Stephanie, all surnamed Torres, the Register of Deeds of Marikina and Quezon

City, and petitioner Hi-Yield Realty, Inc. (Hi-Yield). It was docketed as Civil
1. HI-YIELD G.R. No. 168863 Case No. 03-892 with Branch 148 of the Regional Trial Court (RTC)
REALTY, of Makati City.
INCORPORATED, Present:
Petitioner,
On September 15, 2003, petitioner moved to dismiss the petition on grounds of
QUISUMBING, J., Chairperson,
YNARES-SANTIAGO,* improper venue and payment of insufficient docket fees. The RTC denied said
CHICO-NAZARIO,* motion in an Order[4] dated January 22, 2004. The trial court held that the case
- versus -
LEONARDO-DE CASTRO,* and was, in nature, a real action in the form of a derivative suit cognizable by a
BRION, JJ. special commercial court pursuant to Administrative Matter No. 00-11-03-SC.
[5]
Petitioner sought reconsideration, but its motion was denied in an
Order[6] dated April 27, 2004.
HON. COURT OF APPEALS, HON. Promulgated:
CESAR O. UNTALAN, in his capacity as
PRESIDING JUDGE OF RTC-MAKATI, June 23, 2009 Thereafter, petitioner filed a petition for certiorari and prohibition before the
BRANCH 142, HONORIO TORRES & Court of Appeals. In a Decision dated March 10, 2005, the appellate
SONS, INC., and ROBERTO H. TORRES, court agreed with the RTC that the case was a derivative suit. It further ruled
Respondents. that the prayer for annulment of mortgage and foreclosure proceedings was
merely incidental to the main action. The dispositive portion of said decision
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
reads:
DECISION WHEREFORE, premises considered, this Petition is
hereby DISMISSED. However, public respondent is
QUISUMBING, J.: hereby DIRECTED to instruct his Clerk of Court to compute
the properdocket fees and thereafter, to order the private
respondent to pay the same IMMEDIATELY.
This is a special civil action for certiorari seeking to nullify and set aside the
Decision[1] dated March 10, 2005 and Resolution[2] dated May 26, 2005 of the SO ORDERED.[7]
Court of Appeals in CA-G.R. SP. No. 83919. The appellate court had dismissed
the petition for certiorari and prohibition filed by petitioner and denied its
Petitioners motion for reconsideration[8] was denied in a Resolution dated May
reconsideration.
26, 2005.

The antecedent facts of the case are undisputed. Hence, this petition which raises the following issues:

On July 31, 2003, Roberto H. Torres (Roberto), for and on behalf of Honorio I.
Torres & Sons, Inc. (HTSI), filed a Petition for Annulment of Real Estate WHETHER THE HONORABLE COURT OF APPEALS GRAVELY
Mortgage and Foreclosure Sale[3] over two parcels of land located in Marikina ABUSED ITS DISCRETION IN NOT DISMISSING THE CASE
and Quezon City. The suit was filed against Leonora, Ma. Theresa, Glenn and AGAINST HI-YIELD FOR IMPROPER VENUE DESPITE

1
 FINDINGS BY THE TRIAL COURT THAT THE ACTION IS A
REAL ACTION.
II.
WHETHER THE HONORABLE COURT OF APPEALS ERRED
IN NOT DISMISSING THE COMPLAINT AS AGAINST HI-YIELD
EVEN IF THE JOINDER OF PARTIES IN THE COMPLAINT
VIOLATED THE RULES ON VENUE.
III.
WHETHER THE HONORABLE COURT OF APPEALS ERRED
IN HOLDING THAT THE ANNULMENT OF REAL ESTATE
MORTGAGE AND FORECLOSURE SALE IN THE COMPLAINT
IS MERELY INCIDENTAL [TO] THE DERIVATIVE SUIT.[9]
The pivotal issues for resolution are as follows: (1) whether venue was properly
laid; (2) whether there was proper joinder of parties; and (3) whether the action
to annul the real estate mortgage and foreclosure sale is a mere incident of the
derivative suit.
Petitioner imputes grave abuse of discretion on the Court of Appeals for not
dismissing the case against it even as the trial court found the same to be a
real action. It explains that the rule on venue under the Rules of Court prevails
over the rule prescribing the venue for intra-corporate controversies; hence,
HTSI erred when it filed its suit only in Makatiwhen the lands subjects of the
case are in Marikina and Quezon City. Further, petitioner argues that the
appellate court erred in ruling that the action is mainly a derivative suit and the
annulment of real estate mortgage and foreclosure sale is merely incidental
thereto. It points out that the caption of the case, substance of the allegations,
and relief prayed for revealed that the main thrust of the action is to recover the
lands. Lastly, petitioner asserts that it should be dropped as a party to the case
for it has been wrongly impleaded as a non-stockholder defendant in the intra-
corporate dispute.
On the other hand, respondents maintain that the action is primarily a
derivative suit to redress the alleged unauthorized acts of its corporate officers
and major stockholders in connection with the lands. They postulate that the
nullification of the mortgage and foreclosure sale would just be a logical
consequence of a decision adverse to said officers and stockholders.
After careful consideration, we are in agreement that the petition must be
dismissed.
A petition for certiorari is proper if a tribunal, board or officer exercising judicial
or quasi-judicial functions acted without or in excess of jurisdiction or with
grave abuse of discretion amounting to lack or excess of jurisdiction and there
is no appeal, or any plain, speedy and adequate remedy in the ordinary course
of law.[10]
Petitioner sought a review of the trial courts Orders dated January 22,
2004 and April 27, 2004 via a petition for certiorari before the Court of Appeals.
In rendering the assailed decision and resolution, the Court of Appeals was
acting under its concurrent jurisdiction to entertain petitions for certiorari under
paragraph 2,[11] Section 4 of Rule 65 of the Rules of Court. Thus, if erroneous,
the decision and resolution of the appellate court should properly be assailed by
means of a petition for review on certiorari under Rule 45 of the Rules of Court.
The distinction is clear: a petition for certiorari seeks to correct errors of
jurisdiction while a petition for review on certiorari seeks to correct errors of
judgment committed by the court a quo.[12] Indeed, this Court has often reminded
members of the bench and bar that a special civil action for certiorari under Rule
65 lies only when there is no appeal nor plain, speedy and adequate remedy in
the ordinary course of law.[13] In the case at hand, petitioner impetuously filed a
petition for certiorari before us when a petition for review was available as a
speedy and adequate remedy. Notably, petitioner filed the present petition
58[14] days after it received a copy of the assailed resolution dated May 26, 2005.
To our mind, this belated action evidences petitioners effort to substitute for a
lost appeal this petition for certiorari.
For the extraordinary remedy of certiorari to lie by reason of grave
abuse of discretion, the abuse of discretion must be so patent and gross as to
amount to an evasion of positive duty, or a virtual refusal to perform the duty
enjoined or to act in contemplation of law, or where the power is exercised in
2
an arbitrary and despotic manner by reason of passion and personal hostility.
[15]
We find no grave abuse of discretion on the part of the appellate court in this
case.
Simply, the resolution of the issues posed by petitioner rests on a
determination of the nature of the petition filed by respondents in the
RTC. Both the RTC and Court of Appeals ruled that the action is in the form of
a derivative suit although captioned as a petition for annulment of real estate
mortgage and foreclosure sale.
A derivative action is a suit by a shareholder to enforce a corporate cause of action.
[16]
Under the Corporation Code, where a corporation is an injured party, its power to
sue is lodged with its board of directors or trustees. But an individual stockholder
may be permitted to institute a derivative suit on behalf of the corporation in order to
protect or vindicate corporate rights whenever the officials of the corporation refuse
to sue, or are the ones to be sued, or hold control of the corporation. In such
actions, the corporation is the real party-in-interest while the suing stockholder, on
behalf of the corporation, is only a nominal party.[17]
In the case of Filipinas Port Services, Inc. v. Go, [18] we enumerated the
foregoing requisites before a stockholder can file a derivative suit:
a) the party bringing suit should be a shareholder as of the
time of the act or transaction complained of, the number of his
shares not being material;
b) he has tried to exhaust intra-corporate remedies, i.e.,
has made a demand on the board of directors for the appropriate
relief but the latter has failed or refused to heed his plea; and
c) the cause of action actually devolves on the corporation,
the wrongdoing or harm having been, or being caused to the
corporation and not to the particular stockholder bringing the suit.
[19]
Even then, not every suit filed on behalf of the corporation is a derivative
suit. For a derivative suit to prosper, the minority stockholder suing for and on
behalf of the corporation must allege in his complaint that he is suing on a
derivative cause of action on behalf of the corporation and all other
stockholders similarly situated who may wish to join him in the suit. [20] The
Court finds that Roberto had satisfied this requirement in paragraph five (5) of
his petition which reads:
5. Individual petitioner, being a minority stockholder, is
instituting the instant proceeding by way of a derivative suit to
redress wrongs done to petitioner corporation and vindicate
corporate rights due to the mismanagement and abuses
committed against it by its officers and controlling stockholders,
especially by respondent Leonora H. Torres (Leonora, for brevity)
who, without authority from the Board of Directors, arrogated
upon herself the power to bind petitioner corporation from
incurring loan obligations and later allow company properties to
be foreclosed as hereinafter set forth;[21]
Further, while it is true that the complaining stockholder must satisfactorily
show that he has exhausted all means to redress his grievances within the
corporation; such remedy is no longer necessary where the corporation itself is
under the complete control of the person against whom the suit is being
filed. The reason is obvious: a demand upon the board to institute an action
and prosecute the same effectively would have been useless and an exercise
in futility.[22]
Here, Roberto alleged in his petition that earnest efforts were made to reach a
compromise among family members/stockholders before he filed the case. He
also maintained that Leonora Torres held 55% of the outstanding shares
while Ma. Theresa, Glenn and Stephanie excluded him from the affairs of the
corporation. Even more glaring was the fact that from June 10, 1992, when the
first mortgage deed was executed until July 23, 2002, when the properties
mortgaged were foreclosed, the Board of Directors of HTSI did nothing to
rectify the alleged unauthorized transactions of Leonora. Clearly, Roberto could
not expect relief from the board.
3
Derivative suits are governed by a special set of rules under A.M. No. 01-2-04-
SC[23] otherwise known as the Interim Rules of Procedure Governing Intra-
Corporate Controversies under Republic Act No. 8799. [24] Section 1,[25] Rule 1
thereof expressly lists derivative suits among the cases covered by it.
As regards the venue of derivative suits, Section 5, Rule 1 of A.M. No. 01-2-04-
SC states:
SEC. 5. Venue. - All actions covered by these Rules shall
be commenced and tried in the Regional Trial Court which has
jurisdiction over the principal office of the corporation,
partnership, or association concerned. Where the principal office
of the corporation, partnership or association is registered in the
Securities and Exchange Commission as Metro Manila, the
action must be filed in the city or municipality where the head
office is located.
Thus, the Court of Appeals did not commit grave abuse of discretion when it
found that respondents correctly filed the derivative suit before the Makati RTC
where HTSI had its principal office.
There being no showing of any grave abuse of discretion on the part of the
Court of Appeals the other alleged errors will no longer be passed upon as
mere errors of judgment are not proper subjects of a petition for certiorari.
WHEREFORE, the instant petition is hereby DISMISSED. The Decision
dated March 10, 2005 and the Resolution dated May 26, 2005 of the Court of
Appeals in CA-G.R. SP. No. 83919 are AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
2. G.R. No. 161886 March 16, 2007
FILIPINAS PORT SERVICES, INC., represented by stockholders,
ELIODORO C. CRUZ and MINDANAO TERMINAL AND BROKERAGE
SERVICES, INC., Petitioners,
vs.
VICTORIANO S. GO, ARSENIO LOPEZ CHUA, EDGAR C. TRINIDAD,
HERMENEGILDO M. TRINIDAD, JESUS SYBICO, MARY JEAN D. CO,
HENRY CHUA, JOSELITO S. JAYME, ERNESTO S. JAYME, and ELIEZER
B. DE JESUS, Respondents.
DECISION
GARCIA, J.:
Assailed and sought to be set aside in this petition for review on certiorari is the
Decision1 dated 19 January 2004 of the Court of Appeals (CA) in CA-G.R. CV
No. 73827, reversing an earlier decision of the Regional Trial Court (RTC) of
Davao City and accordingly dismissing the derivative suit instituted by
petitioner Eliodoro C. Cruz for and in behalf of the stockholders of co-petitioner
Filipinas Port Services, Inc. (Filport, hereafter).
The case is actually an intra-corporate dispute involving Filport, a domestic
corporation engaged in stevedoring services with principal office in Davao City.
It was initially instituted with the Securities and Exchange Commission (SEC)
where the case hibernated and remained unresolved for several years until it
was overtaken by the enactment into law, on 19 July 2000, of Republic Act
(R.A.) No. 8799, otherwise known as the Securities Regulation Code. From the
SEC and consistent with R.A. No. 8799, the case was transferred to the RTC
of Manila, Branch 14, sitting as a corporate court. Subsequently, upon
respondents’ motion, the case eventually landed at the RTC of Davao City
where it was docketed as Civil Case No. 28,552-2001. RTC-Davao City,
Branch 10, ruled in favor of the petitioners prompting respondents to go to the
CA in CA-G.R. CV No. 73827. This time, the respondents prevailed, hence, this
petition for review by the petitioners.
The relevant facts:
4
On 4 September 1992, petitioner Eliodoro C. Cruz, Filport’s president from
1968 until he lost his bid for reelection as Filport’s president during the general
stockholders’ meeting in 1991, wrote a letter 2 to the corporation’s Board of
Directors questioning the board’s creation of the following positions with a
monthly remuneration of ₱13,050.00 each, and the election thereto of certain
members of the board, to wit:
Asst. Vice-President for Corporate Planning - Edgar C. Trinidad
(Director)
Asst. Vice-President for Operations - Eliezer B. de Jesus (Director)
Asst. Vice-President for Finance - Mary Jean D. Co (Director)
Asst. Vice-President for Administration - Henry Chua (Director)
Special Asst. to the Chairman - Arsenio Lopez Chua (Director)
Special Asst. to the President - Fortunato V. de Castro
In his aforesaid letter, Cruz requested the board to take necessary
action/actions to recover from those elected to the aforementioned positions
the salaries they have received.
On 15 September 1992, the board met and took up Cruz’s letter. The records
do not show what specific action/actions the board had taken on the letter.
Evidently, whatever action/actions the board took did not sit well with Cruz.
On 14 June 1993, Cruz, purportedly in representation of Filport and its
stockholders, among which is herein co-petitioner Mindanao Terminal and
Brokerage Services, Inc. (Minterbro), filed with the SEC a petition 3 which he
describes as a derivative suit against the herein respondents who were then
the incumbent members of Filport’s Board of Directors, for alleged acts of
mismanagement detrimental to the interest of the corporation and its
shareholders at large, namely:
1. creation of an executive committee in 1991 composed of seven (7)
members of the board with compensation of ₱500.00 for each member
per meeting, an office which, to Cruz, is not provided for in the by-laws
of the corporation and whose function merely duplicates those of the
President and General Manager;
2. increase in the emoluments of the Chairman, Vice-President,
Treasurer and Assistant General Manager which increases are greatly
disproportionate to the volume and character of the work of the directors
holding said positions;
3. re-creation of the positions of Assistant Vice-Presidents (AVPs) for
Corporate Planning, Operations, Finance and Administration, and the
election thereto of board members Edgar C. Trinidad, Eliezer de Jesus,
Mary Jean D. Co and Henry Chua, respectively; and
4. creation of the additional positions of Special Assistants to the
President and the Board Chairman, with Fortunato V. de Castro and
Arsenio Lopez Chua elected to the same, the directors
elected/appointed thereto not doing any work to deserve the monthly
remuneration of ₱13,050.00 each.
In the same petition, docketed as SEC Case No. 06-93-4491, Cruz alleged that
despite demands made upon the respondent members of the board of
directors to desist from creating the positions in question and to account for the
amounts incurred in creating the same, the demands were unheeded. Cruz
thus prayed that the respondent members of the board of directors be made to
pay Filport, jointly and severally, the sums of money variedly representing the
damages incurred as a result of the creation of the offices/positions complained
of and the aggregate amount of the questioned increased salaries.
In their common Answer with Counterclaim, 4 the respondents denied the
allegations of mismanagement and materially averred as follows:
1. the creation of the executive committee and the grant of per diems for
the attendance of each member are allowed under the by-laws of the
corporation;
2. the increases in the salaries/emoluments of the Chairman, Vice-
President, Treasurer and Assistant General Manager were well within
5
 the financial capacity of the corporation and well-deserved by the
officers elected thereto; and
3. the positions of AVPs for Corporate Planning, Operations, Finance
and Administration were already in existence during the tenure of Cruz
as president of the corporation, and were merely recreated by the
Board, adding that all those appointed to said positions of Assistant Vice
Presidents, as well as the additional position of Special Assistants to the
Chairman and the President, rendered services to deserve their
compensation.
In the same Answer, respondents further averred that Cruz and his co-
petitioner Minterbro, while admittedly stockholders of Filport, have no authority
nor standing to bring the so-called "derivative suit" for and in behalf of the
corporation; that respondent Mary Jean D. Co has already ceased to be a
corporate director and so with Fortunato V. de Castro, one of those holding an
assailed position; and that no demand to cease and desist from further
committing the acts complained of was made upon the board. By way of
affirmative defenses, respondents asserted that (1) the petition is not duly
verified by petitioner Filport which is the real party-in-interest; (2) Filport, as
represented by Cruz and Minterbro, failed to exhaust remedies for redress
within the corporation before bringing the suit; and (3) the petition does not
show that the stockholders bringing the suit are joined as nominal parties. In
support of their counterclaim, respondents averred that Cruz filed the alleged
derivative suit in bad faith and purely for harassment purposes on account of
his non-reelection to the board in the 1991 general stockholders’ meeting.
As earlier narrated, the derivative suit (SEC Case No. 06-93-4491) hibernated
with the SEC for a long period of time. With the enactment of R.A. No. 8799,
the case was first turned over to the RTC of Manila, Branch 14, sitting as a
corporate court. Thereafter, on respondents’ motion, it was eventually
transferred to the RTC of Davao City whereat it was docketed as Civil Case
No. 28,552-2001 and raffled to Branch 10 thereof.
5
On 10 December 2001, RTC-Davao City rendered its decision in the case.
Even as it found that (1) Filport’s Board of Directors has the power to create
positions not provided for in the by-laws of the corporation since the board is
the governing body; and (2) the increases in the salaries of the board
chairman, vice-president, treasurer and assistant general manager are
reasonable, the trial court nonetheless rendered judgment against the
respondents by ordering the directors holding the positions of Assistant Vice
President for Corporate Planning, Special Assistant to the President and
Special Assistant to the Board Chairman to refund to the corporation the
salaries they have received as such officers "considering that Filipinas Port
Services is not a big corporation requiring multiple executive positions" and
that said positions "were just created for accommodation." We quote the fallo
of the trial court’s decision.
WHEREFORE, judgment is rendered ordering:
Edgar C. Trinidad under the third and fourth causes of action to restore to the
corporation the total amount of salaries he received as assistant vice president
for corporate planning; and likewise ordering Fortunato V. de Castro and
Arsenio Lopez Chua under the fourth cause of action to restore to the
corporation the salaries they each received as special assistants respectively
to the president and board chairman. In case of insolvency of any or all of
them, the members of the board who created their positions are subsidiarily
liable.
The counter claim is dismissed.
From the adverse decision of the trial court, herein respondents went on
appeal to the CA in CA-G.R. CV No. 73827.
In its decision6 of 19 January 2004, the CA, taking exceptions to the findings of
the trial court that the creation of the positions of Assistant Vice President for
Corporate Planning, Special Assistant to the President and Special Assistant to
the Board Chairman was merely for accommodation purposes, granted the
respondents’ appeal, reversed and set aside the appealed decision of the trial
court and accordingly dismissed the so-called derivative suit filed by Cruz, et
al., thus:
IN VIEW OF ALL THE FOREGOING, the instant appeal is GRANTED, the
challenged decision is REVERSED and SET ASIDE, and a new one
entered DISMISSING Civil Case No. 28,552-2001 with no pronouncement as
to costs.
SO ORDERED.
6
Intrigued, and quite understandably, by the fact that, in its decision, the CA,
before proceeding to address the merits of the appeal, prefaced its disposition
with the statement reading "[T]he appeal is bereft of merit," 7 thereby
contradicting the very fallo of its own decision and the discussions made in the
body thereof, respondents filed with the appellate court a Motion For Nunc Pro
Tunc Order,8 thereunder praying that the phrase "[T]he appeal is bereft of
merit," be corrected to read "[T]he appeal is impressed with merit." In its
resolution9 of 23 April 2004, the CA granted the respondents’ motion and
accordingly effected the desired correction.
Hence, petitioners’ present recourse.
Petitioners assigned four (4) errors allegedly committed by the CA. For clarity,
we shall formulate the issues as follows:
1. Whether the CA erred in holding that Filport’s Board of Directors
acted within its powers in creating the executive committee and the
positions of AVPs for Corporate Planning, Operations, Finance and
Administration, and those of the Special Assistants to the President and
the Board Chairman, each with corresponding remuneration, and in
increasing the salaries of the positions of Board Chairman, Vice-
President, Treasurer and Assistant General Manager; and
2. Whether the CA erred in finding that no evidence exists to prove that
(a) the positions of AVP for Corporate Planning, Special Assistant to the
President and Special Assistant to the Board Chairman were created
merely for accommodation, and (b) the salaries/emoluments
corresponding to said positions were actually paid to and received by
the directors appointed thereto.
For their part, respondents, aside from questioning the propriety of the instant
petition as the same allegedly raises only questions of fact and not of law, also
put in issue the purported derivative nature of the main suit initiated by
petitioner Eliodoro C. Cruz allegedly in representation of and in behalf of Filport
and its stockholders.
The petition is bereft of merit.
It is axiomatic that in petitions for review on certiorari under Rule 45 of the
Rules of Court, only questions of law may be raised and passed upon by the
Court. Factual findings of the CA are binding and conclusive and will not be
reviewed or disturbed on appeal. 10 Of course, the rule is not cast in stone; it
admits of certain exceptions, such as when the findings of fact of the appellate
court are at variance with those of the trial court, 11 as here. For this reason, and
for a proper and complete resolution of the case, we shall delve into the
records and reexamine the same.
The governing body of a corporation is its board of directors. Section 23 of the
Corporation Code12 explicitly provides that unless otherwise provided therein,
the corporate powers of all corporations formed under the Code shall be
exercised, all business conducted and all property of the corporation shall be
controlled and held by a board of directors. Thus, with the exception only of
some powers expressly granted by law to stockholders (or members, in case of
non-stock corporations), the board of directors (or trustees, in case of non-
stock corporations) has the sole authority to determine policies, enter into
contracts, and conduct the ordinary business of the corporation within the
scope of its charter, i.e., its articles of incorporation, by-laws and relevant
provisions of law. Verily, the authority of the board of directors is restricted to
the management of the regular business affairs of the corporation, unless more
extensive power is expressly conferred.
The raison d’etre behind the conferment of corporate powers on the board of
directors is not lost on the Court. Indeed, the concentration in the board of the
powers of control of corporate business and of appointment of corporate
officers and managers is necessary for efficiency in any large organization.
Stockholders are too numerous, scattered and unfamiliar with the business of a
corporation to conduct its business directly. And so the plan of corporate
organization is for the stockholders to choose the directors who shall control
and supervise the conduct of corporate business. 13
In the present case, the board’s creation of the positions of Assistant Vice
Presidents for Corporate Planning, Operations, Finance and Administration,
and those of the Special Assistants to the President and the Board Chairman,
was in accordance with the regular business operations of Filport as it is
authorized to do so by the corporation’s by-laws, pursuant to the Corporation
Code.
7
The election of officers of a corporation is provided for under Section 25 of the
Code which reads:
Sec. 25. Corporate officers, quorum. – Immediately after their election, the
directors of a corporation must formally organize by the election of a president,
who shall be a director, a treasurer who may or may not be a director, a
secretary who shall be a resident and citizen of the Philippines, and such other
officers as may be provided for in the by-laws. (Emphasis supplied.)
In turn, the amended Bylaws of Filport 14 provides the following:
Officers of the corporation, as provided for by the by-laws, shall be elected by
the board of directors at their first meeting after the election of Directors. xxx
The officers of the corporation shall be a Chairman of the Board, President, a
Vice-President, a Secretary, a Treasurer, a General Manager and such other
officers as the Board of Directors may from time to time provide, and these
officers shall be elected to hold office until their successors are elected and
qualified. (Emphasis supplied.)
Likewise, the fixing of the corresponding remuneration for the positions in
question is provided for in the same by-laws of the corporation, viz:
xxx The Board of Directors shall fix the compensation of the officers and agents
of the corporation. (Emphasis supplied.)
Unfortunately, the bylaws of the corporation are silent as to the creation by its
board of directors of an executive committee. Under Section 35 15 of the
Corporation Code, the creation of an executive committee must be provided for
in the bylaws of the corporation.
Notwithstanding the silence of Filport’s bylaws on the matter, we cannot rule
that the creation of the executive committee by the board of directors is illegal
or unlawful. One reason is the absence of a showing as to the true nature and
functions of said executive committee considering that the "executive
committee," referred to in Section 35 of the Corporation Code which is as
powerful as the board of directors and in effect acting for the board itself,
should be distinguished from other committees which are within the
competency of the board to create at anytime and whose actions require
ratification and confirmation by the board. 16 Another reason is that, ratiocinated
by both the two (2) courts below, the Board of Directors has the power to
create positions not provided for in Filport’s bylaws since the board is the
corporation’s governing body, clearly upholding the power of its board to
exercise its prerogatives in managing the business affairs of the corporation.
As well, it may not be amiss to point out that, as testified to and admitted by
petitioner Cruz himself, it was during his incumbency as Filport president that
the executive committee in question was created, and that he was even the
one who moved for the creation of the positions of the AVPs for Operations,
Finance and Administration. By his acquiescence and/or ratification of the
creation of the aforesaid offices, Cruz is virtually precluded from suing to
declare such acts of the board as invalid or illegal. And it makes no difference
that he sues in behalf of himself and of the other stockholders. Indeed, as his
voice was not heard in protest when he was still Filport’s president, raising a
hue and cry only now leads to the inevitable conclusion that he did so out of
spite and resentment for his non-reelection as president of the corporation.
With regard to the increased emoluments of the Board Chairman, Vice-
President, Treasurer and Assistant General Manager which are supposedly
disproportionate to the volume and nature of their work, the Court, after a
judicious scrutiny of the increase vis-à-vis the value of the services rendered to
the corporation by the officers concerned, agrees with the findings of both the
trial and appellate courts as to the reasonableness and fairness thereof.
Continuing, petitioners contend that the CA did not appreciate their evidence as
to the alleged acts of mismanagement by the then incumbent board. A perusal
of the records, however, reveals that petitioners merely relied on the testimony
of Cruz in support of their bold claim of mismanagement. To the mind of the
Court, Cruz’ testimony on the matter of mismanagement is bereft of any
foundation. As it were, his testimony consists merely of insinuations of alleged
wrongdoings on the part of the board. Without more, petitioners’ posture of
mismanagement must fall and with it goes their prayer to hold the respondents
liable therefor.
But even assuming, in gratia argumenti, that there was mismanagement
resulting to corporate damages and/or business losses, still the respondents
may not be held liable in the absence, as here, of a showing of bad faith in
doing the acts complained of.
8
If the cause of the losses is merely error in business judgment, not amounting
to bad faith or negligence, directors and/or officers are not liable. 17 For them to
be held accountable, the mismanagement and the resulting losses on account
thereof are not the only matters to be proven; it is likewise necessary to show
that the directors and/or officers acted in bad faith and with malice in doing the
assailed acts. Bad faith does not simply connote bad judgment or negligence; it
imports a dishonest purpose or some moral obliquity and conscious doing of a
wrong, a breach of a known duty through some motive or interest or ill-will
partaking of the nature of fraud.18 We have searched the records and nowhere
do we find a "dishonest purpose" or "some moral obliquity," or "conscious doing
of a wrong" on the part of the respondents that "partakes of the nature of
fraud."
We thus extend concurrence to the following findings of the CA, affirmatory of
those of the trial court:
xxx As a matter of fact, it was during the term of appellee Cruz, as president
and director, that the executive committee was created. What is more, it was
appellee himself who moved for the creation of the positions of assistant vice
presidents for operations, for finance, and for administration. He should not be
heard to complain thereafter for similar corporate acts.
The increase in the salaries of the board chairman, president, treasurer, and
assistant general manager are indeed reasonable enough in view of the
responsibilities assigned to them, and the special knowledge required, to be
able to effectively discharge their respective functions and duties.
Surely, factual findings of trial courts, especially when affirmed by the CA, are
binding and conclusive on this Court.
There is, however, a factual matter over which the CA and the trial court parted
ways. We refer to the accommodation angle.
The trial court was with petitioner Cruz in saying that the creation of the
positions of the three (3) AVPs for Corporate Planning, Special Assistant to the
President and Special Assistant to the Board Chairman, each with a salary of
₱13,050.00 a month, was merely for accommodation purposes considering
that Filport is not a big corporation requiring multiple executive positions.
Hence, the trial court’s order for said officers to return the amounts they
received as compensation.
On the other hand, the CA took issue with the trial court and ruled that Cruz’s
accommodation theory is not based on facts and without any evidentiary
substantiation.
We concur with the line of the appellate court. For truly, aside from Cruz’s bare
and self-serving testimony, no other evidence was presented to show the fact
of "accommodation." By itself, the testimony of Cruz is not enough to support
his claim that accommodation was the underlying factor behind the creation of
the aforementioned three (3) positions.
It is elementary in procedural law that bare allegations do not constitute
evidence adequate to support a conclusion. It is basic in the rule of evidence
that he who alleges a fact bears the burden of proving it by the quantum of
proof required. Bare allegations, unsubstantiated by evidence, are not
equivalent to proof under the Rules of Court. 19 The party having the burden of
proof must establish his case by a preponderance of evidence. 20
Besides, the determination of the necessity for additional offices and/or
positions in a corporation is a management prerogative which courts are not
wont to review in the absence of any proof that such prerogative was exercised
in bad faith or with malice.1awphi1.nét
Indeed, it would be an improper judicial intrusion into the internal affairs of
Filport were the Court to determine the propriety or impropriety of the creation
of offices therein and the grant of salary increases to officers thereof. Such are
corporate and/or business decisions which only the corporation’s Board of
Directors can determine.
So it is that in Philippine Stock Exchange, Inc. v. CA, 21 the Court unequivocally
held:
Questions of policy or of management are left solely to the honest decision of
the board as the business manager of the corporation, and the court is without
authority to substitute its judgment for that of the board, and as long as it acts
in good faith and in the exercise of honest judgment in the interest of the
corporation, its orders are not reviewable by the courts.
9
In a last-ditch attempt to salvage their cause, petitioners assert that the CA
went beyond the issues raised in the court of origin when it ruled on the
absence of receipt of actual payment of the salaries/emoluments pertaining to
the positions of Assistant Vice-President for Corporate Planning, Special
Assistant to the Board Chairman and Special Assistant to the President.
Petitioners insist that the issue of nonpayment was never raised by the
respondents before the trial court, as in fact, the latter allegedly admitted the
same in their Answer With Counterclaim.
We are not persuaded.
By claiming that Filport suffered damages because the directors appointed to
the assailed positions are not doing anything to deserve their compensation,
petitioners are saddled with the burden of proving that salaries were actually
paid. Since the trial court, in effect, found that the petitioners successfully
proved payment of the salaries when it directed the reimbursements of the
same, respondents necessarily have to raise the issue on appeal. And the CA
rightly resolved the issue when it found that no evidence of actual payment of
the salaries in question was actually adduced. Respondents’ alleged admission
of the fact of payment cannot be inferred from a reading of the pertinent
portions of the parties’ respective initiatory pleadings. Respondents’ allegations
in their Answer With Counterclaim that the officers corresponding to the
positions created "performed the work called for in their positions" or "deserve
their compensation," cannot be interpreted to mean that they were "actually
paid" such compensation. Directly put, the averment that "one deserves one’s
compensation" does not necessarily carry the implication that "such
compensation was actually remitted or received." And because payment was
not duly proven, there is no evidentiary or factual basis for the trial court to
direct respondents to make reimbursements thereof to the corporation.
This brings us to the respondents’ claim that the case filed by the petitioners
before the SEC, which eventually landed in RTC-Davao City as Civil Case No.
28,552-2001, is not a derivative suit, as maintained by the petitioners.
We sustain the petitioners.
Under the Corporation Code, where a corporation is an injured party, its power
to sue is lodged with its board of directors or trustees. But an individual
stockholder may be permitted to institute a derivative suit in behalf of the
corporation in order to protect or vindicate corporate rights whenever the
officials of the corporation refuse to sue, or when a demand upon them to file
the necessary action would be futile because they are the ones to be sued, or
because they hold control of the corporation. 22 In such actions, the corporation
is the real party-in-interest while the suing stockholder, in behalf of the
corporation, is only a nominal party. 23
Here, the action below is principally for damages resulting from alleged
mismanagement of the affairs of Filport by its directors/officers, it being alleged
that the acts of mismanagement are detrimental to the interests of Filport.
Thus, the injury complained of primarily pertains to the corporation so that the
suit for relief should be by the corporation. However, since the ones to be sued
are the directors/officers of the corporation itself, a stockholder, like petitioner
Cruz, may validly institute a "derivative suit" to vindicate the alleged corporate
injury, in which case Cruz is only a nominal party while Filport is the real party-
in-interest. For sure, in the prayer portion of petitioners’ petition before the
SEC, the reliefs prayed were asked to be made in favor of Filport.
Besides, the requisites before a derivative suit can be filed by a stockholder are
present in this case, to wit:
a) the party bringing suit should be a shareholder as of the time of the
act or transaction complained of, the number of his shares not being
material;
b) he has tried to exhaust intra-corporate remedies, i.e., has made a
demand on the board of directors for the appropriate relief but the latter
has failed or refused to heed his plea; and
c) the cause of action actually devolves on the corporation, the
wrongdoing or harm having been, or being caused to the corporation
and not to the particular stockholder bringing the suit. 24
Indisputably, petitioner Cruz (1) is a stockholder of Filport; (2) he sought
without success to have its board of directors remedy what he perceived as
wrong when he wrote a letter requesting the board to do the necessary action
in his complaint; and (3) the alleged wrong was in truth a wrong against the
stockholders of the corporation generally, and not against Cruz or Minterbro, in
particular. In the end, it is Filport, not Cruz which directly stands to benefit from
10
the suit. And while it is true that the complaining stockholder must show to the Case No. 2673) be remanded to the Securities Investigation and Clearing
satisfaction of the court that he has exhausted all the means within his reach to Department for further proceeding, for having been rendered in grave abuse of
attain within the corporation itself the redress for his grievances, or actions in discretion amounting to lack of or in excess of jurisdiction and in contravention
conformity to his wishes, nonetheless, where the corporation is under the of existing laws and jurisprudence.
complete control of the principal defendants, as here, there is no necessity of
making a demand upon the directors. The reason is obvious: a demand upon Commart (Phils.), Inc., (Command for short) is a corporation organized by two
the board to institute an action and prosecute the same effectively would have brothers, Jesus and Mariano Maglutac, to engage in the brokerage business
been useless and an exercise in futility. In fine, we rule and so hold that the for the importation of fertilizers and other products/commodities.
petition filed with the SEC at the instance of Cruz, which ultimately found its
way to the RTC of Davao City as Civil Case No. 28,552-2001, is a derivative Jesus T. Maglutac (Jesus for short) ran the company as president, chairman of
suit of which Cruz has the necessary legal standing to institute. the board, and chairman of the executive committee, while Mariano T.
Maglutac (Mariano for short) served as executive vice-president and vice-
WHEREFORE, the petition is DENIED and the challenged decision of the CA is chairman of the executive committee until April 1984.
AFFIRMED in all respects.
Sometime in June 1984, the two brothers agreed to go their separate ways,
No pronouncement as to costs. with Mariano being persuaded to sell to Jesus his shareholdings in Commart
amounting to 25% of the outstanding capital stock. As part of the deal, a
SO ORDERED. "Cooperative Agreement" was signed, between Commart (represented by
Jesus) and Mariano, in which, among others, Commart ceded to Mariano or to
3. G.R. No. 85318 June 3, 1991 an "acceptable entity" he may create, a portion of its business, with a pledge of
mutual cooperation for a certain period so as to enable Mariano to get his own
COMMART (PHILS.) INC., JESUS, CORAZON, ALBERTO, AND BERNARD corporation off the ground, so to speak.
all surnamed MAGLUTAC,petitioners,
vs. Mariano's wife, Alice M. Maglutac (private respondent herein) who has been for
SECURITIES & EXCHANGE COMMISSION and ALICE years a stockholder and director of Commart, did not dispose of her
MAGLUTAC, respondents. shareholdings, and thus continued as such even after the sale of Mariano's
equity.
Monsod, Tamargo & Associates for petitioners.
Panganiban, Benitez, Barinaga & Bautista Law Offices for private respondent. As broker and indentor, Commart's principal income came from commissions
paid to it in U.S. dollars by foreign suppliers of fertilizers and other commodities
imported by Planters Products, Inc. and other local importers.

PARAS, J.:
Petitioners, in the instant petition for review on certiorari, seek the reversal of
the en banc Order of the respondent Securities & Exchange Commission dated
September 12, 1988 denying the petition for certiorari (SEC-EB No. 115-117)
filed by the petitioners herein and ordering that the original complaint (SEC
Shortly after the sale of his equity in Commart to Jesus, Mariano allegedly
discovered that for several years, Jesus and his wife Corazon (who was herself
a director) had been siphoning and diverting to their private bank accounts in
the United States and in Hongkong gargantuan amounts sliced off from
commissions due Commart from some foreign suppliers. Consequently, on
August 22, 1989, spouses Mariano and Alice Maglutac filed a complaint (SEC
Case No. 2673) with the Securities & Exchange Commission (SEC for short)
11
against Jesus T. Maglutac, Victor Cipriano, Clemente Ramos, Carolina de los
Reyes, Corazon Maglutac, Alberto Maglutac and Bernardo Maglutac (Jesus as
Chairman) and the rest as members of the Board of Directors of Commart).
In their Complaint, Mariano and Alice Maglutac alleged, among others, that
"Jesus T. Maglutac, by means of secret arrangements with foreign suppliers,
embodied in and evidenced by, correspondences and other documents
discovered just recently, has been diverting into his private bank accounts and
converting to his own personal benefit and advantage substantial portions of
the commission income of the corporation, to the prejudice of the corporation,
its stockholders and its creditors." (Petition, Annex B, p. 2; Rollo, p. 20) Thus,
complainants prayed, among others, that judgment be rendered as follows ––
(a) Ordering respondents Jesus T. Maglutac, Corazon Maglutac, and
Victor Cipriano to account for and to turn over or deliver to the
Corporation the sum of US$2,539,918.97, or its equivalent in Philippine
currency, with legal interest thereon from the respective dates of
misappropriation or, at the very least, from date of filing of this suit,
together with such other and further sums as may be proved to have
likewise been misappropriated by them;
(b) Ordering all the respondents, as members of the Board of Directors,
to take such remedial steps as would protect the corporation from
further depredation of its funds and property;
(c) Declaring rescinded or annulled the disposition of complainant
Mariano T. Maglutac's shares of stock to respondent Jesus T. Maglutac
and ordering the restoration to the former of all his executive positions
with all the rights and privileges thereunto appertaining; or, in the
alternative, ordering that said complainant be paid the equivalent of one-
fourth of the actual market value of COMMART's present assets
including goodwill, taking into consideration also the total sums
misappropriated by respondents Jesus T. Maglutac, Corazon Maglutac,
and Victor Cipriano which rightfully belonged to COMMART; and
(d) Ordering respondents to pay complainants attorney's fees equivalent
to twenty (20%) per cent of the total amounts awarded and recovered,
plus such further sums as may be proved to have been incurred as and
by way of litigation expenses. (pp. 24-25, Rollo)
In response to the aforementioned Complaint, two Motions to Dismiss were
filed. The records reveal that:
(a) On October 17, 1984, Albert and Bernard Maglutac moved to dismiss
on the ground that Mariano Maglutac has no capacity to sue and the
complaint states no cause of action against them.
(b) On October 20, 1984, Jesus & Corazon Maglutac likewise moved to
dismiss on the ground that respondent Commission does not have
jurisdiction over the nature of the suit.
These motions were opposed by complainants Alice and Mariano Maglutac.
While said incidents were pending, complainants filed an Amended Complaint
hereby Commart was impleaded as party complainant and praying that
Commart be placed under receivership and the properties of Jesus & Corazon
Maglutac and Victor Cipriano be attached. It is alleged in the Amended
Complaint that complainant Commart is the corporation in whose behalf and for
whose benefit this derivative suit is brought; that complainant Alice M. Maglutac
is a minority stockholder in good standing of Commart while her husband
complainant Mariano T. Maglutac was, likewise, until June 25, 1984 or
thereabouts, a stockholder of Commart.
Motions to dismiss said Amended Complaint were also filed by present
petitioners and were also duly opposed by complainants Mariano and his wife.
On May 10, 1985 Commart filed a Manifestation/Notice of Dismissal,
manifesting that "it withdraws and dismisses the action taken in its behalf by
complainants Mariano T. Maglutac and Alice M. Maglutac against all
respondents." (Petition, Annex E, p. 3; Rollo, pp. 42-44)
This was opposed by complainants on the ground, among other doctrines, that
in a derivative suit the corporation is not allowed to be an active participant and
has no control over the suit against the real defendants; that the suing
shareholder has the right of control.
On May 27, 1985, the Hearing Panel issued an Order denying all the motions
to dismiss as well as the so called manifestation/notice of dismissal on the
finding inter alia that ––
12
 Respondents maintain that the present action is basically one for
annulment/rescission of sale with alternative prayer for reinstatement of
employment status; that the action is not a derivative suit considering
that the nature of the action is one for annulment and the fact that
complainant Mariano T. Maglutac being a non-stockholder is not
qualified to institute a derivative suit; that the action does not in any way
make mention of an actionable wrong against respondents Albert and
Bernard Maglutac, Clemente Ramos and Carolina de los Reyes.
By way of opposition, complainants alleged that the instant action
should be characterized as a minority stockholders' derivative suit; that
complainant Alice Maglutac is not merely a nominal party but a real
party in interest; that Mariano T. Maglutac's rights as a stockholder have
been injured through the machinations and maneuvering of respondent
Jesus Maglutac; that the prayer for rescission or annulment of contract
is merely the logical consequence of the exercise of jurisdiction by this
Commission.
Respondents' contention that the Commission has no jurisdiction over
the subject matter or the nature of the action is devoid of merit. It is a
cardinal principle in legal procedure that what determined the subject
matter or the nature of the action are the facts a complaint as
constituting the cause of action. A perusal of the complaint, as well as,
the amended complaint would show that the action is one for
"mismanagement", for the complainants alleged, inter alia, that ". . .
respondent Jesus T. Maglutac, by means of secret arrangements with
foreign suppliers embodied in, and evidenced by, correspondences and
other documents discovered just recently, has been diverting into his
private bank accounts and to his own personal benefit and advantage
substantial portions of the commission income of the corporation, to the
prejudice of the corporation, its stockholders and its creditors and
enumerated immediately thereafter the alleged specific acts of
mismanagement. Viewed therefrom, the Commission has jurisdiction.
(pp. 127-128, Rollo)
On June 18, 1985 Commart filed a motion for reconsideration and on August
29, 1985, Jesus and Corazon Maglutac also filed a similar motion to have the
Order of May 27, 1985 reconsidered and set aside. These motions were duly
opposed by Mariano and Alice Maglutac.
Acting on the Motion for Reconsideration, the Hearing Panel issued on
November 12, 1985, an Order modifying its previous order "by dismissing this
case insofar as Mariano T. Maglutac is concerned" but affirming the said order
"in all other respects." (Annex F to Petition, pp. 46, 49, Rollo)
Not satisfied with such modification present petitioners as respondents in SEC
Case No. 2673 went to the SEC en banc on a petition for certiorari, prohibition
and mandamus with prayer for preliminary injunction. They contend –– (a) that
the Hearing Panel acted with grave abuse of discretion in not dismissing the
case for failure of Alice Maglutac to exhaust intra-corporate remedies, and (b)
that grave abuse was likewise committed in not dismissing the case on the
ground that the complaint did not show clearly that Alice Maglutac was a
stockholder at the time the questioned transaction occurred.
On September 12, 1988, the Commission en banc issued an Order denying the
aforesaid petition and remanding the case to the Securities Investigation and
Clearing Department for further proceedings. It ruled (a) that exhaustion of
intra-corporate remedy before filing suit "may be dispensed with where it is
clear that it is unavailable or futile" as was the case here. (p. 2, Order of Sept.
12, 1988, Annex A to Petition) citing Everett v. Asia Banking Corp., 49 Phil. 512,
and Republic Bank v. Cuaderno, 19 SCRA 671, and (b) that the mere
allegation in the complaint that complainant is still a stockholder of Commart "is
sufficient to vest jurisdiction to this Commission" but complainant must prove at
the time of reception of evidence that she was also a stockholder at the time
the acts complained of occurred. (Id., p. 3)
Although complainant Alice Maglutac failed to exhaust an intra-corporate
remedy before filing this case, the said condition precedent may be
dispensed with where it is clear that it is unavailable or futile. Thus it was
held that:
Where the board of directors in a corporation is under the
complete control of the principal defendants in the case and it is
obvious that a demand upon the board of directors to institute an
action and prosecute the same effectively would be useless, the
action may be brought by one or more of the stockholders without
such demand (Everett v. Asia Banking Corp., 49 Phil. 512;
Republic Bank v. Cuaderno, et al., No. L-22399, March 30, 1967).
13
 A stockholder can file a derivative suit provided there is an allegation in
the complaint that she is such at the time the acts complained of
occurred, and at the time the suit is brought (Hawes v. Oakland, 14 Otto
[104 U.S.], 450,456; S.C. 5972, 13 Fletcher 345, cited in Alvendia, The
Law of Private Corporations in the Philippines, First Ed., p. 361). The
requirement that said facts be pleaded is merely procedural although the
necessity of the existence of these facts in order to give rise to the right
of action is substantive (Pascual v. Del Saz Orozco, 19 Phil. 97). And
equity considerations warrant the liberal interpretation of the rules of
procedure to the end that technicalities should not stand in the way of
equitable relief (Vol. I, Francisco, Civil Procedure, 2nd ed., p. 157, 1973
ed.) Mere allegation therefore that complainant is still a stockholder of
Commart is sufficient to vest jurisdiction to this Commission.
Complainant must however prove at the time of reception of evidence
that she was also a stockholder at the time the acts complained of
occurred. (pp. 10-11, Memorandum by public respondent)
Hence, this petition.
The petitioners invoke two grounds for reversal of the Order under review
thereby raising these two issues, to wit:
1. Did the Securities and Exchange Commission err and/or commit
"grave abuse of discretion" in denying the petition for certiorari and
remanding the case for further proceedings despite the so-called "notice
of dismissal" filed by Commart?
2. Did the Securities and Exchange Commission err and/or commit
"grave abuse of discretion" in its handling of the "conflict of interest
issue?" (Petition, p. 6; Rollo, p. 81)
We find the petition devoid of merit.
The complaint in SEC Case No. 2673, particularly paragraphs 2 to 9 under
First Cause of Action, readily shows that it avers the diversion of corporate
income into the private bank accounts of petitioner Jesus T. Maglutac and his
wife. Likewise, the principal relief prayed for in the complaint is the recovery of
a sum of money in favor of the corporation. This being the case, the complaint
is definitely a derivative suit. Consequently, the SEC correctly held that the
case was a minority stockholder's derivative suit and correctly sustained the
hearing panel's denial — insofar as Alice Maglutac was concerned — of the
motions to dismiss it.
A derivative suit has been the principal defense of the minority shareholder
against abuses by the majority.1âwphi1 It is a remedy designed by equity for
those situations where the management, through fraud, neglect of duty, or
other cause, declines to take the proper and necessary steps to assert the
corporation's rights. Indeed, to grant to Commart the right of withdrawing or
dismissing the suit, at the instance of majority stockholders and directors who
themselves are the persons alleged to have committed breaches of trust
against the interest of the corporation, would be to emasculate the right of
minority stockholders to seek redress for the corporation. To consider the
Notice of Dismissal filed by Commart as quashing the complaint filed by Alice
Maglutac in favor of the corporation would be to defeat the very nature and
function of a derivative suit and render the right to institute the action illusory.
In any case, the suit is for the benefit of Commart itself, for a judgment in favor
of the complainants will necessarily mean recovery by the corporation of the
US$2.5 million alleged to have been diverted from its coffers to the private
bank accounts of its top managers and directors. Thus, the prayer in the
Amended Complaint is for judgment ordering respondents Jesus and Corazon
Maglutac, as well as Victor Cipriano, "to account for and to turn over or deliver
to the Corporation" the aforesaid sum, with legal interest, and "ordering all the
respondent, as members of the Board of Directors to take such remedial steps
as would protect the corporation from further depredation of the funds and
property." (pars. [a] & [b], Annex 2, Comment)
On the "conflict of interest" issue, petitioners allege that private respondent
Alice Maglutac "is a majority stockholder of M.M. International Sales, a
business rival/competitor of Commart and holds only less than one percent
(1%) of the entire shareholdings of Commart." According to petitioners, this
being the case it is easier to believe that this so called derivative suit was filed
because it is to the best interest of the company where she has a bigger and
substantial interest, which in this case is M.M. International Sales, Inc.
In disposing of this contention respondent SEC ruled that jurisdiction cannot be
made to depend upon the pleas and defenses set up by a defendant in a
motion to dismiss or answer, otherwise jurisdiction should become dependent
14
almost entirely upon the defendant (citing Cardenas v. Camus, infra.) But it left
the door open to a further consideration of the issue by stating that
complainant's ownership of majority stocks of a rival corporation could not at
this stage of the proceedings, defeat complainant's claims:
Jurisdiction of the court cannot be made to depend upon the pleas or
defenses pleaded by the defendant in his motion to dismiss or answer,
for were we to be governed by such rule, the question of jurisdiction
would depend almost entirely upon the defendant (Cardenas v. Camus,
5 SCRA 639). Respondents' assertion in their motion to dismiss of
complainant's ownership of the majority stocks of a rival corporation,
could not at this stage of the proceedings, defeat complainant's claim.
(pp. 83-84, Rollo)
In other words, no real prejudice has been inflicted upon petitioners' right to be
heard on this matter raised by them, since the same can still be looked into
during the hearing of a derivative suit on the merits. There was, therefore,
neither error nor grave abuse of discretion in the decision of the Securities &
Exchange Commission not to dismiss the case but to remand it instead to the
Hearing Panel for further proceedings.
WHEREFORE, for lack of merit, this Petition is DISMISSED. Costs against
petitioners.
SO ORDERED
4. G.R. No. 113032. August 21, 1997]
WESTERN INSTITUTE OF TECHNOLOGY, INC., HOMERO L. VILLASIS,
DIMAS ENRIQUEZ, PRESTON F. VILLASIS & REGINALD F.
VILLASIS, petitioners, vs. RICARDO T. SALAS, SOLEDAD SALAS-
TUBILLEJA, ANTONIO S. SALAS, RICHARD S. SALAS & HON.
JUDGE PORFIRIO PARIAN, respondents.
DECISION
HERMOSISIMA, JR., J.:
Up for review on certiorari are: (1) the Decision September 6, 1993 and (2)
the order dated November 23, 1993 of Branch 33 of the Regional Trial Court of
Iloilo City in Criminal Cases Nos. 37097 and 37098 for estafa and falsification
of a public document, respectively. The judgment acquitted the private
respondents of both charges, but petitioners seek to hold them civilly liable.
Private respondents Ricardo T. Salas, Salvador T. Salas, Soledad Salas-
Tubilleja, Antonio S. Salas, and Richard S. Salas, belonging to the same family,
are the majority and controlling members of the Board of Trustees of Western
Institute of Technology, Inc. (WIT, for short), a stock corporation engaged in the
operation, among others, of an educational institution. According to petitioners,
the minority stockholders of WIT, sometime on June 1, 1986 in the principal
office of WIT at La Paz, Iloilo City, a Special Board meeting was held. In
attendance were other members of the Board including one of the petitioners
Reginald Villasis. Prior to aforesaid Special Board Meeting, copies of notice
thereof, dated May 24, 1986, were distributed to all Board Members. The
notice allegedly indicated that the meeting to be held on June 1, 1986 included
item No. 6 which states:
"Possible implementation of Art. III, Sec. 6 of the Amended By-Laws of Western
Institute of Technology, Inc. on compensation of all officers of the
corporation." [1]
In said meeting, the Board of Trustees passed Resolution No. 48, s. 1986,
granting monthly compensation to the private respondents as corporate officers
retroactive June 1, 1985, viz.:
Resolution No. 48 s. 1986
On the motion of Mr. Richard Salas (accused), duly seconded by Mrs. Soledad
Tubilleja (accused), it was unanimously resolved that:
The Officers of the Corporation be granted monthly compensation for services
rendered as follows: Chairman - P9,000.00/month, Vice-Chairman
- P3,500.00/month, Corporate Treasurer - P3,500.00/month and Corporate
Secretary - P3,500.00/month, retroactive June 1, 1985 and the ten percentum
of the net profits shall be distributed equally among the ten members of the
Board of Trustees. This shall amend and superceed(sic) any previous
resolution.
15
There were no other business.
The Chairman declared the meeting adjourned at 5:11 P.M.
This is to certify that the foregoing minutes of the regular meeting of the Board
of Trustees of Western Institute of Technology, Inc. held on March 30, 1986 is
true and correct to the best of my knowledge and belief.
(Sgd) ANTONIO S. SALAS
Corporate Secretary[2]
A few years later, that is, on March 13, 1991, petitioners Homero Villasis,
Preston Villasis, Reginald Villasis and Dimas Enriquez filed an affidavit-
complaint against private respondents before the Office of the City Prosecutor
of Iloilo, as a result of which two (2) separate criminal informations, one for
falsification of a public document under Article 171 of the Revised Penal Code
and the other for estafa under Article 315, par. 1(b) of the RPC, were filed
before Branch 33 of the Regional Trial Court of Iloilo City. The charge for
falsification of public document was anchored on the private respondents
submission of WITs income statement for the fiscal year 1985-1986 with the
Securities and Exchange Commission (SEC) reflecting therein the
disbursement of corporate funds for the compensation of private respondents
based on Resolution No. 4, series of 1986, making it appear that the same was
passed by the board on March 30, 1986, when in truth, the same was actually
passed on June 1, 1986, a date not covered by the corporations fiscal year
1985-1986 (beginning May 1, 1985 and ending April 30, 1986). The information
for falsification of a public document states:
The undersigned City Prosecutor accuses RICARDO T. SALAS, SALVADOR T.
SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS and RICHARD
S. SALAS (whose dates and places of birth cannot be ascertained) of the crime
of FALSIFICATION OF A PUBLC DOCUMENT, Art. 171 of the Revised Penal
Code, committed as follows:
That on or about the 10th day of June, 1986, in the City of Iloilo, Philippines and
within the jurisdiction of this Honorable Court, the above-named accused,
being then the Chairman, Vice-Chairman, Treasurer, Secretary and Trustee
(who later became the secretary), respectively, of the board of trustees of the
Western Institute of Technology, Inc., a corporation duly organized and existing
under the laws of the Republic of the Philippines, conspiring and confederating
together and mutually helping one another, to better realized (sic) their
purpose, did then and there wilfully, unlawfully and criminally prepare and
execute and subsequently cause to be submitted to the Securities and
Exchange Commission an income statement of the corporation for the fiscal
year 1985-1986, the same being required to be submitted every end of the
corporation fiscal year by the aforesaid Commission and therefore, a public
document, including therein the disbursement of the retroactive compensation
of accused corporate officers in the amount of P186,470.70, by then and
there making it appear that the basis thereof Resolution No. 4, Series of 1986
was passed by the board of trustees on March 30, 1986, a date covered by the
corporations fiscal year 1985-1986 (i.e., from May 1, 1985 to April 30, 1986),
when in truth and in fact, as said accused well knew, no such Resolution No.
48, Series of 1986 was passed on March 30, 1986.
CONTRARY TO LAW.
Iloilo City, Philippines, November 22,1991.[3] [Underscoring ours].
The Information, on the other hand, for estafa reads:
The undersigned City Prosecutor accuses RICARDO SALAS, SALVADOR T.
SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS, RICHARD S.
SALAS (whose dates and places of birth cannot be ascertained) of the crime
of ESTAFA, Art. 315, par 1(b) of the Revised Penal Code, committed as
follows:
That on or about the 1 st day of June, 1986, in the City of Iloilo, Philippines and
within the jurisdiction of this Honorable Court, the above-named accused,
being then the Chairman, Vice-Chairman, Treasurer, Secretary and Trustee
(who later became the secretary), respectively, of the board of trustees of the
Western Institute of Technology, Inc., a corporation duly organized and existing
under the laws of the Republic of the Philippines, conspiring and confederating
together and mutually helping one another, to better realize their purpose, did
then and there wilfully, unlawfully and feloniously defraud the said corporation
(and its stockholders) in the following manner, to wit: herein accused, knowing
fully well that they have no sufficient, lawful authority to disburse--- let alone
violation of applicable laws and jurisprudence, disbursed the funds of the
corporation by effecting payment of their retroactive salaries in the amount
16
of P186,470.70 and subsequently paying themselves every 15 th and 30th of the
month starting June 15, 1986 until the present, in the amount of P19,500.00
per month, as if the same were their own, and when herein accused were
informed of the illegality of these disbursements by the minority stockholders
by way of objections made in an annual stockholders meeting held on June 14,
1986 and every year thereafter, they refused, and still refuse, to rectify the
same to the damage and prejudice of the corporation (and its stockholders) in
the total sum of P1,453,970.79 as of November 15, 1991.
CONTRARY TO LAW.
Iloilo City, Philippines, November 22,1991.[4] [Underscoring ours]
Thereafter, trial for the two criminal cases, docketed as Criminal Cases
Nos. 37097 and 37098, was consolidated. After a full-blown hearing, Judge
Porfirio Parian handed down a verdict of acquittal on both counts [5] dated
September 6, 1993 without imposing any civil liability against the accused
therein.
Petitioners filed a Motion for Reconsideration [6] of the civil aspect of the
RTC Decision which was, however, denied in an Order dated November 23,
1993.[7]
Hence, the instant petition.
Significantly on December 8, 1994, a Motion for Intervention, dated
December 2, 1994, was filed before this Court by Western Institute of
Technology, Inc., supposedly one of the petitioners herein, disowning its
inclusion in the petition and submitting that Atty. Tranquilino R. Gale, counsel
for the other petitioners, had no authority whatsoever to represent the
corporation in filing the petition. Intervenor likewise prayed for the dismissal of
the petition for being utterly without merit. The Motion for Intervention was
granted on January 16, 1995.[8]
Petitioners would like us to hold private respondents civilly liable despite
their acquittal in Criminal Cases Nos. 37097 and 37098. They base their claim
on the alleged illegal issuance by private respondents of Resolution No. 48,
series of 1986 ordering the disbursement of corporate funds in the amount
of P186,470.70 representing the retroactive compensation as of June 1, 1985
in favor of private respondents, board members of WIT, plus P1,453,970.79 for
the subsequent collective salaries of private respondent every 15 thand 30th of
the month until the filing of the criminal complaints against them on March
1991. Petitioners maintain that this grant of compensation to private
respondents is proscribed under Section 30 of the Corporation Code. Thus,
private respondents are obliged to return these amounts to the corporation with
interest.
We cannot sustain the petitioners. The pertinent section of the Corporation
Code provides:
Sec. 30. Compensation of directors.--- In the absence of any provision in the
by-laws fixing their compensation, the directors shall not receive any
compensation, as such directors, except for reasonable per diems: Provided,
however, That any such compensation (other than per diems) may be granted
to directors by the vote of the stockholders representing at least a majority of
the outstanding capital stock at a regular or special stockholders meeting. In no
case shall the total yearly compensation of directors, as such directors, exceed
ten (10%) percent of the net income before income tax of the corporation
during the preceding year. [Underscoring ours]
There is no argument that directors or trustees, as the case may be, are
not entitled to salary or other compensation when they perform nothing more
than the usual and ordinary duties of their office. This rule is founded upon a
presumption that directors /trustees render service gratuitously and that the
return upon their shares adequately furnishes the motives for service, without
compensation[9] Under the foregoing section, there are only two (2) ways by
which members of the board can be granted compensation apart from
reasonable per diems: (1) when there is a provision in the by-laws fixing their
compensation; and (2) when the stockholders representing a majority of the
outstanding capital stock at a regular or special stockholders meeting agree to
give it to them.
This proscription, however, against granting compensation to
directors/trustees of a corporation is not a sweeping rule. Worthy of note is the
clear phraseology of Section 30 which states: xxx [T]he directors shall not
receive any compensation, as such directors,xxx. The phrase as such
directors is not without significance for it delimits the scope of the prohibition to
compensation given to them for services performed purely in their capacity as
directors or trustees. The unambiguous implication is that members of the
board may receive compensation, in addition to reasonable per diems, when
they render services to the corporation in a capacity other than as
17
directors/trustees.[10] In the case at bench, Resolution No. 48, s. 1986 granted
monthly compensation to private respondents not in their capacity as members
of the board, but rather as officers of the corporation, more particularly as
Chairman, Vice-Chairman, Treasurer and Secretary of Western Institute of
Technology. We quote once more Resolution No. 48, s. 1986 for easy
reference, viz.:
Resolution No. 48 s. 1986
On the motion of Mr. Richard Salas (accused), duly seconded by Mrs. Soledad
Tubilleja (accused), it was unanimously resolved that:
The Officers of the Corporation be granted monthly compensation for services
rendered as follows: Chairman - P9,000.00/month, Vice-
Chairman - P3,500.00/month, Corporate Treasurer - P3,500.00/month
and Corporate Secretary - P3,500.00/month, retroactive June 1, 1985 and the
ten percentum of the net profits shall be distributed equally among the ten
members of the Board of Trustees. This shall amend and superceed(sic) any
previous resolution.
There were no other business.
The Chairman declared the meeting adjourned at 5:11 P.M.
This is to certify that the foregoing minutes of the regular meeting of the Board
of Trustees of Western Institute of Technology, Inc. held on March 30, 1986 is
true and correct to the best of my knowledge and belief.
(Sgd) ANTONIO S. SALAS
Corporate
Secretary[11] [Underscoring ours]
Clearly, therefore , the prohibition with respect to granting compensation to
corporate directors/trustees as such under Section 30 is not violated in this
particular case.Consequently, the last sentence of Section 30 which provides:
xxx xxx. In no case shall the total yearly compensation of directors, as such
directors, exceed ten (10%) percent of the net income before income tax of the
corporation during the preceding year. [Underscoring ours]
does not likewise find application in this case since the compensation is being
given to private respondents in their capacity as officers of WIT and not as
board members.
Petitioners assert that the instant case is a derivative suit brought by them
as minority shareholders of WIT for and on behalf of the corporation to annul
Resolution No. 48, s. 1986 which is prejudicial to the corporation.
We are unpersuaded. A derivative suit is an action brought by minority
shareholders in the name of the corporation to redress wrongs committed
against it, for which the directors refuse to sue. [12] It is a remedy designed by
equity and has been the principal defense of the minority shareholders against
abuses by the majority.[13] Here, however, the case is not a derivative suit but is
merely an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098
filed with the RTC of Iloilo for estafa and falsification of public document.Among
the basic requirements for a derivative suit to prosper is that the minority
shareholder who is suing for and on behalf of the corporation must allege his
complaint before the proper forum that he is suing on a derivative cause of
action on behalf of the corporation and all other shareholders similarly situated
who wish to join.[14] This is necessary to vest jurisdiction upon the tribunal in
line with the rule that it is the allegations in the complaint that vests jurisdiction
upon the court or quasi-judicial body concerned over the subject matter and
nature of the action.[15] This was not complied with by the petitioners either in
their complaint before the court a quo nor in the instant petition which, in part,
merely states that this is a petition for review on certiorari on pure questions of
law to set aside a portion of the RTC decision in Criminal Cases Nos. 37097
and 37098[16] since the trial courts judgment of acquittal failed to impose any
civil liability against the private respondents. By no amount of equity
considerations, if at all deserved, can a mere appeal on the civil aspect of a
criminal case be treated as a derivative suit.
Granting, for purposes of discussion, that this is a derivative suit as insisted
by petitioners, which it is not, the same is outrightly dismissible for having been
wrongfully filed in the regular court devoid of any jurisdiction to entertain the
complaint. The case should have been filed with the Securities and Exchange
Commission (SEC) which exercises original and exclusive jurisdiction over
derivative suits, they being intra-corporate disputes, per Section 5(b) of P.D.
No. 902-A:
18
In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of
associations registered with it as expressly granted under existing laws and
decrees, it shall have original and exclusive jurisdiction to hear and decide
cases involving:
xxx xxx xxx
b) Controversies arising out of intra-corporate or partnership relations, between
and among stockholders, members, or associates; between any or all of them
and the corporation, partnership or association of which they are stockholders,
members or associates, respectively; and between such corporation,
partnership or association and the State insofar as it concerns their individual
franchise or right to exist as such entity;
xxx xxx xxx. [Underscoring ours]
Once the case is decided by the SEC, the losing party may file a petition for
review before the Court of Appeals raising questions of fact, of law, or mixed
questions of fact and law.[17]It is only after the case has ran this course, and not
earlier, can it be brought to us via a petition for review on certiorari under Rule
45 raising only pure questions of law. [18]Petitioners, in pleading that we treat the
instant petition as a derivative suit, are trying to short-circuit the entire process
which we cannot here sanction.
As an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098
for falsification of public document and estafa, which this petition truly is, we
have to deny the petition just the same. It will be well to quote the respondent
courts ratiocinations acquitting the private respondents on both counts:
The prosecution wants this Court to believe and agree that there is falsification
of public document because, as claimed by the prosecution, Resolution No. 48,
Series of 1986 (Exh. 1-E-1) was not taken up and passed during the Regular
Meeting of the Board of Trustees of the western Institute of Technology (WIT),
Inc. on March 30, 1986, but on June 1, 1986 special meeting of the same
board of trustees.
This Court is reluctant to accept this claim of falsification. The prosecution
omitted to submit the complete minutes of the regular meeting of the Board of
Trustees on March 30, 1986. It only presented in evidence Exh. C, which is
page 5 or the last page of the said minutes. Had the complete minutes (Exh. 1
consisting of five (5) pages, been submitted, it can readily be seen and
understood that Resolution No. 48, Series of 1986 (Exh. 1-E-1) giving
compensation to corporate officers, was indeed included in Other Business,
No. 6 of the Agenda, and was taken up and passed on March 30, 1986. The
mere fact of existence of Exh. C also proves that it was passed on March 30,
1986 for Exh,. C is a part and parcel of the whole minutes of the Board of
Trustees Regular Meeting on March 30, 1986. No better and more credible
proof can be considered other than the Minutes (Exh. 1) itself of the Regular
Meeting of the Board of Trustees on March 30, 1986. The imputation that said
Resolution No.48 was neither taken up nor passed on March 30, 1986
because the matter regarding compensation was not specifically stated or
written in the Agenda and that the words possible implementation of said
Resolution No. 48, was expressly written in the Agenda for the Special Meeting
of the Board on June 1, 1986, is simply an implication. This evidence by
implication to the mind of the court cannot prevail over the Minutes (Exh. 1)
and cannot ripen into proof beyond reasonable doubt which is demanded in all
criminal prosecutions.
This Court finds that under the Eleventh Article (Exh. 3-D-1) of the Articles of
Incorporation (Exh. 3-B) of the Panay Educational Institution, Inc., now the
Western Institute of Technology, Inc., the officers of the corporation shall
receive such compensation as the Board of Directors may provide.These
Articles of Incorporation was adopted on May 17, 1957 (Exh. 3-E). The Officers
of the corporation and their corresponding duties are enumerated and stated in
Sections 1, 2, 3 and 4 of Art. III of the Amended By-Laws of the Corporation
(Exh. 4-A) which was adopted on May 31, 1957. According to Sec. 6, Art. III of
the same By-Laws, all officers shall receive such compensation as may be
fixed by the Board of Directors.
It is the perception of this Court that the grant of compensation or salary to the
accused in their capacity as officers of the corporation, through Resolution No.
48, enacted on March 30, 1986 by the Board of Trustees, is authorized by both
the Articles of Incorporation and the By-Laws of the Corporation. To state
otherwise is to depart from the clear terms of the said articles and by-laws. In
their defense the accused have properly and rightly asserted that the grant of
salary is not for directors, but for their being officers of the corporation who
oversee the day to day activities and operations of the school.
19
xxx xxx xxx
xxx [O]n the question of whether or not the accused can be held liable for
estafa under Sec. 1 (b) of Art. 315 of the Revised Penal Code, it is perceived
by this Court that the receipt and the holding of the money by the accused as
salary on basis of the authority granted by the Articles and By-Laws of the
corporation are not tainted with abuse of confidence. The money they received
belongs to them and cannot be said to have been converted and/or
misappropriated by them.
xxx xxx xxx.[19] [Underscoring ours]
From the foregoing factual findings, which we find to be amply
substantiated by the records, it is evident that there is simply no basis to hold
the accused, private respondents herein, civilly liable. Section 2(b) of Rule 111
on the New Rules on Criminal Procedure provides:
SEC. 2. Institution of separate civil action.
xxx xxx xxx
(b) Extinction of the penal action does not carry with it extinction of the
civil, unless the extinction proceeds from a declaration in a final judgment that
the fact from which the civil might arise did not exist. [Underscoring ours]
Likewise, the last paragraph of Section 2, Rule 120 reads:
SEC. 2. Form and contents of judgment.
xxx xxx xxx
In case of acquittal, unless there is a clear showing that the act from which the
civil liability might arise did not exist, the judgment shall make a finding on the
civil liability of the accused in favor of the offended party. [Underscoring ours]
The acquittal in Criminal Cases Nos. 37097 and 37098 is not merely based
on reasonable doubt but rather on a finding that the accused-private
respondents did not commit the criminal acts complained of. Thus, pursuant to
the above rule and settled jurisprudence, any civil action ex delicto cannot
prosper. Acquittal in a criminal action bars the civil action arising therefrom
where the judgment of acquittal holds that the accused did not commit the
criminal acts imputed to them.[20]
WHEREFORE, the instant petition is hereby DENIED with costs against
petitioners.
SO ORDERED
[G.R. No. 113032. August 21, 1997]
WESTERN INSTITUTE OF TECHNOLOGY, INC., HOMERO L. VILLASIS,
DIMAS ENRIQUEZ, PRESTON F. VILLASIS & REGINALD F.
VILLASIS, petitioners, vs. RICARDO T. SALAS, SOLEDAD SALAS-
TUBILLEJA, ANTONIO S. SALAS, RICHARD S. SALAS & HON.
JUDGE PORFIRIO PARIAN, respondents.
DECISION
HERMOSISIMA, JR., J.:
Up for review on certiorari are: (1) the Decision September 6, 1993 and (2)
the order dated November 23, 1993 of Branch 33 of the Regional Trial Court of
Iloilo City in Criminal Cases Nos. 37097 and 37098 for estafa and falsification
of a public document, respectively. The judgment acquitted the private
respondents of both charges, but petitioners seek to hold them civilly liable.
Private respondents Ricardo T. Salas, Salvador T. Salas, Soledad Salas-
Tubilleja, Antonio S. Salas, and Richard S. Salas, belonging to the same family,
are the majority and controlling members of the Board of Trustees of Western
Institute of Technology, Inc. (WIT, for short), a stock corporation engaged in the
operation, among others, of an educational institution. According to petitioners,
the minority stockholders of WIT, sometime on June 1, 1986 in the principal
office of WIT at La Paz, Iloilo City, a Special Board meeting was held. In
attendance were other members of the Board including one of the petitioners
Reginald Villasis. Prior to aforesaid Special Board Meeting, copies of notice
thereof, dated May 24, 1986, were distributed to all Board Members. The
notice allegedly indicated that the meeting to be held on June 1, 1986 included
item No. 6 which states:
20
"Possible implementation of Art. III, Sec. 6 of the Amended By-Laws of Western
Institute of Technology, Inc. on compensation of all officers of the
corporation." [1]
In said meeting, the Board of Trustees passed Resolution No. 48, s. 1986,
granting monthly compensation to the private respondents as corporate officers
retroactive June 1, 1985, viz.:
Resolution No. 48 s. 1986
On the motion of Mr. Richard Salas (accused), duly seconded by Mrs. Soledad
Tubilleja (accused), it was unanimously resolved that:
The Officers of the Corporation be granted monthly compensation for services
rendered as follows: Chairman - P9,000.00/month, Vice-Chairman
- P3,500.00/month, Corporate Treasurer - P3,500.00/month and Corporate
Secretary - P3,500.00/month, retroactive June 1, 1985 and the ten percentum
of the net profits shall be distributed equally among the ten members of the
Board of Trustees. This shall amend and superceed(sic) any previous
resolution.
There were no other business.
The Chairman declared the meeting adjourned at 5:11 P.M.
This is to certify that the foregoing minutes of the regular meeting of the Board
of Trustees of Western Institute of Technology, Inc. held on March 30, 1986 is
true and correct to the best of my knowledge and belief.
(Sgd) ANTONIO S. SALAS
Corporate Secretary[2]
A few years later, that is, on March 13, 1991, petitioners Homero Villasis,
Preston Villasis, Reginald Villasis and Dimas Enriquez filed an affidavit-
complaint against private respondents before the Office of the City Prosecutor
of Iloilo, as a result of which two (2) separate criminal informations, one for
falsification of a public document under Article 171 of the Revised Penal Code
and the other for estafa under Article 315, par. 1(b) of the RPC, were filed
before Branch 33 of the Regional Trial Court of Iloilo City. The charge for
falsification of public document was anchored on the private respondents
submission of WITs income statement for the fiscal year 1985-1986 with the
Securities and Exchange Commission (SEC) reflecting therein the
disbursement of corporate funds for the compensation of private respondents
based on Resolution No. 4, series of 1986, making it appear that the same was
passed by the board on March 30, 1986, when in truth, the same was actually
passed on June 1, 1986, a date not covered by the corporations fiscal year
1985-1986 (beginning May 1, 1985 and ending April 30, 1986). The information
for falsification of a public document states:
The undersigned City Prosecutor accuses RICARDO T. SALAS, SALVADOR T.
SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS and RICHARD
S. SALAS (whose dates and places of birth cannot be ascertained) of the crime
of FALSIFICATION OF A PUBLC DOCUMENT, Art. 171 of the Revised Penal
Code, committed as follows:
That on or about the 10th day of June, 1986, in the City of Iloilo, Philippines and
within the jurisdiction of this Honorable Court, the above-named accused,
being then the Chairman, Vice-Chairman, Treasurer, Secretary and Trustee
(who later became the secretary), respectively, of the board of trustees of the
Western Institute of Technology, Inc., a corporation duly organized and existing
under the laws of the Republic of the Philippines, conspiring and confederating
together and mutually helping one another, to better realized (sic) their
purpose, did then and there wilfully, unlawfully and criminally prepare and
execute and subsequently cause to be submitted to the Securities and
Exchange Commission an income statement of the corporation for the fiscal
year 1985-1986, the same being required to be submitted every end of the
corporation fiscal year by the aforesaid Commission and therefore, a public
document, including therein the disbursement of the retroactive compensation
of accused corporate officers in the amount of P186,470.70, by then and
there making it appear that the basis thereof Resolution No. 4, Series of 1986
was passed by the board of trustees on March 30, 1986, a date covered by the
corporations fiscal year 1985-1986 (i.e., from May 1, 1985 to April 30, 1986),
when in truth and in fact, as said accused well knew, no such Resolution No.
48, Series of 1986 was passed on March 30, 1986.
CONTRARY TO LAW.
Iloilo City, Philippines, November 22,1991.[3] [Underscoring ours].
21
 The Information, on the other hand, for estafa reads:
The undersigned City Prosecutor accuses RICARDO SALAS, SALVADOR T.
SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS, RICHARD S.
SALAS (whose dates and places of birth cannot be ascertained) of the crime
of ESTAFA, Art. 315, par 1(b) of the Revised Penal Code, committed as
follows:
That on or about the 1 st day of June, 1986, in the City of Iloilo, Philippines and
within the jurisdiction of this Honorable Court, the above-named accused,
being then the Chairman, Vice-Chairman, Treasurer, Secretary and Trustee
(who later became the secretary), respectively, of the board of trustees of the
Western Institute of Technology, Inc., a corporation duly organized and existing
under the laws of the Republic of the Philippines, conspiring and confederating
together and mutually helping one another, to better realize their purpose, did
then and there wilfully, unlawfully and feloniously defraud the said corporation
(and its stockholders) in the following manner, to wit: herein accused, knowing
fully well that they have no sufficient, lawful authority to disburse--- let alone
violation of applicable laws and jurisprudence, disbursed the funds of the
corporation by effecting payment of their retroactive salaries in the amount
of P186,470.70 and subsequently paying themselves every 15 th and 30th of the
month starting June 15, 1986 until the present, in the amount of P19,500.00
per month, as if the same were their own, and when herein accused were
informed of the illegality of these disbursements by the minority stockholders
by way of objections made in an annual stockholders meeting held on June 14,
1986 and every year thereafter, they refused, and still refuse, to rectify the
same to the damage and prejudice of the corporation (and its stockholders) in
the total sum of P1,453,970.79 as of November 15, 1991.
CONTRARY TO LAW.
Iloilo City, Philippines, November 22,1991.[4] [Underscoring ours]
Thereafter, trial for the two criminal cases, docketed as Criminal Cases
Nos. 37097 and 37098, was consolidated. After a full-blown hearing, Judge
Porfirio Parian handed down a verdict of acquittal on both counts [5] dated
September 6, 1993 without imposing any civil liability against the accused
therein.
Petitioners filed a Motion for Reconsideration [6] of the civil aspect of the
RTC Decision which was, however, denied in an Order dated November 23,
1993.[7]
Hence, the instant petition.
Significantly on December 8, 1994, a Motion for Intervention, dated
December 2, 1994, was filed before this Court by Western Institute of
Technology, Inc., supposedly one of the petitioners herein, disowning its
inclusion in the petition and submitting that Atty. Tranquilino R. Gale, counsel
for the other petitioners, had no authority whatsoever to represent the
corporation in filing the petition. Intervenor likewise prayed for the dismissal of
the petition for being utterly without merit. The Motion for Intervention was
granted on January 16, 1995.[8]
Petitioners would like us to hold private respondents civilly liable despite
their acquittal in Criminal Cases Nos. 37097 and 37098. They base their claim
on the alleged illegal issuance by private respondents of Resolution No. 48,
series of 1986 ordering the disbursement of corporate funds in the amount
of P186,470.70 representing the retroactive compensation as of June 1, 1985
in favor of private respondents, board members of WIT, plus P1,453,970.79 for
the subsequent collective salaries of private respondent every 15 thand 30th of
the month until the filing of the criminal complaints against them on March
1991. Petitioners maintain that this grant of compensation to private
respondents is proscribed under Section 30 of the Corporation Code. Thus,
private respondents are obliged to return these amounts to the corporation with
interest.
We cannot sustain the petitioners. The pertinent section of the Corporation
Code provides:
Sec. 30. Compensation of directors.--- In the absence of any provision in the
by-laws fixing their compensation, the directors shall not receive any
compensation, as such directors, except for reasonable per diems: Provided,
however, That any such compensation (other than per diems) may be granted
to directors by the vote of the stockholders representing at least a majority of
the outstanding capital stock at a regular or special stockholders meeting. In no
case shall the total yearly compensation of directors, as such directors, exceed
ten (10%) percent of the net income before income tax of the corporation
during the preceding year. [Underscoring ours]
22
 There is no argument that directors or trustees, as the case may be, are
not entitled to salary or other compensation when they perform nothing more
than the usual and ordinary duties of their office. This rule is founded upon a
presumption that directors /trustees render service gratuitously and that the
return upon their shares adequately furnishes the motives for service, without
compensation[9] Under the foregoing section, there are only two (2) ways by
which members of the board can be granted compensation apart from
reasonable per diems: (1) when there is a provision in the by-laws fixing their
compensation; and (2) when the stockholders representing a majority of the
outstanding capital stock at a regular or special stockholders meeting agree to
give it to them.
This proscription, however, against granting compensation to
directors/trustees of a corporation is not a sweeping rule. Worthy of note is the
clear phraseology of Section 30 which states: xxx [T]he directors shall not
receive any compensation, as such directors,xxx. The phrase as such
directors is not without significance for it delimits the scope of the prohibition to
compensation given to them for services performed purely in their capacity as
directors or trustees. The unambiguous implication is that members of the
board may receive compensation, in addition to reasonable per diems, when
they render services to the corporation in a capacity other than as
directors/trustees.[10] In the case at bench, Resolution No. 48, s. 1986 granted
monthly compensation to private respondents not in their capacity as members
of the board, but rather as officers of the corporation, more particularly as
Chairman, Vice-Chairman, Treasurer and Secretary of Western Institute of
Technology. We quote once more Resolution No. 48, s. 1986 for easy
reference, viz.:
Resolution No. 48 s. 1986
On the motion of Mr. Richard Salas (accused), duly seconded by Mrs. Soledad
Tubilleja (accused), it was unanimously resolved that:
The Officers of the Corporation be granted monthly compensation for services
rendered as follows: Chairman - P9,000.00/month, Vice-
Chairman - P3,500.00/month, Corporate Treasurer - P3,500.00/month
and Corporate Secretary - P3,500.00/month, retroactive June 1, 1985 and the
ten percentum of the net profits shall be distributed equally among the ten
members of the Board of Trustees. This shall amend and superceed(sic) any
previous resolution.
There were no other business.
The Chairman declared the meeting adjourned at 5:11 P.M.
This is to certify that the foregoing minutes of the regular meeting of the Board
of Trustees of Western Institute of Technology, Inc. held on March 30, 1986 is
true and correct to the best of my knowledge and belief.
(Sgd) ANTONIO S. SALAS
Corporate
Secretary[11] [Underscoring ours]
Clearly, therefore , the prohibition with respect to granting compensation to
corporate directors/trustees as such under Section 30 is not violated in this
particular case.Consequently, the last sentence of Section 30 which provides:
xxx xxx. In no case shall the total yearly compensation of directors, as such
directors, exceed ten (10%) percent of the net income before income tax of the
corporation during the preceding year. [Underscoring ours]
does not likewise find application in this case since the compensation is being
given to private respondents in their capacity as officers of WIT and not as
board members.
Petitioners assert that the instant case is a derivative suit brought by them
as minority shareholders of WIT for and on behalf of the corporation to annul
Resolution No. 48, s. 1986 which is prejudicial to the corporation.
We are unpersuaded. A derivative suit is an action brought by minority
shareholders in the name of the corporation to redress wrongs committed
against it, for which the directors refuse to sue. [12] It is a remedy designed by
equity and has been the principal defense of the minority shareholders against
abuses by the majority.[13] Here, however, the case is not a derivative suit but is
merely an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098
filed with the RTC of Iloilo for estafa and falsification of public document.Among
the basic requirements for a derivative suit to prosper is that the minority
23
shareholder who is suing for and on behalf of the corporation must allege his
complaint before the proper forum that he is suing on a derivative cause of
action on behalf of the corporation and all other shareholders similarly situated
who wish to join.[14] This is necessary to vest jurisdiction upon the tribunal in
line with the rule that it is the allegations in the complaint that vests jurisdiction
upon the court or quasi-judicial body concerned over the subject matter and
nature of the action.[15] This was not complied with by the petitioners either in
their complaint before the court a quo nor in the instant petition which, in part,
merely states that this is a petition for review on certiorari on pure questions of
law to set aside a portion of the RTC decision in Criminal Cases Nos. 37097
and 37098[16] since the trial courts judgment of acquittal failed to impose any
civil liability against the private respondents. By no amount of equity
considerations, if at all deserved, can a mere appeal on the civil aspect of a
criminal case be treated as a derivative suit.
Granting, for purposes of discussion, that this is a derivative suit as insisted
by petitioners, which it is not, the same is outrightly dismissible for having been
wrongfully filed in the regular court devoid of any jurisdiction to entertain the
complaint. The case should have been filed with the Securities and Exchange
Commission (SEC) which exercises original and exclusive jurisdiction over
derivative suits, they being intra-corporate disputes, per Section 5(b) of P.D.
No. 902-A:
In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of
associations registered with it as expressly granted under existing laws and
decrees, it shall have original and exclusive jurisdiction to hear and decide
cases involving:
xxx xxx xxx
b) Controversies arising out of intra-corporate or partnership relations, between
and among stockholders, members, or associates; between any or all of them
and the corporation, partnership or association of which they are stockholders,
members or associates, respectively; and between such corporation,
partnership or association and the State insofar as it concerns their individual
franchise or right to exist as such entity;
xxx xxx xxx. [Underscoring ours]
Once the case is decided by the SEC, the losing party may file a petition for
review before the Court of Appeals raising questions of fact, of law, or mixed
questions of fact and law.[17]It is only after the case has ran this course, and not
earlier, can it be brought to us via a petition for review on certiorari under Rule
45 raising only pure questions of law. [18]Petitioners, in pleading that we treat the
instant petition as a derivative suit, are trying to short-circuit the entire process
which we cannot here sanction.
As an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098
for falsification of public document and estafa, which this petition truly is, we
have to deny the petition just the same. It will be well to quote the respondent
courts ratiocinations acquitting the private respondents on both counts:
The prosecution wants this Court to believe and agree that there is falsification
of public document because, as claimed by the prosecution, Resolution No. 48,
Series of 1986 (Exh. 1-E-1) was not taken up and passed during the Regular
Meeting of the Board of Trustees of the western Institute of Technology (WIT),
Inc. on March 30, 1986, but on June 1, 1986 special meeting of the same
board of trustees.
This Court is reluctant to accept this claim of falsification. The prosecution
omitted to submit the complete minutes of the regular meeting of the Board of
Trustees on March 30, 1986. It only presented in evidence Exh. C, which is
page 5 or the last page of the said minutes. Had the complete minutes (Exh. 1
consisting of five (5) pages, been submitted, it can readily be seen and
understood that Resolution No. 48, Series of 1986 (Exh. 1-E-1) giving
compensation to corporate officers, was indeed included in Other Business,
No. 6 of the Agenda, and was taken up and passed on March 30, 1986. The
mere fact of existence of Exh. C also proves that it was passed on March 30,
1986 for Exh,. C is a part and parcel of the whole minutes of the Board of
Trustees Regular Meeting on March 30, 1986. No better and more credible
proof can be considered other than the Minutes (Exh. 1) itself of the Regular
Meeting of the Board of Trustees on March 30, 1986. The imputation that said
Resolution No.48 was neither taken up nor passed on March 30, 1986
because the matter regarding compensation was not specifically stated or
written in the Agenda and that the words possible implementation of said
Resolution No. 48, was expressly written in the Agenda for the Special Meeting
of the Board on June 1, 1986, is simply an implication. This evidence by
implication to the mind of the court cannot prevail over the Minutes (Exh. 1)
24
and cannot ripen into proof beyond reasonable doubt which is demanded in all
criminal prosecutions.
This Court finds that under the Eleventh Article (Exh. 3-D-1) of the Articles of
Incorporation (Exh. 3-B) of the Panay Educational Institution, Inc., now the
Western Institute of Technology, Inc., the officers of the corporation shall
receive such compensation as the Board of Directors may provide.These
Articles of Incorporation was adopted on May 17, 1957 (Exh. 3-E). The Officers
of the corporation and their corresponding duties are enumerated and stated in
Sections 1, 2, 3 and 4 of Art. III of the Amended By-Laws of the Corporation
(Exh. 4-A) which was adopted on May 31, 1957. According to Sec. 6, Art. III of
the same By-Laws, all officers shall receive such compensation as may be
fixed by the Board of Directors.
It is the perception of this Court that the grant of compensation or salary to the
accused in their capacity as officers of the corporation, through Resolution No.
48, enacted on March 30, 1986 by the Board of Trustees, is authorized by both
the Articles of Incorporation and the By-Laws of the Corporation. To state
otherwise is to depart from the clear terms of the said articles and by-laws. In
their defense the accused have properly and rightly asserted that the grant of
salary is not for directors, but for their being officers of the corporation who
oversee the day to day activities and operations of the school.
xxx xxx xxx
xxx [O]n the question of whether or not the accused can be held liable for
estafa under Sec. 1 (b) of Art. 315 of the Revised Penal Code, it is perceived
by this Court that the receipt and the holding of the money by the accused as
salary on basis of the authority granted by the Articles and By-Laws of the
corporation are not tainted with abuse of confidence. The money they received
belongs to them and cannot be said to have been converted and/or
misappropriated by them.
xxx xxx xxx.[19] [Underscoring ours]
From the foregoing factual findings, which we find to be amply
substantiated by the records, it is evident that there is simply no basis to hold
the accused, private respondents herein, civilly liable. Section 2(b) of Rule 111
on the New Rules on Criminal Procedure provides:
SEC. 2. Institution of separate civil action.
xxx xxx xxx
(b) Extinction of the penal action does not carry with it extinction of the
civil, unless the extinction proceeds from a declaration in a final judgment that
the fact from which the civil might arise did not exist. [Underscoring ours]
Likewise, the last paragraph of Section 2, Rule 120 reads:
SEC. 2. Form and contents of judgment.
xxx xxx xxx
In case of acquittal, unless there is a clear showing that the act from which the
civil liability might arise did not exist, the judgment shall make a finding on the
civil liability of the accused in favor of the offended party. [Underscoring ours]
The acquittal in Criminal Cases Nos. 37097 and 37098 is not merely based
on reasonable doubt but rather on a finding that the accused-private
respondents did not commit the criminal acts complained of. Thus, pursuant to
the above rule and settled jurisprudence, any civil action ex delicto cannot
prosper. Acquittal in a criminal action bars the civil action arising therefrom
where the judgment of acquittal holds that the accused did not commit the
criminal acts imputed to them.[20]
WHEREFORE, the instant petition is hereby DENIED with costs against
petitioners.
SO ORDERED.
6. PHILIPPINE LONG DISTANCE G.R. No. 152685
TELEPHONE COMPANY,
Petitioner,
Present:
- versus -
QUISUMBING, J., Chairperson,
25
CARPIO, This case pertains to Section 40 (e) [5] of the Public Service
CARPIO MORALES, Act[6] (PSA), as amended on March 15, 1984, pursuant to Batas Pambansa
NATIONAL TINGA, and Blg. 325, which authorized the NTC to collect from public telecommunications
companies Supervision and Regulation Fees (SRF) of PhP 0.50 for every PhP
TELECOMMUNICATIONS VELASCO, JR., JJ.
100 or a fraction of the capital and stock subscribed or paid for of a stock
COMMISSION, JOSEPH A. corporation, partnership or single proprietorship of the capital invested, or of
SANTIAGO, in his capacity as NTC the property and equipment, whichever is higher.

Commissioner, and EDGARDO

CABARRIOS, in his capacity as Promulgated:
Chief, CCAD,
Respondents. December 4, 2007
x-----------------------------------------------------------------------------------------x
RESOLUTION
VELASCO, JR., J.:
Before us is a Petition for Review on Certiorari [1] under Rule 45 of the
Rules of Court. It assails the February 12, 2001 Decision [2] of the Court of
Appeals (CA) in CA-G.R. SP No. 61033, which dismissed petitioners special
civil action for certiorari and prohibition, and the March 21, 2002 Resolution [3] of
the CA denying petitioners motion for reconsideration. The petition raises the
sole issue on whether the appellate court erred in holding that the assessments
of the National Telecommunications Commission (NTC) were contrary to our
Decision in G.R. No. 127937 entitled NTC v. Honorable Court of Appeals. [4]
Under Section 40 (e) of the PSA, the NTC sent SRF assessments to
petitioner Philippine Long Distance Telephone Company (PLDT) starting
sometime in 1988.The SRF assessments were based on the market value of
the outstanding capital stock, including stock dividends, of PLDT. PLDT
protested the assessments contending that the SRF ought to be based on the
par value of its outstanding capital stock. Its protest was denied by the NTC
and likewise, its motion for reconsideration.
PLDT appealed before the CA. The CA modified the disposition of the
NTC by holding that the SRF should be assessed at par value of the
outstanding capital stock of PLDT, excluding stock dividends.
With the denial of the NTCs partial reconsideration of the CA Decision,
the issue of the basis for the assessment of the SRF was brought before this
Court under G.R. No. 127937 wherein we ruled that the SRF should be based
neither on the par value nor the market value of the outstanding capital stock
but on the value of the stocks subscribed or paid including the premiums paid
therefor, that is, the amount that the corporation receives, inclusive of the
premiums if any, in consideration of the original issuance of the shares. We
added that in the case of stock dividends, it is the amount that the corporation
transfers from its surplus profit account to its capital account, that is, the

26
amount the stock dividends represent is equivalent to the value paid for its
original issuance.
PLDT wanted our July 28, 1999 Decision in G.R. No. 127937 clarified. It
posited that the SRF should be based on the par value in consonance with our
holding in Philippine Long Distance Telephone Company v. Public Service
Commission,[7]and that the premiums on issued shares should not be included
in the valuation of the outstanding capital stock. Through our November 15,
1999 Resolution in G.R. No. 127937, we elucidated that our July 28, 1999
decision was not in conflict with our ruling in Philippine Long Distance
Telephone Company since we never enunciated in the said case that the
phrase capital stock subscribed or paid must be determined at par value. We
reiterated that the term capital stock subscribed or paid is the amount that the
corporation receives, inclusive of the premiums, if any, in consideration of the
original issuance of the shares.
Thereafter, to comply with our disposition in G.R. No. 127937, for the
reassessment of the SRF based on the value of the stocks subscribed or paid
including the premiums paid for the stocks, if any, the NTC sent the assailed
assessments of February 10, 2000 [8] and September 5, 2000[9] to PLDT which
included the value of stock dividends issued by PLDT. The assailed
assessments were based on the schedule of capital stock submitted by PLDT.
PLDT now contends that our disposition in G.R. No. 127937 excluded
stock dividends from the SRF coverage, while the NTC asserts the
contrary. Also, PLDT questions the assessments for violating our disposition in
G.R. No. 127937 since these assessments were identical to the previous
assessments from 1988 which were questioned by PLDT in G.R. No. 127937
for being based on the market value of its outstanding capital stock.
PLDT wrote a letter protesting the assailed February 10,
2000 assessment which was not acted upon by the NTC. Instead, the NTC
sent a second assailed assessment on September 5, 2000. Thus, in an attempt
to clarify and resolve this issue, PLDT filed a Motion for Clarification of
Enforcement of the Decision dated 28 July 1999 in G.R. No. 127937 which this
Court simply noted for the case had already become final and executory.
Thus, on October 2, 2000, PLDT instituted the special civil action for
certiorari and prohibition docketed as CA-G.R. SP No. 61033 [10] before the
CA. To maintain the status quo and to defer the enforcement of the assailed
assessments and subsequent assessments, on October 3, 2000, the CA
issued a Temporary Restraining Order. On December 4, 2000, a writ of
preliminary injunction was granted.
Subsequently, on February 12, 2001, the CA rendered the assailed
Decision dismissing the petition. The dispositive portion reads:
WHEREFORE, the petition is DISMISSED for lack of
merit, and the writ of preliminary injunction heretofore issued is
DISSOLVED.[11]
PLDTs motion for reconsideration was denied by the CAs Special
Division of Five on March 21, 2002.
Hence, the instant petition for review, raising the core issue:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
DISPUTED NTC ASSESSMENTS WERE NOT CONTRARY TO
THE PURISIMA DECISION.[12]
27
 The petition is bereft of merit.
PLDT argues that in our Decision in G.R. No. 127937 we have excluded
from the coverage of the SRF the capital stocks issued as stock
dividends. Petitioner argues that G.R. No. 127937 clearly delineates between
capital subscribed and stock dividends to the effect that the latter are not
included in the concept of capital stock subscribed because subscribers or
shareholders do not pay for their subscriptions as no amount is received by the
corporation in consideration of such issuances since these are effected as
mere book entries, that is, the transfer from the retained earnings account to
the capital or stock account. To bolster its position, PLDT repeatedly used the
phrase actual payments received by a corporation as a consideration for
issuances of shares which do not apply to stock dividends.
We are not persuaded.
Crucial in point is our disquisition in G.R. No. 127937 entitled National
Telecommunications Commission v. Honorable Court of Appeals, which we
quote:
The term capital and other terms used to describe the
capital structure of a corporation are of universal acceptance and
their usages have long been established in jurisprudence. Briefly,
capital refers to the value of the property or assets of a
corporation. The capital subscribed is the total amount of the
capital that persons (subscribers or shareholders) have
agreed to take and pay for, which need not necessarily by, and
can be more than, the par value of the shares. In fine, it is the
amount that the corporation receives, inclusive of the
premiums if any, in consideration of the original issuance of
the shares. In the case of stock dividends, it is the amount
that the corporation transfers from its surplus profit account
to its capital account. It is the same amount that can be loosely
termed as the trust fund of the corporation. The Trust Fund
doctrine considers this subscribed capital as a trust fund for the
payment of the debts of the corporation, to which the creditors
may look for satisfaction. Until the liquidation of the corporation,
no part of the subscribed capital may be returned or released to
the stockholder (except in the redemption of redeemable shares)
without violating this principle. Thus, dividends must never impair
the subscribed capital; subscription commitments cannot be
condoned or remitted; nor can the corporation buy its own shares
using the subscribed capital as the considerations therefor.
[13]
(Emphasis supplied.)
Two concepts can be gleaned from the above. First, what constitutes
capital stock that is subject to the SRF. Second, such capital stock is equated
to the trust fund of a corporation held in trust as security for satisfaction to
creditors in case of corporate liquidation.
The first asks if stock dividends are part of the outstanding capital stocks
of a corporation insofar as it is subject to the SRF. They are. The first issue we
have to tackle is, are all the stock dividends that are part of the outstanding
capital stock of PLDT subject to the SRF? Yes, they are.
PLDTs contention, that stock dividends are not similarly situated as the
subscribed capital stock because the subscribers or shareholders do not pay
for their issuances as no amount was received by the corporation in
consideration of such issuances since these are effected as a mere book entry,
is erroneous.
Dividends, regardless of the form these are declared, that is, cash,
property or stocks, are valued at the amount of the declared dividend taken
from the unrestricted retained earnings of a corporation. Thus, the value of the
declaration in the case of a stock dividend is the actual value of the original
issuance of said stocks. In G.R. No. 127937 we said that in the case of stock
28
dividends, it is the amount that the corporation transfers from its surplus profit
account to its capital account or it is the amount that the corporation receives in
consideration of the original issuance of the shares. It is the distribution of
current or accumulated earnings to the shareholders of a corporation pro rata
based on the number of shares owned. [14] Such distribution in whatever form is
valued at the declared amount or monetary equivalent.
Thus, it cannot be said that no consideration is involved in the issuance
of stock dividends. In fact, the declaration of stock dividends is akin to a forced
purchase of stocks. By declaring stock dividends, a corporation ploughs back a
portion or its entire unrestricted retained earnings either to its working capital or
for capital asset acquisition or investments. It is simplistic to say that the
corporation did not receive any actual payment for these. When the dividend is
distributed, it ceases to be a property of the corporation as the entire or portion
of its unrestricted retained earnings is distributed pro rata to corporate
shareholders.
When stock dividends are distributed, the amount declared ceases to
belong to the corporation but is distributed among the
shareholders. Consequently, the unrestricted retained earnings of the
corporation are diminished by the amount of the declared dividend while the
stockholders equity is increased. Furthermore, the actual payment is the cash
value from the unrestricted retained earnings that each shareholder foregoes
for additional stocks/shares which he would otherwise receive as required by
the Corporation Code to be given to the stockholders subject to the availability
and conditioned on a certain level of retained earnings. [15] Elsewise put, where
the unrestricted retained earnings of a corporation are more than 100% of the
paid-in capital stock, the corporate Board of Directors is mandated to declare
dividends which the shareholders will receive in cash unless otherwise
declared as property or stock dividends, which in the latter case the
stockholders are forced to forego cash in lieu of property or stocks.
In essence, therefore, the stockholders by receiving stock dividends are
forced to exchange the monetary value of their dividend for capital stock, and
the monetary value they forego is considered the actual payment for the
original issuance of the stocks given as dividends. Therefore, stock dividends
acquired by shareholders for the monetary value they forego are under the
coverage of the SRF and the basis for the latter is such monetary value as
declared by the board of directors.
On the second issue, do the assailed NTC assessments violate the
ruling in G.R. No. 127937? PLDT contends that these did since the
assessments are identical to the previous assessments from 1988 which were
questioned by PLDT in the seminal G.R. No. 127937 for being based on the
market value of its outstanding capital stock.
A cursory review of the assessments made by the NTC prior to our July
28, 1999 Decision in G.R. No. 127937 and the assailed assessments of
February 10, 2000 and September 5, 2000 does show that the assessments
are substantially identical. In our July 28, 1999 Decision in G.R. No. 127937,
we noted, and similarly true in the petition before us, that, The actual capital
paid or the amount of capital stock paid and for which PLDT received actual
payments were not disclosed or extant in the records before the Court. [16]
Hence, as before, we cannot factually determine whether the assailed
assessments substantially followed our Decision in G.R. No. 127937. It is
apparent that the assessments are identical and that the NTC in the earlier
case asserted that the SRF be based on the market value of the capital stock,
yet it assessed it to PLDT.However, a closer look at the assailed assessments
29
of February 13, 2000 and September 5, 2000 would show that the NTC based
its assessment on the schedule of capital stock submitted by PLDT. PLDT did
not dispute this; it only disputed the level of assessment which was the same
as before.
Now, where should the NTC base its assessment? It is incumbent upon
PLDT to furnish the NTC the actual payment made on the subscription of its
capital stock in order for the NTC to assess the proper SRF. Logically, the NTC
would base its SRF assessment of PLDT from PLDT data.
PLDT should not bewail that the assailed assessments are substantially
the same assessments it protested in G.R. No. 127937. After all, it had not
shown the actual figures of the amount of premiums and subscriptions it had
received for the original issuances of its capital stock. While indeed it submitted
a table of the comparative assessments made by the NTC to this Court, PLDT
has not furnished the NTC nor this Court the correct figures of the actual
payments made for its capital stock.
We are not unaware that in accounting practice, the journal entries for
transactions are recorded in historical value or cost. Thus, the purchase of
properties or assets is recorded at acquisition cost. The same is true with
liabilities and equity transactions where the actual loan and the amount paid for
the subscription are recorded at the actual payment, including the premiums
paid for the subscription of capital stock.
Moreover, it is common practice that the values of the accounts
recorded at historical value or cost are not increased or decreased due to
market forces. In the case of properties, the appreciation in values is generally
not recorded as income nor the increase in the corresponding asset because
the increase or decrease is not yet realized until the property is actually
sold. The same is true with the capital account.The market value may be much
higher than the actual payment of the par value and premium of capital
stock. Still, the books of account will not reflect such increase; and vice-versa,
any decrease of the value of stocks is likewise not reflected in the books of
account. Thus, given the general practice that book entries of the premiums
and subscriptions for capital stock are the actual value for the original issuance
of stocks, then the NTC was correct to follow the schedule of capital stocks
submitted by PLDT.
Moreover, the Trust Fund doctrine, the second concept this Court
elucidated in G.R. No. 127937 and quoted above, bolsters the correctness of
the assessments made by the NTC. As a fund in trust for creditors in case of
liquidation, the actual value of the subscriptions and the value of stock
dividends distributed may not be decreased or increased by the fluctuating
market value of the stocks. Thus, absent any showing by PLDT of the actual
payment it received for the original issuance of its capital stock, the
assessments made by the NTC, based on the schedule of outstanding capital
stock of PLDT recorded at historical value payments made, is deemed correct.
Anent stock dividends, the value transferred from the unrestricted
retained earnings of PLDT to the capital stock account pursuant to the
issuance of stock dividends is the proper basis for the assessment of the SRF,
which the NTC correctly assessed.
WHEREFORE, we DENY the petition for lack of merit,
and AFFIRM the February 12, 2001 Decision and March 21, 2002 Resolution
in CA-G.R. SP No. 61033. Costs against petitioner.
SO ORDERED.
30
 7. G.R. No. L-28120 November 25, 1976
RICARDO A. NAVA, petitioner-appellant.
vs.
PEERS MARKETING CORPORATION, RENATO R. CUSI and AMPARO
CUSI, respondents-appellees.
AQUINO, J:
This is a mandamus case, Teofilo Po as an incorporator subscribed to eighty
shares of Peers Marketing Corporation at one hundred pesos a share or a total
par value of eight thousand pesos. Po paid two thousand pesos or twenty-five
percent of the amount of his subscription. No certificate of stock was issued to
him or, for that matter, to any incorporator, subscriber or stockholder.
On April 2, 1966 Po sold to Ricardo A. Nava for two thousand pesos twenty of
his eighty shares. In the deed of sale Po represented that he was "the absolute
and registered owner of twenty shares" of Peers Marketing Corporation.
Nava requested the officers of the corporation to register the sale in the books
of the corporation. The request was denied because Po has not paid fully the
amount of his subscription. Nava was informed that Po was delinquent in the
payment of the balance due on his subscription and that the corporation had a
claim on his entire subscription of eighty shares which included the twenty
shares that had been sold to Nava.
On December 21, 1966 Nava filed this mandamus action in the Court of First
Instance of Negros Occidental, Bacolod City Branch to compel the corporation
and Renato R. Cusi and Amparo Cusi, its executive vice-president and
secretary, respectively, to register the said twenty shares in Nava's name in the
corporation's transfer book.
The respondents in their answer pleaded the defense that no shares of stock
against which the corporation holds an unpaid claim are transferable in the
books of the corporation.
After hearing, the trial court dismissed the petition. Nava appealed on the
ground that the decision "is contrary to law ". His sole assignment of error is
that the trial court erred in applying the ruling in Fua Cun vs. Summers and
China Banking Corporation, 44 Phil. 705 to justify respondents' refusal in
registering the twenty shares in Nava's name in the books of the corporation.
The rule enunciated in the Fua Cun case is that payment of one-half of the
subscription does not entitle the subscriber to a certificate of stock for one-half
of the number of shares subscribed.
Appellant Nava contends that the Fua Cun case was decided under section 36
of the Corporation Law which provides that "no certificate of stock shall be
issued to a subscriber as fully paid up until the full par value thereof has been
paid by him to the corporation". Section 36 was amended by Act No. 3518. It is
now section 37. Section 37 provides that "no certificate of stock shall be issued
to a subscriber as fully paid up until the full par value thereof, or the full
subscription in case of no par stock, has been paid by him to the corporation".
The issue is whether the officers of Peers Marketing Corporation can be
compelled by mandamus to enter in its stock and transfer book the sale made
by Po to Nava of the twenty shares forming part of Po's subscription of eighty
shares, with a total par value of P8,000 and for which Po had paid only P2,000,
it being admitted that the corporation has an unpaid claim of P6,000 as the
balance due on Po's subscription and that the twenty shares are not covered
by any stock certificate.
Apparently, no provision of the by-laws of the corporation covers that situation.
The parties did not bother to submit in evidence the by-laws nor invoke any of
its provisions. The corporation can include in its by-laws rules, not inconsistent
with law, governing the transfer of its shares of stock (Sec. 137 , Act No. 1459;
Fleischer vs. Botica Nolasco Co., 47 Phil. 583, 589).
We hold that the transfer made by Po to Nava is not the "alienation, sale, or
transfer of stock" that is supposed to be recorded in the stock and transfer
book, as contemplated in section 52 of the Corporation Law.
As a rule, the shares which may be alienated are those which are covered by
certificates of stock, as shown in the following provisions of the Corporation
Law and as intimated in Hager vs. Bryan, 19 Phil. 138 (overruling the decision
in Hager vs. Bryan, 21 Phil. 523. See 19 Phil. 616, notes, and Hodges vs.
Lezama, 14 SCRA 1030).
31
 SEC. 35. The capital stock of stock corporations shall be divided
into shares for which certificatessigned by the president or the
vice-president, countersigned by the secretary or clerk and
sealed with the seal of the corporation, shall be issued in
accordance with the by-laws. 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, the
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.
SEC. 36. (re voting trust agreement) ...
The certificates of stock so transferred shall be surrendered and
cancelled, and new certificates therefor issued to such person or
persons, or corporation, as such trustee or trustees, in which new
certificates it shall appear that they are issued pursuant to said
agreement.
xxx xxx xxx
(Emphasis supplied).
(In the case of nonstock corporations a membership certificate is usually
issued. Lee E. Won vs. Wack Wack Golf & Country Club, Inc., 104 Phil. 466;
Wack Wack Golf & Country Club, Inc. vs. Won, L-23851, March 26, 1976, 70
SCRA 165).
As prescribed in section 35, shares of stock may be transferred by delivery to
the transferee of the certificate properly indorsed. "Title may be vested in the
transferee by delivery of the certificate with a written assignment or
indorsement thereof" (18 C.J.S. 928). There should be compliance with the
mode of transfer prescribed by law (18 C.J.S. 930).
The usual practice is for the stockholder to sign the form on the back of the
stock certificate. The certificate may thereafter be transferred from one person
to another. If the holder of the certificate desires to assume the legal rights of a
shareholder to enable him to vote at corporate elections and to receive
dividends, he fills up the blanks in the form by inserting his own name as
transferee. Then he delivers the certificate to the secretary of the corporation
so that the transfer may be entered in the corporation's books. The certificate is
then surrendered and a new one issued to the transferee. (Hager vs. Bryan, 19
Phil. 138, 143-4).
That procedure cannot be followed in the instant case because, as already
noted, the twenty shares in question are not covered by any certificate of stock
in Po's name. Moreover, the corporation has a claim on the said shares for the
unpaid balance of Po's subscription. A stock subscription is a subsisting liability
from the time the subscription is made. The subscriber is as much bound to
pay his subscription as he would be to pay any other debt. The right of the
corporation to demand payment is no less incontestable. (Velasco vs. Poizat,
37 Phil. 802; Lumanlan vs. Cura, 59 Phil. 746).
A corporation cannot release an original subscriber from paying for his shares
without a valuable consideration (Philippine National Bank vs. Bitulok Sawmill,
Inc.,
L-24177-85, June 29, 1968, 23 SCRA 1366) or without the unanimous consent
of the stockholders (Lingayen Gulf Electric Power Co., Inc. vs. Baltazar, 93 Phil
404).
Under the facts of this case, there is no clear legal duty on the part of the
officers of the corporation to register the twenty shares in Nava's name, Hence,
there is no cause of action for mandamus.
Nava argues that under section 37 a certificate of stock may be issued for
shares the par value of which have already been paid for although the entire
subscription has not been fully paid. He contends that Peers Marketing
Corporation should issue a certificate of stock for the twenty shares,
notwithstanding that Po had not paid fully his subscription for the eighty shares,
because section 37 requires full payment for the subscription, as a condition
precedent for the issuance of the certificate of stock, only in the case of no par
stock.
32
Nava relies on Baltazar v Lingayen Gulf Electric Power Co., Inc., L-16236-38,
SECOND DIVISION
June 30, 1965, 14 SCRA 522, where it was held that section 37 "requires as a
condition before a shareholder can vote his shares that his full subscription be
CALATAGAN GOLF CLUB, INC. G.R. No. 165443
paid in the case of no par value stock; and in case of stock corporation with par
Petitioner,
value, the stockholder can vote the shares fully paid by him only, irrespective of
the unpaid delinquent shares".
Present:
There is no parallelism between this case and the Baltazar case. It is
QUISUMBING, J.,
noteworthy that in the Baltazar case the stockholder, an incorporator, was the
- versus - Chairperson,
holder of a certificate of stock for the shares the par value of which had been
YNARES-SANTIAGO,
paid by him. The issue was whether the said shares had voting rights although
CARPIO MORALES,
the incorporator had not paid fully the total amount of his subscription. That is
TINGA, and
not the issue in this case.
VELASCO, JR., JJ.*
SIXTO CLEMENTE, JR.,
In the Baltazar case, it was held that where a stockholder subscribed to a
Respondent.
certain number of shares with par value and he made a partial payment and
Promulgated:
was issued a certificate for the shares covered by his partial payment, he is
entitled to vote the said shares, although he has not paid the balance of his
April 16, 2009
subscription and a call or demand had been made for the payment of the par
value of the delinquent shares.
x ---------------------------------------------------------------------------------x
As already stressed, in this case no stock certificate was issued to Po. Without
stock certificate, which is the evidence of ownership of corporate stock, the
DECISION
assignment of corporate shares is effective only between the parties to the
transaction (Davis vs. Wachter, 140 So. 361).
TINGA, J.:
Seeking the reversal of the Decision[1] dated 1 June 2004 of the Court of
The delivery of the stock certificate, which represents the shares to be
Appeals in CA-G.R. SP No. 62331 and the reinstatement of the Decision
alienated , is essential for the protection of both the corporation and its
dated 15 November 2000 of the Securities and Exchange Commission (SEC)
stockholders (Smallwood vs. Moretti, 128 So. 2d 628).
in SEC Case No. 04-98-5954, petitioner Calatagan Golf Club, Inc. (Calatagan)
filed this Rule 45 petition against respondent Sixto Clemente, Jr. (Clemente).
In view of the foregoing considerations, the trial court's judgment dismissing
the petition for mandamus is affirmed. Costs against the petitioner-appellant.
The key facts are undisputed.
SO ORDERED. Clemente applied to purchase one share of stock of Calatagan,
indicating in his application for membership his mailing address at Phimco
Fernando (Chairman), Barredo, Antonio and Concepcion, Jr., JJ., concur. Industries, Inc. P.O. Box 240, MCC, complete residential address, office and
residence telephone numbers, as well as the company (Phimco) with which he
8.

33
was connected, Calatagan issued to him Certificate of Stock No. A-01295 on 2
May 1990 after paying P120,000.00 for the share.[2]
Calatagan charges monthly dues on its members to meet expenses for
general operations, as well as costs for upkeep and improvement of the
grounds and facilities.The provision on monthly dues is incorporated in
Calatagans Articles of Incorporation and By-Laws. It is also reproduced at the
back of each certificate of stock. [3] As reproduced in the dorsal side of
Certificate of Stock No. A-01295, the provision reads:
5. The owners of shares of stock shall be subject to the
payment of monthly dues in an amount as may be prescribed in
the by-laws or by the Board of Directors which shall in no case be
less that [sic] P50.00 to meet the expenses for the general
operations of the club, and the maintenance and improvement of
its premises and facilities, in addition to such fees as may be
charged for the actual use of the facilities x x x
When Clemente became a member the monthly charge stood
at P400.00. He paid P3,000.00 for his monthly dues on 21 March 1991 and
another P5,400.00 on 9 December 1991. Then he ceased paying the dues. At
that point, his balance amounted to P400.00.[4]
Ten (10) months later, Calatagan made the initial step to collect
Clementes back accounts by sending a demand letter dated 21 September
1992. It was followed by a second letter dated 22 October 1992. Both letters
were sent to Clementes mailing address as indicated in his membership
application but were sent back to sender with the postal note that the address
had been closed.[5]
Calatagan declared Clemente delinquent for having failed to pay his
monthly dues for more than sixty (60) days, specifically P5,600.00 as of 31
October 1992. Calatagan also included Clementes name in the list of
delinquent members posted on the clubs bulletin board. On 1 December 1992,
Calatagans board of directors adopted a resolution authorizing the foreclosure
of shares of delinquent members, including Clementes; and the public auction
of these shares.
On 7 December 1992, Calatagan sent a third and final letter to
Clemente, this time signed by its Corporate Secretary, Atty. Benjamin Tanedo,
Jr. The letter contains a warning that unless Clemente settles his outstanding
dues, his share would be included among the delinquent shares to be sold at
public auction on 15 January 1993. Again, this letter was sent to Clementes
mailing address that had already been closed. [6]
On 5 January 1993, a notice of auction sale was posted on the Clubs
bulletin board, as well as on the clubs premises. The auction sale took place as
scheduled on 15 January 1993, and Clementes share sold for P64,000.
[7]
According to the Certificate of Sale issued by Calatagan after the sale,
Clementes share was purchased by a Nestor A. Virata. [8] At the time of the
sale, Clementes accrued monthly dues amounted to P5,200.00.[9] A notice of
foreclosure of Clementes share was published in the 26 May 1993 issue of
the Business World.[10]
Clemente learned of the sale of his share only in November of 1997.
[11]
He filed a claim with the Securities and Exchange Commission (SEC)
seeking the restoration of his shareholding in Calatagan with damages.
On 15 November 2000, the SEC rendered a decision dismissing
Clementes complaint. Citing Section 69 of the Corporation Code which
provides that the sale of shares at an auction sale can only be questioned
within six (6) months from the date of sale, the SEC concluded that Clementes
claim, filed four (4) years after the sale, had already prescribed. The SEC
further held that Calatagan had complied with all the requirements for a valid
sale of the subject share, Clemente having failed to inform Calatagan that the
address he had earlier supplied was no longer his address. Clemente, the SEC
ruled, had acted in bad faith in assuming as he claimed that his non-payment
of monthly dues would merely render his share inactive.
Clemente filed a petition for review with the Court of Appeals. On 1 June
2004, the Court of Appeals promulgated a decision reversing the SEC. The
appellate court restored Clementes one share with a directive to Calatagan to
issue in his a new share, and awarded to Clemente a total of P400,000.00 in
damages, less the unpaid monthly dues of P5,200.00.
In rejecting the SECs finding that the action had prescribed, the Court of
Appeals cited the SECs own ruling in SEC Case No. 4160, Caram v. Valley
34
Golf Country Club, Inc., that Section 69 of the Corporation Code specifically
refers to unpaid subscriptions to capital stock, and not to any other debt of
stockholders. With the insinuation that Section 69 does not apply to unpaid
membership dues in non-stock corporations, the appellate court employed
Article 1140 of the Civil Code as the proper rule of prescription. The provision
sets the prescription period of actions to recover movables at eight (8) years.
The Court of Appeals also pointed out that since that Calatagans first
two demand letters had been returned to it as sender with the notation about
the closure of the mailing address, it very well knew that its third and final
demand letter also sent to the same mailing address would not be received by
Clemente. It noted the by-law requirement that within ten (10) days after the
Board has ordered the sale at auction of a members share of stock for
indebtedness, the Corporate Secretary shall notify the owner thereof and
advise the Membership Committee of such fact. Finally, the Court of Appeals
ratiocinated that a person who is in danger of the imminent loss of his property
has the right to be notified and be given the chance to prevent the loss. [12]
Hence, the present appeal.
Calatagan maintains that the action of Clemente had prescribed
pursuant to Section 69 of the Corporation Code, and that the requisite notices
under both the law and the by-laws had been rendered to Clemente.
Section 69 of the Code provides that an action to recover delinquent
stock sold must be commenced by the filing of a complaint within six (6)
months from the date of sale. As correctly pointed out by the Court of Appeals,
Section 69 is part of Title VIII of the Code entitled Stocks and Stockholders and
refers specifically to unpaid subscriptions to capital stock, the sale of which is
governed by the immediately preceding Section 68.
The Court of Appeals debunked both Calatagans and the SECs reliance
on Section 69 by citing another SEC ruling in the case of Caram v. Valley
Golf. In connection with Section 69, Calatagan raises a peripheral point made
in the SECs Caram ruling. In Caram, the SEC, using as take-off Section 6 of
the Corporation Code which refers to such rights, privileges or restrictions as
may be stated in the articles of incorporation, pointed out that the Articles of
Incorporation of Valley Golf does not impose any lien, liability or restriction on
the Golf Share [of Caram], but only its (Valley Golfs) By-Laws does. Here,
Calatagan stresses that its own Articles of Incorporation does provide that the
monthly dues assessed on owners of shares of the corporation, along with all
other obligations of the shareholders to the club, shall constitute a first lien on
the shares and in the event of delinquency such shares may be ordered sold
by the Board of Directors in the manner provided in the By-Laws to satisfy said
dues or other obligations of the shareholders. [13] With its illative but
incomprehensible logic, Calatagan concludes that the prescriptive period under
Section 69 should also apply to the sale of Clementes share as the lien that
Calatagan perceives to be a restriction is stated in the articles of incorporation
and not only in the by-laws.
We remain unconvinced.
There are fundamental differences that defy equivalence or even
analogy between the sale of delinquent stock under Section 68 and the sale
that occurred in this case. At the root of the sale of delinquent stock is the non-
payment of the subscription price for the share of stock itself. The stockholder
or subscriber has yet to fully pay for the value of the share or shares
subscribed. In this case, Clemente had already fully paid for the share in
Calatagan and no longer had any outstanding obligation to deprive him of full
title to his share. Perhaps the analogy could have been made if Clemente had
not yet fully paid for his share and the non-stock corporation, pursuant to an
article or by-law provision designed to address that situation, decided to sell
such share as a consequence. But that is not the case here, and there is no
purpose for us to apply Section 69 to the case at bar.
Calatagan argues in the alternative that Clementes suit is barred by
Article 1146 of the Civil Code which establishes four (4) years as the
prescriptive period for actions based upon injury to the rights of the plaintiff on
the hypothesis that the suit is purely for damages. As a second alternative still,
Calatagan posits that Clementes action is governed by Article 1149 of the Civil
Code which sets five (5) years as the period of prescription for all other actions
whose prescriptive periods are not fixed in the Civil Code or in any other law.
Neither article is applicable but Article 1140 of the Civil Code which provides
that an action to recover movables shall prescribe in eight (8)
years. Calatagans action is for the recovery of a share of stock, plus damages.
35
 Calatagans advertence to the fact that the constitution of a lien on the
members share by virtue of the explicit provisions in its Articles of Incorporation
and By-Laws is relevant but ultimately of no help to its cause. Calatagans
Articles of Incorporation states that the dues, together with all other obligations
of members to the club, shall constitute a first lien on the shares, second only
to any lien in favor of the national or local government, and in the event of
delinquency such shares may be ordered sold by the Board of Directors in the
manner provided in the By-Laws to satisfy said dues or other obligations of the
stockholders.[14] In turn, there are several provisions in the By-laws that govern
the payment of dues, the lapse into delinquency of the member, and the
constitution and execution on the lien. We quote these provisions:
ARTICLE XII MEMBERS ACCOUNT
SEC. 31. (a) Billing Members, Posting of Delinquent Members
The Treasurer shall bill al members monthly. As soon as possible
after the end of every month, a statement showing the account of
bill of a member for said month will be prepared and sent to him. If
the bill of any member remains unpaid by the 20 th of the month
following that in which the bill was incurred, the Treasurer shall
notify him that if his bill is not paid in full by the end of the
succeeding month his name will be posted as delinquent the
following day at the Clubhouse bulletin board. While posted, a
member, the immediate members of his family, and his guests,
may not avail of the facilities of the Club.
(b) Members on the delinquent list for more than 60 days shall
be reported to the Board and their shares or the shares of the
juridical entities they represent shall thereafter be ordered sold by
the Board at auction to satisfy the claims of the Club as provided
for in Section 32 hereon. A member may pay his overdue account
at any time before the auction sale.
Sec. 32. Lien on Shares; Sale of Share at Auction- The club
shall have a first lien on every share of stock to secure debts of
the members to the Club. This lien shall be annotated on the
certificates of stock and may be enforced by the Club in the
following manner:
(a) Within ten (10) days after the Board has ordered the sale
at auction of a members share of stock for indebtedness under
Section 31(b) hereof, the Secretary shall notify the owner thereof,
and shall advise the Membership Committee of such fact.
(b) The Membership Committee shall then notify all
applicants on the Waiting List and all registered stockholders of
the availability of a share of stock for sale at auction at a specified
date, time and place, and shall post a notice to that effect in the
Club bulletin board for at least ten (10) days prior to the auction
sale.
(c) On the date and hour fixed, the Membership Committee
shall proceed with the auction by viva voce bidding and award the
sale of the share of stock to the highest bidder.
(d) The purchase price shall be paid by the winning bidder to
the Club within twenty-four (24) hours after the bidding. The
winning bidder or the representative in the case of a juridical entity
shall become a Regular Member upon payment of the purchase
price and issuance of a new stock certificate in his name or in the
name of the juridical entity he represents. The proceeds of the
sale shall be paid by the Club to the selling stockholder after
deducting his obligations to the Club.
(e) If no bids be received or if the winning bidder fails to pay
the amount of this bid within twenty-four (24) hours after the
bidding, the auction procedures may be repeated from time to
time at the discretion of the Membership Committee until the
share of stock be sold.
(f) If the proceeds from the sale of the share of stock are not
sufficient to pay in full the indebtedness of the member, the
member shall continue to be obligated to the Club for the unpaid
balance. If the member whose share of stock is sold fails or refuse
to surrender the stock certificate for cancellation, cancellation shall
be effected in the books of the Club based on a record of the
proceedings. Such cancellation shall render the unsurrendered
36
 stock certificate null and void and notice to this effect shall be duly
published.
It is plain that Calatagan had endeavored to install a clear and comprehensive
procedure to govern the payment of monthly dues, the declaration of a member
as delinquent, and the constitution of a lien on the shares and its eventual
public sale to answer for the members debts. Under Section 91 of the
Corporation Code, membership in a non-stock corporation shall be terminated
in the manner and for the causes provided in the articles of incorporation or the
by-laws. The By-law provisions are elaborate in explaining the manner and the
causes for the termination of membership in Calatagan, through the execution
on the lien of the share. The Court is satisfied that the By-Laws, as written,
affords due protection to the member by assuring that
the member should be notified by the Secretary of the looming execution sale
that would terminate membership in the club. In addition, the By-Laws
guarantees that after the execution sale, the proceeds of the sale would be
returned to the former member after deducting the outstanding obligations. If
followed to the letter, the termination of membership under this procedure
outlined in the By-Laws would accord with substantial justice.
Yet, did Calatagan actually comply with the by-law provisions when it
sold Clementes share? The appellate courts finding on this point warrants our
approving citation, thus:
In accordance with this provision, Calatagan sent the third
and final demand letter to Clemente on December 7, 1992. The
letter states that if the amount of delinquency is not paid, the
share will be included among the delinquent shares to be sold at
public auction. This letter was signed by Atty. Benjamin Tanedo,
Jr., CalataganGolfs Corporate Secretary. It was again sent to
Clementes mailing address Phimco Industries Inc., P.O.
Box 240, MCC Makati. As expected, it was returned because the
post office box had been closed.
Under the By-Laws, the Corporate Secretary is tasked to
give or cause to be given, all notices required by law or by these
By-Laws. .. and keep a record of the addresses of all
stockholders. As quoted above, Sec. 32 (a) of the By-Laws further
provides that within ten (10) days after the Board has ordered the
sale at auction of a members share of stock for indebtedness
under Section 31 (b) hereof, the Secretary shall notify the owner
thereof and shall advise the Membership Committee of such
fact., The records do not disclose what report the Corporate
Secretary transmitted to the Membership Committee to comply
with Section 32(a). Obviously, the reason for this mandatory
requirement is to give the Membership Committee the opportunity
to find out, before the share is sold, if proper notice has been
made to the shareholder member.
We presume that the Corporate Secretary, as a lawyer is
knowledgeable on the law and on the standards of good faith and
fairness that the law requires. As custodian of corporate records,
he should also have known that the first two letters sent to
Clemente were returned because the P.O. Box had been
closed. Thus, we are surprised given his knowledge of the law and
of corporate records that he would send the third and final letter
Clementes last chance before his share is sold and his
membership lost to the same P.O. Box that had been closed.
Calatagan argues that it exercised due diligence before the
foreclosure sale and sent several notices to Clementes specified
mailing address. We do not agree; we cannot label as due
diligence Calatagans act of sending the December 7, 1992 letter
to Clementes mailing address knowing fully well that the P.O. Box
had been closed. Due diligence or good faith imposes upon the
Corporate Secretary the chief repository of all corporate records
the obligation to check Clementes other address which, under the
By-Laws, have to be kept on file and are in fact on file. One
obvious purpose of giving the Corporate Secretary the duty to
keep the addresses of members on file is specifically for matters
of this kind, when the member cannot be reached through his or
her mailing address. Significantly, the Corporate Secretary does
not have to do the actual verification of other addressees on
record; a mere clerk can do the very simple task of checking the
files as in fact clerks actually undertake these tasks. In fact, one
37
 telephone call to Clementes phone numbers on file would have
alerted him of his impending loss.
Ultimately, the petition must fail because Calatagan had failed to duly
observe both the spirit and letter of its own by-laws. The by-law provisions was
clearly conceived to afford due notice to the delinquent member of the
impending sale, and not just to provide an intricate faade that would facilitate
Calatagans sale of the share. But then, the bad faith on Calatagans part is
palpable. As found by the Court of Appeals, Calatagan very well knew that
Clementes postal box to which it sent its previous letters had already been
closed, yet it persisted in sending that final letter to the same postal box. What
for? Just for the exercise, it appears, as it had known very well that the letter
would never actually reach Clemente.
It is noteworthy that Clemente in his membership application had
provided his residential address along with his residence and office telephone
numbers. Nothing in Section 32 of Calatagans By-Laws requires that the final
notice prior to the sale be made solely through the members mailing address.
Clemente cites our aphorism-like pronouncement in Rizal Commercial Banking
Corporation v. Court of Appeals[15]that [a] simple telephone call and an ounce of
good faith x x x could have prevented this present controversy. That
memorable observation is quite apt in this case.
Calatagans bad faith and failure to observe its own By-Laws had
resulted not merely in the loss of Clementes privilege to play golf at its golf
course and avail of its amenities, but also in significant pecuniary damage to
him. For that loss, the only blame that could be thrown Clementes way was his
failure to notify Calatagan of the closure of the P.O. Box. That lapse, if we
uphold Calatagan would cost Clemente a lot. But, in the first place, does he
deserve answerability for failing to notify the club of the closure of the postal
box? Indeed, knowing as he did that Calatagan was in possession of his home
address as well as residence and office telephone numbers, he had every
reason to assume that the club would not be at a loss should it need to contact
him. In addition, according to Clemente, he was not even aware of the closure
of the postal box, the maintenance of which was not his responsibility but his
employer Phimcos.
The utter bad faith exhibited by Calatagan brings into operation Articles
19, 20 and 21 of the Civil Code, [16] under the Chapter on Human Relations.
These provisions, which the Court of Appeals did apply, enunciate a general
obligation under law for every person to act fairly and in good faith towards one
another. A non-stock corporation like Calatagan is not exempt from that
obligation in its treatment of its members. The obligation of a corporation to
treat every person honestly and in good faith extends even to its shareholders
or members, even if the latter find themselves contractually bound to perform
certain obligations to the corporation. A certificate of stock cannot be a charter
of dehumanization.
We turn to the matter of damages. The award of actual damages is of
course warranted since Clemente has sustained pecuniary injury by reason of
Calatagans wrongful violation of its own By-Laws. It would not be feasible to
deliver Clementes original Certificate of Stock because it had already been
cancelled and a new one issued in its place in the name of the purchases at
the auction who was not impleaded in this case. However, the Court of Appeals
instead directed that Calatagan to issue to Clemente a new certificate of stock.
That sufficiently redresses the actual damages sustained by Clemente. After
all, the certificate of stock is simply the evidence of the share.
The Court of Appeals also awarded Clemente P200,000.00 as moral
damages, P100,000.00 as exemplary damages, and P100,000.00 as attorneys
fees. We agree that the award of such damages is warranted.
The Court of Appeals cited Calatagan for violation of Article 32 of the
Civil Code, which allows recovery of damages from any private individual who
directly or indirectly obstructs, defeats, violates or in any manner impedes or
impairs the right against deprivation of property without due process of laws.
The plain letter of the provision squarely entitles Clemente to damages from
Calatagan. Even without Article 32 itself, Calatagan will still be bound to pay
moral and exemplary damages to Clemente. The latter was able to duly prove
that he had sustained mental anguish, serious anxiety and wounded feelings
by reason of Calatagans acts, thereby entitling him to moral damages under
Article 2217 of the Civil Code. Moreover, it is evidentthat Calatagans bad faith
as exhibited in the
38
course of its corporate actions warrants correction for the public good, thereby
justifying exemplary damages under Article 2229 of the Civil Code.
WHEREFORE, the petition is DENIED. The Decision of the Court of
Appeals is AFFIRMED. Costs against petitioner.
SO ORDERED.
9. G.R. No. L-57707 November 19, 1982
PHILEX MINING CORPORATION, petitioner,
vs.
HON. DOMINGO CORONEL REYES, Presiding Judge, Court of First
Instance of Albay, 10th Judicial District, Branch IV, and RICHARD
HUENEFELD, respondents.
MELENCIO-HERRERA, J.:
A special civil action for certiorari seeking to set aside the Orders of respondent
Judge of the Court of First Instance of Albay in Civil Case No. 6400, denying
petitioner's Motion to Dismiss based on lack of jurisdiction on March 12, 1981,
and the Motion for its reconsideration on June 25, 1981.
The relevant facts follow:
Private respondent, Richard Huenefeld, is a stockholder of petitioner Philex
Mining Corporation (Philex, for short). He originally owned 800,000 shares of
stock.
On February 15, 1979, Philex declared a 10% stock dividend. Stock Certificate
No. 190579 for 80,000 shares was issued by Philex in favor of Huenefeld. On
April 18, 1979, Philex sent the stock certificate to Huenefeld through its transfer
agent, First Asian, Stock Transfer, Inc. (First Asian, for brevity). Huenefeld
claims that he never received the stock certificate.
On February 6, 1980, First Asian wrote Huenefeld informing him that the stock
certificate had been delivered to him at his address at Michelle Apartment,
2030 A. Mabini Street, Manila; and that if the certificate could not be located
that Huenefeld execute an Affidavit of Loss, with the notice of loss to be
published once a week for three (3) consecutive weeks in a newspaper of
general circulation in accordance with the procedure prescribed BY Republic
Act No. 201 (now Section 73, Corporation Code).
On March 4, 1980, Huenefeld, through counsel, replied that RA 201 is not
applicable because the stock certificate was not lost in the possession of the
stockholder; that assuming it was, the expenses of publication and premiums
for the bond should be at Philex's expense; and demanded the issuance of a
replacement stock certificate. Huenefeld also submitted an Affidavit of Loss but
did not comply with the other requirements on publication.
On November 3, 1980, Huenefeld commenced suit for Specific Performance
with Damages against Philex, First Asian and/or the latter's General Manager,
before the Court of First Instance of Albay, Branch IV, Legaspi City (Civil Case
No. 6400), presided by respondent Judge, to compel the issuance of a
replacement for Stock Certificate No. 190579, plus damages.
On January 27, 1981, Philex filed a Motion to Dismiss on the ground that the
Court of First Instance has no jurisdiction over the case, the issue being one of
intra-corporate relationship between a stockholder and a corporation, which
under Presidential Decree No. 902-A, falls within the original and exclusive
jurisdiction of the Securities and Exchange Commission (SEC).
Huenefeld filed an Opposition claiming that the refusal of Philex to issue a
replacement certificate resulted in actual damages to him, and thus, it is no
longer a case of intra-corporate conflict, but one which is civil or tortious in
nature.
On March 12, 1981, respondent Court issued the first questioned Order holding
in abeyance resolution of the incident as the grounds alleged did not appear to
be indubitable. Philex moved for reconsideration.
In the interim, Philex filed a Petition with the SEC (SEC Case No. 002053)
praying that the Commission hear the controversy; that Huenefeld be held to
have received Stock Certificate No. 190579 and had subsequently lost the
same; and that the provisions of RA 201, or Section 73 of the new Corporation
Code, be followed for the issuance of a replacement certificate, at Huenefeld's
expense.
39
Philex informed respondent Court of the filing of the Petition with the SEC and
reiterated that Civil Case No. 6500 be dismissed.
On June 25, 1981, respondent Court issued the second challenged Order
denying Philex's Motion for Reconsideration for lack of merit.
On August 17, 1981, Philex filed the present Petition.
On August 21, 1981, we issued a Temporary Restraining Order enjoining
respondent Judge from further proceeding with Civil Case No. 6400. And on
October 19, 1981, we resolved to give due course and required the parties to
submit simultaneous Memoranda, with which they complied.
The issue is whether respondent Court of First Instance has jurisdiction over
the present controversy, which Philex contends is an intra-corporate one, but
which Huenefeld denies.
Section 5 of Presidential Decree No. 902-A provides:
Sec. 5. In addition to the regulatory and adjudicative functions of
the Securities and Exchange Commission over corporations,
partnerships and other forms of associations registered with it as
expressly granted under existing laws and decrees; it shall
have original and exclusive jurisdiction to hear and decide cases
involving:
a) ...
b) Controversies arising out of intra-corporate or partnership
relations, between and among stockholders, members, or
associates; between any or all of them and the
corporation, partnership or association of which they are
stockholders, members, or associates, respectively and between
such corporation, partnership or association and the state insofar
as it concerns their individual franchise or right to exist as such
entity (Emphasis supplied)
Evident from the foregoing is that an intra-corporate controversy is one which
arises between a stockholder and the corporation. There is no distinction,
qualification, nor any exemption whatsoever. The provision is broad and covers
all kinds of controversies between stockholders and corporations. The issue of
whether or not a corporation is bound to replace a stockholder's lost certificate
of stock is a matter purely between a stockholder and the corporation. It is a
typical intra-corporate dispute. The question of damages raised is merely
incidental to that main issue.
Huenefeld's attempt to limit intra-corporate controversies thus:
The phrase 'controversies, arising out of intra-corporate
relations' would seem to refer to controversies, cases or
intramurals among or between stockholders and the corporation
involving the exercise of stockholders' privileges, rights, benefits
and their duties in a corporation, and the existence in law of a
corporation.
Like, for instance, an example of 'controversies arising out of an
intra- corporate relation' are cases between stockholders in 1)
contesting or vying for a seat in the Board of Directors, 2)
questions on voting by proxy, 3) election and tenure of office and
qualification of directors, 4) removal and resignation of Directors,
5) repeal and amendment of corporate charter and by-laws, 6)
questions on corporation meetings and increase of capital stocks,
etc. (pp. 70, 80, Rollo).
Is not well taken. The foregoing interpretation does not square with the intent of
the law, which is to segregate from the general jurisdiction of regular Courts
controversies involving corporations and their stockholders and to bring them
to the SEC for exclusive resolution, in much the same way that labor disputes
are now brought to the Ministry of Labor and Employment (MOLE) and the
National Labor Relations Commission (NLRC), and not to the Courts.
The Securities and Exchange Commission, on October 7, 1981, in resolving
the Motion to Dismiss filed by Huenefeld before it, ruled:
xxx xxx xxx
After a thorough consideration of the allegations and arguments
adduced in the motion to dismiss, as wen as petitioners
40
 opposition thereto, the Commission resolves to. DENY said
motion. It appearing that the instant suit before us involves an
intra-corporate dispute, the same is, therefore, within
the original and exclusive jurisdiction of the Commission to
resolve. (pp. 94-95, Ibid)

xxx xxx xxx

The controversy between the parties being clearly an intra-corporate one, it is

the SEC, as held by it, and not respondent Court of First Instance, that has
original and exclusive jurisdiction, by express mandate of the law.

WHEREFORE, granting this Petition, the challenged Orders of respondent

Judge, dated March 12, 1981 and June 25, 1981, are hereby annulled and set
aside, and Civil Case No. 6400 of the Court of First Instance of Albay is hereby
ordered dismissed. Private respondent may seek relief in SEC. Case No. 2053
now pending with the Securities and Exchange Commission. The Temporary
Restraining Order heretofore issued is hereby made permanent.

Costs against private respondent, Richard Huenefeld.

SO ORDERED.

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