by Executive Order
No. 9095 of the President of the United States, as heretofore or hereafter amended, or
both, the directors need not be elected from among the holders of the stock, or, where
there is no stock from the members of the corporation. (emphasis added)

29. At the meeting for the adoption of the original by-laws, or at such subsequent meeting
as may be then determined, directors shall be elected to hold their offices for one year and
until their successors are elected and qualified. Thereafter the directors of the corporation
shall be elected annually by the stockholders if it be a stock corporation or by the
members if it be a nonstock corporation, and if no provision is made in the by-laws for
the time of election the same shall be held on the first Tuesday after the first Monday in
January. Unless otherwise provided in the by-laws, two weeks notice of the election of
directors must be given by publication in some newspaper of general circulation devoted
to the publication of general news at the place where the principal office of the
corporation is established or located, and by written notice deposited in the post-office,
postage pre-paid, addressed to each stockholder, or, if there be no stockholders, then to
each member, at his last known place of residence. If there be no newspaper published at
the place where the principal office of the corporation is established or located, a notice
of the election of directors shall be posted for a period of three weeks immediately
preceding the election in at least three public places, in the place where the principal
office of the corporation is established or located. (Emphasis added)
[12]

The present Corporation Code (B.P. Blg. 68), which took effect on May 1, 1980,
similarly provides:

23. The Board of Directors or Trustees. - Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all
business conducted and all property of such corporations controlled and held by the board
of directors or trustees to be elected from among the holders of stocks, or where there is
no stock, from among the members of the corporation, who shall hold office for one (1)
year and until their successors are elected and qualified. (Emphasis added)
These provisions of the former and present corporation law leave no room for doubt
as to their meaning: the board of directors of corporations must be elected from among
the stockholders or members. There may be corporations in which there are unelected
members in the board but it is clear that in the examples cited by petitioner the unelected
members sit as ex officio members, i.e., by virtue of and for as long as they hold a
particular 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.

[G.R. No. 121791. December 23, 1998]

ENRIQUE
SALAFRANCA, petitioner,
vs. PHILAMLIFE
(PAMPLONA)
VILLAGE, HOMEOWNERS ASSOCIATION, INC., BONIFACIO DAZO
and THE SECOND DIVISION, NATIONAL LABOR RELATIONS
COMMISSION (NLRC), respondents.
DECISION
ROMERO, J.:
Petitioner Enrique Salafranca started working with the private respondent Philamlife
Village Homeowners Association on May 1, 1981 as administrative officer for a period of
six months. From this date until December 31, 1983, petitioner was reappointed to his
position three more times.[1]As administrative officer, petitioner was generally responsible
for the management of the villages day to day activities. [2] After petitioners term of
employment expired on December 31, 1983, he still continued to work in the same
capacity, albeit, without the benefit of a renewed contract.

Sometime in 1987, private respondent decided to amend its by-laws. Included therein
was a provision regarding officers, specifically, the position of administrative officer
under which said officer shall hold office at the pleasure of the Board of Directors. In
view of this development, private respondent, on July 3, 1987, informed the petitioner
that his term of office shall be coterminus with the Board of Directors which appointed
him to his position.Furthermore, until he submits a medical certificate showing his state
of health, his employment shall be on a month-to-month basis. [3] Oddly, notwithstanding
the failure of herein petitioner to submit his medical certificate, he continued working
until his termination in December 1992.[4]Claiming that his services had been unlawfully
and unceremoniously dispensed with, petitioner filed a complaint for illegal dismissal
with money claims and for damages.[5]
After the submission by the parties of their respective position papers and other
pleadings, the Labor Arbiter rendered a decision[6] ordering private respondent to pay the
petitioner the amount of P257,833.33 representing his backwages, separation pay and
13th month pay. In justifying the award, the Labor Arbiter elucidated:
Respondents contention that complainants term of employment was co-terminus with the
term of Office of the Board of Directors, is wanting in merit.Records show that
complainant had been hired in 1981 while the Amendment of the respondents By-Laws
making the position of an Administrative Officer co-terminus with the term of the Board
of Directors was made in 1987. Evidently, the said Amendment would not be applicable
to the case of complainant who had become a regular employee long time before the
Amendment took place. Moreover, the Amendment should be applied prospectively and
not retroactively.
On appeal by the private respondent, the NLRC reversed the decision of the
Labor Arbiter and rendered a new one[7] reducing petitioners monetary award to only onehalf (1/2) month pay for every year of service representing his retirement pay. In other
words, the NLRC viewed the dismissal of the petitioner as a valid act by the private
respondent.
The fact that he continued to perform the function of the office of administrative officer
without extension or re-appointment thereafter, to our mind, did not in any way make his
employment permanent as in fact, he was even reminded of the nature of his position by
then president of the association Jaime Y. Ladao in a letter of 3 July 1987. His reply to the
aforesaid letter, claiming his employment regular, and viz a viz, referring to submit his
medical certificate, notwithstanding, to our mind, merely underscored the need to define
his position as, in fact, the Associations Rules and Regulations were amended if but to put
to rest the tenural (sic) limit of the office of the Administrative Officer in accordance with
its earlier intention, that it is co-terminus with that of the members of the Board of
Directors.
WHEREFORE, the decision appealed from is hereby set aside. Respondents are hereby
ordered to pay herein appellee one half (1/2) month pay for every year of service
representing his retirement pay.

In view of the sudden turn of events, petitioner has elevated the case to this Court
assigning the following errors:[8]
1. The NLRC gravely abused its discretion when it ruled that the employment of
the Petitioner is not purely based on considerations of Employer-Employee
relationship.
2. Petitioner was illegally dismissed by private respondents.
As to the first assigned error by the petitioner, we need not dwell on this at
length. We agree with the Solicitor Generals observation that an employer-employee
relationship exists between the petitioner and the private respondent.[9]
xxxxxxxxx
The first element is present in this case. Petitioner was hired as Administrative Officer by
respondents. In fact, he was extended successive appointments by respondents.
The second element is also present since it is not denied that respondent PVHA paid
petitioner a fixed salary for his services.
As to the third element, it can be seen from the Records that respondents had the power
of dismissal over petitioner. In their letter dated December 7, 1992, respondents informed
petitioner that they had decided to discontinue his services. In their Position Paper
submitted to the Labor Arbiter, respondents stated that petitioner was dismissed for cause.
(p. 17, Record).
With respect to the fourth and most important element, respondents controlled the work
of petitioner not only with respect to the ends to be achieved but also the means used in
reaching such ends.
Relative to the second assigned error of the petitioner, both the Solicitor General and
the private respondent take the stance that petitioner was not illegally dismissed. [10] On
this aspect, we disagree with their contentions.
On the outset, there is no dispute that petitioner had already attained the status of a
regular employee, as evidenced by his eleven years of service with the private
respondent. Accordingly, petitioner enjoys the right to security of tenure [11] and his
services may be terminated only for causes provided by law.[12]
Viewed in this light, while private respondent has the right to terminate the services
of petitioner, this is subject to both substantive and procedural grounds.[13] The
substantive causes for dismissal are those provided in Articles 282 and 283 of the Labor
Code,[14] while the procedural grounds refer to the observance of the requirement of due
process.[15] In all these instances, it is the private respondent, being the employer, who
must prove the validity of the dismissal.[16]
Having reviewed the records of this case carefully, we conclude that private
respondent utterly failed to substantiate petitioners dismissal, rendering the latters
termination illegal. At the risk of being redundant, it must be stressed that these

requirements are mandatory and non-compliance therewith renders any judgment reached
by the management void and inexistent.[17]
While private respondent imputes gross negligence, and serious misconduct as the
causes of petitioners dismissal,[18] not a shred of evidence was offered in support thereof,
other than bare and uncorroborated allegations. The facts and circumstances regarding
such alleged infractions were never explained. While it is true that private respondent,
through its president Bonifacio Dazo, executed an affidavit narrating the alleged
violations of the petitioner,[19] these were never corroborated by concrete or competent
evidence. It is settled that no undue importance should be given to a sworn statement or
affidavit as a piece of evidence because, being taken ex-parte, an affidavit is almost
always incomplete and inaccurate.[20] Furthermore, it must be noted that when petitioner
was terminated in 1992, these alleged infractions were never raised nor communicated to
him. In fact, these were only revealed after the complaint was filed by the petitioner in
1993. Why there was a delay was never adequately explained by private respondent.
Likewise, we note that Dazo himself was not presented as a witness to give the
petitioner an opportunity to cross-examine him and propound clarificatory questions
regarding matters averred in his affidavit. All told, the foregoing lapses and the belated
submission of the affidavit, cast doubt as to the credibility of the allegations. In sum, the
dismissal of the petitioner had no factual basis whatsoever. The rule is that
unsubstantiated accusations without more, are not tantamount to guilt.[21]
As regards the issue of procedural due process, private respondent justifies its noncompliance therewith in this wise:
The Association Officers, being his peers and friends had a problem however in
terminating his services. He had been found to have committed infractions as previously
enumerated. PVHA could have proceeded with a full-blown investigation to hear these
charges, but the ordeal might break the old mans heart as this will surely affect his
standing in the community. So they decided to make their move as discreetly (but legally)
as possible to save the petitioners reputation. Terminating him in accordance with the
provision of the by-laws of the Association without pointing out his numerous faults and
malfeasance in office and with one-half month pay for every year of service in
accordance with the Retirement Law was the best and only alternative.
We are not impressed. The reasoning advanced by the private respondent is as
puerile as it is preposterous.
The essence of due process is to afford the party an opportunity to be heard and
defend himself, to cleanse his name and reputation from any taint. It includes the twin
requirements of notice and hearing.[22] This concept evolved from the basic tenet that ones
employment or profession is a property right protected by the constitutional guaranty of
due process of law.[23] Hence, an individuals separation from work must be founded on
clearly-established facts, not on mere conjectures and suspicions.[24]
In light of the foregoing, private respondents arguments are clearly baseless and
without merit. In truth, instead of protecting petitioners reputation, private respondent
succeeded in doing exactly the opposite - it condemned the petitioner without even

hearing his side. It is stating the obvious that dismissal, being the ultimate penalty that
can be meted out to an employee, should be based on a clear or convincing ground. [25] As
such, a decision to terminate an employee without fully apprising him of the facts, on the
pretext that the twin requirements of notice and hearing are unnecessary or useless, is an
invalid and obnoxious exercise of management prerogative.
Furthermore, private respondent, in an effort to validate the dismissal of the
petitioner, posits the theory that the latters position is coterminus with that of the Villages
Board of Directors, as provided for in its amended by-laws.[26]
Admittedly, the right to amend the by-laws lies solely in the discretion of the
employer, this being in the exercise of management prerogative or business
judgment. However this right, extensive as it may be, cannot impair the obligation of
existing contracts or rights.
Prescinding from these premises, private respondents insistence that it can legally
dismiss petitioner on the ground that his tenure has expired is untenable. To reiterate,
petitioner, being a regular employee, is entitled to security of tenure; hence, his services
may only be terminated for causes provided by law.[27] A contrary interpretation would
not find justification in the laws or the Constitution. If we were to rule otherwise, it
would enable an employer to remove any employee from his employment by the simple
expediency of amending its by-laws and providing that his/her position shall cease to
exist upon the occurrence of a specified event.
If private respondent wanted to make the petitioners position co-terminus with that of
the Board of Directors, then the amendment must be effective after petitioners stay with
the private respondent, not during his term. Obviously, the measure taken by the private
respondent in amending its by-laws is nothing but a devious, but crude, attempt to
circumvent petitioners right to security of tenure as a regular employee guaranteed under
the Labor Code.[28]
Interestingly, the Solicitor General is of the view that what actually transpired was
that petitioner was retired from his employment, considering the fact that in 1992 he was
already 70 years old and not terminated.[29]
While there seems to be a semblance of plausibility in this contention for the matter
of extension of service of such employee or official is addressed to the sound discretion
of the employer, still we have no doubt that this was just a mere after-thought - a
dismissal disguised as retirement.
In the proceedings before the Labor Arbiter, it is noteworthy that private respondent
never raised the issue of compulsory retirement,[30] as a cause for terminating petitioners
service. In its appeal before the NLRC, this ground was never discussed. In fact, private
respondent, in justifying the termination of the petitioner, still anchored its claim on the
applicability of the amended by-laws. This omission is fatal to private respondents cause,
for the rule is well-settled that matters, theories or arguments not brought out in the
proceedings below will ordinarily not be considered by a reviewing court, as they cannot
be raised for the first time on appeal.[31]

Undaunted, private respondent now asserts that the instant petition was filed out of
time,[32] considering that the assailed NLRC decision was received on June 28, 1995
while this petition was filed on September 20, 1995. At this juncture, we take this
opportunity to state that under the 1997 Rules of Civil Procedure, a petition
for certiorari must now be instituted within sixty days of receipt of the assailed judgment,
order or resolution.[33] However, since this case arose in 1995 and the aforementioned rule
only took effect on July 1, 1997 then the old rule is applicable. Since prior to the
effectivity of the new rule, a special civil action of certiorari should be instituted within a
period of three months,[34] the instant petition which was filed on September 20, 1995
or two months and twenty-two days thereafter, was still within the reglementary period.
With respect to the issue of the monetary award to be given to the petitioner, private
respondent argues that he deserves only retirement pay and nothing more. This position
would have been tenable had petitioner not been illegally dismissed. However, since we
have already ruled petitioners dismissal as without just cause and lacking due process, the
award of backwages and reinstatement is proper.[35]
In this particular case, reinstatement is no longer feasible since petitioner was already
70 years old at the time he was removed from his employment.As a substitute thereof,
separation pay is generally awarded,[36] the amount of which must be equivalent to onemonth salary for every year of service.[37]
With respect to the amount of backwages which, incidentally is different from
separation pay,[38] it is now settled that an illegally dismissed employee is entitled to its
full payment as long as the cause of action accrued after March 21, 1989.[39] Considering
that petitioner was terminated from the service on December 9, 1992, which is after
March 21, 1989, he is entitled to full backwages from the time of the illegal dismissal
without any qualification or deduction.[40]
As regards the issue of retirement pay, private respondent asserts that the correct
amount should be one-half (1/2) month salary for every year of service. This time we
agree with private respondents contention. The pertinent law is Article 287 of the Labor
Code, as amended by Republic Act No. 7641, which reads:
Art. 287. Retirement. - Any employee may be retired upon reaching the retirement age
established in the collective bargaining agreement or other applicable employment
contract.
In case of retirement, the employee shall be entitled to receive such retirement benefits as
he may have earned under existing laws and any collective bargaining agreement and
other agreements: Provided, however, That an employees retirement benefits under any
collective bargaining and other agreements shall not be less than those provided herein.
In the absence of a retirement plan or agreement providing for retirement benefits of
employees in the establishment, an employee upon reaching the age of sixty (60) years or
more, but not beyond sixty-five (65) years which is hereby declared the compulsory
retirement age, who has served at least five (5) years in the said establishment, may retire
and shall be entitled to retirement pay equivalent to at least one-half (1/2) month salary

for every year of service, a fraction of at least six (6) months being considered as one
whole year.
x x x x x x x x x.
With respect to the issue that petitioner, being a managerial employee, is not entitled
to thirteenth month pay, Memorandum Order No. 28, as implemented by the Revised
Guidelines on the Implementation of the 13th Month Pay Law dated November 16, 1987,
provides:
Section 1 of Presidential Decree No. 851 is hereby modified to the extent that all
employers are hereby required to pay all their rank and file employees a 13th month pay
not later than December 24 of every year.
Clearly, therefore, the foregoing exempts managerial employees from this benefit. Of
course, this does not preclude an employer from granting other bonuses, in lieu of the
13th month pay, to managerial employees in its discretion.
Finally, we cannot simply ignore private respondents malicious scheme to remove
petitioner from his position which is contrary to good customs and effected in an
oppressive manner, thus warranting an award of moral and exemplary damages to the
petitioner.[41] Moreover, since petitioner was forced to litigate and incur expenses to
protect his right and interests, he is entitled to attorneys fees.[42]
WHEREFORE, in view of the foregoing, the instant petition is GRANTED. The
NLRC decision dated June 15, 1995 is hereby REVERSED andSET
ASIDE. Private respondent Philamlife Village Homeowners Association is ORDERED:
(1) to pay petitioner Enrique Salafranca separation pay equivalent to one month salary for
every year of service; (2) to pay his full backwages in accordance with our ruling
in Bustamante v. NLRC;[43] (3) to pay his retirement pay in accordance with Article 287
of the Labor Code, as amended by Republic Act No. 7641, (4) to pay moral and
exemplary damages in the amount of twenty thousand (P20,000.00) pesos and ten
thousand (P10,000.00) pesos, respectively;[44] and (5) to pay ten (10%) percent of the total
amount due to petitioner, as attorneys fees. Consequently, the respondent NLRC
is ORDERED to COMPUTE the total monetary benefits awarded in accordance with this
decision and to submit its compliance thereon within thirty (30) days from notice of this
decision.
SO ORDERED.

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

PMI

COLLEGES, petitioner, vs. THE NATIONAL LABOR

COMMISSION and ALEJANDRO GALVAN,respondents.

RELATIONS

DECISION
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 attorneys fees.
A chronicle of the pertinent events on record leading to the filing of the instant
petition is as follows:
On July 7, 1991, petitioner, an educational institution offering courses on basic
seamans training and other marine-related courses, hired private respondent as
contractual instructor with an agreement that the latter shall be paid at an hourly rate
of P30.00 to P50.00, depending on the description of load subjects and on the schedule
for teaching the same. Pursuant to this engagement, private respondent then organized
classes in marine engineering.
Initially, private respondent and other instructors were compensated for services
rendered during the first three periods of the abovementioned contract. However, for
reasons unknown to private respondent, he stopped receiving payment for the succeeding
rendition of services. This claim of non-payment was embodied in a letter dated March 3,
1992, written by petitioners Acting Director, Casimiro A. Aguinaldo, addressed to its
President, Atty. Santiago Pastor, calling attention to and appealing for the early approval
and release of the salaries of its instructors including that of private respondent. It
appeared further in said letter that the salary of private respondent corresponding to the
shipyard and plant visits and the ongoing on-the-job training of Class 41 on board MV
Sweet Glory of Sweet Lines, Inc. was not yet included. This request of the Acting
Director apparently went unheeded. Repeated demands having likewise failed, private
respondent was soon constrained to file a complaint[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.
In support of the abovementioned claims, private respondent submitted documentary
evidence which were annexed to his complaint, such as the detailed load and schedule of
classes with number of class hours and rate per hour (Annex A); PMI Colleges Basic
Seaman Training Course (Annex B); the aforementioned letter-request for payment of
salaries by the Acting Director of PMI Colleges (Annex C); unpaid load of private
respondent (Annex D); and vouchers prepared by the accounting department of petitioner
but whose amounts indicated therein were actually never paid to private respondent
(Exhibit E).
Private respondents claims, as expected, were resisted by petitioner. It alleged that
classes in the courses offered which complainant claimed to have remained unpaid were

not held or conducted in the school premises of PMI Colleges. Only private respondent, it
was argued, knew whether classes were indeed conducted. In the same vein, petitioner
maintained that it exercised no appropriate and proper supervision of the said classes
which activities allegedly violated certain rules and regulations of the Department of
Education, Culture and Sports (DECS). Furthermore, the claims, according to petitioner,
were all exaggerated and that, at any rate, private respondent abandoned his work at the
time he should have commenced the same.
In reply, private respondent belied petitioners allegations contending, among others,
that he conducted lectures within the premises of petitioners rented space located at 5th
Floor, Manufacturers Bldg., Sta. Cruz, Manila; that his students duly enrolled with the
Registrars Office of petitioner; that shipyard and plant visits were conducted at Fort San
Felipe, Cavite Naval Base; that petitioner was fully aware of said shipyard and plant
visits because it even wrote a letter for that purpose; and that basic seaman courses 41
and 42 were sanctioned by the DECS as shown by the records of the Registrars Office.
Later in the proceedings below, petitioner manifested that Mr. Tomas G. Cloma, Jr., a
member of the petitioners Board of Trustees wrote a letter [5] to the Chairman of the Board
on May 23, 1994, clarifying the case of private respondent and stating therein, inter alia,
that under petitioners by-laws only the Chairman is authorized to sign any contract and
that private respondent, in any event, failed to submit documents on the alleged shipyard
and plant visits in Cavite Naval Base.
Attempts at amicable settlement having failed, the parties were required to submit
their respective position papers. Thereafter, on June 16, 1994, the Labor Arbiter issued an
order declaring the case submitted for decision on the basis of the position papers which
the parties filed. Petitioner, however, vigorously opposed this order insisting that there
should be a formal trial on the merits in view of the important factual issues raised. In
another order dated July 22, 1994, the Labor Arbiter impliedly denied petitioners
opposition, reiterating that the case was already submitted for decision. Hence, a decision
was subsequently rendered by the Labor Arbiter on December 7, 1994 finding for the
private respondent. On appeal, the NLRC affirmed the same in toto in its decision of
August 4, 1995.
Aggrieved, petitioner now pleads for the Court to resolve the following issues in its
favor, to wit:
I. Whether the money claims of private respondent representing salaries/wages
as contractual instructor for class instruction, on-the-job training and
shipboard and plant visits have valid legal and factual bases;
II. Whether claims for salaries/wages for services relative to on-the-job training
and shipboard and plant visits by instructors, assuming the same were really
conducted, have valid bases;
III. Whether the petitioner was denied its right to procedural due process; and
IV. Whether the NLRC findings in its questioned resolution have sound legal
and factual support.

We see no compelling reason to grant petitioners plea; the same must, therefore, be
dismissed.
At once, a mere perusal of the issues raised by petitioner already invites dismissal for
demonstrated ignorance and disregard of settled rules on certiorari. Except perhaps for
the third issue, the rest glaringly call for a re-examination, evaluation and appreciation of
the weight and sufficiency of factual evidence presented before the Labor Arbiter. This,
of course, the Court cannot do in the exercise of its certiorarijurisdiction without
transgressing the well-defined limits thereof. The corrective power of the Court in this
regard is confined only to jurisdictional issues and a determination of whether there is
such grave abuse of discretion amounting to lack or excess of jurisdiction on the part of a
tribunal or agency. So unyielding and consistent are the decisional rules thereon that it is
indeed surprising why petitioners counsel failed to accord them the observance they
deserve.
Thus, in San Miguel Foods, Inc. Cebu B-Meg Feed Plant v. Hon. Bienvenido
Laguesma,[6] we were emphatic in declaring that:
This Court is definitely not the proper venue to consider this matter for it is not a trier of
facts. x x x Certiorari is a remedy narrow in its scope and inflexible in character. It is not
a general utility tool in the legal workshop. Factual issues are not a proper subject for
certiorari, as the power of the Supreme Court to review labor cases is limited to the issue
of jurisdiction and grave abuse of discretion. x x x (Emphasis supplied).
Of the same tenor was our disquisition in Ilocos Sur Electric Cooperative,
Inc. v. NLRC[7] where we made plain that:
In certiorari proceedings under Rule 65 of the Rules of Court, judicial review by this
Court does not go so far as to evaluate the sufficiency of evidence upon which the Labor
Arbiter and the NLRC based their determinations, the inquiry being limited essentially to
whether or not said public respondents had acted without or in excess of its jurisdiction or
with grave abuse of discretion. (Emphasis supplied).
To be sure, this does not mean that the Court would disregard altogether the evidence
presented. We merely declare that the extent of review of evidence we ordinarily provide
in other cases is different when it is a special civil action of certiorari. The latter
commands us to merely determine whether there is basis established on record to support
the findings of a tribunal and such findings meet the required quantum of proof, which in
this instance, is substantial evidence. Our deference to the expertise acquired by quasijudicial agencies and the limited scope granted to us in the exercise of certiorari
jurisdiction restrain us from going so far as to probe into the correctness of a tribunals
evaluation of evidence, unless there is palpable mistake and complete disregard thereof in
which case certiorari would be proper.In plain terms, in certiorari proceedings, we are
concerned with mere errors of jurisdiction and not errors of judgment. Thus:
The rule is settled that the original and exclusive jurisdiction of this Court to review a
decision of respondent NLRC (or Executive Labor Arbiter as in this case) in a petition for

certiorari under Rule 65 does not normally include an inquiry into the correctness of its
evaluation of the evidence. Errors of judgment, as distinguished from errors of
jurisdiction, are not within the province of a special civil action for certiorari, which is
merely confined to issues of jurisdiction or grave abuse of discretion. It is thus incumbent
upon petitioner to satisfactorily establish that respondent Commission or executive labor
arbiter acted capriciously and whimsically in total disregard of evidence material to or
even decisive of the controversy, in order that the extraordinary writ of certiorari will
lie. By grave abuse of discretion is meant such capricious and whimsical exercise of
judgment as is equivalent to lack of jurisdiction, and it must be shown that the discretion
was exercised arbitrarily or despotically. For certiorari to lie there must be capricious,
arbitrary and whimsical exercise of power, the very antithesis of the judicial prerogative
in accordance with centuries of both civil law and common law traditions.[8]
The Court entertains no doubt that the foregoing doctrines apply with equal force in
the case at bar.
In any event, granting that we may have to delve into the facts and evidence of the
parties, we still find no puissant justification for us to adjudge both the Labor Arbiters
and NLRCs appreciation of such evidence as indicative of any grave abuse of discretion.
First. Petitioner places so much emphasis on its argument that private respondent did
not produce a copy of the contract pursuant to which he rendered services. This argument
is, of course, puerile. The absence of such copy does not in any manner negate the
existence of a contract of employment since (C)ontracts shall be obligatory, in whatever
form they have been entered into, provided all the essential requisites for their validity are
present.[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 employeremployee relationship. Any competent and relevant evidence to prove the relationship
may be admitted. For, if only documentary evidence would be required to show that
relationship, no scheming employer would ever be brought before the bar of justice, as no
employer would wish to come out with any trace of the illegality he has authored
considering that it should take much weightier proof to invalidate a written instrument. x
x x [10]
At any rate, the vouchers prepared by petitioners own accounting department and the
letter-request of its Acting Director asking for payment of private respondents services
suffice to support a reasonable conclusion that private respondent was employed with
petitioner.How else could one explain the fact that private respondent was supposed to be
paid the amounts mentioned in those documents if he were not employed? Petitioners
evidence is wanting in this respect while private respondent affirmatively stated that the

same arose out of his employment with petitioner. As between the two, the latter is
weightier inasmuch as we accord affirmative testimony greater value than a negative
one. For the foregoing reasons, we find it difficult to agree with petitioners assertion that
the absence of a copy of the alleged contract should nullify private respondents claims.
Neither can we concede that such contract would be invalid just because the
signatory thereon was not the Chairman of the Board which allegedly violated petitioners
by-laws. Since by-laws operate merely as internal rules among the stockholders, they
cannot affect or prejudice third persons who deal with the corporation, unless they have
knowledge of the same.[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
ones 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 self-serving
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 respondents otherwise straightforward explanation of
his claims.
Fourth. The absence of a formal hearing or trial before the Labor Arbiter is no cause
for petitioner to impute grave abuse of discretion.Whether to conduct one or not depends
on the sole discretion of the Labor Arbiter, taking into account the position papers and
supporting documents submitted by the parties on every issue presented. If the Labor
Arbiter, in his judgment, is confident that he can rely on the documents before him, he
cannot be faulted for not conducting a formal trial anymore, unless it would appear that,
in view of the particular circumstances of a case, the documents, without more, are really
insufficient.

As applied to the instant case, we can understand why the Labor Arbiter has opted
not to proceed to trial, considering that private respondent, through annexes to his
position paper, has adequately established that, first of all, he was an employee of
petitioner; second, the nature and character of his services, and finally, the amounts due
him in consideration of his services. Petitioner, it should be reiterated, failed to controvert
them. Actually, it offered only four documents later in the course of the proceedings. It
has only itself to blame if it did not attach its supporting evidence with its position
paper. It cannot now insist that there be a trial to give it an opportunity to ventilate what it
should have done earlier. Section 3, Rule V of the New Rules of Procedure of the NLRC
is very clear on the matter:
Section 3. x x x
These verified position papers x x x shall be accompanied by all supporting documents
including the affidavits of their respective witnesses which shall take the place of the
latters direct testimony. The parties shall thereafter not be allowed to allege facts, or
present evidence to prove facts, not referred to and any cause or causes of action not
included in the complaint or position papers, affidavits and other documents. x x x
(Emphasis supplied).
Thus, given the mandate of said rule, petitioner should have foreseen that the Labor
Arbiter, in view of the non-litigious nature of the proceedings before it, might not proceed
at all to trial. Petitioner cannot now be heard to complain of lack of due process. The
following isapropos:
The petitioners should not have assumed that after they submitted their position papers,
the Labor Arbiter would call for a formal trial or hearing. The holding of a trial is
discretionary on the Labor Arbiter, it is not a matter of right of the parties, especially in
this case, where the private respondents had already presented their documentary
evidence.
xxx
The petitioners did ask in their position paper for a hearing to thresh out some factual
matters pertinent to their case. However, they had no right or reason to assume that their
request would be granted. The petitioners should have attached to their position paper all
the documents that would prove their claim in case it was decided that no hearing should
be conducted or was necessary. In fact, the rules require that position papers shall be
accompanied by all supporting documents, including affidavits of witnesses in lieu of
their direct testimony.[14]
It must be noted that adequate opportunity was given to petitioner in the presentation
of its evidence, such as when the Labor Arbiter granted petitioners Manifestation and
Motion[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.