G.R. No. L-60502 July 16, 1991 PEDRO LOPEZ DEE, petitioner, vs.

SECURITIES AND EXC ANGE CO!!ISSION, EARING O""ICER E!!ANUEL SISON, NAGA TELEP ONE CO., INC., CO!!UNICATION SER#ICES, INC., LUCIANO !AGGA$, AUGUSTO "EDERIS, NILDA RA!OS, "ELIPA JA#ALERA, DESIDERIO SAA#EDRA, respondents. G.R. No. L-6%922 July 16, 1991 JUSTINO DE JESUS, SR., PEDRO LOPEZ DEE, JULIO LOPEZ DEE, &'( #ICENTE TORDILLA, JR., petitioners, vs. INTER!EDIATE APPELLATE COURT, LUCIANO !AGGA$, NILDA I. RA!OS, DESIDERIO SAA#EDRA, AUGUSTO "EDERIS, ERNESTO !IGUEL, CO!!UNICATION SER#ICES, INC., &'( NAGA TELEP ONE CO!PAN$, INC., respondents.

PARAS, J.:p These are petitions for certiorari with preliminary injunction and/or restraining order which seek to annul and set aside in: (1) .!. "o. #$%$&, the order ) of the hearing officer dated 'ay (, 1)*&, setting the date for the election of the directors to +e held +y the stockholders on 'ay &&, 1)*&, in ,-. .ase "o. 1/(* entitled 01edro 2ope3 4ee v. "aga Telephone .o., 5nc. et al.06 and (&) .!. "o. #7)&&, the decision )) of the 5ntermediate 8ppellate .ourt dated 8pril 1(, 1)*7 which annulled the judgment of the trial court on the contempt charge against the private respondents in .!. "o. ,191(*(#9!, entitled 02uciano 'aggay, et al. v. :on. 4elfin ;ir ,unga, et al.0 8s gathered from the records, the facts of these cases are as follows: "aga Telephone .ompany, 5nc. was organi3ed in 1)%(, the authori3ed capital was 11$$,$$$.$$. 5n 1)/( "aga Telephone .o., 5nc. ("atelco for short) decided to increase its authori3ed capital to 17,$$$,$$$.$$. 8s re<uired +y the 1u+lic ,ervice 8ct, "atelco filed an application for the approval of the increased authori3ed capital with the then =oard of .ommunications under =>. .ase "o. /(9*(. >n ?anuary *, 1)/%, a decision was rendered in said case, approving the said application su+ject to certain conditions, among which was: 7. That the issuance of the shares of stocks will +e for a period of one year from the date hereof, 0after which no further issues will +e made without previous authority from this =oard.0 1ursuant to the approval given +y the then =oard of .ommunications, "atelco filed its 8mended 8rticles of 5ncorporation with the ,ecurities and -@change .ommission (,-. for short). Ahen the amended articles were filed with the ,-., the original authori3ed capital of 11$$,$$$.$$ was already paid. >f the increased capital of 1&,)$$,$$$.$$ the su+scri+ers su+scri+ed to 1%*$,$$$.$$ of which 11(%,$$$ was fully paid. The capital stock of "atelco was divided into &17,$$$ common shares and */,$$$ preferred shares, +oth at a par value of 11$.$$ per shares. >n 8pril 1&, 1)//, "atelco entered into a contract with .ommunication ,ervices, 5nc. (.,5 for short) for the 0manufacture, supply, delivery and installation0 of telephone e<uipment. 5n accordance with this contract, "atelco issued &(,$$$ shares of common stocks to .,5 on the same date as part of the downpayment. >n 'ay %, 1)/), another 1&,$$$ shares of common stocks were issued to .,5. 5n +oth instances, no prior authori3ation from the =oard of .ommunications, now the "ational Telecommunications .ommission, was secured pursuant to the conditions imposed +y the decision in =>. .ase ">. /(9*( aforecited (Rollo, ;ol. 555, 'emorandum for private respondent "atelco, pp. *1(9*1#). >n 'ay 1), 1)/), the stockholders of the "atelco held their annual stockholdersB meeting to elect their seven directors to their =oard of 4irectors, for the year 1)/)91)*$. 5n this election 1edro 2ope3 4ee (4ee for short) was unseated as .hairman of the =oard and 1resident of the .orporation, +ut was elected as one of the directors, together with his wife, 8melia 2ope3 4ee (Rollo, ;ol. 555, 'emorandum for private respondents, p. )*%6 p. &).

5n the election .,5 was a+le to gain control of "atelco when the latterBs legal counsel, 8tty. 2uciano 'aggay ('aggay for short) won a seat in the =oard with the help of .,5. 5n the reorgani3ation 8tty. 'aggay +ecame president (Ibid., 'emorandum for 1rivate !espondent "atelco, p. *11). The following were elected in the 'ay 1), 1)/) election: 8tty. 2uciano 'aggay, 'r. 8ugusto Cederis, 'rs. "ilda !amos, 's. Celipa ?avalera, 'r. ?ustino de ?esus, ,r., 'r. 1edro 2ope3 4ee and 'rs 8melia .. 2ope3 4ee. The last three named directors never attended the meetings of the 'aggay =oard. The mem+ers of the 'aggay =oard who attended its meetings were 'aggay. Cederis, !amos and ?avalera. The last two were and are .,5 representatives (Ibid., p. *1&). 1etitioner 4ee having +een unseated in the election, filed a petition in the ,-. docketed as ,-. .ase "o. 1/(*, <uestioning the validity of the elections of 'ay 1), 1)/) upon the main ground that there was no valid list of stockholders through which the right to vote could +e determined (Rollo, ;ol. 5, pp. &%(9&#&98). 8s prayed for in the petition (Ibid., p. &#&), a restraining order was issued +y the ,-. placing petitioner and the other officers of the 1)/*9 1)/) "atelco =oard in hold9over capacity (Rollo, ;ol. 55, !eply, p. ##/). The ,-. restraining order was elevated to the ,upreme .ourt in .!. "o. %$**% where the enforcement of the ,-. restraining order was restrained. 1rivate respondents therefore, replaced the hold9over officers (Rollo, ;ol. 11, p. *)/). 4uring the tenure of the 'aggay =oard, from ?une &&, 1)/) to 'arch 1$, 1)*$, it did not reform the contract of 8pril 1&, 1)//, and entered into another contract with .,5 for the supply and installation of additional e<uipment +ut also issued to .,5 117,*$$ shares of common stock (Ibid., p. *1&). The shares of common stock issued to .,5 are as follows: NO. OF SHARES DATE ISSUED &(,$$$ shares 8pril 1&, 1)// 1&,$$$ shares 'ay %, 1)/) &*,$$$ shares >cto+er &, 1)/) &*,%$$ shares "ovem+er %, 1)/) &$,$$$ shares "ovem+er 1(, 1)/) &$,$$$ shares ?anuary /, 1)*$ 1#,%$$ shares ?anuary &#, 1)*$ 1(),$$$ shares (Ibid., pp. *1#9*1/). ,u+se<uently, the ,upreme .ourt dismissed the petition in .!. "o. %$**% upon the ground that the same was premature and the .ommission should +e allowed to conduct its hearing on the controversy. The dismissal of the petition resulted in the unseating of the 'aggay group from the +oard of directors of "atelco in a 0hold9over0 capacity (Rollo, ;ol. 55, p. %77). 5n the course of the proceedings in ,-. .ase "o. 1/(*, respondent hearing officer issued an order on ?une &7, 1)*1, declaring: (1) that .,5 is a stockholder of "atelco and, therefore, entitled to vote6 (&) that une@plained 1#,*%* shares of "atelco appear to have +een issued in e@cess to .,5 which should not +e allowed to vote6 (7) that *& shareholders with their corresponding num+er of shares shall +e allowed to vote6 and (() conse<uently, ordering the holding of special stockholderB meeting to elect the new mem+ers of the =oard of 4irectors for "atelco +ased on the findings made in the order as to who are entitled to vote (Rollo, ;ol. 1, pp. &**9&))). Crom the foregoing order dated ?une &7, 1)*1, petitioner 4ee filed a petition for certiorari/appeal with the ,-. en banc. The petition/appeal was docketed as ,-.98. ">. $7#. Thereafter, the .ommission en banc rendered a decision on 8pril %, 1)*&, the dispositive part of which leads:

"ow therefore, the .ommission en banc resolves to sustain the order of the :earing >fficer6 to dismiss the petition/appeal for lack of merit6 and order new elections as the :earing >fficer shall set after consultations with "atelco officers. Cor the protection of minority stockholders and in the interest of fair play and justice, the :earing >fficer shall order the formation of a special committee of three, one from the respondents (other than "atelco), one from petitioner, and the :earing >fficer as .hairman to supervise the election. 5t remains to state that the .ommission en banc cannot pass upon motions +elatedly filed +y petitioner and respondent "atelco to introduce newly discovered evidence D any such evidence may +e introduced at hearings on the merits of ,-. .ase "o. 1/(*. ,> >!4-!-4. (Rollo, ;ol. 5, p. &(). >n 8pril &1, 1)*&, petitioner filed a motion for reconsideration (Rollo, ;ol. 5, pp. &%97$). 2ikewise, private respondent "atelco filed its motion for reconsideration dated 8pril &1, 1)*& (Ibid., pp. 7&9%1). 1ending resolution of the motions for reconsideration, on 'ay (, 1)*&, respondent healing officer without waiting for the decision of the commission en banc to +ecome final and e@ecutory rendered an order stating that the election for directors would +e held on 'ay &&, 1)*& (Ibid., pp. 7$$97$1). >n 'ay &$, 1)*&, the ,-. en banc denied the motions for reconsideration (Rollo, ;ol. 55, pp. /#79/#%). 'eanwhile on 'ay &$, 1)*& ( .!. "o. #7)&&), petitioner 8ntonio ;illasenor (as plaintiff) filed .ivil .ase "o. 1%$/ with the .ourt of Cirst 5nstance of .amarines ,ur, "aga .ity, against private respondents and co9petitioners, de ?esus, Tordilla and the 4eeBs all defendants therein, which was raffled to =ranch 5, presided over +y ?udge 4elfin ;ir ,unga (Rollo, .!. "o. #7)&&6 pp. &%97$). ;illasenor claimed that he was an assignee of an option to repurchase 7#,$$$ shares of common stocks of "atelco under a 4eed of 8ssignment e@ecuted in his favor (Rollo, p. 71). The defendants therein (now private respondents), principally the 'aggay group, allegedly refused to allow the repurchase of said stocks when petitioner ;illasenor offered to defendant .,5 the repurchase of said stocks +y tendering payment of its price (Rollo, p. &# and p. /*). The complaint therefore, prayed for the allowance to repurchase the aforesaid stocks and that the holding of the 'ay &&, 1)*& election of directors and officers of "atelco +e enjoined (Rollo, pp. &*9&)). 8 restraining order dated 'ay &1, 1)*& was issued +y the lower court commanding desistance from the scheduled election until further orders (Rollo, p. 7&). "evertheless, on 'ay &&, 1)*&, as scheduled, the controlling majority of the stockholders of the "atelco defied the restraining order, and proceeded with the elections, under the supervision of the ,-. representatives (Rollo, ;ol. 555, p. )*%)6 p. 1$6 .!. "o. #$%$&). >n 'ay &%, 1)*&, the ,-. recogni3ed the fact that elections were duly held, and proclaimed that the following are the 0duly elected directors0 of the "atelco for the term 1)*&91)*7: 1. Celipa T. ?avalera &. "ilda 5. !amos 7. 2uciano 'aggay (. 8ugusto Cederis %. 4aniel ?. 5lano #. "elin ?. 5lano ,r. /. -rnesto 8. 'iguel 8nd, the following are the recogni3ed officers to wit:

1. 1resident 2uciano 'aggay &. ;ice91resident "ilda 5. !amos 7. ,ecretary 4esiderio ,aavedra (. Treasurer Celipa ?avalera %. 8uditor 4aniel 5lano (Rollo, ;ol. 1, pp. 7$&97$7) 4espite service of the order of 'ay &%, 1)*&, the 2ope3 4ee group headed +y 'essrs. ?ustino 4e ?esus and ?ulio 2ope3 4ee kept insisting no elections were held and refused to vacate their positions (Rollo, ;ol. 555, p. )*%6 p. 11). >n 'ay &*, 1)*&, the ,-. issued another order directing the hold9over directors and officers to turn over their respective posts to the newly elected directors and officers and directing the ,heriff of "aga .ity, with the assistance of 1. and 5"1 of "aga .ity, and other law enforcement agencies of the .ity or of the 1rovince of .amarines ,ur, to enforce the aforesaid order (Rollo, ;ol. 11, pp. %//9%/*). >n 'ay &), 1)*&, the ,heriff of "aga .ity, assisted +y law enforcement agencies, installed the newly elected directors and officers of the "atelco, and the hold9over officers peacefully vacated their respective offices and turned9over their functions to the new officers (Rollo, ;ol. 555, p. )*%6 pp. 1&917). >n ?une &, 1)*&, a charge for contempt was filed +y petitioner ;illasenor alleging that private respondents have +een claiming in press conferences and over the radio airlanes that they actually held and conducted elections on 'ay &&, 1)*& in the .ity of "aga and that they have a new set of officers, and that such acts of herein private respondents constitute contempt of court ( .!. #7)&&6 Rollo, pp. 7%97/). >n ,eptem+er /, 1)*&, the lower court rendered judgment on the contempt charge, the dispositive portion of which reads: A:-!-C>!-, judgment is here+y rendered: 1. 4eclaring respondents, .,5 "ilda !amos, 2uciano 'aggay, 4esiderio ,aavedra, 8ugusto Cederis and -rnesto 'iguel, guilty of contempt of court, and accordingly punished with imprisonment of si@ (#) months and to pay fine of 11,$$$.$$ each6 and &. >rdering respondents, .,5 "ilda !amos, 2uciano 'aggay, 4esiderio ,aavedra, 8ugusto Cederis and -rnesto 'iguel, and those now occupying the positions of directors and officers of "8T-2.> to vacate their respective positions therein, and ordering them to reinstate the hold9over directors and officers of "8T-2.>, such as 1edro 2ope3 4ee as 1resident, ?ustino de ?esus, ,r., as ;ice 1resident, ?ulio 2ope3 4ee as Treasurer and ;icente Tordilla, ?r. as ,ecretary, and others referred to as hold9over directors and officers of "8T-2.> in the order dated 'ay &*, 1)*& of ,-. :earing >fficer -mmanuel ,ison, in ,-. .ase "o. 1/(* (-@h. #), +y way of !-,T5TET5>", and conse<uently, ordering said respondents to turn over all records, property and assets of "8T-2.> to said hold9over directors and officers. (Ibid., Rollo, p. ()). The trial judge issued an order dated ,eptem+er 1$, 1)*& directing the respondents in the contempt charge to 0comply strictly, under pain of +eing su+jected to imprisonment until they do so0 (Ibid., p. %$). The order also commanded the 4eputy 1rovincial ,heriff, with the aid of the 1. 1rovincial .ommander of .amarines ,ur and the 5"1 ,tation .ommander of "aga .ity to 0physically remove or oust from the offices or positions of directors and officers of "8T-2.>, the aforesaid respondents (herein private respondents) . . . and to reinstate and maintain, the hold9over directors and officers of "8T-2.> referred to in the order dated 'ay &*, 1)*& of ,-. :earing >fficer -mmanuel ,ison.0 (Ibid.). 1rivate respondents filed on ,eptem+er 1/, 1)*&, a petition for certiorari and prohi+ition with preliminary injunction or restraining order against the .C5 ?udge of .amarines ,ur, "aga .ity and herein petitioners, with the then 5ntermediate

8ppellate .ourt which issued a resolution ordering herein petitioners to comment on the petition, which was complied with, and at the same time temporarily refrained from implementing and/or enforcing the <uestioned judgment and order of the lower court (Rollo, p. //), 4ecision of .8, p. &). >n 8pril 1(, 1)*7, the then 5ntermediate 8ppellate .ourt, rendered a decision, the dispositive portion of which reads: A:-!-C>!-, judgment is here+y rendered as follows: 1. 8nnuling the judgment dated ,eptem+er /, 1)*& rendered +y respondent judge on the contempt charge, and his order dated ,eptem+er 1$, 1)*&, implementing said judgment6 &. >rdering the 0hold9over0 directors and officers of "8T-2.> to vacate their respective offices6 7. 4irecting respondents to restore or re9esta+lish petitioners (private respondents in this case) who were ejected on 'ay &&, 1)*& to their respective offices in the "8T-2.>, . . .6 (. 1rohi+iting whoever may +e the successor of respondent ?udge from interfering with the proceedings of the ,ecurities and -@change .ommission in ,-9.8. "o. $7#6 @@@ @@@ @@@ (Rollo, p. **). The order of re9implementation was issued, and, finally, the 'aggay group has +een restored as the officers of the "atelco (Rollo, .!. "o. #$%$&, p. )*%6 p. 7/). :ence, these petitions involve the same parties and practically the same issues. .onse<uently, in the resolution of the .ourt En Banc dated 8ugust &7, 1)*7, .!. "o. #7)&& was consolidated with .!. "o. #$%$&. 5n .!. "o. #$%$& D 5n a resolution issued +y the .ourt En Banc dated 'arch &&, 1)*7, the .ourt gave due course to the petition and re<uired the parties to su+mit their respective memoranda (Rollo, !esolution, p. #7*986 ;ol. 55). In G.R. No. 6050 The main issues in this case are: (1) Ahether or not the ,ecurities and -@change .ommission has the power and jurisdiction to declare null and void shares of stock issued +y "8T-2.> to .,5 for violation of ,ec. &$ (h) of the 1u+lic ,ervice 8ct6 (&) Ahether or not the issuance of 117,*$$ shares of "atelco to .,5 made during the pendency of ,-. .ase "o. 1/(* in the ,ecurities and -@change .ommission was valid6 (7) Ahether or not "atelco stockholders have a right of preemption to the 117,*$$ shares in <uestion6 and (() Ahether or not the private respondents were duly elected to the =oard of 4irectors of "atelco at an election held on 'ay &&, 1)*&. In G.R. No. 6!" The crucial issue to +e resolved is whether or not the trial judge has jurisdiction to restrain the holding of an election of officers and directors of a corporation. The petitions are devoid of merit. In G.R. No. 6050 5

5t is the contention of petitioner that the ,ecurities and -@change .ommission En Banc committed grave a+use of discretion when, in its decision dated 8pril %, 1)*&, in ,-.98. "o. $7#, it refused to declare void the shares of stock issued +y "atelco to .,5 allegedly in violation of ,ec. &$ (h) of the 1u+lic ,ervice 8ct. This section re<uires prior administrative approval of any transfer or sale of shares of stock of any pu+lic service which vest in the transferee more than forty #ercent$% of the su+scri+ed capital of the said pu+lic service. ,ection % of 1.4. "o. )$&98, as amended, enumerates the jurisdiction of the ,ecurities and -@change .ommission: ,ec. %. 5n addition to the regulatory and adjudicative functions of the ,ecurities and -@change .ommission over .orporations, partnerships and other forms of associations, registered with it as e@pressly granted under the e@isting laws and decrees, it shall have original and e@clusive jurisdiction to hear and decide cases involving: a) 4evices or schemes employed +y or any acts, of the +oard of directors, +usiness associates, its officers or partners, amounting to fraud and misrepresentation which may +e detrimental to the interest of the pu+lic and/or of the stockholders, partners, mem+ers of associations or organi3ations registered with the .ommission. (+) .ontroversies arising out of intra9corporate or partnership relations, +etween and among stockholders, mem+ers, or associates6 +etween any or all of them and the corporation, partnership or association of which they are stockholders, mem+ers or associates, respectively6 and +etween such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to e@ist as such entity6 c) .ontroversies in the election or appointments of directors, trustees, officers or managers of such corporations, partnerships or associations. d) 1etitions of corporations, partnerships or associations to +e declared in the state of suspension of payments in cases where the corporation, partnership or association possesses sufficient property to cover all its de+ts +ut foresees the impossi+ility of meeting them when they respectively fall due or in cases where the corporation, partnership or association has no sufficient assets to cover its lia+ilities, +ut is under the management of a !eha+ilitation !eceiver or 'anagement .ommittee created pursuant to this 4ecree, (8s added +y 14 1/%*) 5n other words, in order that the ,-. can take cogni3ance of a case, the controversy must pertain to any of the following relationships: (a) +etween corporation, partnership or association and the pu+lic6 (+) +etween the corporation, partnership, or association and its stockholders, partners, mem+ers or officers6 (c) +etween the corporation, partnership or association and the state insofar as its franchise, permit or license to operate is concerned6 and (d) among the stockholders, partners, or associates themselves (Enion lass F .ontainer .orp. vs. ,-., 1&# ,.!8 71 G1)*7H). The jurisdiction of the ,-. is limited to matters intrinsically connected with the regulation of corporations, partnerships and associations and those dealing with internal affairs of such entities6 1.4. )$&98 does not confer jurisdiction to ,-. over all matters affecting corporations (1ereyra vs. 58., 1*1 ,.!8 &(( G1))$H6 ,ales vs. ,-., 1#) ,.!8 1&1 G1)*)H). The jurisdiction of the ,-. in ,-. .ase "o. 1/(* is limited to deciding the controversy in the election of the directors and officers of "atelco. Thus, the ,-. was correct when it refused to rule on whether the issuance of the shares of "atelco stocks to .,5 violated ,ec. &$ (h) of the 1u+lic ,ervice 8ct. The ,-. ruling as to the issue involving the 1u+lic ,ervice 8ct, ,ection &$ (h), asserts that the .ommission En Banc is not empowered to grant much less cancel franchise for telephone and communications, and therefore has no authority to rule that the issuance and sale of shares would in effect constitute a violation of "atelcoBs secondary franchise. 5t would +e in e@cess of jurisdiction on our part to decide that a violation of our pu+lic service laws has +een committed. The matter is +etter +rought to the attention of the appropriate +ody for determination. "either can the ,-. #ro&i'ionall( decide the issue +ecause it is only vested with the power to grant or revoke the primary corporate franchise. The ,-. is empowered +y 1.4. )$&98 to decide intra9corporate controversies and that is precisely the only issue in this case. 55

The issuance of 117,*$$ shares of "atelco stock to .,5 made during the pendency of ,-. .ase "o. 1/(* in the ,ecurities and -@change .ommission was valid. The findings of the ,-. En Banc as to the issuance of the 117,*$$ shares of stock was stated as follows: B$t t)e i''$ance o* ++!,,00 ')are' -ere .'ic/ #$r'$ant to a Board Re'ol$tion and 'toc0)older'1 a##ro&al #rior to 2a( +", +"3" -)en 4SI -a' not (et in control o* t)e Board or o* t)e &otin5 ')are'. There is distinction +etween an order to i''$e shares on or +efore 'ay 1), 1)/) and act$al i''$anceof the shares after 'ay 1), 1)/). The actual issuance, it is true, came during the period when .,5 was in control of voting shares and the =oard (if they were in fact in control +ut only pursuant to the original =oard and stockholdersB orders, not on the initiative to the new =oard, elected 'ay 1), 1)/), which petitioners are <uestioning. The .ommission en banc finds it difficult to see how the one who gave the orders can turn around and impugn the implementation of the orders lie had previously given. The reformation of the contract is understanda+le for "atelco lacked the corporate funds to purchase the .,5 e<uipment. @@@ @@@ @@@ 8ppellant had raise the issue whether the issuance of 117,*$$ shares of stock during the incum+ency of the 'aggay =oard which was allegedly .,5 controlled, and while the case was '$b 6$dice, amounted to unfair and undue advantage. This does not merit consideration in the a+sence of additional evidence to support the proposition. 5n effect, therefore, the stockholders of "atelco approved the issuance of stock to .,5 555 Ahile the group of 2uciano 'aggay was in control of "atelco +y virtue of the restraining order issued in .!. "o. %$**%, the 'aggay =oard issued 117,*$$ shares of stock to .,5 1etitioner said that the 'aggay =oard, in issuing said shares without notifying "atelco stockholders, violated their right of pre9emption to the unissued shares. This .ourt in Benito &'. SE4, et al., has ruled that: 1etitioner +ewails the fact that in view of the lack of notice to him of such su+se<uent issuance, he was not a+le to e@ercise his right of pre9emption over the unissued shares. :owever, the general rule is that pre9emptive right is recogni3ed only with respect to new issues of shares, and not with respect to additional issues of originally authori3ed shares. This is on the theory that when a corporation at its inception offers its first shares, it is presumed to have offered all of those which it is authori3ed to issue. 8n original su+scri+er is deemed to have taken his shares knowing that they form a definite proportionate part of the whole num+er of authori3ed shares. Ahen the shares left unsu+scri+ed are later re9offered, he cannot therefore ('ic) claim a dilution of interest (=enito vs. ,-., et al., 1&7 ,.!8 /&&). The <uestioned issuance of the 117,*$$ stocks is not invalid even assuming that it was made without notice to the stockholders as claimed +y the petitioner. The power to issue shares of stocks in a corporation is lodged in the +oard of directors and no stockholders meeting is re<uired to consider it +ecause additional issuance of shares of stocks does not need approval of the stockholders. .onse<uently, no pre9emptive right of "atelco stockholders was violated +y the issuance of the 117,*$$ shares to .,5. 5; 1etitioner insists that no meeting and election were held in "aga .ity on 'ay &&, 1)*& as directed +y respondent :earing >fficer. This fact is shown +y the ,heriffs return of a restraining order issued +y the .ourt of Cirst 5nstance of .amarines ,ur in .ase "o. 1%$% entitled 08ntonio ;illasenor v. .ommunications ,ervice 5nc, et al.0 (Rollo, ;ol. 1, p. 7$)). There is evidence of the fact that the "atelco special stockholdersB meeting and election of mem+ers of the =oard of 4irectors of the corporation were held at its office in "aga .ity on 'ay &&, 1)*& as shown when the :earing >fficer issued an order on 'ay &%, 1)*&, declaring the stockholders named therein as corporate officers duly elected for the term 1)*&91)*7.

'ore than that, private respondents were in fact charged with contempt of court and found guilty for holding the election on 'ay &&, 1)*&, in defiance of the restraining order issued +y ?udge ,unga (Rollo, ;ol. 55, p. /%$). 5t is, therefore, very clear from the records that an election was held on 'ay &&, 1)*& at the "atelco >ffices in "aga .ity and its officers were duly elected, there+y rendering the issue of election moot and academic, not to mention the fact that the election of the =oard of 4irectors/>fficers has +een held annually, while this case was dragging for almost a decade. The contempt charge against herein private respondents was predicated on their failure to comply with the restraining order issued +y the lower court on 'ay &1, 1)*&, enjoining them from holding the election of officers and directors of "atelco scheduled on 'ay &&, 1)*&. The ,-. en banc, in its decision of 8pril %, 1)*&, directed the holding of a new election which, through a conference attended +y the hold9over directors of "atelco accompanied +y their lawyers and presided +y a ,-. hearing officer, was scheduled on 'ay &&, 1)*& (Rollo, p. %)). .ontrary to the claim of petitioners that the case is within the jurisdiction of the lower court as it does not involve an intra9corporate matter +ut merely a claim of a private party of the right to repurchase common shares of stock of "atelco and that the restraining order was not meant to stop the election duly called for +y the ,-., it is undisputed that the main o+jective of the lower courtBs order of 'ay &1, 1)*& was precisely to restrain or stop the holding of said election of officers and directors of "atelco, a matter purely within the e@clusive jurisdiction of the ,-. (1.4. "o. )$&98, ,ection %). The said restraining order reads in part: . . . 8 temporary restraining order is here+y issued, directin5 de*endant' (herein respondents), their agents, attorneys a' -ell a' an( and all #er'on', -)et)er #$blic o**icer' or private individuals to de'i't from conducting and holding, in any manner whatsoever, an election of the directors and officers of the "aga Telephone .o. ("atelco). . . . (Rollo, 1. 7&). 5ndu+ita+ly, the aforesaid restraining order, aimed not only to prevent the stockholders of "atelco from conducting the election of its directors and officers, +ut it also amounted to an injunctive relief against the ,-., since it is clear that even 0pu+lic officers0 (such as the :earing >fficer of the ,-.) are commanded to desist from conducting or holding the election 0under pain of punishment of contempt of court0 (Ibid.) The fact that the ,-. or any of its officers has not +een cited for contempt, along with the stockholders of "atelco, who chose to heed the lawful order of the ,-. to go on with the election as scheduled +y the latter, is of no moment, since it was precisely the acts of herein private respondents done pursuant to an order lawfully issued +y an administrative +ody that have +een considered as contemptuous +y the lower court prompting the latter to cite and punish them for contempt (Rollo, p. (*). "oteworthy is the pertinent portion of the judgment of the lower court which states: .ertainly, this .ourt will not tolerate, or much less countenance, a mere :earing >fficer of the ,ecurities and -@change .ommission, to render a restraining order issued +y it (said .ourt) within its jurisdiction, nugatory and ineffectual and a+et diso+edience and even defiance +y individuals and entities of the same. . . . (Rollo, p. (*). Cinally, in the case of 1hilippine 1acific Cishing .o., 5nc. vs. 2una, 1& ,.!8 #$(, #17 G1)*7H, this Tri+unal stated clearly the following rule: No-)ere doe' t)e la- (1.4. "o. )$&98) e%#o-er any .ourt of Cirst 5nstance to interfere with the orders of the .ommission (,-.). Not e&en on 5ro$nd' o* d$e #roce'' or 6$ri'diction. The .ommission is, conceding arguendo a possi+le claim of respondents, at the very least, a co7e8$al bod( with the .ourts of Cirst 5nstance. -ven a' '$c) co7e8$al, one -o$ld )a&e no #o-er to control t)e ot)er. =ut the truth of the matter is that only the ,upreme .ourt can enjoin and correct any actuation of the .ommission. 8ccordingly, it is clear that since the trial judge in the lower court (.C5 of .amarines ,ur) did not have jurisdiction in issuing the <uestioned restraining order, diso+edience thereto did not constitute contempt, as it is necessary that the order +e a valid and legal one. 5t is an esta+lished rule that the court has no authority to punish for diso+edience of an order issued without authority (.hanco v. 'adrilejos, ) 1hil. 7%#6 8ngel ?ose !ealty .orp. v. alao, et al., /# 1hil. &$1). Cinally, it is well9settled that the power to punish for contempt of court should +e e@ercised on the preservative and not on the vindictive principle. >nly occasionally should the court invoke its inherent power in order to retain that respect without which the administration of justice must falter or fail (!ivera v. Clorendo, 1(( ,.!8 #(7, ##&9##7 G1)*#H6 2ipata v. Tutaan, 1&( ,.!8 **$ G1)*7H).

1!-'5,-, .>",54-!-4, +oth petitioners are here+y 45,'5,,-4 for lack of merit.

G.R. No. 1*666+

J&'u&,y 2%, 200+

JO N ". !-LEOD, 1etitioner, vs. NATIONAL LA.OR RELATIONS CO!!ISSION /"0,12 D03010o'4, "ILIPINAS S$NT ETIC "I.ER CORPORATION /"ILS$N4, "AR EASTERN TEXTILE !ILLS, INC., STA. ROSA TEXTILES, INC., /PEGG$ !ILLS, INC.4, PATRICIO L. LI!, &'( ERIC U, !espondents. 4-.5,5>" CARPIO, J.: The .ase This is a petition for review1 to set aside the 4ecision& dated 1% ?une &$$$ and the !esolution7 dated &/ 4ecem+er &$$$ of the .ourt of 8ppeals in .89 .!. ,1 "o. %%17$. The .ourt of 8ppeals affirmed with modification the &) 4ecem+er 1))* 4ecision( of the "ational 2a+or !elations .ommission ("2!.) in "2!. ".! $&9$$)()9)%. The Cacts The facts, as summari3ed +y the 2a+or 8r+iter and adopted +y the "2!. and the .ourt of 8ppeals, are as follows: >n Ce+ruary &, 1))%, ?ohn C. 'c2eod filed a complaint for retirement +enefits, vacation and sick leave +enefits, non9 payment of unused airline tickets, holiday pay, underpayment of salary and 17th month pay, moral and e@emplary damages, attorneyIs fees plus interest against Cilipinas ,ynthetic .orporation (Cilsyn), Car -astern Te@tile 'ills, 5nc., ,ta. !osa Te@tiles, 5nc., 1atricio 2im and -ric :u. 5n his 1osition 1aper, complainant alleged that he is an e@pert in te@tile manufacturing process6 that as early as 1)%# he was hired as the 8ssistant ,pinning 'anager of Eniversal Te@tiles, 5nc. (ET-J)6 that he was promoted to ,enior 'anager and worked for ET-J till 1)*$ under its 1resident, respondent 1atricio 2im6 that in 1)/* 1atricio 2im formed 1eggy 'ills, 5nc. with respondent Cilsyn having controlling interest6 that complainant was a+sor+ed +y 1eggy 'ills as its ;ice 1resident and 1lant 'anager of the plant at ,ta. !osa, 2aguna6 that at the time of his retirement complainant was receiving 1#$,$$$.$$ monthly with vacation and sick leave +enefits6 17th month pay, holiday pay and two round trip +usiness class tickets on a 'anila92ondon9'anila itinerary every three years which is converti+le to casGhH if unused6 that in ?anuary 1)*#, respondents failed to pay vacation and leave credits and re<uested complainant to wait as it was short of funds +ut the same remain unpaid at present6 that complainant is entitled to such +enefit as per .=8 provision (8nne@ 080)6 that respondents likewise failed to pay complainantIs holiday pay up to the present6 that complainant is entitled to such +enefits as per .=8 provision (8nne@ 0=0)6 that in 1)*) the plant union staged a strike and in 1))7 was found guilty of staging an illegal strike6 that from 1)*) to 1))& complainant was entitled to ( round trip +usiness class plane tickets on a 'anila92ondon9'anila itinerary +ut this +enefit not (sic) its monetary e<uivalent was not given6 that on 8ugust 1))$ the respondents reduced complainantIs monthly salary of 1#$,$$$.$$ +y 1),)$$.$$ till "ovem+er 1))7 or a period of 7) months6 that in 1))1 Cilsyn sold 1eggy 'ills, 5nc. to Car -astern Te@tile 'ills, 5nc. as per agreement (8nne@ 040) and this was renamed as ,ta. !osa Te@tile with 1atricio 2im as .hairman and 1resident6 that complainant worked for ,ta. !osa until "ovem+er 7$ that from time to time the owners of Car -astern consulted with complainant on technical aspects of reoperation of the plant as per correspondence (8nne@es 04910 and 049&0)6 that when complainant reached and applied retirement age at the end of 1))7, he was only given a reduced 17th month pay of1((,1*7.#7, leaving a +alance of 11%,*1#.*/6 that thereafter the owners of Car -astern Te@tiles decided for cessation of operations of ,ta. !osa Te@tiles6 that on two occasions, complainant wrote letters (8nne@es 0-910 to 0-9&0) to 1atricio 2im re<uesting for his retirement and other +enefits6 that in the last <uarter of 1))( respondents offered complainant compromise settlement of only 17$$,$$$.$$ which complainant rejected6 that again complainant wrote a letter (8nne@ 0C0) reiterating his demand for full payment of all +enefits and to no avail, hence this complaint6 and that he is entitled to all his money claims pursuant to law. >n the other hand, respondents in their 1osition 1aper alleged that complainant was the former ;ice91resident and 1lant 'anager of 1eggy 'ills, 5nc.6 that he was hired in ?une 1)*$ and 1eggy 'ills closed operations due to irreversi+le losses at the end of ?uly 1))& +ut the corporation still e@ists at present6 that its assets were ac<uired +y ,ta. !osa Te@tile .orporation which was esta+lished in 8pril 1))& +ut still remains non9operational at present6 that complainant was hired as consultant +y ,ta. !osa Te@tile in "ovem+er 1))& +ut he resigned on "ovem+er 7$, 1))76 that Cilsyn and Car -astern Te@tiles are separate legal entities and have no employer relationship with complainant6 that

respondent 1atricio 2im is the 1resident and =oard .hairman of ,ta. !osa Te@tile .orporation6 that respondent -ric :u is a Taiwanese and is 4irector of ,ta. !osa Te@tiles, 5nc.6 that complainant has no cause of action against Cilsyn, Car -astern Te@tile 2td., ,ta. !osa Te@tile .orporation and -ric :u6 that ,ta. !osa only ac<uired the assets and not the lia+ilities of 1eggy 'ills, 5nc.6 that 1atricio 2im was only impleaded as =oard .hairman of ,ta. !osa Te@tile and not as private individual6 that while complainant was ;ice 1resident and 1lant 'anager of 1eggy 'ills, the union staged a strike up to ?uly 1))& resulting in closure of operations due to irreversi+le losses as per "otice (8nne@ 010)6 that complainant was relied upon to settle the la+or pro+lem +ut due to his lack of attention and a+sence the strike continued resulting in closure of the company6 and losses to ,ta. !osa which ac<uired its assets as per their financial statements (8nne@es 0&0 and 070)6 that the attendance records of complainant from 8pril 1))& to "ovem+er 1))7 (8nne@es 0(0 and 0%0) show that he was either a+sent or worked at most two hours a day6 that ,ta. !osa and 1eggy 'ills are interposing counterclaims for damages in the total amount of 17#,/%/.$$ against complainant6 that complainantIs monthly salary at 1eggy 'ills was 1%$,()%.$$ and not 1#$,$$$.$$6 that 1eggy 'ills, does not have a retirement program6 that whatever amount complainant is entitled should +e offset with the counterclaims6 that complainant worked only for 1& years from 1)*$ to 1))&6 that complainant was only hired as a consultant and not an employee +y ,ta. !osa Te@tile6 that complainantIs attendance record of a+sence and two hours daily work during the period of the strike wipes out any vacation/sick leave he may have accumulated6 that there is no +asis for complainantIs claim of two (&) +usiness class airline tickets6 that complainantIs pay already included the holiday pay6 that he is entitled to holiday pay as consultant +y ,ta. !osa6 that he has waived this +enefit in his 1& years of work with 1eggy 'ills6 that he is not entitled to 17th month pay as consultant6 and that he is not entitled to moral and e@emplary damages and attorneyIs fees. 5n his !eply, complainant alleged that all respondents +eing one and the same entities are solidarily lia+le for all salaries and +enefits and complainant is entitled to6 that all respondents have the same address at 1&/C =.8. 2epanto =uilding, 'akati .ity6 that their counsel holds office in the same address6 that all respondents have the same offices and key personnel such as 1atricio 2im and -ric :u6 that respondentsI 1osition 1aper is verified +y 'arialen .. .orpu3 who knows all the corporate officers of all respondents6 that the veil of corporate fiction may +e pierced if it is used as a shield to perpetuate fraud and confuse legitimate issues6 that complainant never accepted the change in his position from ;ice91resident and 1lant 'anger to consultant and it is incum+ent upon respondents to prove that he was only a consultant6 that the 4eed of 4ation in 1ayment with 2ease (8nne@ 0.0) proves that ,ta. !osa took over the assets of 1eggy 'ills as early as ?une 1%, 1))& and not 1))% as alleged +y respondents6 that complainant never resigned from his jo+ +ut applied for retirement as per letters (8nne@es 0-910, 0-9&0 and 0C0)6 that documents 0 0, 0:0 and 050 show that -ric :u is a top official of 1eggy 'ills that the closure of 1eggy 'ills cannot +e the fault of complainant6 that the strike was staged on the issue of .=8 negotiations which is not part of the usual duties and responsi+ilities as 1lant 'anager6 that complainant is a =ritish national and is prohi+ited +y law in engaging in union activities6 that as per !esolution (8nne@ 070) of the "2!. in the proper case, complainant testified in favor of management6 that the alleged attendance record of complainant was lifted from the log+ook of a security agency and is hearsay evidence6 that in the other attendance record it shows that complainant was reporting daily and even on ,aturdays6 that his limited hours was due to the strike and cessation of operations6 that as plant manager complainant was on call &( hours a day6 that respondents must pay complainant the unpaid portion of his salaries and his retirement +enefits that cash voucher "o. 1/$1% (8nne@ 0K0) shows that complainant drew the monthly salary of 1#$,$$$.$$ which was reduced to 1%$,()%.$$ in 8ugust 1))$ and therefore without the consent of complainant6 that complainant was assured that he will +e paid the deduction as soon as the company improved its financial standing +ut this assurance was never fulfilled6 that 1atricio 2im promised complainant his retirement pay as per the latterIs letters (8nne@es 0-910, 0-9&0 and 0C0)6 that the law itself provides for retirement +enefits6 that 1atricio 2im +y way of 'emorandum (8nne@ 0'0) approved vacation and sick leave +enefits of && days per year effective 1)*#6 that 1eggy 'ills re<uired monthly paid employees to sign an acknowledgement that their monthly compensation includes holiday pay6 that complainant was not made to sign this undertaking precisely +ecause he is entitled to holiday pay over and a+ove his monthly pay6 that the company paid for complainantIs two (&) round trip tickets to 2ondon in 1)*7 and 1)*# as reflected in the complainantIs passport (8nne@ 0"0)6 that respondents claim that complainant is not entitled to 17th month pay +ut paid in 1))7 and all the past 17 years6 that complainant is entitled to moral and e@emplary damages and attorneyIs fees6 that all dou+ts must +e resolved in favor of complainant6 and that complainant reserved the right to file perjury cases against those concerned. 5n their !eply, respondents alleged that e@cept for 1eggy 'ills, the other respondents are not proper persons in interest due to the lack of employer9employee relationship +etween them and complainant6 that undersigned counsel does not represent 1eggy 'ills, 5nc. 5n a separate 1osition 1aper, respondent 1eggy 'ills alleged that complainant was hired on Ce+ruary 1$, 1))1 as per =oard 'inutes (8nne@ 080)6 that on 8ugust 1), 1)*/, the workers staged an illegal strike causing cessation of operations on ?uly &1, 1))&6 that respondent filed a "otice of .losure with the 4>2- (8nne@ 0=0)6 that all employees were given separation pay e@cept for complainant whose task was e@tended to 4ecem+er 71, 1))& to wind up the

affairs of the company as per vouchers (8nne@es 0.0 and 0.910)6 that respondent offered complainant his retirement +enefits under !8 /#(1 +ut complainant refused6 that the regular salaries of complainant from closure up to 4ecem+er 71, 1))& have offset whatever vacation and sick leaves he accumulated6 that his claim for unused plane tickets from 1)*) to 1))& has no policy +asis, the companyIs formula of employees monthly rate @ 71( days over 1& months already included holiday pay6 that complainantIs unpaid portion of the 17th month pay in 1))7 has no +asis +ecause he was only an employee up to 4ecem+er 71, 1))&6 that the 17th month pay was +ased on his last salary6 and that complainant is not entitled to damages.% >n 7 8pril 1))*, the 2a+or 8r+iter rendered his decision with the following dispositive portion: A:-!-C>!-, premises considered, Ae hold all respondents as jointly and solidarily lia+le for complainantIs money claims as adjudicated a+ove and computed +elow as follows: !etirement =enefits (one month salary for every year of service) #/*$ 9 11/7$/)7 L 1( years 1#$,$$$ @ 1(.$ mos. MMMMMMMM 1*($,$$$.$$ ;acation and ,ick 2eave (7 yrs.) 1&,$$$.$$ @ && days @ 7 yrs. MMMMM 17&,$$$.$$ Enderpayment of ,alaries (7 yrs.) 1#$,$$$ 9 1%$,()% L 1),%$% 1 ),%$% @ 7#.$ mos. MMMMMMM... 7(&,1*$.$$ :oliday 1ay (7 yrs.) 1&,$$$ @ 7$ days MMMMMMMMM. #$,$$$.$$ Enderpayment of 17th month pay (1))7) MM... 1%,*1#.*/ 'oral 4amages MMMMMMMMMMMM.. 7,$$$,$$$.$$ -@emplary 4amages MMMMMMMMMM.. 1,$$$,$$$.$$ 1$N 8ttorneyIs Cees MMMMMMMMMM. 17*,))).#* T>T82 1%,%&*,))#.%% Enused 8irline Tickets (7 yrs.) (To +e converted in 1eso upon payment) O&,(%$.$$ @ 7.$ Gyrs.H..MMMMMM O/,7%$.$$ ,> >!4-!-4.# Cilipinas ,ynthetic Ci+er .orporation (Cilsyn), Car -astern Te@tile 'ills, 5nc. (C-T'5), ,ta. !osa Te@tiles, 5nc. (,!T5), 1atricio 2. 2im (1atricio), and -ric :u appealed to the "2!.. The "2!. rendered its decision on &) 4ecem+er 1))*, thus:

A:-!-C>!-, the 4ecision dated 7 8pril 1))* is here+y !-;-!,-4 and ,-T 8,54- and a new one is entered >!4-!5" respondent 1eggy 'ills, 5nc. to pay complainant his retirement pay e<uivalent to &&.% days for every year of service for his twelve (1&) years of service from 1)*$ to 1))& +ased on a salary rate of 1%$,()%.$$ a month. 8ll other claims are 45,'5,,-4 for lack of merit. ,> >!4-!-4./ ?ohn C. 'c2eod ('c2eod) filed a motion for reconsideration which the "2!. denied in its !esolution of 7$ ?une 1))).* 'c2eod thus filed a petition for certiorari +efore the .ourt of 8ppeals assailing the decision and resolution of the "2!..) The !uling of the .ourt of 8ppeals >n 1% ?une &$$$, the .ourt of 8ppeals rendered judgment as follows: A:-!-C>!-, the decision dated 4ecem+er &), 1))* of the "2!. is here+y 8CC5!'-4 with the '>45C5.8T5>" that respondent 1atricio 2im is jointly and solidarily lia+le with 1eggy 'ills, 5nc., to pay the following amounts to petitioner ?ohn C. 'c2eod: 1. retirement pay e<uivalent to &&.% days for every year of service for his twelve (1&) years of service from 1)*$ to 1))& +ased on a salary rate of 1%$,()%, a month6 &. moral damages in the amount of one hundred thousand (11$$,$$$.$$) 1esos6 7. e@emplary damages in the amount of fifty thousand (1%$,$$$.$$) 1esos6 and (. attorneyIs fees e<uivalent to 1$N of the total award. "o costs is awarded. ,> >!4-!-4.1$ The .ourt of 8ppeals rejected 'c2eodIs theory that all respondent corporations are the same corporate entity which should +e held solidarily lia+le for the payment of his monetary claims. The .ourt of 8ppeals ruled that the fact that (1) all respondent corporations have the same address6 (&) all were represented +y the same counsel, 8tty. 5sidro ,. -scano6 (7) 8tty. -scano holds office at respondent corporationsI address6 and (() all respondent corporations have common officers and key personnel, would not justify the application of the doctrine of piercing the veil of corporate fiction. The .ourt of 8ppeals held that there should +e clear and convincing evidence that ,!T5, C-T'5, and Cilsyn were +eing used as alter ego, adjunct or +usiness conduit for the sole +enefit of 1eggy 'ills, 5nc. (1'5), otherwise, said corporations should +e treated as distinct and separate from each other. The .ourt of 8ppeals pointed out that the 8rticles of 5ncorporation of 1'5 show that it has si@ incorporators, namely, 1atricio, ?ose Pulo, ?r., .arlos 1alanca, ?r., .esar !. .oncio, ?r., -. 8. 1icasso, and Aalter -uyang. >n the other hand, the 8rticles of 5ncorporation of Cilsyn show that it has 1$ incorporators, namely, ?esus P. Pujuico, .arlos 1alanca, ?r., 1atricio, 8ng =eng Eh, !amon 8. Pulo, :onorio 1o+lador, ?r., .ipriano 83ada, 'anuel Tomacru3, 5smael 'aningas, and =enigno Qialcita, ?r. The .ourt of 8ppeals pointed out that 1'5 and Cilsyn have only two interlocking incorporators and directors, namely, 1atricio and .arlos 1alanca, ?r. !eiterating the ruling of this .ourt in 2aguio v. "2!.,11 the .ourt of 8ppeals held that mere su+stantial identity of the incorporators of two corporations does not necessarily imply fraud, nor warrant the piercing of the veil of corporate fiction.

The .ourt of 8ppeals also pointed out that when ,!T5 and 1'5 e@ecuted the 4ation in 1ayment with 2ease, it was clear that ,!T5 did not assume the lia+ilities 1'5 incurred +efore the e@ecution of the contract. The .ourt of 8ppeals held that 'c2eod failed to su+stantiate his claim that all respondent corporations should +e treated as one corporate entity. The .ourt of 8ppeals thus upheld the "2!.Is finding that no employer9employee relationship e@isted +etween 'c2eod and respondent corporations e@cept 1'5. The .ourt of 8ppeals ruled that -ric :u, as an officer of 1'5, should +e e@onerated from any lia+ility, there +eing no proof of malice or +ad faith on his part. The .ourt of 8ppeals, however, ruled that 'c2eod was entitled to recover from 1'5 and 1atricio, the companyIs .hairman and 1resident. The .ourt of 8ppeals pointed out that 1atricio deli+erately and maliciously evaded 1'5Is financial o+ligation to 'c2eod. The .ourt of 8ppeals stated that, on several occasions, despite his approval, 1atricio refused and ignored to pay 'c2eodIs retirement +enefits. The .ourt of 8ppeals stated that the delay lasted for one year prompting 'c2eod to initiate legal action. The .ourt of 8ppeals stated that although 1'5 offered to pay 'c2eod his retirement +enefits, this offer for 17$$,$$$ was still +elow the 0floor limits0 provided +y law. The .ourt of 8ppeals held that an employee could demand payment of retirement +enefits as a matter of right. The .ourt of 8ppeals stated that considering that 1'5 was no longer in operation, its 0officer should +e held lia+le for acting on +ehalf of the corporation.0 The .ourt of 8ppeals also ruled that since 1'5 did not have a retirement program providing for retirement +enefits of its employees, 8rticle &*/ of the 2a+or .ode must +e followed. The .ourt of 8ppeals thus upheld the "2!.Is finding that 'c2eod was entitled to retirement pay e<uivalent to &&.% days for every year of service from 1)*$ to 1))& +ased on a salary rate of 1%$,()% a month. The .ourt of 8ppeals held that 'c2eod was not entitled to payment of vacation, sick leave and holiday pay +ecause as ;ice 1resident and 1lant 'anager, 'c2eod is a managerial employee who, under 8rticle *& of the 2a+or .ode, is not entitled to these +enefits. The .ourt of 8ppeals stated that for 'c2eod to +e entitled to payment of service incentive leave and holidays, there must +e an agreement to that effect +etween him and his employer. 'oreover, the .ourt of 8ppeals rejected 'c2eodIs argument that since 1'5 paid for his two round9trip tickets 'anila9 2ondon in 1)*7 and 1)*#, he was also 0entitled to unused airline tickets.0 The .ourt of 8ppeals stated that the fact that 1'5 granted 'c2eod 0free transport to and from 'anila and 2ondon for the year 1)*7 and 1)*# does not ipso facto characteri3e it as regular that would esta+lish a prevailing company policy.0 The .ourt of 8ppeals also denied 'c2eodIs claims for underpayment of salaries and his 17th month pay for the year 1))(. The .ourt of 8ppeals upheld the "2!.Is ruling that it could +e deduced from 'c2eodIs own narration of facts that he agreed to the reduction of his compensation from 1#$,$$$ to 1%$,()% in 8ugust 1))$ to "ovem+er 1))7. The .ourt of 8ppeals found the award of moral damages for 1%$,$$$ in order +ecause of the 0stu++orn refusal0 of 1'5 and 1atricio to respect 'c2eodIs valid claims. The .ourt of 8ppeals also ruled that attorneyIs fees e<uivalent to 1$N of the total award should +e given to 'c2eod under 8rticle &&$*, paragraph & of the .ivil .ode.1& :ence, this petition. The 5ssues 'c2eod su+mits the following issues for our consideration:

1. Ahether the challenged 4ecision and !esolution of the 1(th 4ivision of the .ourt of 8ppeals promulgated on 1% ?une &$$$ and &/ 4ecem+er &$$$, respectively, in .89 .!. ,1 "o. %%17$ are in accord with law and jurisprudence6 &. Ahether an employer9employee relationship e@ists +etween the private respondents and the petitioner for purposes of determining employer lia+ility to the petitioner6 7. Ahether the private respondents may avoid their financial o+ligations to the petitioner +y invoking the veil of corporate fiction6 (. Ahether petitioner is entitled to the relief he seeks against the private respondents6 %. Ahether the ruling of GthisH .ourt in ,pecial 1olice and Aatchman 8ssociation (12E') Cederation v. "ational 2a+or !elations .ommission cited +y the >ffice of the ,olicitor eneral is applica+le to the case of petitioner6 and #. Ahether the appeal taken +y the private respondents from the 4ecision of the la+or ar+iter meets the mandatory re<uirements recited in the 2a+or .ode of the 1hilippines, as amended.17 The .ourtIs !uling The petition must fail. 'c2eod asserts that the .ourt of 8ppeals should not have upheld the "2!.Is findings that he was a managerial employee of 1'5 from &$ ?une 1)*$ to 71 4ecem+er 1))&, and then a consultant of ,!T5 up to 7$ "ovem+er 1))7. 'c2eod asserts that if only for this 0+ra3en assumption,0 the .ourt of 8ppeals should not have sustained the "2!.Is ruling that his cause of action was only against 1'5. These assertions do not deserve serious consideration. !ecords disclose that 'c2eod was an employee only of 1'5.1( 1'5 hired 'c2eod as its acting ;ice 1resident and eneral 'anager on &$ ?une 1)*$.1% 1'5 confirmed 'c2eodIs appointment as ;ice 1resident/1lant 'anager in the ,pecial 'eeting of its =oard of 4irectors on 1$ Ce+ruary 1)*1.1# 'c2eod himself testified during the hearing +efore the 2a+or 8r+iter that his 0regular employment0 was with 1'5.1/ Ahen 1'5Is rank9and9file employees staged a strike on 1) 8ugust 1)*) to ?uly 1))&, 1'5 incurred serious +usiness losses.1* This prompted 1'5 to stop permanently plant operations and to send a notice of closure to the 4epartment of 2a+or and -mployment on &1 ?uly 1))&.1) 1'5 informed its employees, including 'c2eod, of the closure.&$ 1'5 paid its employees, including managerial employees, e@cept 'c2eod, their unpaid wages, sick leave, vacation leave, prorated 17th month pay, and separation pay. Ender the compromise agreement +etween 1'5 and its employees, the employer9employee relationship +etween them ended on &% "ovem+er 1))&.&1 !ecords also disclose that 1'5 e@tended 'c2eodIs service up to 71 4ecem+er 1))& 0to wind up some affairs0 of the company.&& 'c2eod testified on cross9e@amination that he received his last salary from 1'5 in 4ecem+er 1))&.&7 5t is thus clear that 'c2eod was a managerial employee of 1'5 from &$ ?une 1)*$ to 71 4ecem+er 1))&. :owever, 'c2eod claims that after C-T'5 purchased 1'5 in ?anuary 1))7, he 0continued to work at the same plant with the same responsi+ilities0 until 7$ "ovem+er 1))7. 'c2eod claims that C-T'5 merely renamed 1'5 as ,!T5. 'c2eod asserts that it was for this reason that when he reached the retirement age in 1))7, he asked all the respondents for the payment of his +enefits.&( These assertions deserve scant consideration. Ahat took place +etween 1'5 and ,!T5 was dation in payment with lease. 1ertinent portions of the contract that 1'5 and ,!T5 e@ecuted on 1% ?une 1))& read:

A:-!-8,, 1'5 is inde+ted to the 4evelopment =ank of the 1hilippines (04=10) and as security for such de+ts (the 0>+ligations0) has mortgaged its real properties covered +y T.T "os. T97*#(/, T97/17#, and T97/17%, together with all machineries and improvements found thereat, a complete listing of which is hereto attached as 8nne@ 080 (the 08ssets0)6 A:-!-8,, +y virtue of an inter9governmental agency arrangement, 4=1 transferred the >+ligations, including the 8ssets, to the 8sset 1rivati3ation Trust (081T0) and the latter has received payment for the >+ligations from 1'5, under 81TIs 4irect 4e+t =uy9>ut (044=>0) program there+y causing 81T to completely discharge and cancel the mortgage in the 8ssets and to release the titles of the 8ssets +ack to 1'56 A:-!-8,, 1'5 o+tained cash advances from ,!T. in the total amount of TA> :E"4!-4 T-" '5225>" 1-,>, (1&1$,$$$,$$$.$$) (the 08dvances0) to ena+le 1'5 to consummate the 44=> with 81T, with ,!T. su+rogating 81T as 1'5Is creditor there+y6 A:-!-8,, in payment to ,!T. for 1'5Is lia+ility, 1'5 has agreed to transfer all its rights, title and interests in the 8ssets +y way of a dation in payment to ,!T., provided that simultaneous with the dation in payment, ,!T. shall grant unto 1'5 the right to lease the 8ssets under terms and conditions stated hereunder6 @@@@ ">A T:-!-C>!-, for and in consideration of the foregoing premises, and of the terms and conditions hereinafter set forth, the parties here+y agree as follows: 1. .-,,5>". 5n consideration of the amount of TA> :E"4!-4 T-" '5225>" 1-,>, (1&1$,$$$,$$$.$$), 1'5 here+y cedes, conveys and transfers to ,!T. all of its rights, title and interest in and to the 8ssets +y way of a dation in payment.&% (-mphasis supplied) 8s a rule, a corporation that purchases the assets of another will not +e lia+le for the de+ts of the selling corporation, provided the former acted in good faith and paid ade<uate consideration for such assets, e@cept when any of the following circumstances is present: (1) where the purchaser e@pressly or impliedly agrees to assume the de+ts, (&) where the transaction amounts to a consolidation or merger of the corporations, (7) where the purchasing corporation is merely a continuation of the selling corporation, and (() where the selling corporation fraudulently enters into the transaction to escape lia+ility for those de+ts.&# "one of the foregoing e@ceptions is present in this case. :ere, 1'5 transferred its assets to ,!T5 to settle its o+ligation to ,!T5 in the sum of 1&1$,$$$,$$$. Ae are not convinced that 1'5 fraudulently transferred these assets to escape its lia+ility for any of its de+ts. 1'5 had already paid its employees, e@cept 'c2eod, their money claims. There was also no merger or consolidation of 1'5 and ,!T5. .onsolidation is the union of two or more e@isting corporations to form a new corporation called the consolidated corporation. 5t is a com+ination +y agreement +etween two or more corporations +y which their rights, franchises, and property are united and +ecome those of a single, new corporation, composed generally, although not necessarily, of the stockholders of the original corporations. 'erger, on the other hand, is a union where+y one corporation a+sor+s one or more e@isting corporations, and the a+sor+ing corporation survives and continues the com+ined +usiness. The parties to a merger or consolidation are called constituent corporations. 5n consolidation, all the constituents are dissolved and a+sor+ed +y the new consolidated enterprise. 5n merger, all constituents, e@cept the surviving corporation, are dissolved. 5n +oth cases, however, there is no li<uidation of the assets of the dissolved corporations, and the surviving or consolidated corporation ac<uires all their properties, rights and franchises and their stockholders usually +ecome its stockholders. The surviving or consolidated corporation assumes automatically the lia+ilities of the dissolved corporations, regardless of whether the creditors have consented or not to such merger or consolidation.&/

5n the present case, there is no showing that the su+ject dation in payment involved any corporate merger or consolidation. "either is there any showing of those indicative factors that ,!T5 is a mere instrumentality of 1'5. 'oreover, ,!T5 did not e@pressly or impliedly agree to assume any of 1'5Is de+ts. 1ertinent portions of the su+ject 4eed of 4ation in 1ayment with 2ease provide, thus: &. A8!!8"T5-, 8"4 !-1!-,-"T8T5>",. 1'5 here+y warrants and represents the following: @@@@ (e) 1'5 shall warrant that it will hold ,!T. or its assigns, free and harmless from any lia+ility for claims of 1'5Is creditors, la+orers, and workers and for physical injury or injury to property arising from 1'5Is custody, possession, care, repairs, maintenance, use or operation of the 8ssets e@cept ordinary wear and tear6&*(-mphasis supplied) 8lso, 'c2eod did not present any evidence to show the alleged renaming of 01eggy 'ills, 5nc.0 to 0,ta. !osa Te@tiles, 5nc.0 :ence, it is not correct for 'c2eod to treat 1'5 and ,!T5 as the same entity. !espondent corporations assert that ,!T5 hired 'c2eod as consultant after 1'5 stopped operations.&) >n the other hand, 'c2eod asserts that he was respondent corporationsI employee from 1)*$ to 7$ "ovem+er 1))7.7$:owever, 'c2eod failed to present any proof of employer9employee relationship +etween him and Cilsyn, ,!T5, or C-T'5. 'c2eod testified, thus: 8TTP. -,.8">: 4o you have any employment contract with Car -astern Te@tileR A5T"-,,: 5t is my +elief up the present time. 8TTP. 8;-.5228: 'ay 5 re<uest that the witness +e allowed to go through his 8nne@es, Pour :onor. 8TTP. -,.8">: Pes, +ut 5 want a precise answer to that <uestion. 5f he has an employment contract with Car -astern Te@tileR A5T"-,,: .an 5 answer it this way, sirR There is not a valid contract +ut 5 was under the impression taking into consideration that the closeness that 5 had at Car -astern Te@tile is enough during that period of time of the development of 1eggy 'ills to reorgani3e a staff. 5 was under the +asic impression that they might still retain my status as ;ice 1resident and 1lant 'anager of the company. 8TTP. -,.8">: =ut the answer is still, there is no employment contract in your possession appointing you in any capacity +y Car -asternR A5T"-,,: There was no written contract, sir. @@@@

8TTP. -,.8">: ,o, there is proof that you were in fact really employed +y 1eggy 'illsR A5T"-,,: Pes, sir. 8TTP. -,.8">: >f course, my interest now is to whether or not there is a similar document to present that you were employed +y the other respondents like Cilsyn .orporationR A5T"-,,: 5 have no document, sir. 8TTP. -,.8">: Ahat a+out Car -astern Te@tile 'illsR A5T"-,,: 5 have no document, sir. 8TTP. -,.8">: 8nd ,ta. !osa Te@tile 'illsR A5T"-,,: There is no document, sir.71 @@@@ 8TTP. -,.8">: S Pes. 2et me +e more specific, 'r. 'c2eod. 4o you have a contract of employment from Car -astern Te@tiles, 5nc.R 8 "o, sir. S Ahat a+out ,ta. !osa Te@tile 'ills, do you have an employment contract from this companyR 8 "o, sir. @@@@ S 8nd what a+out respondent -ric :u. :ave you had any contract of employment from 'r. -ric :uR 8 "ot a direct contract +ut 5 was taken in and 5 told to take over this from 'r. -ric :u. 8utomatically, it confirms that 'r. -ric :u, in other words, was under the control of 'r. 1atricio 2im at that period of time. S "o documents to show, 'r. 'c2eodR 8 "o. "o documents, sir.7&

'c2eod could have presented evidence to support his allegation of employer9employee relationship +etween him and any of Cilsyn, ,!T5, and C-T'5, +ut he did not. 8ppointment letters or employment contracts, payrolls, organi3ation charts, ,,, registration, personnel list, as well as testimony of co9employees, may serve as evidence of employee status.77 5t is a +asic rule in evidence that parties must prove their affirmative allegations. Ahile technical rules are not strictly followed in the "2!., this does not mean that the rules on proving allegations are entirely ignored. =are allegations are not enough. They must +e supported +y su+stantial evidence at the very least.7( :owever, 'c2eod claims that 0for purposes of determining employer lia+ility, all private respondents are one and the same employer0 +ecause: (1) they have the same address6 (&) they are all engaged in the same +usiness6 and (7) they have interlocking directors and officers.7% This assertion is untena+le. 8 corporation is an artificial +eing invested +y law with a personality separate and distinct from that of its stockholders and from that of other corporations to which it may +e connected.7# Ahile a corporation may e@ist for any lawful purpose, the law will regard it as an association of persons or, in case of two corporations, merge them into one, when its corporate legal entity is used as a cloak for fraud or illegality. This is the doctrine of piercing the veil of corporate fiction. The doctrine applies only when such corporate fiction is used to defeat pu+lic convenience, justify wrong, protect fraud, or defend crime,7/ or when it is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or +usiness conduit of a person, or where the corporation is so organi3ed and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.7* To disregard the separate juridical personality of a corporation, the wrongdoing must +e esta+lished clearly and convincingly. 5t cannot +e presumed.7) :ere, we do not find any of the evils sought to +e prevented +y the doctrine of piercing the corporate veil. !espondent corporations may +e engaged in the same +usiness as that of 1'5, +ut this fact alone is not enough reason to pierce the veil of corporate fiction.($ 5n 5ndophil Te@tile 'ill Aorkers Enion v. .alica,(1 the .ourt ruled, thus: 5n the case at +ar, petitioner seeks to pierce the veil of corporate entity of 8crylic, alleging that the creation of the corporation is a devise to evade the application of the .=8 +etween petitioner Enion and private respondent .ompany. Ahile we do not discount the possi+ility of the similarities of the +usinesses of private respondent and 8crylic, neither are we inclined to apply the doctrine invoked +y petitioner in granting the relief sought. The fact that the +usinesses of private respondent and 8crylic are related, that some of the employees of the private respondent are the same persons manning and providing for au@iliary services to the units of 8crylic, and that the physical plants, offices and facilities are situated in the same compound, it is our considered opinion that these facts are not sufficient to justify the piercing of the corporate veil of 8crylic.(& (-mphasis supplied) 8lso, the fact that ,!T5 and 1'5 shared the same address, i.e., 11/C =892epanto =ldg., 1aseo de !o@as, 'akati .ity,(7 can +e e@plained +y the two companiesI stipulation in their 4eed of 4ation in 1ayment with 2ease that 0simultaneous with the dation in payment, ,!T. shall grant unto 1'5 the right to lease the 8ssets under terms and conditions stated hereunder.0(( 8s for the addresses of Cilsyn and C-T'5, Cilsyn held office at 1&th Cloor, =892epanto =ldg., 1aseo de !o@as, 'akati .ity,(% while C-T'5 held office at 1*C, Tun "an .ommercial =uilding, 777 Tun :wa ,outh !oad, ,ec. &, Taipei, Taiwan, !.>...(# :ence, they did not have the same address as that of 1'5. That respondent corporations have interlocking incorporators, directors, and officers is of no moment. The only interlocking incorporators of 1'5 and Cilsyn were 1atricio and .arlos 1alanca, ?r.(/ Ahile 1atricio was 4irector and =oard .hairman of Cilsyn, ,!T5, and 1'5,(* he was never an officer of C-T'5.

-ric :u, on the other hand, was 4irector of Cilsyn and ,!T5.() :e was never an officer of 1'5. 'arialen .. .orpu3, CilsynIs Cinance >fficer,%$ testified on cross9e@amination that (1) among all of CilsynIs officers, only she was the one involved in the management of 1'56 (&) only she and 1atricio were the common officers +etween Cilsyn and 1'56 and (7) Cilsyn and 1'5 are 0two separate companies.0%1 8polinario 2. 1osio, 1'5Is .hief 8ccountant, testified that 0,!T5 is a different corporation from 1'5.0 %& 8t any rate, the e@istence of interlocking incorporators, directors, and officers is not enough justification to pierce the veil of corporate fiction, in the a+sence of fraud or other pu+lic policy considerations.%7 5n 4el !osario v. "2!.,%( the .ourt ruled that su+stantial identity of the incorporators of corporations does not necessarily imply fraud. 5n light of the foregoing, and there +eing no proof of employer9employee relationship +etween 'c2eod and respondent corporations and -ric :u, 'c2eodIs cause of action is only against his former employer, 1'5. >n 1atricioIs personal lia+ility, it is settled that in the a+sence of malice, +ad faith, or specific provision of law, a stockholder or an officer of a corporation cannot +e made personally lia+le for corporate lia+ilities. %% To reiterate, a corporation is a juridical entity with legal personality separate and distinct from those acting for and in its +ehalf and, in general, from the people comprising it. The rule is that o+ligations incurred +y the corporation, acting through its directors, officers, and employees, are its sole lia+ilities. %# 1ersonal lia+ility of corporate directors, trustees or officers attaches only when (1) they assent to a patently unlawful act of the corporation, or when they are guilty of +ad faith or gross negligence in directing its affairs, or when there is a conflict of interest resulting in damages to the corporation, its stockholders or other persons6 (&) they consent to the issuance of watered down stocks or when, having knowledge of such issuance, do not forthwith file with the corporate secretary their written o+jection6 (7) they agree to hold themselves personally and solidarily lia+le with the corporation6 or (() they are made +y specific provision of law personally answera+le for their corporate action.%/ .onsidering that 'c2eod failed to prove any of the foregoing e@ceptions in the present case, 'c2eod cannot hold 1atricio solidarily lia+le with 1'5. The records are +ereft of any evidence that 1atricio acted with malice or +ad faith. =ad faith is a <uestion of fact and is evidentiary. =ad faith does not connote +ad judgment or negligence. 5t imports a dishonest purpose or some moral o+li<uity and conscious wrongdoing. 5t means +reach of a known duty through some ill motive or interest. 5t partakes of the nature of fraud.%* 5n the present case, there is nothing su+stantial on record to show that 1atricio acted in +ad faith in terminating 'c2eodIs services to warrant 1atricioIs personal lia+ility. 1'5 had no other choice +ut to stop plant operations. The work stoppage therefore was +y necessity. The company could no longer continue with its plant operations +ecause of the serious +usiness losses that it had suffered. The mere fact that 1atricio was president and director of 1'5 is not a ground to conclude that he should +e held solidarily lia+le with 1'5 for 'c2eodIs money claims. The ruling in 8... !ansom 2a+or Enion9..2E v. "2!.,%) which the .ourt of 8ppeals cited, does not apply to this case. Ae <uote pertinent portions of the ruling, thus: (a) 8rticle &#% of the 2a+or .ode, in part, e@pressly provides: 08ny worker whose employment has +een terminated as a conse<uence of an unlawful lockout shall +e entitled to reinstatement with full +ackwages.0 8rticle &/7 of the .ode provides that: 08ny person violating any of the provisions of 8rticle &#% of this .ode shall +e punished +y a fine of not e@ceeding five hundred pesos and/or imprisonment for not less than one (1) day nor more than si@ (#) months.0

(+) :ow can the foregoing provisions +e implemented when the employer is a corporationR The answer is found in 8rticle &1& (c) of the 2a+or .ode which provides: 0(c) T-mployerI includes any person acting in the interest of an employer, directly or indirectly. The term shall not include any la+or organi3ation or any of its officers or agents e@cept when acting as employer.0. The foregoing was culled from ,ection & of !8 #$&, the 'inimum Aage 2aw. ,ince !8",>' is an artificial person, it must have an officer who can +e presumed to +e the employer, +eing the 0person acting in the interest of (the) employer0 !8",>'. The corporation, only in the technical sense, is the employer. The responsi+le officer of an employer corporation can +e held personally, not to say even criminally, lia+le for non9 payment of +ack wages. That is the policy of the law. @@@@ (c) 5f the policy of the law were otherwise, the corporation employer can have devious ways for evading payment of +ack wages. I' 256 0'12&'2 -&16, 02 7oul( &886&, 25&2 RANSO!, 0' 1969, 9o,61660': 256 8o110;0l02y o, 8,o;&;0l02y o9 8&y<6'2 o9 ;&-= 7&:61 2o 256 22 12,0=6,1, o,:&'0>6( ROSARIO 2o ,68l&-6 RANSO!, 7025 256 l&226, 2o ;6 636'2u&lly 85&16( ou2 09 256 22 12,0=6,1 70' 2560, -&16. !8",>' actually ceased operations on 'ay 1, 1)/7, after the 4ecem+er 1), 1)/& 4ecision of the .ourt of 5ndustrial !elations was promulgated against !8",>'.#$ (-mphasis supplied) .learly, in 8... !ansom, !8",>', through its 1resident, organi3ed !>,8!5> to evade payment of +ackwages to the && strikers. This situation, or anything similar showing malice or +ad faith on the part of 1atricio, does not o+tain in the present case. 5n Santo' &. N9R4,#1 the .ourt held, thus: 5t is true, there were various cases when corporate officers were themselves held +y the .ourt to +e personally accounta+le for the payment of wages and money claims to its employees. 5n A.C. Ransom Labor Union-CCLU vs. NLRC, for instance, the .ourt ruled that under the 'inimum Aage 2aw, the responsi+le officer of an employer corporation could +e held personally lia+le for nonpayment of +ackwages for 0(i)f the policy of the law were otherwise, the corporation employer (would) have devious ways for evading payment of +ackwages.0 5n the a+sence of a clear identification of the officer directly responsi+le for failure to pay the +ackwages, the .ourt considered the 1resident of the corporation as such officer. The case was cited in Chua vs. NLRC in holding personally lia+le the vice9president of the company, +eing the highest and most ranking official of the corporation ne@t to the 1resident who was dismissed for the latterIs claim for unpaid wages. 8 review of the a+ove e@ceptional cases would readily disclose the attendance of facts and circumstances that could rightly sanction personal lia+ility on the part of the company officer. 5n A.C. Ransom, the corporate entity was a family corporation and e@ecution against it could not +e implemented +ecause of the disposition posthaste of its levia+le assets evidently in order to evade its just and due o+ligations. The doctrine of 0piercing the veil of corporate fiction0 was thus clearly appropriate. Chua likewise involved another family corporation, and this time the conflict was +etween two +rothers occupying the highest ranking positions in the company. There were incontroverti+le facts which pointed to e@treme personal animosity that resulted, evidently in +ad faith, in the easing out from the company of one of the +rothers +y the other. The +asic rule is still that which can +e deduced from the .ourtIs pronouncement in Sunio vs. National Labor Relations Commission6 thus: Ae come now to the personal lia+ility of petitioner, ,unio, who was made jointly and severally responsi+le with petitioner company and .515 for the payment of the +ackwages of private respondents. This is reversi+le error. The 8ssistant !egional 4irectorIs 4ecision failed to disclose the reason why he was made personally lia+le. !espondents, however, alleged as grounds thereof, his +eing the owner of one9half (U) interest of said corporation, and his alleged ar+itrary dismissal of private respondents. 1etitioner ,unio was impleaded in the .omplaint in his capacity as eneral 'anager of petitioner corporation. There appears to +e no evidence on record that he acted maliciously or in +ad faith in terminating the services of private respondents. :is act, therefore, was within the scope of his authority and was a corporate act.

5t is +asic that a corporation is invested +y law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may +e related. 'ere ownership +y a single stockholder or +y another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. 1etitioner ,unio, therefore, should not have +een made personally answera+le for the payment of private respondentsI +ack salaries.#& (-mphasis supplied) Thus, the rule is still that the doctrine of piercing the corporate veil applies only when the corporate fiction is used to defeat pu+lic convenience, justify wrong, protect fraud, or defend crime. 5n the a+sence of malice, +ad faith, or a specific provision of law making a corporate officer lia+le, such corporate officer cannot +e made personally lia+le for corporate lia+ilities. "either 8rticle &1&(c) nor 8rticle &/7 (now &/&) of the 2a+or .ode e@pressly makes any corporate officer personally lia+le for the de+ts of the corporation. 8s this .ourt ruled in H.9. 4arlo' 4on'tr$ction, Inc. &. 2arina :ro#ertie' 4or#oration:#7 Ae concur with the .8 that these two respondents are not lia+le. ,ection 71 of the .orporation .ode (=atas 1am+ansa =lg. #*) provides: 0,ection 71. 9iabilit( o* director', tr$'tee' or o**icer'. 9 4irectors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or +ad faith ... shall +e lia+le jointly and severally for all damages resulting therefrom suffered +y the corporation, its stockholders and other persons.0 The personal lia+ility of corporate officers validly attaches only when (a) they assent to a patently unlawful act of the corporation6 or (+) they are guilty of +ad faith or gross negligence in directing its affairs6 or (c) they incur conflict of interest, resulting in damages to the corporation, its stockholders or other persons. The records are +ereft of any evidence that Typoco acted in +ad faith with gross or ine@cusa+le negligence, or that he acted outside the scope of his authority as company president. The unilateral termination of the .ontract during the e@istence of the T!> was indeed contempti+le V for which '1. should have merely +een cited for contempt of court at the most V and a preliminary injunction would have then stopped work +y the second contractor. =esides, there is no showing that the unilateral termination of the .ontract was null and void.#( 'c2eod is not entitled to payment of vacation leave and sick leave as well as to holiday pay. 8rticle *&, Title 5, =ook Three of the 2a+or .ode, on Aorking .onditions and !est 1eriods, provides: .overage. W The provisions of this title shall apply to employees in all esta+lishments and undertakings whether for profit or not, +ut not to government employees, managerial employees, field personnel, mem+ers of the family of the employer who are dependent on him for support, domestic helpers, persons in the personal service of another, and workers who are paid +y results as determined +y the ,ecretary of 2a+or in appropriate regulations. 8s used herein, 0managerial employees0 refer to those whose primary duty consists of the management of the esta+lishment in which they are employed or of a department or su+division thereof, and to other officers or mem+ers of the managerial staff. (-mphasis supplied) 8s ;ice 1resident/1lant 'anager, 'c2eod is a managerial employee who is e@cluded from the coverage of Title 5, =ook Three of the 2a+or .ode. 'c2eod is entitled to payment of vacation leave and sick leave only if he and 1'5 had agreed on it. The payment of vacation leave and sick leave depends on the policy of the employer or the agreement +etween the employer and employee.#% 5n the present case, there is no showing that 'c2eod and 1'5 had an agreement concerning payment of these +enefits. 'c2eodIs assertion of underpayment of his 17th month pay in 4ecem+er 1))7 is unavailing.## 8s already stated, 1'5 stopped plant operations in 1))&. 'c2eod himself testified that he received his last salary from 1'5 in 4ecem+er 1))&. 8fter the termination of the employer9employee relationship +etween 'c2eod and 1'5, ,!T5 hired 'c2eod as consultant and not as employee. ,ince 'c2eod was no longer an employee, he was not entitled to the 17th month pay.#/ =esides, there is no evidence on record that 'c2eod indeed received his alleged 0reduced 17th month pay of 1((,1*7.#70 in 4ecem+er 1))7.#* 8lso unavailing is 'c2eodIs claim that he was entitled to the 0unpaid monetary e<uivalent of unused plane tickets for the period covering 1)*) to 1))& in the amount of 1&/),7$$.$$.0#) 1'5 has no company policy granting its officers and employees e@penses for trips a+road./$ That at one time 1'5 reim+ursed 'c2eod for his and his wifeIs plane tickets in a

vacation to 2ondon/1 could not +e deemed as an esta+lished practice considering that it happened only once. To +e considered a 0regular practice,0 the giving of the +enefits should have +een done over a long period, and must +e shown to have +een consistent and deli+erate./& 5n 8merican Aire and .a+le 4aily !ated -mployees Enion v. 8merican Aire and .a+le .o., 5nc.,/7 the .ourt held that for a +onus to +e enforcea+le, the employer must have promised it, and the parties must have e@pressly agreed upon it, or it must have had a fi@ed amount and had +een a long and regular practice on the part of the employer. 5n the present case, there is no showing that 1'5 ever promised 'c2eod that it would continue to grant him the +enefit in <uestion. "either is there any proof that 1'5 and 'c2eod had e@pressly agreed upon the giving of that +enefit. 'c2eodIs reliance on 8nne@ '/( can hardly carry the day for him. 8nne@ ', which is 'c2eodIs letter addressed to 01hilip 2im, ;1 8dministration,0 merely contains 'c2eodIs proposals for the grant of some +enefits to supervisory and confidential employees. .ontrary to 'c2eodIs allegation, 1atricio did not sign the letter. :ence, the letter does not em+ody any agreement +etween 'c2eod and the management that would entitle 'c2eod to his money claims. "either can 'c2eodIs assertions find support in 8nne@ E./% 8nne@ E is the 8greement which 'c2eod and Eniversal Te@tile 'ills, 5nc. e@ecuted in 1)%). The 8greement merely contains the renewal of the service agreement which the parties signed in 1)%#. 'c2eod cannot successfully pretend that his monthly salary of 1#$,$$$ was reduced without his consent. 'c2eod testified that in 1))$, 1hilip 2im e@plained to him why his salary would have to +e reduced. 'c2eod said that 1hilip told him that 0they were short in finances6 that it would +e repaid.0/# Aere 'c2eod not amena+le to that reduction in salary, he could have immediately resigned from his work in 1'5. 'c2eod knew that 1'5 was then suffering from serious +usiness losses. 5n fact, 'c2eod testified that 1'5 was not a+le to operate from 8ugust 1)*) to 1))& +ecause of the strike. -ven +efore 1)*), as ;ice 1resident of 1'5, 'c2eod was aware that the company had incurred 0huge loans from 4=1.0// 8s it happened, 'c2eod continued to work with 1'5. Ae find it pertinent to <uote some portions of 8polinario 1osioIs testimony, to wit: S Pou also stated that +efore the period of the strike as shown +y anne@ 0K0 of the reply filed +y the complainant which was 5 think a voucher, the salary of 'r. 'c2eod was roughly 1#$,$$$.$$ a monthR 8 Pes, sir. S 8nd as shown +y their anne@ 020 to their reply, that this was reduced to roughly 1%$,$$$.$$ a monthR 8 Pes, sir. S Pou stated that this was indeed upon the instruction +y the ;ice91resident of 1eggy 'ills at that time and that was 'r. 1hilip 2im, would you notR 8 Pes, sir. S >f your own personal knowledge, can you say if this was, in fact, +y agreement +etween 'r. 1hilip 2im or any other officers of 1eggy 'ills and 'r. 'c2eodR 8 5f 5 recall it correctly, 5 assume it was an agreement, ver+al agreement with, +etween 'r. 1hilip 2im and 'r. 'c2eod, +ecause the voucher that we prepared was actually acknowledged +y 'r. 'c2eod, the reduced amount was acknowledged +y 'r. 'c2eod thru the voucher that we prepared. S 5n other words, 'r. Aitness, you mean to tell us that 'r. 'c2eod continuously received the reduced amount of1%$,$$$.$$ +y signing the voucher and receiving the amount in <uestionR 8 Pes, sir.

S 8s far as you remem+er, 'r. 1osio, was there any complaint +y 'r. 'c2eod +ecause of this reduced amount of his salary at that timeR 8 5 donIt have any personal knowledge of any complaint, sir. S 8t least, that is in so far as you were concerned, he said nothing when he signed the voucher in <uestionR 8 Pes, sir. S "ow, you also stated that the reason for what appears to +e an agreement +etween 1eggy 'ills and 'r. 'c2eod in so far as the reduction of his salary from 1#$,$$$.$$ to 1%$,$$$.$$ a month was +ecause he would have a reduced num+er of working days in view of the strike at 1eggy 'ills, is that rightR 8 Pes, sir. S 8nd that this was so +ecause on account of the strike, there was no work to +e done in the companyR 8 Pes, sir./* @@@@ S "ow, you also stated if you remem+er during the first time that you testified that in the +eginning, the monthly salary of the complainant was 1#$,$$$.$$, is that correctR 8 Pes, sir. S 8nd +ecause of the long period of the strike, when there was no work to +e done, +y agreement with the complainant, his monthly salary was adjusted to only 1%$,()% +ecause he would not have to report for work on ,aturday. 4o you remem+er having made that e@planationR 8 Pes, sir. S Pou also stated that the complainant continuously received his monthly salary in the adjusted amount of1%$,()%.$$ monthly signing the necessary vouchers or pay slips for that without complaining, is that not right, 'r. 1osioR 8 Pes, sir./) ,ince the last salary that 'c2eod received from 1'5 was 1%$,()%, that amount should +e the +asis in computing his retirement +enefits. 'c2eod must +e credited only with his service to 1'5 as it had a juridical personality separate and distinct from that of the other respondent corporations. ,ince 1'5 has no retirement plan,*$ we apply ,ection %, !ule 55 of the !ules 5mplementing the "ew !etirement 2aw which provides: %.1 5n the a+sence of an applica+le agreement or retirement plan, an employee who retires pursuant to the 8ct shall +e entitled to retirement pay e<uivalent to at least one9half (1/&) month salary for every year of service, a fraction of at least si@ (#) months +eing considered as one whole year. %.& .omponents of >ne9half (1/&) 'onth ,alary. W Cor the purpose of determining the minimum retirement pay due an employee under this !ule, the term 0one9half month salary0 shall include all of the following: (a) Cifteen (1%) days salary of the employee +ased on his latest salary rate. @ @ @ Aith 'c2eod having worked with 1'5 for 1& years, from 1)*$ to 1))&, he is entitled to a retirement pay e<uivalent to U month salary for every year of service +ased on his latest salary rate of 1%$,()% a month. There is no +asis for the award of moral damages.

'oral damages are recovera+le only if the defendant has acted fraudulently or in +ad faith, or is guilty of gross negligence amounting to +ad faith, or in wanton disregard of his contractual o+ligations. The +reach must +e wanton, reckless, malicious, or in +ad faith, oppressive or a+usive.*1 Crom the records of the case, the .ourt finds no ultimate facts to support a conclusion of +ad faith on the part of 1'5. !ecords disclose that 1'5 had long offered to pay 'c2eod his money claims. 5n their .omment, respondents assert that they offered to pay 'c2eod the sum of 1*($,$$$, as 0separation +enefits, and not 17$$,$$$, if only to +uy peace and to forestall any complaint0 that 'c2eod may initiate +efore the "2!.. 'c2eod admitted at the hearing +efore the 2a+or 8r+iter that 1'5 has made this offer W 8TTP. -,.8">: @ @ @ 8ccording to your own statement in your 1osition 1aper and 5 am referring to page *, your unpaid retirement +enefit for fourteen (1() years of service at 1#$,$$$.$$ per year is 1*($,$$$.$$, is that correctR A5T"-,,: That is correct, sir. 8TTP. -,.8">: 8nd this amount is correct 1*($,$$$.$$, according to your 1osition 1aperR A5T"-,,: That is correct, sir. 8TTP. -,.8">: The <uestion 5 want to ask is, are you aware that this amount was offered to you sometime last year through your own lawyer, my good friend, 8tty. 8vecilla, who is right here with usR A5T"-,,: 5 was aware, sir. 8TTP. -,.8">: ,o this was offered to you, is that correctR A5T"-,,: 5 was told that a fi@ed sum of 1*($,$$$.$$ was offered. 8TTP. -,.8">: 8nd , of course, the reason, if 5 may assume, that you declined this offer was that, according to you, there are other claims which you would like to raise against the !espondents which, +y your impression, they were not willing to pay in addition to this particular amountR A5T"-,,: Pes, sir. 8TTP. -,.8">:

The <uestion now is, if the same amount is offered to you +y way of retirement which is e@actly what you stated in your own 1osition 1aper, would you accept it or notR A5T"-,,: "ot on the concept without all the +asic +enefits due me, 5 will refuse.*& @@@@ 8TTP. !>J8,: S Pou mentioned in the cross9e@amination of 8tty. -scano that you were offered the separation pay in 1))(, is that correct, 'r. AitnessR A5T"-,,: 8 5 was offered a settlement of 17$$,$$$.$$ for complete settlement and that was 5 think in ?anuary or Ce+ruary 1))(, sir. 8TTP. -,.8">: "o. Ahat was mentioned was the amount of 1*($,$$$.$$. A5T"-,,: Ahat did you say, 8tty. -scanoR 8TTP. -,.8">: The amount that 5 mentioned was 1*($,$$$.$$ corresponding to the . . . . . . . A5T"-,,: 'ay 5 ask that the <uestion +e clarified, your :onorR 8TTP. !>J8,: S Pou mentioned that you were offered for the settlement of your claims in 1))( for 1*($,$$$.$$, is that right, 'r. AitnessR 8 4uring that period in time, while the petition in this case was ongoing, we already filed a case at that period of time, sir. There was a discussion. To the +est of my knowledge, they are willing to settle for 1*($,$$$.$$ and +ased on what the 8ttorney told me, 5 refused to accept +ecause 5 +elieve that my position was not in anyway due to a compromise situation to the +enefits 5 am entitled to.*7 :ence, the awards for e@emplary damages and attorneyIs fees are not proper in the present case.*( That respondent corporations, in their appeal to the "2!., did not serve a copy of their memorandum of appeal upon 1'5 is of no moment. ,ection 7(a), !ule ;5 of the "2!. "ew !ules of 1rocedure provides: !e<uisites for 1erfection of 8ppeal. W (a) The appeal shall +e filed within the reglementary period as provided in ,ection 1 of this !ule6 shall +e under oath with proof of payment of the re<uired appeal fee and the posting of a cash or surety +ond as provided in ,ection % of this !ule6 shall +e accompanied +y a memorandum of appeal @ @ @ and proof of service on the other party of such appeal. (-mphasis supplied) The 0other party0 mentioned in the !ule o+viously refers to the adverse party, in this case, 'c2eod. =esides, ,ection 7, !ule ;5 of the !ules which re<uires, among others, proof of service of the memorandum of appeal on the other party, is

merely a rundown of the contents of the re<uired memorandum of appeal to +e su+mitted +y the appellant. These are not jurisdictional re<uirements.*% A:-!-C>!-, we 4-"P the petition and 8CC5!' the 4ecision of the .ourt of 8ppeals in .89 .!. ,1 "o. %%17$, with the following '>45C5.8T5>",: (a) the retirement pay of ?ohn C. 'c2eod should +e computed at U month salary for every year of service for 1& years +ased on his salary rate of 1%$,()% a month6 (+) 1atricio 2. 2im is a+solved from personal lia+ility6 and (c) the awards for moral and e@emplary damages and attorneyIs fees are deleted. "o pronouncement as to costs.

es of Incorporation of petitioner corporation. With the nullification of the election of the respondents, the approved by-laws which they certified to this Commission as members of the Board of Trustees must necessarily be likewise declared null and void. However, before any election of the members of the Board of Trustees could be conducted, there must be an approved bylaws to govern the internal government of the association including the conduct of election. And since the election of both petitioners and respondents have been declared null and void, a vacuum is created as to who should adopt the by-laws and certify its adoption. To remedy this unfortunate situation that the association has found itself in, the members of the petitioning corporation are hereby authorized to prepare and adopt their by-laws for submission to the Commission. nce approved, an election of the members of the Board of Trustees shall immediately be called pursuant to the approved by-laws. ! "#$"$#.%&'(

"either group, however, took the necessary steps prescri+ed +y the ,-. in its >cto+er 7, 1)*# 4ecision, and, thus, no valid election of the mem+ers of the =oard of Trustees of 541 was ever called. 8lthough the .arpi3o roupG1$Hattempted to su+mit a set of +y9laws, the ,-. found that, aside from -ngineer Carouk .arpi3o and 8tty. 'usi+ =uat, those who prepared and adopted the +y9laws were not bona *ide mem+ers of the 541, thus rendering the adoption of the +y9laws likewise null and void. >n 8pril &$, 1)*), without having +een properly elected as new mem+ers of the =oard of Trustees of 541, the .arpi3o roup caused to +e signed an alleged =oard !esolutionG11H of the 541, authori3ing the sale of the su+ject two parcels of land to the private respondent 5". for a consideration of 1&&,7(7,($$.$$, which sale was evidenced +y a 4eed of 8+solute ,aleG1&H dated 8pril &$, 1)*). >n 'ay 7$, 1))1, the petitioner 1)/1 541 =oard of Trustees headed +y former ,enator 'amintal Tamano, or the Tamano roup, filed a petition +efore the ,-., docketed as ,-. .ase "o. ($1&, seeking to declare null and void the 4eed of 8+solute ,ale signed +y the .arpi3o roup and the 5". since the group of -ngineer .arpi3o was not the legitimate =oard of Trustees of the 541. 'eanwhile, private respondent 5"., pursuant to the 4eed of 8+solute ,ale e@ecuted in its favor, filed an action for ,pecific 1erformance with 4amages against the vendor, .arpi3o roup, +efore =ranch *1 of the !egional Trial .ourt of Sue3on .ity, docketed as .ivil .ase "o. S9)$9#)7/, to compel said group to clear the property of s<uatters and deliver complete and full physical possession thereof to 5".. 2ikewise, 5". filed a motion in the same case to compel one 'rs. 2eticia 1. 2igon to produce and surrender to the !egister of 4eeds of Sue3on .ity the ownerIs duplicate copy of T.T "os. !T9&#%&1 and !T9&#%&$ covering the aforementioned two parcels of land, so that the sale in 5".Is favor may +e registered and new titles issued in the name of 5".. 'rs. 2igon was alleged to +e the mortgagee of the two parcels of land e@ecuted in her favor +y certain 8+dulrahman !.T. 2in3ag and !owaida =usran9,ampaco claimed to +e in +ehalf of the .arpi3o roup. The 5419Tamano )*** *** *** roup, on ?une 11, 1))1, sought to intervene in .ivil .ase "o. S9)$9#)7/ averring, inter alia:

+. That the ,ntervenor has filed a case before the !ecurities and $*change Commission -!$C. against /r. 0arou1 Carpizo, et, al., who, through false schemes and machinations, succeeded in e*ecuting the #eed of !ale between the ,#2 and the ,glesia 3i 4risto -plaintiff in the instant case. and which #eed of !ale is the sub5ect of the case at bar6 7. That the said case before the !$C is doc1eted as Case 3o. 898:+, the main issue of which is whether or not the aforesaid #eed of !ale between ,#2 and the ,glesia ni 4risto is null and void, hence, ,ntervenor;s legal interest in the instant case. A copy of the said case is hereto attached as Anne* <A;6 9. That, furthermore, ,ntervenor herein is the duly constituted body which can lawfully and legally represent the ,slamic #irectorate of the 2hilippines6 *** *** ***.%&:7(

1rivate respondent 5". opposed the motion arguing, inter alia, that the issue sought to +e litigated +y way of intervention is an intra9corporate dispute which falls under the jurisdiction of the ,-..G1(H

?udge .elia 2ipana9!eyes of =ranch *1, !egional Trial .ourt of Sue3on .ity, denied petitionerIs motion to intervene on the ground of lack of juridical personality of the 5419Tamano roup and that the issues +eing raised +y way of intervention are intra9corporate in nature, jurisdiction thereto properly pertaining to the ,-.. G1%H 8pprised of the pendency of ,-. .ase "o. ($1& involving the controverted status of the 5419.arpi3o roup +ut without waiting for the outcome of said case, ?udge !eyes, on ,eptem+er 1&, 1))1, rendered 1artial ?udgment in .ivil .ase "o. S9)$9#)7/ ordering the 5419.arpi3o roup to comply with its o+ligation under the 4eed of ,ale of clearing the su+ject lots of s<uatters and of delivering the actual possession thereof to 5"..G1#H Thereupon, ?udge !eyes in another >rder, dated 'arch &, 1))&, pertaining also to .ivil .ase "o. S9)$9#)7/, treated 5". as the rightful owner of the real properties and disposed as follows: )=H$"$0 "$, >eticia 2. >igon is hereby ordered to produce and?or surrender to plaintiff &:@( the owner;s copy of "T-+AB+: -:@8BA@. and "T-+AB+8 -:@AA:A. in open court for the registration of the #eed of Absolute !ale in the latter;s name and the annotation of the mortgage e*ecuted in her favor by herein defendant ,slamic #irectorate of the 2hilippines on the new transfer certificate of title to be issued to plaintiff. ! "#$"$#.%&:C(

>n 8pril #, 1))&, the a+ove >rder was amended +y ?udge !eyes directing 2igon Xto deliver the ownerIs duplicate copies of T.T "os. !T9&#%&1 (1/$%#/) and !T9&#%&$ (1/##1#) to the Re5i'ter o* Deed' o* ;$e<on 4it( for the purposes stated in the >rder of 'arch &, 1))&.YG1)H 'ortgagee 2igon went to the .ourt of 8ppeals, thru a petition for certiorari, docketed as .89 .!. "o. ,19&/)/7, assailing the foregoing >rders of ?udge !eyes. The appellate court dismissed her petition on >cto+er &*, 1))&.G&$H Endaunted, 2igon filed a petition for review +efore the ,upreme .ourt which was docketed as .!. "o. 1$//%1. 5n the meantime, the ,-., on ?uly %, 1))7, finally came out with a 4ecision in ,-. .ase "o. ($1& in this wise: ):. #eclaring the by-laws submitted by the respondents &+:( as unauthorized, and hence, null and void. +. #eclaring the sale of the two -+. parcels of land in Duezon City covered by the #eed of Absolute !ale entered into by ,glesia ni 4risto and the ,slamic #irectorate of the 2hilippines, ,nc. &++( null and void. 7. #eclaring the election of the Board of #irectors &+7( of the corporation from :'CA to :'': as null and void6 9. #eclaring the acceptance of the respondents, e*cept 0arou1 Carpizo and /usnib Buat, as members of the ,#2 null and void. 3o pronouncement as to cost. ! "#$"$#.%&+9(

1rivate respondent 5". filed a 'otion for 5ntervention, dated ,eptem+er /, 1))7, in ,-. .ase "o. ($1&, +ut the same was denied on account of the fact that the decision of the case had +ecome final and e@ecutory, no appeal having +een taken therefrom.G&%H 5". elevated ,-. .ase "o. ($1& to the pu+lic respondent .ourt of 8ppeals +y way of a special civil action for certiorari, docketed as .89 .!. ,1 "o. 77&)%. >n >cto+er &*, 1))(, the court a 8$o promulgated a 4ecision in .89 .!. ,1 "o. 77&)% granting 5".Is petition. The portion of the ,-. 4ecision in ,-. .ase "o. ($1& which declared the sale of the two (&) lots in <uestion to 5". as void was ordered set aside +y the .ourt of 8ppeals. Thus, the 5419Tamano roup +rought the instant petition for review, dated 4ecem+er &1, 1))(, su+mitting that the .ourt of 8ppeals gravely erred in: :. 3ot upholding the 5urisdiction of the !$C to declare the nullity of the sale6 +. $ncouraging multiplicity of suits6 and 7. 3ot applying the principles of estoppel and laches. &+A(

Ahile the a+ove petition was pending, however, the ,upreme .ourt rendered judgment in .!. "o. 1$//%1 on the petition filed +y 'rs. 2eticia 1. 2igon. The 4ecision, dated ?une 1, 1))%, denied the 2igon petition and affirmed the >cto+er &*, 1))& 4ecision of the .ourt of 8ppeals in .89 .!. "o. ,19&/)/7 which sustained the >rder of ?udge !eyes compelling mortgagee 2igon to surrender the ownerIs duplicate copies of T.T "os. !T9&#%&1 (1/$%#/) and !T9 &#%&$ (1/##1#) to the !egister of 4eeds of Sue3on .ity so that the 4eed of 8+solute ,ale in 5".Is favor may +e properly registered. =efore we rule upon the main issue posited in this petition, we would like to point out that our disposition in .!. "o. 1$//%1 entitled, X9i5on &. 4o$rt o* A##eal',Y promulgated on ?une 1, 1))%, in no wise constitutes re' 6$dicata such that the petition under consideration would +e +arred if it were the case. Suite the contrary, the re<uisites of re' 6$dicata do not o+tain in the case at +ench. ,ection (), !ule 7) of the !evised !ules of .ourt lays down the dual aspects of re' 6$dicata in actions in #er'ona%, to wit: )$ffect of 5udgment. - The effect of a 5udgment or final order rendered by a court or 5udge of the 2hilippines, having 5urisdiction to pronounce the 5udgment or order, may be as followsE @@@ @@@ @@@

-b. ,n other cases the 5udgment or order is, with respect to the matter directly ad5udged or as to any other matter that could have been raised in relation thereto, conclusive between the parties and their successors in interest by title subseFuent to the commencement of the action or special proceeding, litigating for the same thing and under the same title and in the same capacity6 -c. ,n any other litigation between the same parties or their successors in interest, that only is deemed to have been ad5udged in a former 5udgment which appears upon its face to have been so ad5udged, or which was actually and necessarily included therein or necessary thereto.% ,ection ()(+) enunciates the first concept of re' 6$dicata known as X+ar +y prior judgment,Y whereas, ,ection ()(c) is referred to as Xconclusiveness of judgment.Y There is X+ar +y former judgmentY when, +etween the first case where the judgment was rendered, and the second case where such judgment is invoked, there is identity of parties, su+ject matter and cause of action. Ahen the three identities are present, the judgment on the merits rendered in the first constitutes an a+solute +ar to the su+se<uent action. =ut where +etween the first case wherein judgment is rendered and the second case wherein such judgment is invoked, there is only identity of parties +ut there is no identity of cause of action, the judgment is conclusive in the second case, only as to those matters actually and directly controverted and determined, and not as to matters merely involved therein. This is what is termed Xconclusiveness of judgment.YG&/H "either of these concepts of re' 6$dicata find relevant application in the case at +ench. Ahile there may +e identity of su+ject matter (541 property) in +oth cases, there is no identity of parties. The principal parties in .!. "o. 1$//%1 were mortgagee 2eticia 1. 2igon, as petitioner, and the 5glesia "i .risto, as private respondent. The 541, as represented +y the 1)/1 =oard of Trustees or the Tamano roup, was only made an ancillary party in .!. "o. 1$//%1 as intervenor.G&*H 5t was never originally a principal party thereto. 5t must +e noted that intervention is not an independent action, +ut is merely collateral, accessory, or ancillary to the principal action. 5t is just an interlocutory proceeding dependent on or su+sidiary to the case +etween the original parties.G&)H 5ndeed, the 5419Tamano roup cannot +e considered a principal party in .!. "o. 1$//%1 for purposes of applying the principle of re' 6$dicata since the contrary goes against the true import of the action of intervention as a mere su+sidiary proceeding without an independent life apart from the principal action as well as the intrinsic character of the intervenor as a mere su+ordinate party in the main case whose right may +e said to +e only in aid of the right of the original party. G7$H 5t is only in the present case, actually, where the 5419Tamano roup +ecame a principal party, as petitioner, with the 5glesia "i .risto, as private respondent. .learly, there is no identity of parties in +oth cases. 5n this connection, although it is true that .ivil .ase "o. S9)$9#)7/, which gave rise to .!. "o. 1$//%1, was entitled, =I5le'ia Ni >ri'to, :lainti** &. I'la%ic Directorate o* t)e :)ili##ine', De*endant,?G71H the 541 can not +e considered essentially a formal party thereto for the simple reason that it was not duly represented +y a legitimate =oard of Trustees in that case. 8s a necessary conse<uence, .ivil .ase "o. S9)$9#)7/, a case for ,pecific 1erformance with 4amages, a mere action in #er'ona%, did not +ecome final and e@ecutory insofar as the true 541 is concerned since petitioner corporation, for want of legitimate representation, was effectively deprived of its day in court in said case. Re' inter alio' 6$dicatae n$ll$% alii' #rae6$dici$% *aci$nt. 'atters adjudged in a cause do not prejudice those

who were not parties to it.G7&H -lsewise put, no person (natural or juridical) shall +e affected +y a proceeding to which he is a stranger.G77H ranting ar5$endo, that 541 may +e considered a principal party in 9i5on, re' 6$dicata as a X+ar +y former judgmentY will still not set in on the ground that the cause of action in the two cases are different. The cause of action in .!. "o. 1$//%1 is the surrender of the ownerIs duplicate copy of the transfer certificates of title to the rightful possessor thereof, whereas the cause of action in the present case is the validity of the .arpi3o roup95". 4eed of 8+solute ,ale. Re' @$dicata in the form of Xconclusiveness of judgmentY cannot likewise apply for the reason that any mention at all in 9i5on as to the validity of the disputed .arpi3o =oard95". sale may only +e deemed incidental to the resolution of the primary issue posed in said case which is: Aho +etween 2igon and 5". has the +etter right of possession over the ownerIs duplicate copy of the T.Ts covering the 541 propertyR .!. "o. 1$//%1 cannot +e considered determinative and conclusive on the matter of the validity of the sale for this particular issue was not the principal thrust of 9i5on. To rule otherwise would +e to cause grave and irrepara+le injustice to 541 which never gave its consent to the sale, thru a legitimate =oard of Trustees. 5n any case, while it is true that the principle of re' 6$dicata is a fundamental component of our judicial system, it should +e disregarded if its rigid application would involve the sacrifice of justice to technicality. G7(H The main <uestion though in this petition is: 4id the .ourt of 8ppeals commit reversi+le error in setting aside that portion of the ,-.Is 4ecision in ,-. .ase "o. ($1& which declared the sale of two (&) parcels of land in Sue3on .ity +etween the 5419.arpi3o roup and private respondent 5". null and voidR Ae rule in the affirmative. There can +e no <uestion as to the authority of the ,-. to pass upon the issue as to who among the different contending groups is the legitimate =oard of Trustees of the 541 since this is a matter properly falling within the original and e@clusive jurisdiction of the ,-. +y virtue of ,ections 7 and %(c) of 1residential 4ecree "o. )$&98: )!ection 7. The Commission shall have absolute jurisdiction, supervision and control over all corporations , partnerships or associations, who are the grantees of primary franchises and?or a license or permit issued by the government to operate in the 2hilippines *** ***.% @@@ @@@ @@@

!ection B. ,n addition to the regulatory and ad5udicative functions of the !ecurities and $*change Commission over corporations, partnerships and other forms of associations registered with it as e*pressly granted under e*isting laws and decrees, it shall have ori inal and e!clusive jurisdiction to hear and decide cases involvin " @@@ @@@ @@@

c. Controversies in the selection or appointment of directors, trustees, officers, or mana ers of such corporations, partnerships or associations. * * *.% 5f the ,-. can declare who is the legitimate 541 =oard, then +y parity of reasoning, it can also declare who is not the legitimate 541 =oard. This is precisely what the ,-. did in ,-. .ase "o. ($1& when it adjudged the election of the .arpi3o roup to the 541 =oard of Trustees to +e null and void. G7%H =y this ruling, the ,-. in effect made the une<uivocal finding that the 5419.arpi3o roup is a +ogus =oard of Trustees. .onse<uently, the .arpi3o roup is +ereft of any authority whatsoever to +ind 541 in any kind of transaction including the sale or disposition of 541 property. 5t must +e noted that ,-. .ase "o. ($1& is not the first case wherein the ,-. had the opportunity to pass upon the status of the .arpi3o roup. 8s far +ack as >cto+er 7, 1)*#, the ,-., in .ase "o. &#*/, G7#H in a suit +etween the .arpi3o roup and the 8++as roup, already declared the election of the .arpi3o roup (as well as the 8++as roup) to the 541 =oard as null and void for +eing violative of the 8rticles of 5ncorporation. G7/H "othing thus +ecomes more settled than that the 5419.arpi3o roup with whom private respondent 5". contracted is a fake =oard. 1remises considered, all acts carried out +y the .arpi3o =oard, particularly the sale of the Tandang ,ora property, allegedly in the name of the 541, have to +e struck down for having +een done without the consent of the 541 thru a legitimate =oard of Trustees. 8rticle 171* of the "ew .ivil .ode lays down the essential re<uisites of contracts: )There is no contract unless the following reFuisites concurE

-:. Consent of the contractin parties# -+. b5ect certain which is the sub5ect matter of the contract6 -7. Cause of the obligation which is established.% 8ll these elements must +e present to constitute a valid contract. Cor, where even one is a+sent, the contract is void. 8s succinctly put +y Tolentino, consent is essential for the e@istence of a contract, and where it is wanting, the contract is non9e@istent.G7*H 5n this case, the 541, owner of the su+ject parcels of land, never gave its consent, thru a legitimate =oard of Trustees, to the disputed 4eed of 8+solute ,ale e@ecuted in favor of 5".. This is, therefore, a case not only of vitiated consent, +ut one where consent on the part of one of the supposed contracting parties is totally wanting. 5nelucta+ly, the su+ject sale is void and produces no effect whatsoever. The .arpi3o roup95". sale is further deemed null and void ab initio +ecause of the .arpi3o roupIs failure to comply with ,ection ($ of the .orporation .ode pertaining to the disposition of all or su+stantially all assets of the corporation: )!ec. 98. $ale or other disposition of assets. - !ub5ect to the provisions of e*isting laws on illegal combinations and monopolies, a corporation may, by a majority vote of its board of directors or trustees, sell, lease, e*change, mortgage, pledge or otherwise dispose of all or substantially all of its property and assets, including its goodwill, upon terms and conditions and for such consideration, which may be money, stoc1s, bonds or other instruments for the payment of money or other property or consideration, as its board of directors or trustees may deem e*pedient, when authori%ed by the vote of the stockholders representin at least two-thirds &'()* of the outstandin capital stock# or in case of non-stock corporation, by the vote of at least two-thirds &'()* of the members, in a stockholders+ or members+ meetin duly called for the purpose. =ritten notice of the proposed action and of the time and place of the meeting shall be addressed to each stoc1holder or member at his place of residence as shown on the boo1s of the corporation and deposited to the addressee in the post office with postage prepaid, or served personallyE ,rovided, That any dissenting stoc1holder may e*ercise his appraisal right under the conditions provided in this Code. A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated. @@@ @@@ @ @ @.Y

The Tandang ,ora property, it appears from the records, constitutes the only property of the 541. :ence, its sale to a third9party is a sale or disposition of all the corporate property and assets of 541 falling s<uarely within the contemplation of the foregoing section. Cor the sale to +e valid, the majority vote of the legitimate =oard of Trustees, concurred in +y the vote of at least &/7 of the bona *ide mem+ers of the corporation should have +een o+tained. These twin re<uirements were not met as the .arpi3o roup which voted to sell the Tandang ,ora property was a fake =oard of Trustees, and those whose names and signatures were affi@ed +y the .arpi3o roup together with the sham =oard !esolution authori3ing the negotiation for the sale were, from all indications, not bona *ide mem+ers of the 541 as they were made to appear to +e. 8pparently, there are only fifteen (1%) official mem+ers of the petitioner corporation including the eight (*) mem+ers of the =oard of Trustees.G7)H 8ll told, the disputed 4eed of 8+solute ,ale e@ecuted +y the fake .arpi3o =oard and private respondent 5". was intrinsically void ab initio. 1rivate respondent 5". nevertheless <uestions the authority of the ,-. to nullify the sale for +eing made outside of its jurisdiction, the same not +eing an intra9corporate dispute. The resolution of the <uestion as to whether or not the ,-. had jurisdiction to declare the su+ject sale null and void is rendered moot and academic +y the inherent nullity of the highly du+ious sale due to lack of consent of the 541, owner of the su+ject property. "o end of su+stantial justice will +e served if we reverse the ,-.Is conclusion on the matter, and remand the case to the regular courts for further litigation over an issue which is already determina+le +ased on what we have in the records. 5t is unfortunate that private respondent 5". opposed the motion for intervention filed +y the 1)/1 =oard of Trustees in .ivil .ase "o. S9)$9#)7/, a case for ,pecific 1erformance with 4amages +etween 5". and the .arpi3o roup on the su+ject 4eed of 8+solute ,ale. The legitimate 541 =oard could have +een granted ample opportunity +efore the regional trial court to shed light on the true status of the .arpi3o =oard and settled the matter as to the validity of the sale then and there. =ut 5"., wanting to ac<uire the property at all costs and threatened +y the participation of the legitimate 541 =oard in the civil suit, argued for the denial of the motion averring, inter alia, that the issue sought to +e litigated +y the movant is intra9corporate in nature and outside the jurisdiction of the regional trial

court.G($H 8s a result, the motion for intervention was denied. Ahen the 4ecision in ,-. .ase "o. ($1&, came out nullifying the sale, 5". came forward, this time, <ui++ling over the issue that it is the regional trial court, and not the ,-., which has jurisdiction to rule on the validity of the sale. 5". is here trifling with the courts. Ae cannot put a premium on this clever legal maneuverings of private respondent which, if countenanced, would result in a failure of justice. Curthermore, the .ourt o+served that the 5". +ought the <uestioned property from the .arpi3o roup without even seeing the ownerIs duplicate copy of the titles covering the property. This is very strange considering that the su+ject lot is a large piece of real property in Sue3on .ity worth millions, and that under the Torrens ,ystem of !egistration, the minimum re<uirement for one to +e a good faith +uyer for value is that the vendee at least sees the ownerIs duplicate copy of the title and relies upon the same.G(1H The private respondent presuma+ly knowledgea+le on the aforesaid working of the Torrens ,ystem, did not take heed of this and nevertheless went through with the sale with undue haste. The une@plained eagerness of 5". to +uy this valua+le piece of land in Sue3on .ity without even +eing presented with the ownerIs copy of the titles casts very serious dou+t on the rightfulness of its position as vendee in the transaction. ? ERE"ORE, the petition is !8"T-4. The 4ecision of the pu+lic respondent .ourt of 8ppeals dated >cto+er &*, 1))( in .89 .!. ,1 "o. 77&)% is ,-T 8,54-. The 4ecision of the ,ecurities and -@change .ommission dated ?uly %, 1))7 in ,-. .ase "o. ($1& is !-5",T8T-4. The !egister of 4eeds of Sue3on .ity is here+y ordered to cancel the registration of the 4eed of 8+solute ,ale in the name of respondent 5glesia "i .risto, if one has already +een made. 5f new titles have +een issued in the name of 5glesia "i .risto, the register of 4eeds is here+y ordered to cancel the same, and issue new ones in the name of petitioner 5slamic 4irectorate of the 1hilippines. 1etitioner corporation is ordered to return to private respondent whatever amount has +een initially paid +y 5". as consideration for the property with legal interest, if the same was actually received +y 541. >therwise, 5". may run after -ngineer Carouk .arpi3o and his group for the amount of money paid. SO ORDERED.

@G.R. No. 1*29%6. A8,0l 1+, 2002A

P ILIPPINE NATIONAL .ANB C NATIONAL SUGAR DE#ELOP!ENT ANDRADA ELECTRIC C ENGINEERING CO!PAN$, respondent. DECISION PANGANI.AN, J.D

CORPORATION, petitioners, vs.

=asic is the rule that a corporation has a legal personality distinct and separate from the persons and entities owning it. The corporate veil may +e lifted only if it has +een used to shield fraud, defend crime, justify a wrong, defeat pu+lic convenience, insulate +ad faith or perpetuate injustice. Thus, the mere fact that the 1hilippine "ational =ank (1"=) ac<uired ownership or management of some assets of the 1ampanga ,ugar 'ill (18,E'52), which had earlier +een foreclosed and purchased at the resulting pu+lic auction +y the 4evelopment =ank of the 1hilippines (4=1), will not make 1"= lia+le for the 18,E'52Is contractual de+ts to respondent.

S2&26<6'2 o9 256 C&16 =efore us is a 1etition for !eview assailing the 8pril 1/, &$$$ 4ecision G1H of the .ourt of 8ppeals (.8) in .89 ! .; "o. %/#1$. The decretal portion of the challenged 4ecision reads as follows: )=H$"$0 "$, the 5udgment appealed from is hereby A00,"/$#.%&+(

T56 "&-21 The factual antecedents of the case are summari3ed +y the .ourt of 8ppeals as follows: ),n its complaint, the plaintiff &herein respondent( alleged that it is a partnership duly organized, e*isting, and operating under the laws of the 2hilippines, with office and principal place of business at 3os. @'9-C:+ #el /onte &A(venue, Duezon City, while the defendant &herein petitioner( 2hilippine 3ational Ban1 -herein referred to as 23B., is a semi-government corporation duly organized, e*isting and operating under the laws of the 2hilippines, with office and principal place of business at $scolta !treet, !ta. Cruz, /anila6 whereas, the other defendant, the 3ational !ugar #evelopment Corporation -3A!G#$C in brief., is also a semigovernment corporation and the sugar arm of the 23B, with office and principal place of business at the + nd 0loor, !ampaguita Building, Cubao, Duezon City6 and the defendant 2ampanga !ugar /ills -2A!G/,> in short., is a corporation organized, e*isting and operating under the :'@B laws of the 2hilippines, and had its business office before :'@B at #el Carmen, 0loridablanca, 2ampanga6 that the plaintiff is engaged in the business of general construction for the repairs and?or construction of different 1inds of machineries and buildings6 that on August +A, :'@B, the defendant 23B acFuired the assets of the defendant 2A!G/,> that were earlier foreclosed by the #evelopment Ban1 of the 2hilippines -#B2. under > , 3o. 7::6 that the defendant 23B organized the defendant 3A!G#$C in !eptember, :'@B, to ta1e ownership and possession of the assets and ultimately to nationalize and consolidate its interest in other 23B controlled sugar mills6 that prior to ctober +', :'@:, the defendant 2A!G/,> engaged the services of plaintiff for electrical rewinding and repair, most of which were partially paid by the defendant 2A!G/,>, leaving several unpaid accounts with the plaintiff6 that finally, on ctober +', :'@:, the plaintiff and the defendant 2A!G/,> entered into a contract for the plaintiff to perform the following, to wit H <-a. <-b. <-c. <-d. Construction of one -:. power house building6 Construction of three -7. reinforced concrete foundation for three -7. units 7B8 4= diesel engine generating set&s(6 Construction of three -7. reinforced concrete foundation for the B,888 4= and :,+B8 4= turbo generator sets6 Complete overhauling and reconditioning tests sum for three -7. 7B8 4= diesel engine generating set&s(6

<-e. <-f.

,nstallation of turbine and diesel generating sets including transformer, switchboard, electrical wirings and pipe provided those stated units are completely supplied with their accessories6 "elocating of +,988 I transmission line, demolition of all e*isting concrete foundation and drainage canals, e*cavation, and earth fillings H all for the total amount of 2B97,B88.88 as evidenced by a contract, &a( *ero* copy of which is hereto attached as Anne* <A; and made an integral part of this complaint6;

that aside from the wor1 contract mentioned-above, the defendant 2A!G/,> reFuired the plaintiff to perform e*tra wor1, and provide electrical eFuipment and spare parts, such asE <-a. <-b. <-c. <-d. <-e. <-f. <-g. <-h. !upply of electrical devices6 $*tra mechanical wor1s6 $*tra fabrication wor1s6 !upply of materials and consumable items6 $lectrical shop repair6 !upply of parts and related wor1s for turbine generator6 !upply of electrical eFuipment for machinery6 !upply of diesel engine parts and other related wor1s including fabrication of parts.;

that out of the total obligation of 2@@@,+A7.C8, the defendant 2A!G/,> had paid only 2+B8,888.88, leaving an unpaid balance, as of June +@, :'@7, amounting to 2B+@,+A7.C8, as shown in the Certification of the chief accountant of the 23B, a machine copy of which is appended as Anne* <C; of the complaint6 that out of said unpaid balance of 2B+@,+A7.C8, the defendant 2A!G/,> made a partial payment to the plaintiff of 2:9,888.88, in bro1en amounts, covering the period from January B, :'@9 up to /ay +7, :'@9, leaving an unpaid balance of 2B:7,+A7.C86 that the defendant 2A!G/,> and the defendant 23B, and now the defendant 3A!G#$C , failed and refused to pay the plaintiff their 5ust, valid and demandable obligation6 that the 2resident of the 3A!G#$C is also the Iice-2resident of the 23B, and this official holds office at the :8 th 0loor of the 23B, $scolta, /anila, and plaintiff besought this official to pay the outstanding obligation of the defendant 2A!G/,>, inasmuch as the defendant 23B and 3A!G#$C now owned and possessed the assets of the defendant 2A!G/,>, and these defendants all benefited from the wor1s, and the electrical, as well as the engineering and repairs, performed by the plaintiff6 that because of the failure and refusal of the defendants to pay their 5ust, valid, and demandable obligations, plaintiff suffered actual damages in the total amount of 2B:7,+A7.C86 and that in order to recover these sums, the plaintiff was compelled to engage the professional services of counsel, to whom the plaintiff agreed to pay a sum eFuivalent to +BK of the amount of the obligation due by way of attorney;s fees. Accordingly, the plaintiff prayed that 5udgment be rendered against the defendants 23B, 3A!G#$C , and 2A!G/,>, 5ointly and severally to witE <-:. !entencing the defendants to pay the plaintiffs the sum of 2B:7,+A7.C8, with annual interest of :9K from the time the obligation falls due and demandable6 <-+. <-7. Condemning the defendants to pay attorney;s fees amounting to +BK of the amount claim6 rdering the defendants to pay the costs of the suit.;

)The defendants 23B and 3A!G#$C filed a 5oint motion to dismiss the complaint chiefly on the ground that the complaint failed to state sufficient allegations to establish a cause of action against both defendants, inasmuch as there is lac1 or want of privity of contract between the plaintiff and the two defendants, the 23B and 3A!G#$C , said defendants citing Article :7:: of the 3ew Civil Code, and the case law ruling in !alonga v. =arner Barnes L Co., CC 2hil. :+B6 and /anila 2ort !ervice, et al. v. Court of Appeals, et al., +8 !C"A :+:9. )The motion to dismiss was by the court a Fuo denied in its rder of 3ovember +@, :'C86 in the same order, that court directed the defendants to file their answer to the complaint within :B days.

),n their answer, the defendant 3A!G#$C reiterated the grounds of its motion to dismiss, to witE <That the complaint does not state a sufficient cause of action against the defendant 3A!G#$C becauseE -a. 3A!G#$C is not * * * privy to the various electrical construction 5obs being sued upon by the plaintiff under the present complaint6 -b. the ta1ing over by 3A!G#$C of the assets of defendant 2A!G/,> was solely for the purpose of reconditioning the sugar central of defendant 2A!G/,> pursuant to martial law powers of the 2resident under the Constitution6 -c. nothing in the > , 3o. :C'-A -as well as in > , 3o. 7::. authorized or commanded the 23B or its subsidiary corporation, the 3A!G#$C , to assume the corporate obligations of 2A!G/,> as that being involved in the present case6 and, -d. all that was mentioned by the said letter of instruction insofar as the 2A!G/,> liabilities &were( concerned &was( for the 23B, or its subsidiary corporation the 3A!G#$C , to ma1e a study of, and submit &a( recommendation on the problems concerning the same.; )By way of counterclaim, the 3A!G#$C averred that by reason of the filing by the plaintiff of the present suit, which it &labeled( as unfounded or baseless, the defendant 3A!G#$C was constrained to litigate and incur litigation e*penses in the amount of 2B8,888.88, which plaintiff should be sentenced to pay. Accordingly, 3A!G#$C prayed that the complaint be dismissed and on its counterclaim, that the plaintiff be condemned to pay 2B8,888.88 in concept of attorney;s fees as well as e*emplary damages. ),n its answer, the defendant 23B li1ewise reiterated the grounds of its motion to dismiss, namelyE -:. the complaint states no cause of action against the defendant 23B6 -+. that 23B is not a party to the contract alleged in par. A of the complaint and that the alleged services rendered by the plaintiff to the defendant 2A!G/,> upon which plaintiff;s suit is erected, was rendered long before 23B too1 possession of the assets of the defendant 2A!G/,> under > , 3o. :C'-A6 -7. that the 23B ta1e-over of the assets of the defendant 2A!G/,> under > , :C'-A was solely for the purpose of reconditioning the sugar central so that 2A!G/,> may resume its operations in time for the :'@9-@B milling season, and that nothing in the said > , 3o. :C'-A, as well as in > , 3o. 7::, authorized or directed 23B to assume the corporate obligation?s of 2A!G/,>, let alone that for which the present action is brought6 -9. that 23B;s management and operation under > , 3o. 7:: did not refer to any asset of 2A!G/,> which the 23B had to acFuire and thereafter &manage(, but only to those which were foreclosed by the #B2 and were in turn redeemed by the 23B from the #B26 -B. that conformably to > , 3o. 7::, on August :B, :'@B, the 23B and the #evelopment Ban1 of the 2hilippines -#B2. entered into a <"edemption Agreement; whereby #B2 sold, transferred and conveyed in favor of the 23B, by way of redemption, all its -#B2. rights and interest in and over the foreclosed real and?or personal properties of 2A!G/,>, as shown in Anne* <C; which is made an integral part of the answer6 -A. that again, conformably with > , 3o. 7::, 23B pursuant to a #eed of Assignment dated ctober +:, :'@B, conveyed, transferred, and assigned for valuable consideration, in favor of 3A!G#$C , a distinct and independent corporation, all its -23B. rights and interest in and under the above <"edemption Agreement.; This is shown in Anne* <#; which is also made an integral part of the answer6 &@( that as a conseFuence of the said #eed of Assignment, 23B on ctober +:, :'@B ceased to managed and operate the above-mentioned assets of 2A!G/,>, which function was now actually transferred to 3A!G#$C . ,n other words, so asserted 23B, the complaint as to 23B, had become moot and academic because of the e*ecution of the said #eed of Assignment6 &C( that moreover, > , 3o. 7:: did not authorize or direct 23B to assume the corporate obligations of 2A!G/,>, including the alleged obligation upon which this present suit was brought6 and &'( that, at most, what was granted to 23B in this respect was the authority to <ma1e a study of and submit recommendation on the problems concerning the claims of 2A!G/,> creditors,; under sub-par. B > , 3o. 7::. ),n its counterclaim, the 23B averred that it was unnecessarily constrained to litigate and to incur e*penses in this case, hence it is entitled to claim attorney;s fees in the amount of at least 2B8,888.88. Accordingly, 23B prayed that the complaint be dismissed6 and that on its counterclaim, that the plaintiff be sentenced to pay defendant 23B the sum of 2B8,888.88 as attorney;s fees, aside from e*emplary damages in such amount that the court may seem 5ust and eFuitable in the premises. )!ummons by publication was made via the 2hilippines #aily $*press, a newspaper with editorial office at 7@: Bonifacio #rive, 2ort Area, /anila, against the defendant 2A!G/,>, which was thereafter declared in default as shown in the August @, :'C: rder issued by the Trial Court. )After due proceedings, the Trial Court rendered 5udgment, the decretal portion of which readsE <=H$"$0 "$, 5udgment is hereby rendered in favor of plaintiff and against the defendant Corporation, 2hilippine 3ational Ban1 -23B. 3AT, 3A> !GMA" #$I$> 2/$3T C "2 "AT, 3 -3A!G#$C . and 2A/2A3MA !GMA" /,>>! -2A!G/,>., ordering the latter to pay 5ointly and severally the former the followingE <:. <+. The sum of 2B:7,A+7.C8 plus interest thereon at the rate of :9K per annum as claimed from !eptember +B, :'C8 until fully paid6 The sum of 2:8+,@+9.@A as attorney;s fees6 and,

<7. <!

Costs. "#$"$#.

</anila, 2hilippines, !eptember 9, :'CA. N-!M#. $"3$!T !. T$3MC <Judge;%&7(

Rul0': o9 256 Cou,2 o9 A886&l1 8ffirming the trial court, the .8 held that it was offensive to the +asic tenets of justice and e<uity for a corporation to take over and operate the +usiness of another corporation, while disavowing or repudiating any responsi+ility, o+ligation or lia+ility arising therefrom.G(H :ence, this 1etition.G%H

I11u61 5n their 'emorandum, petitioners raise the following errors for the .ourtIs consideration: EI The Court of Appeals gravely erred in law in holding the herein petitioners liable for the unpaid corporate debts of 2A!G/,>, a corporation whose corporate e*istence has not been legally e*tinguished or terminated, simply because of petitioners&;( ta1eover of the management and operation of 2A!G/,> pursuant to the mandates of > , 3o. :C'-A, as amended by > , 3o. 7::. EII The Court of Appeals gravely erred in law in not applying &to( the case at bench the ruling enunciated in $dward J. 3ell Co. v. 2acific 0arms, :B !C"A 9:B.%&A( ,uccinctly put, the aforesaid errors +oil down to the principal issue of whether 1"= is lia+le for the unpaid de+ts of 18,E'52 to respondent.

T501 Cou,2F1 Rul0': The 1etition is meritorious.

!&0' I11u6D Liability for Corporate Debts 8s a general rule, <uestions of fact may not +e raised in a petition for review under !ule (% of the !ules of .ourt. To this rule, however, there are some e@ceptions enumerated in F$ente' &. 4o$rt o* A##eal'.G*H 8fter a careful scrutiny of the records and the pleadings su+mitted +y the parties, we find that the lower courts misappreciated the evidence presented.G)H >verlooked +y the .8 were certain relevant facts that would justify a conclusion different from that reached in the assailed 4ecision.G1$H
G/H

1etitioners posit that they should not +e held lia+le for the corporate de+ts of 18,E'52, +ecause their takeover of the latterIs foreclosed assets did not make them assignees. >n the other hand, respondent asserts that petitioners and 18,E'52 should +e treated as one entity and, as such, jointly and severally held lia+le for 18,E'52Is unpaid o+ligation. 8s a rule, a corporation that purchases the assets of another will not +e lia+le for the de+ts of the selling corporation, provided the former acted in good faith and paid ade<uate consideration for such assets, e@cept when any of the following circumstances is present: (1) where the purchaser e@pressly or impliedly agrees to assume the de+ts, (&) where the transaction amounts to a consolidation or merger of the corporations, (7) where the purchasing corporation is merely a continuation of the selling corporation, and (() where the transaction is fraudulently entered into in order to escape lia+ility for those de+ts.G11H

ier!in" the Corporate #eil Not $arranted 8 corporation is an artificial +eing created +y operation of law. 5t possesses the right of succession and such powers, attri+utes, and properties e@pressly authori3ed +y law or incident to its e@istence. G1&H 5t has a personality separate and distinct from the persons composing it, as well as from any other legal entity to which it may +e related. G17H This is +asic. -<ually well9settled is the principle that the corporate mask may +e removed or the corporate veil pierced when the corporation is just an alter ego of a person or of another corporation. G1(H Cor reasons of pu+lic policy and in the interest of justice, the corporate veil will justifia+ly +e impaled G1%H only when it +ecomes a shield for fraud, illegality or ine<uity committed against third persons.G1#H :ence, any application of the doctrine of piercing the corporate veil should +e done with caution. G1/H 8 court should +e mindful of the milieu where it is to +e applied. G1*H 5t must +e certain that the corporate fiction was misused to such an e@tent that injustice, fraud, or crime was committed against another, in disregard of its rights. G1)H The wrongdoing must +e clearly and convincingly esta+lished6 it cannot +e presumed. G&$H >therwise, an injustice that was never unintended may result from an erroneous application.G&1H This .ourt has pierced the corporate veil to ward off a judgment credit, G&&H to avoid inclusion of corporate assets as part of the estate of the decedent, G&7H to escape lia+ility arising from a de+t, G&(H or to perpetuate fraud and/or confuse legitimate issuesG&%H either to promote or to shield unfair o+jectives G&#H or to cover up an otherwise +latant violation of the prohi+ition against forum9shopping.G&/H >nly in these and similar instances may the veil +e pierced and disregarded.G&*H The <uestion of whether a corporation is a mere alter ego is one of fact. G&)H 1iercing the veil of corporate fiction may +e allowed only if the following elements concur: (1) control 99 not mere stock control, +ut complete domination 99 not only of finances, +ut of policy and +usiness practice in respect to the transaction attacked, must have +een such that the corporate entity as to this transaction had at the time no separate mind, will or e@istence of its own6 (&) such control must have +een used +y the defendant to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of plaintiffIs legal right6 and (7) the said control and +reach of duty must have pro@imately caused the injury or unjust loss complained of.G7$H Ae +elieve that the a+sence of the foregoing elements in the present case precludes the piercing of the corporate veil. Fir't, other than the fact that petitioners ac<uired the assets of 18,E'52, there is no showing that their control over it warrants the disregard of corporate personalities. G71H Second, there is no evidence that their juridical personality was used to commit a fraud or to do a wrong6 or that the separate corporate entity was farcically used as a mere alter ego, +usiness conduit or instrumentality of another entity or person. G7&H T)ird, respondent was not defrauded or injured when petitioners ac<uired the assets of 18,E'52.G77H =eing the party that asked for the piercing of the corporate veil, respondent had the +urden of presenting clear and convincing evidence to justify the setting aside of the separate corporate personality rule. G7(H :owever, it utterly failed to discharge this +urden6G7%H it failed to esta+lish +y competent evidence that petitionerIs separate corporate veil had +een used to conceal fraud, illegality or ine<uity.G7#H Ahile we agree with respondentIs claim that the assets of the "ational ,ugar 4evelopment .orporation ("8,E4-.>) can +e easily traced to 18,E'52, G7/H we are not convinced that the transfer of the latterIs assets to petitioners was fraudulently entered into in order to escape lia+ility for its de+t to respondent.G7*H 8 careful review of the records reveals that 4=1 foreclosed the mortgage e@ecuted +y 18,E'52 and ac<uired the assets as the highest +idder at the pu+lic auction conducted.G7)H The +ank was justified in foreclosing the mortgage,

+ecause the 18,E'52 account had incurred arrearages of more than &$ percent of the total outstanding o+ligation. G($H Thus, 4=1 had not only a right, +ut also a duty under the law to foreclose the su+ject properties.G(1H 1ursuant to 2>5 "o. 1*)98G(&H as amended +y 2>5 "o. 711,G(7H 1"= ac<uired 18,E'52Is assets that 4=1 had foreclosed and purchased in the normal course. 1etitioner +ank was likewise tasked to manage temporarily the operation of such assets either +y itself or through a su+sidiary corporation.G((H 1"=, as the second mortgagee, redeemed from 4=1 the foreclosed 18,E'52 assets pursuant to ,ection # of 8ct "o. 717%.G(%H These assets were later conveyed to 1"= for a consideration, the terms of which were em+odied in the !edemption 8greement.G(#H 1"=, as successor9in9interest, stepped into the shoes of 4=1 as 18,E'52Is creditor. G(/H =y way of a 4eed of 8ssignment,G(*H 1"= then transferred to "8,E4-.> all its rights under the !edemption 8greement. 5n De&elo#%ent Ban0 o* t)e :)ili##ine' &. 4o$rt o* A##eal',G()H we had the occasion to resolve a similar issue . Ae ruled that 1"=, 4=1 and their transferees were not lia+le for 'arindu<ue 'iningIs unpaid o+ligations to !emington 5ndustrial ,ales .orporation (!emington) after the two +anks had foreclosed the assets of 'arindu<ue 'ining. Ae likewise held that !emington failed to discharge its +urden of proving +ad faith on the part of 'arindu<ue 'ining to justify the piercing of the corporate veil. 5n the instant case, the .8 erred in affirming the trial courtIs lifting of the corporate mask. G%$H The .8 did not point to any fact evidencing +ad faith on the part of 1"= and its transferee. G%1H The corporate fiction was not used to defeat pu+lic convenience, justify a wrong, protect fraud or defend crime. G%&H "one of the foregoing e@ceptions was shown to e@ist in the present case.G%7H >n the contrary, the lifting of the corporate veil would result in manifest injustice. This we cannot allow.

No %er"er or Consolidation !espondent further claims that petitioners should +e held lia+le for the unpaid o+ligations of 18,E'52 +y virtue of 2>5 "os. 1*)98 and 711, which e@pressly authori3ed 18,E'52 and 1"= to merge or consolidate. >n the other hand, petitioners contend that their takeover of the operations of 18,E'52 did not involve any corporate merger or consolidation, +ecause the latter had never lost its separate identity as a corporation. 8 consolidation is the union of two or more e@isting entities to form a new entity called the consolidated corporation. 8 merger, on the other hand, is a union where+y one or more e@isting corporations are a+sor+ed +y another corporation that survives and continues the com+ined +usiness.G%(H The merger, however, does not +ecome effective upon the mere agreement of the constituent corporations. ,ince a merger or consolidation involves fundamental changes in the corporation, as well as in the rights of stockholders and creditors, there must +e an e@press provision of law authori3ing them. G%#H Cor a valid merger or consolidation, the approval +y the ,ecurities and -@change .ommission (,-.) of the articles of merger or consolidation is re<uired.G%/H These articles must likewise +e duly approved +y a majority of the respective stockholders of the constituent corporations.G%*H
G%%H

5n the case at +ar, we hold that there is no merger or consolidation with respect to 18,E'52 and 1"=. The procedure prescri+ed under Title 5J of the .orporation .odeG%)H was not followed. 5n fact, 18,E'52Is corporate e@istence, as correctly found +y the .8, had not +een legally e@tinguished or terminated.G#$H Curther, prior to 1"=Is ac<uisition of the foreclosed assets, 18,E'52 had previously made partial payments to respondent for the formerIs o+ligation in the amount of 1///,&#7.*$. 8s of ?une &/, 1)/7, 18,E'52 had paid 1&%$,$$$ to respondent and, from ?anuary %, 1)/( to 'ay &7, 1)/(, another 11(,$$$. "either did petitioner e@pressly or impliedly agree to assume the de+t of 18,E'52 to respondent. G#1H 2>5 "o. 11 e@plicitly provides that 1"= shall study and su+mit recommendations on the claims of 18,E'52Is creditors. G#&H .learly, the corporate separateness +etween 18,E'52 and 1"= remains, despite respondentIs insistence to the contrary.G#7H ? ERE"ORE, the 1etition is here+y GRANTED and the assailed 4ecision SET ASIDE. "o pronouncement as to costs. SO ORDERED.

G.R. No. L-21601

D6-6<;6, 1+, 1966

NIELSON C CO!PAN$, INC., plaintiff9appellant, vs. LEPANTO CONSOLIDATED !INING CO!PAN$, defendant9appellee. A. H. ;$a')a and A''ociate' *or #lainti**7a##ellant. :once Enrile, Si5$ion7Re(na, 2ontecillo and Belo *or de*endant7a##ellee. ZALDI#AR, J.: >n Ce+ruary #, 1)%*, plaintiff +rought this action against defendant +efore the .ourt of Cirst 5nstance of 'anila to recover certain sums of money representing damages allegedly suffered +y the former in view of the refusal of the latter to comply with the terms of a management contract entered into +etween them on ?anuary 7$, 1)7/, including attorneyBs fees and costs. 4efendant in its answer denied the material allegations of the complaint and set up certain special defenses, among them, prescription and laches, as +ars against the institution of the present action. 8fter trial, during which the parties presented testimonial and numerous documentary evidence, the court a 8$orendered a decision dismissing the complaint with costs. The court stated that it did not find sufficient evidence to esta+lish defendantBs counterclaim and so it likewise dismissed the same. The present appeal was taken to this .ourt directly +y the plaintiff in view of the amount involved in the case. The facts of this case, as stated in the decision appealed from, are hereunder <uoted for purposes of this decision: 5t appears that the suit involves an operating agreement e@ecuted +efore Aorld Aar 55 +etween the plaintiff and the defendant where+y the former operated and managed the mining properties owned +y the latter for a management fee of 1&,%$$.$$ a month and a 1$N participation in the net profits resulting from the operation of the mining properties. Cor +revity and convenience, hereafter the plaintiff shall +e referred to as "5-2,>" and the defendant, 2-18"T>. The antecedents of the case are: The contract in <uestion (-@hi+it Z.B) was made +y the parties on ?anuary 7$, 1)7/ for a period of five (%) years. 5n the latter part of 1)(1, the parties agreed to renew the contract for another period of five (%) years, +ut in the meantime, the 1acific Aar +roke out in 4ecem+er, 1)(1. 5n ?anuary, 1)(& operation of the mining properties was disrupted on account of the war. 5n Ce+ruary of 1)(&, the mill, power plant, supplies on hand, e<uipment, concentrates on hand and mines, were destroyed upon orders of the Enited ,tates 8rmy, to prevent their utili3ation +y the invading ?apanese 8rmy. The ?apanese forces thereafter occupied the mining properties, operated the mines during the continuance of the war, and who were ousted from the mining properties only in 8ugust of 1)(%. 8fter the mining properties were li+erated from the ?apanese forces, 2-18"T> took possession thereof and em+arked in re+uilding and reconstructing the mines and mill6 setting up new organi3ation6 clearing the mill site6 repairing the mines6 erecting staff <uarters and +odegas and repairing e@isting structures6 installing new machinery and e<uipment6 repairing roads and maintaining the same6 salvaging e<uipment and storing the same within the +odegas6 doing police work necessary to take care of the materials and e<uipment recovered6 repairing and renewing the water system6 and remem+ering (-@hi+its 040 and 0-0). The reha+ilitation and reconstruction of the mine and mill was not completed until 1)(* (-@hi+it 0C0). >n ?une &#, 1)(* the mines resumed operation under the e@clusive management of 2-18"T> (-@hi+it 0C9l0). ,hortly after the mines were li+erated from the ?apanese invaders in 1)(%, a disagreement arose +etween "5-2,>" and 2-18"T> over the status of the operating contract in <uestion which as renewed e@pired in 1)(/. Ender the terms thereof, the management contract shall remain in suspense in case fortuitous event or *orce %a6e$re, such as war or civil commotion, adversely affects the work of mining and milling.

05n the event of inundations, floodings of mine, typhoon, earth<uake or any other force majeure, war, insurrection, civil commotion, organi3ed strike, riot, injury to the machinery or other event or cause reasona+ly +eyond the control of "5-2,>" and which adversely affects the work of mining and milling6 "5-2,>" shall report such fact to 2-18"T> and without lia+ility or +reach of the terms of this 8greement, the same shall remain in suspense, wholly or partially during the terms of such ina+ility.0 (.lause 55 of -@hi+it 0.0). "5-2,>" held the view that, on account of the war, the contract was suspended during the war6 hence the life of the contract should +e considered e@tended for such time of the period of suspension. >n the other hand, 2-18"T> contended that the contract should e@pire in 1)(/ as originally agreed upon +ecause the period of suspension accorded +y virtue of the war did not operate to e@tend further the life of the contract. "o understanding appeared from the record to have +een +ad +y the parties to resolve the disagreement. 5n the meantime, 2-18"T> re+uilt and reconstructed the mines and was a+le to +ring the property into operation only in ?une of 1)(*, . . . . 8ppellant in its +rief makes an alternative assignment of errors depending on whether or not the management contract +asis of the action has +een e@tended for a period e<uivalent to the period of suspension. 5f the agreement is suspended our attention should +e focused on the first set of errors claimed to have +een committed +y the court a 8$o6 +ut if the contrary is true, the discussion will then +e switched to the alternative set that is claimed to have +een committed. Ae will first take up the <uestion whether the management agreement has +een e@tended as a result of the supervening war, and after this <uestion shall have +een determined in the sense sustained +y appellant, then the discussion of the defense of laches and prescription will follow as a conse<uence. The pertinent portion of the management contract (-@h. .) which refers to suspension should any event constituting *orce %a6e$re happen appears in .lause 55 thereof which we <uote hereunder: 5n the event of inundations, floodings of the mine, typhoon, earth<uake or any other force majeure, war, insurrection, civil commotion, organi3ed strike, riot, injury to the machinery or other event or cause reasona+ly +eyond the control of "5-2,>" and which adversely affects the work of mining and milling6 "5-2,>" shall report such fact to 2-18"T> and without lia+ility or +reach of the terms of this 8greement, the same shall remain in suspense, wholly or partially during the terms of such ina+ility. 8 careful scrutiny of the clause a+ove9<uoted will at once reveal that in order that the management contract may +e deemed suspended two events must take place which must +e +rought in a satisfactory manner to the attention of defendant within a reasona+le time, to wit: (1) the event constituting the *orce %a6e$re must +e reasona+ly +eyond the control of "ielson, and (&) it must adversely affect the work of mining and milling the company is called upon to undertake. 8s long as these two condition e@ist the agreement is deem suspended. 4oes the evidence on record show that these two conditions had e@isted which may justify the conclusion that the management agreement had +een suspended in the sense entertained +y appellantR 2et us go to the evidence. 5t is a matter that this .ourt can take judicial notice of that war supervened in our country and that the mines in the 1hilippines were either destroyed or taken over +y the occupation forces with a view to their operation. The 2epanto mines were no e@ception for not was the mine itself destroyed +ut the mill, power plant, supplies on hand, e<uipment and the like that were +eing used there were destroyed as well. Thus, the following is what appears in the 2epanto .ompany 'ining !eport dated 'arch 17, 1)(# su+mitted +y its 1resident .. 8. 4eAitt to the defendant:1 05n Ce+ruary of 1)(&, our mill, power plant, supplies on hand, e<uipment, concentrates on hand, and mine, were destroyed upon orders of the E.,. 8rmy to prevent their utili3ation +y the enemy.0 The report also mentions the report su+mitted +y 'r. =lessing, an official of "ielson, that 0the original mill was destroyed in 1)(&0 and 0the original power plant and all the installed e<uipment were destroyed in 1)(&.0 5t is then undenia+le that +eginning Ce+ruary, 1)(& the operation of the 2epanto mines stopped or +ecame suspended as a result of the destruction of the mill, power plant and other important e<uipment necessary for such operation in view of a cause which was clearly +eyond the control of "ielson and that as a conse<uence such destruction adversely affected the work of mining and milling which the latter was called upon to undertake under the management contract. .onse<uently, +y virtue of the very terms of said contract the same may +e deemed suspended from Ce+ruary, 1)(& and as of that month the contract still had #$ months to go. >n the other hand, the record shows that the defendant admitted that the occupation forces operated its mining properties su+ject of the management contract,& and from the very report su+mitted +y 1resident 4eAitt it appears that

the date of the li+eration of the mine was 8ugust 1, 1)(% although at the time there were still many +oo+y traps.7 ,imilarly, in a report su+mitted +y the defendant to its stockholders dated 8ugust &%, 1)(*, the following appears: 0Pour 4irectors take pleasure in reporting that ?une &#, 1)(* marked the official return to operations of this .ompany of its properties in 'ankayan, 'ountain 1rovince, 1hilippines.0( 5t is, therefore, clear from the foregoing that the 2epanto mines were li+erated on 8ugust 1, 1)(%, +ut +ecause of the period of reha+ilitation and reconstruction that had to +e made as a result of the destruction of the mill, power plant and other necessary e<uipment for its operation it cannot +e said that the suspension of the contract ended on that date. :ence, the contract must still +e deemed suspended during the succeeding years of reconstruction and reha+ilitation, and this period can only +e said to have ended on ?une &#, 1)(* when, as reported +y the defendant, the company officially resumed the mining operations of the 2epanto. 5t should here +e stated that this period of suspension from Ce+ruary, 1)(& to ?une &#, 1)(* is the one urged +y plaintiff.% 5t having +een shown that the operation of the 2epanto mines on the part of "ielson had +een suspended during the period set out a+ove within the purview of the management contract, the ne@t <uestion that needs to +e determined is the effect of such suspension. ,tated in another way, the <uestion now to +e determined is whether such suspension had the effect of e@tending the period of the management contract for the period of said suspension. To elucidate this matter, we again need to resort to the evidence. Cor appellant "ielson two witnesses testified, declaring that the suspension had the effect of e@tending the period of the contract, namely, eorge T. ,choley and 'ark "estle. ,choley was a mining engineer since 1)&), an incorporator, general manager and director of "ielson and .ompany6 and for some time he was also the vice9president and director of the 2epanto .ompany during the pre9war days and, as such, he was an officer of +oth appellant and appellee companies. 8s vice9president of 2epanto and general manager of "ielson, ,choley participated in the negotiation of the management contract to the e@tent that he initialed the same +oth as witness and as an officer of +oth corporations. This witness testified in this case to the effect that the standard *orce %a6e$re clause em+odied in the management contract was taken from similar mining contracts regarding mining operations and the understanding regarding the nature and effect of said clause was that when there is suspension of the operation that suspension meant the e@tension of the contract. Thus, to the <uestion, 0=efore the war, what was the understanding of the people in the particular trend of +usiness with respect to the *orce %a6e$re clauseR0, ,choley answered: 0That was our understanding that the suspension meant the e@tension of time lost.0# 'ark "estle, the other witness, testified along similar line. :e had +een connected with "ielson since 1)7/ until the time he took the witness stand and had +een a director, manager, and president of the same company. Ahen he was propounded the <uestion: 04o you know what was the custom or usage at that time in connection with *orce %a6e$re clauseR0, "estle answered, 05n the mining world the *orce %a6e$re clause is generally considered. Ahen a calamity comes up and stops the work like in war, flood, inundation or fire, etc., the work is suspended for the duration of the calamity, and the period of the contract is e@tended after the calamity is over to ena+le the person to do the +ig work or recover his money which he has invested, or accomplish what his o+ligation is to a third person .0/ 8nd the a+ove testimonial evidence finds support in the very minutes of the special meeting of the =oard of 4irectors of the 2epanto .ompany issued on 'arch 1$, 1)(% which was then chairmaned +y 8tty. .. 8. 4eAitt. Ae read the following from said report: The .hairman also stated that the contract with "ielson and .ompany would soon e@pire if the o+ligations were not suspended, in which case we should have to pay them the retaining fee of 1&,%$$.$$ a month. :e +elieves however, that there is a provision in the contract suspending the effects thereof in cases like the present, and that even if it were not there, the law itself would suspend the operations of the contract on account of the war. 8nyhow, he stated, we shall have no difficulty in solving satisfactorily any pro+lem we may have with "ielson and .ompany.* Thus, we can see from the a+ove that even in the opinion of 'r. 4eAitt himself, who at the time was the chairman of the =oard of 4irectors of the 2epanto .ompany, the management contract would then e@pire unless the period therein rated is suspended +ut that, however, he e@pressed the +elief that the period was e@tended +ecause of the provision contained therein suspending the effects thereof should any of the case of force majeure happen like in the present case, and that even if such provision did not e@ist the law would have the effect of suspending it on account of the war. 5n su+stance, 8tty. 4eAitt e@pressed the opinion that as a result of the suspension of the mining operation +ecause of the effects of the war the period of the contract had +een e@tended.

.ontrary to what appellantBs evidence reflects insofar as the interpretation of the *orce %a6e$re clause is concerned, however, appellee gives Es an opposite interpretation invoking in support thereof not only a letter 8tty. 4eAitt sent to "ielson on >cto+er &$, 1)(%,) wherein he e@pressed for the first time an opinion contrary to what he reported to the =oard of 4irectors of 2epanto .ompany as stated in the portion of the minutes of its =oard of 4irectors as <uoted a+ove, +ut also the ruling laid down +y our ,upreme .ourt in some cases decided sometime ago, to the effect that the war does not have the effect of e@tending the term of a contract that the parties may enter into regarding a particular transaction, citing in this connection the cases of Bictoria' :lanter' A''ociation &. Bictoria' 2illin5 4o%#an( , %1 >. . ($1$6 Ro'ario S. Bda. de 9ac'on, et al. &. Abelardo G. Dia<, */ 1hil. 1%$6 and9o 4)in5 ( So Co$n5 4)on5 4o. &. 4o$rt o* A##eal', et al., *1 1hil. #$1. To +olster up its theory, appellee also contends that the evidence regarding the alleged custom or usage in mining contract that appellantBs witnesses tried to introduce was incompetent +ecause (a) said custom was not specifically pleaded6 (+) 2epanto made timely and repeated o+jections to the introduction of said evidence6 (c) "ielson failed to show the essential elements of usage which must +e shown to e@ist +efore any proof thereof can +e given to affect the contract6 and (d) the testimony of its witnesses cannot prevail over the very terms of the management contract which, as a rule, is supposed to contain all the terms and conditions +y which the parties intended to +e +ound. 5t is here necessary to analy3e the contradictory evidence which the parties have presented regarding the interpretation of the *orce %a6e$re clause in the management contract. 8t the outset, it should +e stated that, as a rule, in the construction and interpretation of a document the intention of the parties must +e sought (!ule 17$, ,ection 1$, !ules of .ourt). This is the +asic rule in the interpretation of contracts +ecause all other rules are +ut ancilliary to the ascertainment of the meaning intended +y the parties. 8nd once this intention has +een ascertained it +ecomes an integral part of the contract as though it had +een originally e@pressed therein in une<uivocal terms (,horeline >il .orp. v. uy, 8pp. 1*), ,o., 7(*, cited in 1/8 ..?.,., p. (/). :ow is this intention determinedR >ne pattern is to ascertain the contemporaneous and su+se<uent acts of the contracting parties in relation to the transaction under consideration (8rticle 17/1, .ivil .ode). 5n this particular case, it is worthy of note what 8tty. .. 8. 4eAitt has stated in the special meeting of the =oard of 4irectors of 2epanto in the portion of the minutes already <uoted a+ove wherein, as already stated, he e@pressed the opinion that the life of the contract, if not e@tended, would last only until ?anuary, 1)(/ and yet he said that there is a provision in the contract that the war had the effect of suspending the agreement and that the effect of that suspension was that the agreement would have to continue with the result that 2epanto would have to pay the monthly retaining fee of 1&,%$$.$$. 8nd this +elief that the war suspended the agreement and that the suspension meant its e@tension was so firm that he went to the e@tent that even if there was no provision for suspension in the agreement the law itself would suspend it. 5t is true that 'r. 4eAitt later sent a letter to "ielson dated >cto+er &$, 1)(% wherein apparently he changed his mind +ecause there he stated that the contract was merely suspended, +ut not e@tended, +y reason of the war, contrary to the opinion he e@pressed in the meeting of the =oard of 4irectors already adverted to, +ut +etween the two opinions of 8tty. 4eAitt Ae are inclined to give more weight and validity to the former not only +ecause such was given +y him against his own interest +ut also +ecause it was given +efore the =oard of 4irectors of 2epanto and in the presence, of some "ielson officials 1$ who, on that occasion were naturally led to +elieve that that was the true meaning of the suspension clause, while the second opinion was merely self9serving and was given as a mere afterthought. 8ppellee also claims that the issue of true intent of the parties was not +rought out in the complaint, +ut anent this matter suffice it to state that in paragraph "o. 1) of the complaint appellant pleaded that the contract was e@tended. 11 This is a sufficient allegation considering that the rules on pleadings must as a rule +e li+erally construed. 5t is likewise noteworthy that in this issue of the intention of the parties regarding the meaning and usage concerning the *orce %a6e$re clause, the testimony adduced +y appellant is uncontradicted. 5f such were not true, appellee should have at least attempted to offer contradictory evidence. This it did not do. "ot even 2epantoBs 1resident, 'r. ;. -. 2ednicky who took the witness stand, contradicted said evidence. 5n holding that the suspension of the agreement meant the e@tension of the same for a period e<uivalent to the suspension, Ae do not have the least intention of overruling the cases cited +y appellee. Ae simply want to say that the ruling laid down in said cases does not apply here +ecause the material facts involved therein are not the same as those o+taining in the present. The rule of 'tare deci'i' cannot +e invoked where there is no analogy +etween the material facts of the decision relied upon and those of the instant case.

Thus, in Bictoria' :lanter' A''ociation &'. Bictoria' 2illin5 4o%#an( , %1 >. . ($1$, there was no evidence at all regarding the intention of the parties to e@tend the contract e<uivalent to the period of suspension caused +y the war. "either was there evidence that the parties understood the suspension to mean e@tension6 nor was there evidence of usage and custom in the industry that the suspension meant the e@tension of the agreement. 8ll these matters, however, o+tain in the instant case. 8gain, in the case of Ro'ario S. Bda. de 9ac'on &'. Abelardo G. Dia<, */ 1hil. 1%$, the issue referred to the interpretation of a pre9war contract of lease of sugar cane lands and the lia+ility of the lessee to pay rent during and immediately following the ?apanese occupation and where the defendant claimed the right of an e@tension of the lease to make up for the time when no cane was planted. This .ourt, in holding that the years which the lessee could not use the land +ecause of the war could not +e discounted from the period agreed upon, held that 0"owhere is there any insinuation that the defendant9lessee was to have possession of lands for seven years e@cluding years on which he could not harvest sugar.0 .learly, this ratio decidendi is not applica+le to the case at +ar wherein there is evidence that the parties understood the 0suspension clause +y force majeure0 to mean the e@tension of the period of agreement. 2astly, in the case of 9o 4)in5 ( So Co$n5 4)on5 4o. &'. 4o$rt o* A##eal', et al., *1 1hil. #$1, appellant leased a +uilding from appellee +eginning ,eptem+er 17, 1)($ for three years, renewa+le for two years. The lesseeBs possession was interrupted in Ce+ruary, 1)(& when he was ousted +y the ?apanese who turned the same over to erman >tto ,chul3e, the latter occupying the same until ?anuary, 1)(% upon the arrival of the li+eration forces. 8ppellant contended that the period during which he did not enjoy the leased premises +ecause of his dispossession +y the ?apanese had to +e deducted from the period of the lease, +ut this was overruled +y this .ourt, reasoning that such dispossession was merely a simple 0pertur+acion de merohecho y de la cual no responde el arrendador0 under 8rticle 1%#$ of the old .ivil .ode 8rt. 1##(). This ruling is also not applica+le in the instant case +ecause in that case there was no evidence of the intention of the parties that any suspension of the lease +y *orce %a6e$re would +e understood to e@tend the period of the agreement. In re'$%e, there is sufficient justification for Es to conclude that the cases cited +y appellee are inapplica+le +ecause the facts therein involved do not run parallel to those o+taining in the present case. Ae shall now consider appelleeBs defense of laches. 8ppellee is correct in its contention that the defense of laches applies independently of prescription. 2aches is different from the statute of limitations. 1rescription is concerned with the fact of delay, whereas laches is concerned with the effect of delay. 1rescription is a matter of time6 laches is principally a <uestion of ine<uity of permitting a claim to +e enforced, this ine<uity +eing founded on some change in the condition of the property or the relation of the parties. 1rescription is statutory6 laches is not. 2aches applies in e<uity, whereas prescription applies at law. 1rescription is +ased on fi@ed time, laches is not. (7$ ..?.,., p. %&&6 See al'o 1omeroyBs -<uity ?urisprudence, ;ol. &, %th ed., p. 1//). The <uestion to determine is whether appellant "ielson is guilty of laches within the meaning contemplated +y the authorities on the matter. 5n the leading case of o .hi un, et al. vs. o .ho, et al., )# 1hil. #&&, this .ourt enumerated the essential elements of laches as follows: (1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of which complaint is made and for which the complaint seeks a remedy6 (&) delay in asserting the complainantBs rights, the complainant having had knowledge or notice of the defendantBs conduct and having +een afforded an opportunity to institute a suit6 (7) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he +ases his suit6 and (() injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit is not held +arred. 8re these re<uisites present in the case at +arR The first element is conceded +y appellant "ielson when it claimed that defendant refused to pay its management fees, its percentage of profits and refused to allow it to resume the management operation. 8nent the second element, while it is true that appellant "ielson knew since 1)(% that appellee 2epanto has refused to permit it to resume management and that since 1)(* appellee has resumed operation of the mines and it filed its complaint only on Ce+ruary #, 1)%*, there +eing apparent delay in filing the present action, Ae find the delay justified and as such cannot constitute laches. 5t appears that appellant had not a+andoned its right to operate the mines for even +efore the termination of the suspension of the agreement as early as ?anuary &$, 1)(#1& and even +efore 'arch 1$, 1)(%, it already claimed its right to the e@tension of the contract,17 and it pressed its claim for the +alance of its

share in the profits from the 1)(1 operation1( +y reason of which negotiations had taken place for the settlement of the claim1% and it was only on ?une &%, 1)%/ that appellee finally denied the claim. There is, therefore, only a period of less than one year that had elapsed from the date of the final denial of the claim to the date of the filing of the complaint, which certainly cannot +e considered as unreasona+le delay. The third element of laches is a+sent in this case. 5t cannot +e said that appellee 2epanto did not know that appellant would assert its rights on which it +ased suit. The evidence shows that "ielson had +een claiming for some time its rights under the contract, as already shown a+ove. "either is the fourth element present, for if there has +een some delay in +ringing the case to court it was mainly due to the attempts at ar+itration and negotiation made +y +oth parties. 5f 2epantoBs documents were lost, it was not caused +y the delay of the filing of the suit +ut +ecause of the war. 8nother reason why appellant "ielson cannot +e held guilty of laches is that the delay in the filing of the complaint in the present case was the inevita+le of the protracted negotiations +etween the parties concerning the settlement of their differences. 5t appears that "ielson asked for ar+itration1# which was granted. 8 committee consisting of 'essrs. 4eAitt, Carnell and =lessing was appointed to act on said differences +ut 'r. 4eAitt always tried to evade the issue1/ until he was taken ill and died. 'r. Carnell offered to "ielson the sum of 117,$$$.%* +y way of compromise of all its claim arising from the management contract1* +ut apparently the offer was refused. "egotiations continued with the e@change of letters +etween the parties +ut with no satisfactory result.1) 5t can +e said that the delay due to protracted negotiations was caused +y +oth parties. 2epanto, therefore, cannot +e permitted to take advantage of such delay or to <uestion the propriety of the action taken +y "ielson. The defense of laches is an e<uita+le one and e<uity should +e applied with an even hand. 8 person will not +e permitted to take advantage of, or to <uestion the validity, or propriety of, any act or omission of another which was committed or omitted upon his own re<uest or was caused +y his conduct (!. :. ,tearns .o. vs. Enited ,tates, &)1 E.,. %(, /* 2. -d. #(/, %( ,. .t., 7&%6 Enited ,tates vs. :enry 1rentiss F .o., &** E.,. /7, // 2. -d., #&#, %7 ,. .t., &*7). :ad the action of "ielson prescri+edR The court a 8$o held that the action of "ielson is already +arred +y the statute of limitations, and that ruling is now assailed +y the appellant in this appeal. 5n urging that the court a 8$oerred in reaching that conclusion the appellant has discussed the issue with reference to particular claims. The first claim is with regard to the 1$N share in profits of 1)(1 operations. 5nasmuch as appellee 2epanto alleges that the correct +asis of the computation of the sharing in the net profits shall +e as provided for in .lause ; of the 'anagement .ontract, while appellant "ielson maintains that the +asis should +e what is contained in the minutes of the special meeting of the =oard of 4irectors of 2epanto on 8ugust &1, 1)($, this <uestion must first +e elucidated +efore the main issue is discussed. The facts relative to the matter of profit sharing follow: 5n the management contract entered into +etween the parties on ?anuary 7$, 1)7/, which was renewed for another five years, it was stipulated that "ielson would receive a compensation of 1&,%$$.$$ a month plus 1$N of the net profits from the operation of the properties for the preceding month. 5n 1)($, a dispute arose regarding the computation of the 1$N share of "ielson in the profits. The =oard of 4irectors of 2epanto, reali3ing that the mechanics of the contract was unfair to "ielson, authori3ed its 1resident to enter into an agreement with "ielson modifying the pertinent provision of the contract effective ?anuary 1, 1)($ in such a way that "ielson shall receive (1) 1$N of the dividends declared and paid, when and as paid, during the period of the contract and at the end of each year, (&) 1$N of any depletion reserve that may +e set up, and (7) 1$N of any amount e@pended during the year out of surplus earnings for capital account. &$ .ounsel for the appellee admitted during the trial that the e@tract of the minutes as found in -@hi+it = is a faithful copy from the original. &1 'r. eorge ,choley testified that the foregoing modification was agreed upon. && 2epanto claims that this new +asis of computation should +e rejected (1) +ecause the contract was clear on the point of the 1$N share and it was so alleged +y "ielson in its complaint, and (&) the minutes of the special meeting held on 8ugust &1, 1)($ was not signed. 5t appearing that the issue concerning the sharing of the profits had +een raised in appellantBs complaint and evidence on the matter was introduced &7 the same can +e taken into account even if no amendment of the pleading to make it conform to the evidence has +een made, for the same is authori3ed +y ,ection (, !ule 1/, of the old !ules of .ourt (now ,ection %, !ule 1$, of the new !ules of .ourt).

.oming now to the <uestion of prescription raised +y defendant 2epanto, it is contended +y the latter that the period to +e considered for the prescription of the claim regarding participation in the profits is only four years, +ecause the modification of the sharing em+odied in the management contract is merely ver+al, no written document to that effect having +een presented. This contention is untena+le. The modification appears in the minutes of the special meeting of the =oard of 4irectors of 2epanto held on 8ugust &1, 1)($, it having +een made upon the authority of its 1resident, and in said minutes the terms of the modification had +een specified. This is sufficient to have the agreement considered, for the purpose of applying the statute of limitations, as a written contract even if the minutes were not signed +y the parties (7 8.2.!., &d, p. *71). 5t has +een held that a writing containing the terms of a contract if adopted +y two persons may constitute a contract in writing even if the same is not signed +y either of the parties (7 8.2.!., &d, pp. *1&9*17). 8nother authority says that an unsigned agreement the terms of which are em+odied in a document unconditionally accepted +y +oth parties is a written contract (.or+in on .ontracts, ;ol. 1, p. *%) The modification, therefore, made in the management contract relative to the participation in the profits +y appellant, as contained in the minutes of the special meeting of the =oard of 4irectors of 2epanto held on 8ugust &1, 1)($, should +e considered as a written contract insofar as the application of the statutes of limitations is concerned. :ence, the action thereon prescri+es within ten (1$) years pursuant to ,ection (7 of 8ct 1)$. .oming now to the facts, Ae find that the right of "ielson to its 1$N participation in the 1)(1 operations accrued on 4ecem+er &1, 1)(1 and the right to commence an action thereon +egan on ?anuary 1, 1)(& so that the action must +e +rought within ten (1$) years from the latter date. 5t is true that the complaint was filed only on Ce+ruary #, 1)%*, that is si@teen (1#) years, one (1) month and five (%) days after the right of action accrued, +ut the action has not yet prescri+ed for various reasons which Ae will hereafter discuss. The first reason is the operation of the 'oratorium 2aw, for appellantBs claim is undenia+ly a claim for money. ,aid claim accrued on 4ecem+er 71, 1)(1, and 2epanto is a war sufferer. :ence the claim was covered +y -@ecutive >rder "o. 7& of 'arch 1$, 1)(%. 5t is well settled that the operation of the 'oratorium 2aw suspends the running of the statue of limitations (1acific .ommercial .o. vs. 8<uino, .!. "o. 291$&/(, Ce+ruary &/, 1)%/). This .ourt has held that the 'oratorium 2aw had +een enforced for eight (*) years, two (&) months and eight (*) days (Tioseco vs. 4ay, et al., 29))((, 8pril 7$, 1)%/6 2evy :ermanos, 5nc. vs. 1ere3, 291((*/, 8pril &), 1)#$), and deducting this period from the time that had elapsed since the accrual of the right of action to the date of the filing of the complaint, the e@tent of which is si@teen (1#) years, one (1) month and five (%) days, we would have less than eight (*) years to +e counted for purposes of prescription. :ence appellantBs action on its claim of 1$N on the 1)(1 profits had not yet prescri+ed. 8nother reason that may +e taken into account in support of the no9+ar theory of appellant is the ar+itration clause em+odied in the management contract which re<uires that any disagreement as to any amount of profits +efore an action may +e taken to court shall +e su+ject to ar+itration. &( This agreement to ar+itrate is valid and +inding. &% 5t cannot +e ignored +y 2epanto. :ence "ielson could not +ring an action on its participation in the 1)(1 operations9 profits until the condition relative to ar+itration had +een first complied with. &# The evidence shows that an ar+itration committee was constituted +ut it failed to accomplish its purpose on ?une &%, 1)%/. &/Crom this date to the filing of the complaint the re<uired period for prescription has not yet elapsed. "ielson claims the following: (1) 1$N share in the dividends declared in 1)(1, e@clusive of interest, amounting to 11/,%$$.$$6 (&) 1$N in the depletion reserves for 1)(16 and (7) 1$N in the profits for years prior to 1)(* amounting to 11),/#(./$. Aith regard to the first claim, the 2epantoBs report for the calendar year of 1)%( &* shows that it declared a 1$N cash dividend in 4ecem+er, 1)(1, the amount of which is 11/%,$$$.$$. The evidence in this connection (-@hi+its 2 and >) was admitted without o+jection +y counsel for 2epanto. &) "ielson claims 1$N share in said amount with interest thereon at #N per annum. The document (-@hi+it 2) was even recogni3ed +y 2epantoBs 1resident ;. 2. 2ednicky, 7$ and this claim is predicated on the provision of paragraph ; of the management contract as modified pursuant to the proposal of 2epanto at the special meeting of the =oard of 4irectors on 8ugust &1, 1)($ (-@h. =), where+y it was provided that "ielson would +e entitled to 1$N of any dividends to +e declared and paid during the period of the contract. Aith regard to the second claim, "ielson admits that there is no evidence regarding the amount set aside +y 2epanto for depletion reserve for 1)(1 71 and so the 1$N participation claimed thereon cannot +e assessed.

8nent the third claim relative to the 1$N participation of "ielson on the sum of 11)/,#(/.$*, which appears in 2epantoBs annual report for 1)(* 7& and entered as profit for prior years in the statement of income and surplus, which amount consisted 0almost in its entirety of proceeds of copper concentrates shipped to the Enited ,tates during 1)(/,0 this claim should to denied +ecause the amount is not 0dividend declared and paid0 within the purview of the management contract. The fifth assignment of error of appellant refers to the failure of the lower court to order 2epanto to pay its management fees for ?anuary, 1)(&, and for the full period of e@tension amounting to 11%$,$$$.$$, or 1&,%$$.$$ a month for si@ty (#$) months, D a total of 11%&,%$$.$$ D with interest thereon from the date of judicial demand. 5t is true that the claim of management fee for ?anuary, 1)(& was not among the causes of action in the complaint, +ut inasmuch as the contract was suspended in Ce+ruary, 1)(& and the management fees asked for included that of ?anuary, 1)(&, the fact that such claim was not included in a specific manner in the complaint is of no moment +ecause an appellate court may treat the pleading as amended to conform to the evidence where the facts show that the plaintiff is entitled to relief other than what is asked for in the complaint (8lon3o vs. ;illamor, 1# 1hil. 71%). The evidence shows that the last payment made +y 2epanto for management fee was for "ovem+er and 4ecem+er, 1)(1. 77 5f, as Ae have declared, the management contract was suspended +eginning Ce+ruary 1)(&, it follows that "ielson is entitled to the management fee for ?anuary, 1)(&. 2et us now come to the management fees claimed +y "ielson for the #eriod o* eDten'ion. 5n this respect, it has +een shown that the management contract was e@tended from ?une &/, 1)(* to ?une &#, 1)%7, or for a period of si@ty (#$) months. 4uring this period "ielson had a right to continue in the management of the mining properties of 2epanto and 2epanto was under o+ligation to let "ielson do it and to pay the corresponding management fees. 8ppellant "ielson insisted in performing its part of the contract +ut 2epanto prevented it from doing so. :ence, +y virtue of 8rticle 11*# of the .ivil .ode, there was a constructive fulfillment an the part of "ielson of its o+ligation to manage said mining properties in accordance with the contract and 2epanto had the reciprocal o+ligation to pay the corresponding management fees and other +enefits that would have accrued to "ielson if 2epanto allowed it ("ielson) to continue in the management of the mines during the e@tended period of five (%) years. Ae find that the preponderance of evidence is to the effect that "ielson had insisted in managing the mining properties soon after li+eration. 5n the report 7( of 2epanto, su+mitted to its stockholders for the period from 1)(1 to 'arch 17, 1)(#, are stated the activities of "ielsonBs officials in relation to "ielsonBs insistence in continuing the management. This report was admitted in evidence without o+jection. Ae find the following in the report: 'r. =lessing, in 'ay, 1)(%, accompanied .lark and ,tanford to ,an Cernando (2a Enion) to await the li+eration of the mines. ('r. =lessing was the Treasurer and 'etallurgist of "ielson). =lessing with .lark and ,tanford went to the property on ?uly 1# and found that while the mill site had +een cleared of the enemy the latter was still holding the area around the staff houses and putting up a strong defense. 8s a result, they returned to ,an Cernando and later went +ack to the mines on ?uly &#. 'r. =lessing made the report, dated 8ugust #, recommending a program of operation. 'r. "ielson himself spent a day in the mine early in 4ecem+er, 1)(% and reiterated the program which 'r. =lessing had outlined. Two or three weeks +efore the date of the report, 'r. .oldren of the "ielson organi3ation also visited the mine and told 1resident .. 8. 4eAitt of 2epanto that he thought that the mine could +e put in condition for the delivery of the ore within ten (1$) days. 8nd according to 'ark "estle, a witness of appellant, "ielson had several men including engineers to do the jo+ in the mines and to resume the work. These engineers were in fact sent to the mine site and su+mitted reports of what they had done. 7% >n the other hand, appellee claims that "ielson was not ready and a+le to resume the work in the mines, relying mainly on the testimony of 4r. ?uan "a+ong, former secretary of +oth "ielson and 2epanto, given in the separate case of "ancy 5rving !omero vs. 2epanto .onsolidated 'ining .ompany (.ivil .ase "o. #%&, .C5, =aguio), to the effect that as far as he knew 0"ielson and .ompany had not attempted to operate the 2epanto .onsolidated 'ining .ompany +ecause 'r. "ielson was not here in the 1hilippines after the last war. :e came +ack later,0 and that "ielson and .ompany had no money nor stocks with which to start the operation. :e was asked +y counsel for the appellee if he had testified that way in .ivil .ase "o. #%& of the .ourt of Cirst 5nstance of =aguio, and he answered that he did not confirm it fully. Ahen this witness was asked +y the same counsel whether he confirmed that testimony, he said that when he testified in that case he was not fully aware of what happened and that after he learned more a+out the officials of the corporation it was only then that he +ecame aware that "ielson had really sent his men to the mines along with 'r. =lessing and that he was aware of this fact personally. :e further said that 'r. "ielson was here in 1)(% and 0he was going out and contacting his people.0 7#

2epanto admits, in its own +rief, that "ielson had really insisted in taking over the management and operation of the mines +ut that it (2epanto) une<uivocally refuse to allow it. The following is what appears in the +rief of the appellee: 5t was while defendant was in the midst of the reha+ilitation work which was fully descri+ed earlier, still reeling under the terri+le devastation and destruction wrought +y war on its mine that "ielson insisted in taking over the management and operation of the mine. "ielson thus put 2epanto in a position where defendant, under the circumstances, had to refuse, as in fact it did, "ielsonBs insistence in taking over the management and operation +ecause, as was o+vious, it was impossi+le, as a result of the destruction of the mine, for the plaintiff to manage and operate the same and +ecause, as provided in the agreement, the contract was suspended +y reason of the war. The stand of 2epanto in disallowing "ielson to assume again the management of the mine in 1)(% was une<uivocal and cannot +e misinterpreted, in*ra.7/ =ased on the foregoing facts and circumstances, and >ur conclusion that the management contract was e@tended, Ae +elieve that "ielson is entitled to the management fees for the period of e@tension. "ielson should +e awarded on this claim si@ty times its monthly pay of 1&,%$$.$$, or a total of 11%$,$$$.$$. 5n its si@th assignment of error "ielson contends that the lower court erred in not ordering 2epanto to pay it ("ielson) the 1$N share in the profits of operation reali3ed during the period of five (%) years from the resumption of its post9war operations of the 'ankayan mines, in the total sum of 1&,($7,$%7.&$ with interest thereon at the rate of #N per annum from Ce+ruary #, 1)%* until full payment. 7* The a+ove claim of "ielson refers to four categories, namely: (1) cash dividends6 (&) stock dividends6 (7) depletion reserves6 and (() amount e@pended on capital investment. 8nent the first category, 2epantoBs report for the calendar year 1)%( 7) contains a record of the cash dividends it paid up to the date of said report, and the post9war dividends paid +y it corresponding to the years included in the period of e@tension of the management contract are as follows: 1>,T9A8! * ) 1$ 11 1& 17 1( 1% 1# 1/ 1* 1) &$ &1 && 1$N 1$N 1$N &$N &$N &$N &$N ($N &$N &$N &$N &$N &$N &$N &$N "ovem+er ?uly >cto+er 4ecem+er 'arch ?une ,eptem+er 4ecem+er 'arch 'ay ?uly ,eptem+er 4ecem+er 'arch ?une T>T82 1)() 1)%$ 1)%$ 1)%$ 1)%1 1)%1 1)%1 1)%1 1)%& 1)%& 1)%& 1)%& 1)%& 1)%7 1)%7 1 &$$,$$$.$$ 7$$,$$$.$$ %$$,$$$.$$ 1,$$$,$$$.$$ 1,$$$,$$$.$$ 1,$$$,$$$.$$ 1,$$$,$$$.$$ &,$$$,$$$.$$ 1,$$$,$$$.$$ 1,$$$,$$$.$$ 1,$$$,$$$.$$ 1,$$$,$$$.$$ 1,$$$,$$$.$$ 1,$$$,$$$.$$ 1,$$$,$$$.$$ 11(,$$$,$$$.$$

8ccording to the terms of the management contract as modified, appellant is entitled to 1$N of the 11(,$$$,$$$.$$ cash dividends that had +een distri+uted, as stated in the a+ove9mentioned report, or the sum of 11,($$,$$$.$$. Aith regard to the second category, the stock dividends declared +y 2epanto during the period of e@tension of the contract are: >n "ovem+er &*, 1)(), the stock dividend declared was %$N of the outstanding authori3ed capital of 1&,$$$,$$$.$$ of the company, or stock dividends worth 11,$$$,$$$.$$6 and on 8ugust &&, 1)%$, the stock dividends declared was ##9&/7N of the standing authori3ed capital of 17,$$$,$$$.$$ of the company, or stock dividends worth 1&,$$$,$$$.$$. ($ 8ppellantBs claim that it should +e given 1$N of the cash value of said stock dividends with interest thereon at #N from Ce+ruary #, 1)%* cannot +e granted for that would not +e in accordance with the management contract which entitles "ielson to 1$N of any dividends declared paid, -)en and as paid. "ielson, therefore, is entitled to 1$N of the stock dividends and to the fruits that may have accrued to said stock dividends pursuant to 8rticle 11#( of the .ivil .ode. :ence to "ielson is due shares of stock worth 11$$,$$$.$$, as per stock dividends declared on "ovem+er &*, 1)() and all the fruits accruing to said shares after said date6 and also shares of stock worth 1&$$,$$$.$$ as per stock dividends declared on 8ugust &$, 1)%$ and all fruits accruing thereto after said date. 8nent the third category, the depletion reserve appearing in the statement of income and surplus su+mitted +y 2epanto corresponding to the years covered +y the period of e@tension of the contract, may +e itemi3ed as follows: 5n 1)(*, as per -@h. C, p. 7# and -@h. S, p. %, the depletion reserve set up was 111,#$&.*$. 5n 1)(), as per -@h. , p. () and -@h. S, p. %, the depletion reserve set up was 177,%%#.$/.

5n 1)%$, as per -@h. :, p. 7/, -@h. S, p. # and -@h. 5, p. 7/, the depletion reserve set up was 1*(,)#7.7$. 5n 1)%1, as per -@h. 5, p. (%, -@h. S, p. #, and -@h. ?, p. (%, the depletion reserve set up was 11&),$*).**. 5n 1)%&, as per -@h. ?, p. (%, -@h. S, p. # and -@h. K p. (1, the depletion reserve was 11(/,1(1.%(. 5n 1)%7, as per -@h. K, p. (1, and -@h. S, p. #, the depletion reserve set up as 1&//,()7.&%. !egarding the depletion reserve set up in 1)(* it should +e noted that the amount given was for the whole year. 5nasmuch as the contract was e@tended only for the last half of the year 1)(*, said amount of 111,#$&.*$ should +e divided +y two, and so "ielson is only entitled to 1$N of the half amounting to 1%,*$1.($. 2ikewise, the amount of depletion reserve for the year 1)%7 was for the whole year and since the contract was e@tended only until the first half of the year, said amount of 1&//,()7.&% should +e divided +y two, and so "ielson is only entitled to 1$N of the half amounting to 117*,/(#.#&. ,umming up the entire depletion reserves, from the middle of 1)(* to the middle of 1)%7, we would have a total of 1%7),&)*.*1, of which "ielson is entitled to 1$N, or to the sum of 1%7,)&*.**. Cinally, with regard to the fourth category, there is no figure in the record representing the value of the fi@ed assets as of the +eginning of the period of e@tension on ?une &/, 1)(*. 5t is possi+le, however, to arrive at the amount needed +y adding to the value of the fi@ed assets as of 4ecem+er 71, 1)(/ one9half of the amount spent for capital account in the year 1)(*. 8s of 4ecem+er 71, 1)(/, the value of the fi@ed assets was 11,$#1,*/*.** (1and as of 4ecem+er 71, 1)(*, the value of the fi@ed assets was 17,&/$,($*.$/. (& :ence, the increase in the value of the fi@ed assets for the year 1)(* was 1&,&$*,%&).1), one9half of which is 11,1$(,&#(.%), which amount represents the e@penses for capital account for the first half of the year 1)(*. 5f to this amount we add the fi@ed assets as of 4ecem+er 71, 1)(/ amounting to 11,$#1,*/*.**, we would have a total of 1&,1##,1(7.(/ which represents the fi@ed assets at the +eginning of the second half of the year 1)(*. There is also no figure representing the value of the fi@ed assets when the contract, as eDtended, ended on ?une &#, 1)%76 +ut this may +e computed +y getting one9half of the e@penses for capital account made in 1)%7 and adding the same to the value of the fi@ed assets as of 4ecem+er 71, 1)%7 is 1),/%%,*($.(1 (7 which the value of the fi@ed assets as of 4ecem+er 71, 1)%& is 1*,(#7,/(1.*&, the difference +eing 11,&)&,$)*.#). >ne9half of this amount is 1#(#,$().7( which would represent the e@penses for capital account up to ?une, 1)%7. This amount added to the value

of the fi@ed assets as of 4ecem+er 71, 1)%& would give a total of 1),1$),/)1.1# which would +e the value of fi@ed assets at the end of ?une, 1)%7. The increase, therefore, of the value of the fi@ed assets of 2epanto from ?une, 1)(* to ?une, 1)%7 is 1#,)(7,#(/.#), which amount represents the difference +etween the value of the fi@ed assets of 2epanto in the year 1)(* and in the year 1)%7, as stated a+ove. >n this amount "ielson is entitled to a share of 1$N or to the amount of 1#)(,7#(./#. .onsidering that most of the claims of appellant have +een entertained, as pointed out in this decision, Ae +elieve that appellant is entitled to +e awarded attorneyBs fees, especially when, according to the undisputed testimony of 'r. 'ark "estle, "ielson o+liged himself to pay attorneyBs fees in connection with the institution of the present case. 5n this respect, Ae +elieve, considering the intricate nature of the case, an award of fifty thousand (1%$,$$$.$$) pesos for attorneyBs fees would +e reasona+le. 5" ;5-A >C T:- C>!- >5" .>",54-!8T5>",, Ae here+y reverse the decision of the court a 8$o and enter in lieu thereof another, ordering the appellee 2epanto to pay appellant "ielson the different amounts as specified herein+elow: (1) 1$N share of cash dividends of 4ecem+er, 1)(1 in the amount of 11/,%$$.$$, with legal interest thereon from the date of the filing of the complaint6 (&) management fee for ?anuary, 1)(& in the amount of 1&,%$$.$$, with legal interest thereon from the date of the filing of the complaint6 (7) management fees for the si@ty9month period of e@tension of the management contract, amounting to 11%$,$$$.$$, with legal interest from the date of the filing of the complaint6 (() 1$N share in the cash dividends during the period of e@tension of the management contract, amounting to 11,($$,$$$.$$, with legal interest thereon from the date of the filing of the complaint6 (%) 1$N of the depletion reserve set up during the period of e@tension, amounting to 1%7,)&*.**, with legal interest thereon from the date of the filing of the complaint6 (#) 1$N of the e@penses for capital account during the period of e@tension, amounting to 1#)(,7#(./#, with legal interest thereon from the date of the filing of the complaint6 (/) to issue and deliver to "ielson and .o., 5nc. shares of stock of 2epanto .onsolidated 'ining .o. at par value e<uivalent to the total of "ielsonBs l$N share in the stock dividends declared on "ovem+er &*, 1)() and 8ugust &&, 1)%$, together with all cash and stock dividends, if any, as may have +een declared and issued su+se<uent to "ovem+er &*, 1)() and 8ugust &&, 1)%$, as fruits that accrued to said shares6 5f sufficient shares of stock of 2epantoBs are not availa+le to satisfy this judgment, defendant9appellee shall pay plaintiff9 appellant an amount in cash e<uivalent to the market value of said shares at the time of default (1& ..?.,., p. 17$), that is, all shares of the stock that should have +een delivered to "ielson +efore the filing of the complaint must +e paid at their market value as of the date of the filing of the complaint6 and all shares, if any, that should have +een delivered after the filing of the complaint at the market value of the shares at the time 2epanto disposed of all its availa+le shares, for it is only then that 2epanto placed itself in condition of not +eing a+le to perform its o+ligation (8rticle 11#$, .ivil .ode)6 (*) the sum of 1%$,$$$.$$ as attorneyBs fees6 and ()) the costs. 5t is so ordered.

@G.R. No. 160215. No36<;6, 10, 200*A

$DRO RESOURCES CONTRACTORS AD!INISTRATION, respondent.

CORPORATION, petitioner& DECISION

vs. NATIONAL

IRRIGATION

$NARES-SANTIAGO, J.D .hallenged in this petition for review on certiorari under !ule (% is the 4ecision of the .ourt of 8ppeals G1H dated >cto+er &), &$$& and its !esolution dated ,eptem+er &(, &$$7 G&H in .89 .!. ,1 "o. ((%&/,G7H reversing the judgment of the .onstruction 5ndustry 8r+itration .ommission (.58.) dated ?une 1$, 1))/ G(H in .58. .ase "o. 1(9)* in favor of petitioner :ydro !esources .ontractors .orporation. The facts are undisputed and are matters of record. 5n a competitive +idding conducted +y the "ational 5rrigation 8dministration ("58) sometime in 8ugust 1)/*, :ydro !esources .ontractors .orporation (:ydro) was awarded .ontract '159.9& G%H involving the main civil work of the 'agat !iver 'ulti91urpose 1roject. The contract price for the work was pegged at 11,(*),1(#,(/7./& with the peso component thereof amounting to 11,$(1,**(,/##.)) and the E,O component valued at O#$,#%/,))&.7/ at the e@change rate of 1/.7/7% to the dollar or 1((/,7#1,/$#./7. >n "ovem+er #, 1)/*, the parties signed 8mendment "o. 1G#H of the contract where+y "58 agreed to increase the foreign currency allocation for e<uipment financing from E,O&*,$$$,$$$.$$ for the first and second years of the contract to E,O7*,$$$,$$$.$$, to +e made availa+le in full during the first year of the contract to ena+le the contractor to purchase the needed e<uipment and spare parts, as approved +y "58, for the construction of the project. >n 8pril ), 1)*$, the parties entered into a 'emorandum of 8greement G/H ('>8) where+y they agreed that :ydro may directly avail of the foreign currency component of the contract for the sole purpose of purchasing necessary spare parts and e<uipment for the project. This was made in order for the contractor to avoid further delays in the procurement of the said spare parts and e<uipment. 8 few months after the '>8 was signed, "58 and :ydro entered into a ,upplemental 'emorandum of 8greement (,upplemental '>8) to include among the items to +e financed out of the foreign currency portion of the .ontract Xconstruction materials, supplies and services as well as e<uipment and materials for incorporation in the permanent works of the 1roject.YG*H Aork on the project progressed steadily until :ydro su+stantially completed the project in 1)*& and the final acceptance was made +y "58 on Ce+ruary 1(, 1)*(.G)H 4uring the period of the e@ecution of the contract, the foreign e@change value of the peso against the E, dollar declined and steadily deteriorated. Ahenever :ydroIs availment of the foreign currency component e@ceeded the amount of the foreign currency paya+le to :ydro for a particular period, "58 charged interest in dollars +ased on the prevailing e@change rate instead of the fi@ed e@change rate of 1/.7/7% to the dollar. Pet when :ydro received payments from "58 in 1hilippine 1esos, "58 made deductions from :ydroIs foreign currency component at the fi@ed e@change rate of 1/.7/7% to E,O1.$$ instead of the prevailing e@change rate. Epon completion of the project, a final reconciliation of the total entitlement of :ydro to the foreign currency component of the contract was made. The result of this final reconciliation showed that the total entitlement of :ydro to the foreign currency component of the contract e@ceeded the amount of E, dollars re<uired +y :ydro to repay the advances made +y "58 for its account in the importation of new e<uipment, spare parts and tools. :ydro then re<uested a full and final payment due to the underpayment of the foreign e@change portion caused +y price escalations and e@tra work orders. 5n 1)*7, "58 and :ydro prepared a joint computation denominated as the X'159.9& 4ollar !ate 4ifferential on Coreign .omponent of -scalation.Y G1$H =ased on said joint computation, :ydro was still entitled to a foreign e@change differential of E,O1,7%7,//1./) e<uivalent to 11$,*)*,7)1.1/. :ydro then presented its claim for said foreign e@change differential to "58 on 8ugust 1&, 1)*7 G11H +ut the latter refused to honor the same. :ydro made severalG1&H demands to recover its claim until the same was turned down with finality +y then "58 8dministrator Cederico ". 8lday, ?r. on ?anuary #, 1)*/.G17H >n 4ecem+er /, 1))(, :ydro filed a re<uest for ar+itration with the .onstruction 5ndustry 8r+itration .ommission (.58.).G1(H 5n the said re<uest, :ydro nominated si@ (#) ar+itrators. The case was docketed as .58. .ase "o. 1*9)(.

"58 filed its 8nswer with .ompulsory .ounterclaim G1%H raising laches, estoppel and lack of jurisdiction +y .58. as its special defenses. "58 also su+mitted its si@ (#) nominees to the panel of ar+itrators. 8fter appointment of the ar+itrators, +oth parties agreed on the Terms of !eferenceG1#H as well as the issues su+mitted for ar+itration. >n 'arch 17, 1))%, "58 filed a 'otion to 4ismiss G1/H <uestioning .58.Is jurisdiction to take cogni3ance of the case. The latter, however, deferred resolution of the motion and set the case for hearing for the reception of evidence. G1*H "58 movedG1)H for reconsideration +ut the same was denied +y .58. in an >rder dated 8pril &%, 1))%.G&$H 4issatisfied, "58 filed a petition for certiorari and prohi+ition with the .ourt of 8ppeals where the same was docketed as .89 .!. ,1 "o. 7/1*$,G&1H which dismissed the petition in a !esolution dated ?une &*, 1))#.G&&H "58 challenged the resolution of the .ourt of 8ppeals +efore this .ourt in a special civil action for certiorari, docketed as .!. "o. 1&)1#).G&7H 'eanwhile, on ?une 1$, 1))/, the .58. promulgated a decision in favor of :ydro. G&(H "58 filed a 1etition for !eview on 8ppeal +efore the .ourt of 8ppeals, which was docketed as .89 .!. ,1 "o. ((%&/.G&%H 4uring the pendency of .89 .!. ,1 "o. ((%&/ +efore the .ourt of 8ppeals, this .ourt dismissed special civil action for certiorari docketed as .!. "o. 1&)1#) on the ground that .58. had jurisdiction over the dispute and directed the .ourt of 8ppeals to proceed with reasona+le dispatch in the disposition of .89 .!. ,1 "o. ((%&/. "58 did not move for reconsideration of the said decision, hence, the same +ecame final and e@ecutory on 4ecem+er 1%, 1))).G&#H Thereafter, the .ourt of 8ppeals rendered the challenged decision in .89 .!. ,1 "o. ((%&/, reversing the judgment of the .58. on the grounds that: (1) :ydroIs claim has prescri+ed6 (&) assuming that :ydro was entitled to its claim, the rate of e@change should +e +ased on a fi@ed rate6 (7) :ydroIs claim is contrary to !.8. "o. %&)6 G&/H (() "58Is .ertification of "on9Corum9,hopping was proper even if the same was signed only +y counsel and not +y "58Is authori3ed representative6 and (%) "58 did not engage in forum9shopping. :ydroIs 'otion for !econsideration was denied in !esolution of ,eptem+er &(, &$$7. :ence, this petition. 8ddressing first the issue of prescription, the .ourt of 8ppeals, in ruling that :ydroIs claim had prescri+ed, reasoned thus: 3evertheless, =e find good reason to apply the principle of prescription against H"CC. ,t is well to note that !ection +B of the Meneral Conditions of the sub5ect contract provides - CI-C .ecision, p. /0, 1ollo, p. 02.E Any controversy or dispute arising out of or relating to this Contract which cannot be resolved by mutual agreement shall be decided by the Administrator within thirty -78. calendar days from receipt of a written notice from Contractor and who shall furnish Contractor a written copy of this decision. $uch decision shall be final and conclusive unless within thirty &)3* calendar days from the date of receipt thereof, Contractor shall deliver to 4I- a written notice addressed to the -dministrator that he desires that the dispute be submitted to arbitration. ,endin decision from arbitration, Contractor shall proceed dili ently with the performance of the Contract and in accordance with the decision of the -dministrator. &5mphasis and 6nderscorin 7urs* Both parties admit the e*istence of this provision in the Contract - ,etition, p. 8# Comment, p. /9# 1ollo, pp. /' and /)/.. -propos, the following matters are clearE -:. any controversy or dispute between the parties arising from the sub5ect contract shall be governed by the provisions of the contract6 -+. upon the failure to arrive at a mutual agreement, the contractor shall submit the dispute to the Administrator of 3,A for determination6 and -7. the decision of the Administrator shall become final and conclusive, unless within thirty -78. calendar days from the date of receipt thereof, the Contractor shall deliver to 3,A a written notice addressed to the Administrator that he desires that the dispute be submitted for arbitration. 2rescinding from the foregoing matters, =e find that the C,AC erred in granting H"CC;s claim considering that the latter;s right to ma1e such demand had clearly prescribed. To begin with, on January @, :'CA, Cesar >. Tech -3,A;s Administrator at the time. informed H"CC in writing that after a review of the additional points raised by the latter, 3,A confirms its original recommendation not to allow the said claim --nne! :;<# 1ollo, p. C:6 CI-C .ecision, p. //# 1ollo, p. 0).. This should have propelled private respondent to notify and signify to 3,A of intention to submit the dispute to arbitration pursuant to the provision of the contract. Oet, it did not. ,nstead it persisted to send several letters to 3,A reiterating the reason for its re5ected claim - CI-C .ecision, p. //# 1ollo, p. 0)..G&*H Ae disagree for the following reasons: Fir't, the appellate court clearly overlooked the fact that "58, through then 8dministrator Cedrico ". 8lday, ?r., denied Xwith finalityY :ydroIs claim only on ?anuary #, 1)*/ in a letter +earing the same dateG&)H which reads:

This refers to your letter dated 3ovember @, :'CA reFuesting reconsideration on your claim for payment of the #ollar "ate #ifferential of 2rice $scalation in Contract 3o. /2,-C-+. =e have reviewed the relevant facts and issues as presented and the additional points raised in the abovementioned letter in the conte*t of the Contract #ocuments and we find no strong and valid reason to reverse the earlier decision of 3,A;s previous management denying your claim. Therefore, we regret that we have to reiterate the earlier official stand of 3,A under its letter dated January @, :'CA, that confirms the original recommendation which had earlier been presented in our 9 th ,ndorsement dated 0ebruary B, :'CB to your office. ,n view hereof, we regret to say with finality that the claim cannot be given favorable consideration. -$mphasis and italics supplied. :ydro received the a+ove9mentioned letter on ?anuary &/, 1)*/.G7$H 1ursuant to ,ection &% of the .ontractIs eneral .onditions ( .9&%), :ydro had thirty (7$) days from receipt of said denial, or until Ce+ruary &#, 1)*/, within which to notify "58 of its desire to su+mit the dispute to ar+itration. >n Ce+ruary 1*, 1)*/, :ydro sent a letter G71H to "58, addressed to then "58 8dministrator Cederico ". 8lday, ?r., manifesting its desire to su+mit the dispute to ar+itration. The letter was received +y "58 on Ce+ruary 1), 1)*/, which was-it)in the thirty9day prescriptive period. 'oreover, a circumspect scrutiny of the wording of .9&% with regard to the thirty9day prescriptive period shows that said proviso is intended to apply to disputes which arose d$rin5 the act$al construction of the project and not for controversies which occured a*ter the project is completed. The rationale for such a stipulation was aptly e@plained thus +y the .58. in its 4ecision in .58. .ase "o. 1*9)(: ,n construction contracts, there is invariably a provision for interim settlement of disputes. The right to settle disputes is given to the owner or his representative, either an architect or engineer, designated as )owner;s representative,% only for the purpose of avoiding delay in the completion of the pro5ect. ,n this particular contract, that right was reserved to the 3,A Administrator. The types of disputes contemplated were those which may have otherwise affected the progress of the wor1. ,t is very clear that this is the purpose of the limiting periods in this clause that the dispute shall be resolved by the Administrator within 78 days from receipt of a written notice from the Contractor and that the Contractor may submit to arbitration this dispute if it does not agree with the decision of the Administrator, and )2ending decision from arbitration, Contractor shall proceed diligently with the performance of the Contract and in accordance with the decision of the Administrator.% ,n this case, the dispute had arisen after completion of the 2ro5ect. The reason for the 78-day limitation no longer applies, and we find no legal basis for applying it. /oreover, in $*hibit )B,% 3,A Administrator Cesar >. Tech had, instead of rendering an adverse decision, by signing the document with H"CC;s nofre B. Banson, implicitly approved the payment of the foreign e*change differential, but this payment could not be made because of the opinion of Auditor !aldua and later of the Commission on Audit. G7&H Second, as early as 8pril 1)*7, :ydro and "58, through its 8dministrator .esar 2. Tech, prepared the ?oint .omputation which shows that :ydro is entitled to the foreign currency differential. G77H 8s correctly found +y the .58., this computation constitutes a written acknowledgment of the de+t +y the de+tor under 8rticle 11%% of the .ivil .ode, which states: A"T. ::BB. The prescription of actions is interrupted when they are filed before the court, when there is a written e*tra5udicial demand by the creditors, and when there is any written acknowledgment of the debt by the debtor. -$mphasis and italics supplied. 5nstead of upholding the .58.Is findings on this point, the .ourt of 8ppeals ruled that .esar 2. TechIs act of signing the ?oint .omputation was an $ltra &ire' act. This again is patent error. 5t must +e noted that the 8dministrator is the highest officer of the "58. Curthermore, :ydro has +een dealing with "58 through its 8dministrator in all of its transactions with respect to the contract and su+se<uently the foreign currency differential claim. The "58 8dministrator is empowered +y the .ontract to grant or deny foreign currency differential claims. 5t would +e preposterous for the "58 8dministrator to have the power of granting claims without the authority to verify the computation of such claims. Cinally, the records of the case will show that "58 itself ne&er disputed its 8dministratorIs capacity to sign the ?oint .omputation +ecause it knew that the 8dministrator, in fact, had such capacity. -ven assuming for the sake of argument that the 8dministrator had no authority to +ind "58, the latter is already estopped after repeatedly representing to :ydro that the 8dministrator had such authority. 8 corporation may +e held in estoppel from denying as against third persons the authority of its officers or agents who have +een clothed +y it with ostensi+le or apparent authority.G7(H 5ndeed V

. . . The rule is of course settled that )&a(lthough an officer or agent acts without, or in e*cess of, his actual authority if he acts within the scope of an apparent authority with which the corporation has clothed him by holding him out or permitting him to appear as having such authority, the corporation is bound thereby in favor of a person who deals with him in ood faith in reliance on such apparent authority, as where an officer is allowed to e*ercise a particular authority with respect to the business, or a particular branch of it, continuously and publicly, for a considerable time.%. . . G7%H T)ird, "58 has clearly waived the prescriptive period when it continued to entertain :ydroIs claim regarding new matters raised +y the latter in its letters to "58 and then issuing rulings thereon. 5n this regard, 8rticle 111& of the .ivil .ode provides that: A"T. :::+. 2ersons with capacity to alienate property may renounce prescription already obtained, but not the right to prescribe in the future. Prescription is deemed to have been tacitly renounced when the renunciation results from acts which imply the abandonment of the right acquired. -$mphasis and italics supplied. .ertainly, when a party has renounced a right ac<uired +y prescription through its actions, it can no longer claim prescription as a defense.G7#H Fo$rt), even assuming that "58 did not waive the thirty9day prescriptive period, it clearly waived the effects of such period when it actively participated in ar+itration proceedings through the following acts: a. n January A, :''B, 3,A voluntarily filed its written appearance, readily submitted its Answer and asserted its own Counterclaims6 b. ,n the Compliance which accompanied the Answer, 3,A also submitted its si* nominees to the Arbitral Tribunal to be constituted, among of which one was eventually appointed to the tribunal6 c. 3,A also actively participated in the deliberations for and the formulation of the Terms of "eference during the preliminary conference set by C,AC6 and d. 0or the purpose of obviating the introduction of testimonial evidence on the authenticity and due e*ecution of its documentary evidence, 3,A even had e*amined, upon prior reFuest to Hydro, all of the documents which the latter intended to present as evidentiary e*hibits for the said arbitration case. Ae now come to the issue of whether or not the provisions of !.8. "o. %&), otherwise known as an Act To A''$re Uni*or% Bal$e to :)ili##ine 4oin And 4$rrenc(, is applica+le to :ydroIs claim. The .ontract +etween "58 and :ydro is an internationall( tendered contract considering that it was funded +y the 5nternational =ank for !econstruction and 4evelopment (5=!4). 8s a contract funded +y an international organi3ation, particularly one recogni3ed +y the 1hilippines, G7/H the contract is eDe%#t from the provisions of !.8. "o. %&). !.8. "o. (1$$ amended the provisions of !.8. %&) thus: !$CT, 3 :. !ection one of "epublic Act 3umbered 0ive hundred and twenty-nine, entitled )An Act to Assure Gniform Ialue of 2hilippine Coin and Currency,% is hereby amended to read as followsE !ec. :. $very provision contained in, or made with respect to, any domestic obligation to wit, any obligation contracted in the 2hilippines which provisions purports to give the obligee the right to reFuire payment in gold or in a particular 1ind of coin or currency other than 2hilippine currency or in an amount of money of the 2hilippines measured thereby, be as it is hereby declared against public policy, and null, void, and of no effect, and no such provision shall be contained in, or made with respect to, any obligation hereafter incurred. The above prohibition shall not apply to &a* transactions where the funds involved are the proceeds of loans or investments made directly or indirectly, throu h bona fide intermediaries or a ents, by forei n overnments, their a encies and instrumentalities, and international financial and banking institutions so lon as the funds are identifiable, as havin emanated from the sources enumerated above# -b. transactions affecting high-priority economic pro5ects for agricultural, industrial and power development as may be determined by the 3ational $conomic Council which are financed by or through foreign funds6 -c. forward e*change transaction entered into between ban1s or between ban1s and individuals or 5uridical persons6 -d. import-e*port and other international ban1ing, financial investment and industrial transactions. =ith the e*ception of the cases enumerated in items -a., -b., -c. and -d. in the foregoing provisions, in which bases the terms of the parties; agreement shall apply, every other domestic obligation heretofore or hereafter incurred, whether or not any such provision as to payment is contained therein or made with respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is

legal tender for public and private debtsE ,rovided, That if the obligation was incurred prior to the enactment of this Act and reFuired payment in a particular 1ind of coin or currency other than 2hilippine currency, it shall be discharged in 2hilippine currency measured at the prevailing rates of e*change at the time the obligation was incurred, e*cept in case of a loan made in a foreign currency stipulated to be payable in the same currency in which case the rate of e*change prevailing at the time of the stipulated date of payment shall prevail. All coin and currency, including Central Ban1 notes, heretofore and hereafter issued and declared by the Movernment of the 2hilippines shall be legal tender for all debts, public and private. !$CT, 3 +. This Act shall ta1e effect upon its approval. -$mphasis and italics supplied. -ven assuming eD 5ratia ar5$%enti that !.8. "o. %&) is applica+le, it is still erroneous for the .ourt of 8ppeals to deny :ydroIs claim +ecause ,ection 1 of !.8. "o. %&) states that only the stipulation re<uiring payment in foreign currency is void, +ut not the obli5ation to make payment. This can +e gleaned from the provision that Xevery other domestic o+ligation heretofore or hereafter incurredY shall +e Xdischarged upon payment in any coin and currency which at the time is legal tender for pu+lic and private de+ts.Y 5n Re#$blic Re'o$rce' and De&elo#%ent 4or#oration &. 4o$rt o* A##eal',G7*H it was held: . . . it is clear from !ection : of ".A. 3o. B+' that what is declared null and void is the )provision contained in, or made with respect to, any domestic obligation to wit, any obligation contracted in the 2hilippines which provision purports to give the obligee the right to reFuire payment in gold or in a particular 1ind of coin or currency other than 2hilippine currency or in an amount of money of the 2hilippines measured thereby% and not the contract or agreement which contains such proscribed provision. -$mphasis supplied. 'ore succinctly, we held in ,an =uenaventura v. .ourt of 8ppealsG7)H that V ,t is to be noted under the foregoing provision that while an agreement to pay an obligation in a currency other than 2hilippine currency is null and void as contrary to public policy, what the law specifically prohibits is payment in currency other than legal tender but does not defeat a creditors claim for payment. A contrary rule would allow a person to profit or enrich himself ineFuitably at another;s e*pense. -$mphasis supplied. 5t is thus erroneous for the .ourt of 8ppeals to disallow petitionerIs claim for foreign currency differential +ecause "58Is o+ligation should +e converted to 1hilippine 1esos which was legal tender at the time.G($H The ne@t issue to +e resolved is whether or not :ydroIs claim should +e computed at the fi@ed rate of e@change. Ahen the '>8G(1H and the ,upplemental '>8G(&H were in effect, there were instances when the foreign currency availed of +y :ydro e@ceeded the foreign currency paya+le to it for that particular 1rogress 1ayment. 5n instances like these, "58 actually charged :ydro interest in foreign currency computed at the #re&ailin5 e@change rate and not at the fi@ed rate. "58 now insists that the e@change rate should +e computed according to the *iDed rate and not the escalating rate it actually charged :ydro. ,uffice it to state that this flip9flopping stance of "58 of adopting and discarding positions to suit its convenience cannot +e countenanced. 8 person who, +y his deed or conduct has induced another to act in a particular manner, is +arred from adopting an inconsistent position, attitude or course of conduct that there+y causes loss or injury to another.G(7H 5ndeed, the application of the principle of estoppel is proper and timely in heading off "58Is efforts at renouncing its previous acts to the prejudice of :ydro which had dealt with it honestly and in good faith. . . . A principle of eFuity and natural 5ustice, this is e*pressly adopted under Article :97: of the Civil Code, and pronounced as one of the conclusive presumptions under "ule :7:, !ection 7-a. of the "ules of Court, as followsE =henever a party has, by his own declaration, act or omission, intentionally and deliberately led another to believe a particular thing to be true, and to act upon such a belief he cannot, in any litigation arising out of such declaration, act or omission, be permitted to falsify it. 2etitioner, having performed affirmative acts upon which the respondents based their subseFuent actions, cannot thereafter refute his acts or renege on the effects of the same, to the pre5udice of the latter. To allow him to do so would be tantamount to conferring upon him the liberty to limit his liability at his whim and caprice, which is against the very principles of eFuity and natural 5usticeP
G((H

"58 is, therefore, estopped from invoking the contractual stipulation providing for the fi@ed rate to justify a lower computation than that claimed +y :ydro. 5t cannot +e allowed to hide +ehind the very provision which it itself

continuously violated.G(%H 8n admission or representation is rendered conclusive upon the person making it and cannot +e denied or disproved as against the person relying thereon. G(#H 8 party may not go +ack on his own acts and representations to the prejudice of the other party who relied upon them.G(/H "58 was guilty of forum9shopping. Corum9shopping refers to the act of availing oneself of several judicial remedies in different courts, either simultaneously or successively, su+stantially founded on the same transaction and identical material facts and circumstances, raising +asically the like issues either pending in, or already resolved +y, some other court.G(*H 5t has +een characteri3ed as an act of malpractice that is prohi+ited and condemned as trifling with the courts and a+using their processes. 5t constitutes improper conduct which tends to degrade the administration of justice. 5t has also +een descri+ed as deplora+le +ecause it adds to the congestion of the heavily +urdened dockets of the courts. G()H The test in determining the presence of this pernicious practice is whether in the two or more cases pending, there is identity of: (a) parties6 (+) rights or causes of action6 and (c) reliefs sought.G%$H 8pplying the foregoing yardstick to the instant case, it is clear that "58 violated the prohi+ition against forum9 shopping. =esides filing .89 .!. ,1 "o. ((%&/ wherein the .ourt of 8ppealsI decision is the su+ject of appeal in this proceeding, "58 previously filed .89 .!. ,1 "o. 7/1*$ and .!. "o. 1&)1#) which is a special civil action for certiorari. 5n all three cases, the parties are invaria+ly :ydro and "58. 5n all three petitions, "58 raised practically the same issuesG%1H and in all of them, "58Is prayer was the same: to nullify the proceedings commenced at the .58.. 5t must +e pointed out in this regard that the first two petitions namely, .89 .!. ,1 "o. 7/1*$ and .!. "o. 1&)1#) are +oth ori5inal actions. ,ince "58 failed to file a petition for review on certiorari under !ule (% of the !ules of .ourt challenging the decision of the appellate court in .89 .!. ,1 "o. 7/1*$ dismissing its petition, it opted to file an original action for certiorari under !ule #% with this .ourt where the same was docketed as .!. "o. 1&)1#). Cor its failure to appeal the judgments in .89 .!. ,1 "o. 7/1*$ and .!. "o. 1&)1#), "58 is necessarily +ound +y the effects of those decisions. The filing of .89 .!. ,1 "o. ((%&/, which raises the issues already passed upon in +oth cases is a clear case of forum9shopping which merits outright dismissal. The issue of whether or not the .ertification of "on9Corum ,hopping is valid despite that it was signed +y "58Is counsel must +e answered in the negative. 8pplica+le is the ruling in 2ari&ele' S)i#(ard 4or#. &. 4o$rt o* A##eal', et al.:G%&H It is settled that the re=uirement in the 1ules that the certification of non-forum shoppin should be e!ecuted and si ned by the plaintiff or the principal means that counsel cannot si n said certification unless clothed with special authority to do so . The reason for this is that the plaintiff or principal 1nows better than anyone else whether a petition has previously been filed involving the same case or substantially the same issues. Hence, a certification signed by counsel alone is defective and constitutes a valid cause for dismissal of the petition. ,n the case of natural persons, the "ule reFuires the parties themselves to sign the certificate of non-forum shopping. >owever, in the case of the corporations, the physical act of si nin may be performed, on behalf of the corporate entity, only by specifically authorized individuals for the simple reason that corporations, as artificial persons, cannot personally do the tas1 themselves. . . It cannot be gainsaid that obedience to the requirements of procedural rule[s is needed if we are to e!pect fair results therefrom. "tter disregard of the rules cannot #ustly be rationalized by harking on the policy of liberal construction. -$mphasis and italics supplied. 5n this connection, the lawyer must +e Xspecifically authori3edY in order to validly sign the certification.G%7H 5n closing, we restate the rule that the courts will not interfere in matters which are addressed to the sound discretion of government agencies entrusted with the regulation of activities coming under the special technical knowledge and training of such agencies.G%(H 8n action +y an administrative agency may +e set aside +y the judicial department only if there is an error of law, a+use of power, lack of jurisdiction or grave a+use of discretion clearly conflicting with the letter and spirit of the law. G%%H 5n the case at +ar, there is no cogent reason to depart from the general rule +ecause the action of the .58. conforms rather than conflicts with the governing statutes and controlling case law on the matter. ? ERE"ORE, the petition is !8"T-4. The 4ecision of the .ourt of 8ppeals in .89 .!. ,1 "o. ((%&/ dated >cto+er &), &$$& and the !esolution dated ,eptem+er &(, &$$7 are !-;-!,-4 and ,-T 8,54-. The 4ecision of the .onstruction 5ndustry 8r+itration .ommission dated ?une 1$, 1))/ in .58. .ase "o. 1*9)( is !-5",T8T-4. SO ORDERED.