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Case Digest: Grace Christian High School v. CA GRACE CHRISTIAN HIGH SCHOOL, petitioner,vs. THE COURT OF APPEALS, GRACE VILLAGE ASSOCIATION, INC., ALEJANDRO G. BELTRAN, and ERNESTO L. GO, respondents. G.R. No. 108905 October 23, 1997 MENDOZA, J.: Petitioner Grace Christian High School is an educational institution located at the Grace Village in Quezon City, while Private respondent Grace Village Association, Inc. ["Association'] is an organization of lot and/or building owners, lessees and residents at Grace Village. The original 1968 by-laws provide that the Board of Directors, composed of eleven (11) members, shall serve for one (1) year until their successors are duly elected and have qualified. On 20 December 1975, a committee of the board of directors prepared a draft of an amendment to the by-laws which provides that "GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION." However, this draft was never presented to the general membership for approval. Nevertheless, from 1975 to 1990, petitioner was given a permanent seat in the board of directors of the association. On 13 February 1990, the association's committee on election sought to change the by-laws and informed the Petitioner's school principal "the proposal to make the Grace Christian High School representative as a permanent director of the association, although previously tolerated in the past elections should be reexamined." Following this advice, notices were sent to the members of the association that the provision on election of directors of the 1968 by-laws of the association would be observed. Petitioner requested

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Case Digest: Grace Christian High School v. CAGRACE CHRISTIAN HIGH SCHOOL, petitioner,vs. THE COURT OF APPEALS, GRACE VILLAGE ASSOCIATION, INC., ALEJANDRO G. BELTRAN, and ERNESTO L. GO, respondents.

G.R. No. 108905 October 23, 1997

MENDOZA, J.:

Petitioner Grace Christian High School is an educational institution located at the Grace Village in Quezon City, while Private respondent Grace Village Association, Inc. ["Association'] is an organization of lot and/or building owners, lessees and residents at Grace Village.

The original 1968 by-laws provide that the Board of Directors, composed of eleven (11) members, shall serve for one (1) year until their successors are duly elected and have qualified.

On 20 December 1975, a committee of the board of directors prepared a draft of an amendment to theby-laws which provides that "GRACE CHRISTIAN HIGH SCHOOL representative is a permanentDirector of the ASSOCIATION."

However, this draft was never presented to the general membership for approval. Nevertheless, from 1975 to 1990, petitioner was given a permanent seat in the board of directors of the association.

On 13 February 1990, the association's committee on election sought to change the by-laws and informed the Petitioner's school principal "the proposal to make the Grace Christian High School representative as a permanent director of the association, although previously tolerated in the past elections should be reexamined."

Following this advice, notices were sent to the members of the association that the provision on election of directors of the 1968 by-laws of the association would be observed. Petitioner requested the chairman of the election committee to change the notice to honor the 1975 by-laws provision, but was denied.

The school then brought suit for mandamus in the Home Insurance and Guaranty Corporation (HIGC) to compel the board of directors to recognize its right to a permanent seat in the board.

Meanwhile, the opinion of the SEC was sought by the association, and SEC rendered an opinion to the effect that the practice of allowing unelected members in the board was contrary to the existing by-laws of the association and to §92 of the Corporation Code (B.P. Blg. 68). This was adopted by the association in its Answer in the mandamus filed with the HIGC.

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The HIGC hearing officer ruled in favor of the association, which decision was affirmed by the HIGC Appeals Board and the Court of Appeals.

Issue: W/N the 1975 provision giving the petitioner a permanent board seat was valid.

Ruling: No.

Section 23 of the Corporation Code (and its predecessor Section 28 and 29 of the Corporation Law) leaves no room for doubt that the Board of Directors of a Corporation must be elected from among the stockholders or members.

There may be corporations in which there are unelected members in the board but it is clear that in these instances, the unelected members sit as ex officio members, i.e., by virtue of and for as long as they hold a particular office (e.g. whoever is the Archbishop of Manila is considered a member of the board of Cardinal Santos Memorial Hospital, Inc.)

But in the case of petitioner, there is no reason at all for its representative to be given a seat in the board. Nor does petitioner claim a right to such seat by virtue of an office held. In fact it was not given such seat in the beginning. It was only in 1975 that a proposed amendment to the by-laws sought to give it one.

Since the provision in question is contrary to law, the fact that it has gone unchallenged for fifteen years cannot forestall a later challenge to its validity. Neither can it attain validity through acquiescence because, if it is contrary to law, it is beyond the power of the members of the association to waive its invalidity.

It is more accurate to say that the members merely tolerated petitioner's representative and tolerance cannot be considered ratification.

Nor can petitioner claim a vested right to sit in the board on the basis of "practice." Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law.

2.Gokongwei vs. SEC Case DigestGokongwei vs. Securities and Exchange Commission[GR L-45911, 11 April 1979]

Facts: [SEC Case 1375] On 22 October 1976, John Gokongwei Jr., as stockholder of San Miguel Corporation, filed with the Securities and Exchange Commission (SEC) a petition for "declaration of nullity of amended by-laws, cancellation of certificate of filing of amended by-laws, injunction and damages with prayer for a preliminary injunction" against the majority of the members of the Board of Directors and San Miguel Corporation as an unwilling petitioner. As a first cause of action, Gokongwei alleged that on 18 September 1976, Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel, Antonio Roxas, Emeterio Buñao, Walthrode B. Conde, Miguel Ortigas, and Antonio Prieto amended by bylaws of the corporation, basing their authority to do

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so on a resolution of the stockholders adopted on 13 March 1961, when the outstanding capital stock of the corporation was only P70,139.740.00, divided into 5,513,974 common shares at P10.00 per share and 150,000 preferred shares at P100.00 per share. At the time of the amendment, the outstanding and paid up shares totalled 30,127,043, with a total par value of P301,270,430.00.

It was contended that according to section 22 of the Corporation Law and Article VIII of the by-laws of the corporation, the power to amend, modify, repeal or adopt new by-laws may be delegated to the Board of Directors only by the affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid up capital stock of the corporation, which 2/3 should have been computed on the basis of the capitalization at the time of the amendment. Since the amendment was based on the 1961 authorization, Gokongwei contended that the Board acted without authority and in usurpation of the power of the stockholders. As a second cause of action, it was alleged that the authority granted in 1961 had already been exercised in 1962 and 1963, after which the authority of the Board ceased to exist. As a third cause of action, Gokongwei averred that the membership of the Board of Directors had changed since the authority was given in 1961, there being 6 new directors. As a fourth cause of action, it was claimed that prior to the questioned amendment, Gokogwei had all the qualifications to be a director of the corporation, being a substantial stockholder thereof; that as a stockholder, Gokongwei had acquired rights inherent in stock ownership, such as the rights to vote and to be voted upon in the election of directors; and that in amending the by-laws, Soriano, et. al. purposely provided for Gokongwei's disqualification and deprived him of his vested right as afore-mentioned, hence the amended by-laws are null and void. As additional causes of action, it was alleged that corporations have no inherent power to disqualify a stockholder from being elected as a director and, therefore, the questioned act is ultra vires and void; that Andres M. Soriano, Jr. and/or Jose M. Soriano, while representing other corporations, entered into contracts (specifically a management contract) with the corporation, which was avowed because the questioned amendment gave the Board itself the prerogative of determining whether they or other persons are engaged in competitive or antagonistic business; that the portion of the amended by-laws which states that in determining whether or not a person is engaged in competitive business, the Board may consider such factors as business and family relationship, is unreasonable and oppressive and, therefore, void; and that the portion of the amended by-laws which requires that "all nominations for election of directors shall be submitted in writing to the Board of Directors at least five (5) working days before the date of the Annual Meeting" is likewise unreasonable and oppressive. It was, therefore, prayed that the amended by-laws be declared null and void and the certificate of filing thereof be cancelled, and that Soriano, et. al. be made to pay damages, in specified amounts, to Gokongwei. On 28 October 1976, in connection with the same case, Gokongwei filed with the Securities and Exchange Commission an "Urgent Motion for Production and Inspection of Documents", alleging that the Secretary of the corporation refused to allow him to inspect its records despite request made by Gokongwei for production of certain documents enumerated in the request, and that the corporation had been attempting to suppress information from its stockholders despite a negative reply by the SEC to its query regarding their authority to do so.

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The motion was opposed by Soriano, et. al. The Corporation, Soriano, et. al. filed their answer, and their opposition to the petition, respectively. Meanwhile, on 10 December 1976, while the petition was yet to be heard, the corporation issued a notice of special stockholders' meeting for the purpose of "ratification and confirmation of the amendment to the By-laws", setting such meeting for 10 February 1977. This prompted Gokongwei to ask the SEC for a summary judgment insofar as the first cause of action is concerned, for the alleged reason that by calling a special stockholders' meeting for the aforesaid purpose, Soriano, et. al. admitted the invalidity of the amendments of 18 September 1976. The motion for summary judgment was opposed by Soriano, et. al. Pending action on the motion, Gokongwei filed an "Urgent Motion for the Issuance of a Temporary Restraining Order", praying that pending the determination of Gokongwei's application for the issuance of a preliminary injunction and or Gokongwei's motion for summary judgment, a temporary restraining order be issued, restraining Soriano, et. al. from holding the special stockholders' meeting as scheduled. This motion was duly opposed by Soriano, et. al. On 10 February 1977, Cremation issued an order denying the motion for issuance of temporary restraining order. After receipt of the order of denial, Soriano, et. al. conducted the special stockholders' meeting wherein the amendments to the by-laws were ratified. On 14 February 1977, Gokongwei filed a consolidated motion for contempt and for nullification of the special stockholders' meeting. A motion for reconsideration of the order denying Gokongwei's motion for summary judgment was filed by Gokongwei before the SEC on 10 March 1977.

[SEC Case 1423] Gokongwei alleged that, having discovered that the corporation has been investing corporate funds in other corporations and businesses outside of the primary purpose clause of the corporation, in violation of section 17-1/2 of the Corporation Law, he filed with SEC, on 20 January 1977, a petition seeking to have Andres M. Soriano, Jr. and Jose M. Soriano, as well as the corporation declared guilty of such violation, and ordered to account for such investments and to answer for damages. On 4 February 1977, motions to dismiss were filed by Soriano, et. al., to which a consolidated motion to strike and to declare Soriano, et. al. in default and an opposition ad abundantiorem cautelam were filed by Gokongwei. Despite the fact that said motions were filed as early as 4 February 1977, the Commission acted thereon only on 25 April 1977, when it denied Soriano, et. al.'s motions to dismiss and gave them two (2) days within which to file their answer, and set the case for hearing on April 29 and May 3, 1977. Soriano, et. al. issued notices of the annual stockholders' meeting, including in the Agenda thereof, the "reaffirmation of the authorization to the Board of Directors by the stockholders at the meeting on 20 March 1972 to invest corporate funds in other companies or businesses or for purposes other than the main purpose for which the Corporation has been organized, and ratification of the investments thereafter made pursuant thereto." By reason of the foregoing, on 28 April 1977, Gokongwei filed with the SEC an urgent motion for the issuance of a writ of preliminary injunction to restrain Soriano, et. al. from taking up Item 6 of the Agenda at the annual stockholders' meeting, requesting that the same be set for hearing on 3 May 1977, the date set for the second hearing of the case on the merits. The SEC, however, cancelled the dates of hearing originally scheduled and reset the same to May 16 and 17, 1977, or after the scheduled annual stockholders' meeting. For the purpose of urging the Commission to act,

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Gokongwei filed an urgent manifestation on 3 May 1977, but this notwithstanding, no action has been taken up to the date of the filing of the instant petition.

Gokongwei filed a petition for petition for certiorari, mandamus and injunction, with prayer for issuance of writ of preliminary injunction, with the Supreme Court, alleging that there appears a deliberate and concerted inability on the part of the SEC to act.

Issue:Whether the corporation has the power to provide for the (additional) qualifications of its directors. Whether the disqualification of a competitor from being elected to the Board of Directors is a reasonable exercise of corporate authority. Whether the SEC gravely abused its discretion in denying Gokongwei's request for an examination of the records of San Miguel International, Inc., a fully owned subsidiary of San Miguel Corporation. Whether the SEC gravely abused its discretion in allowing the stockholders of San Miguel Corporation to ratify the investment of corporate funds in a foreign corporation. Held:

1. It is recognized by all authorities that "every corporation has the inherent power to adopt by-laws 'for its internal government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of its affairs.'" In this jurisdiction under section 21 of the Corporation Law, a corporation may prescribe in its by-laws "the qualifications, duties and compensation of directors, officers and employees." This must necessarily refer to a qualification in addition to that specified by section 30 of the Corporation Law, which provides that "every director must own in his right at least one share of the capital stock of the stock corporation of which he is a director." Any person "who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and that he impliedly contracts that the will of the majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted by-laws and not forbidden by law." To this extent, therefore, the stockholder may be considered to have "parted with his personal right or privilege to regulate the disposition of his property which he has invested in the capital stock of the corporation, and surrendered it to the will of the majority of his fellow incorporators. It can not therefore be justly said that the contract, express or implied, between the corporation and the stockholders is infringed by any act of the former which is authorized by a majority." Pursuant to section 18 of the Corporation Law, any corporation may amend its articles of incorporation by a vote or written assent of the stockholders representing at least two-thirds of the subscribed capital stock of the corporation. If the amendment changes, diminishes or restricts the rights of the existing shareholders, then the dissenting minority has only one right, viz.: "to object thereto in writing and demand payment for his share." Under section 22 of the same law, the owners of the majority of the subscribed capital stock may amend or repeal any by-law or adopt new by-laws. It cannot be said, therefore, that Gokongwei has a vested right to be elected director, in the face of the fact that the law at the time such right

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as stockholder was acquired contained the prescription that the corporate charter and the by-law shall be subject to amendment, alteration and modification.

2. Although in the strict and technical sense, directors of a private corporation are not regarded as trustees, there cannot be any doubt that their character is that of a fiduciary insofar as the corporation and the stockholders as a body are concerned. As agents entrusted with the management of the corporation for the collective benefit of the stockholders, "they occupy a fiduciary relation, and in this sense the relation is one of trust." "The ordinary trust relationship of directors of a corporation and stockholders is not a matter of statutory or technical law. It springs from the fact that directors have the control and guidance of corporate affairs and property and hence of the property interests of the stockholders. Equity recognizes that stockholders are the proprietors of the corporate interests and are ultimately the only beneficiaries thereof." A director is a fiduciary. Their powers are powers in trust. He who is in such fiduciary position cannot serve himself first and his cestuis second. He cannot manipulate the affairs of his corporation to their detriment and in disregard of the standards of common decency. He cannot by the intervention of a corporate entity violate the ancient precept against serving two masters. He cannot utilize his inside information and strategic position for his own preferment. He cannot violate rules of fair play by doing indirectly through the corporation what he could not do so directly. He cannot violate rules of fair play by doing indirectly through the corporation what he could not do so directly. He cannot use his power for his personal advantage and to the detriment of the stockholders and creditors no matter how absolute in terms that power may be and no matter how meticulous he is to satisfy technical requirements. For that power is at all times subject to the equitable limitation that it may not be exercised for the aggrandizement, preference, or advantage of the fiduciary to the exclusion or detriment of the cestuis. The doctrine of "corporate opportunity" is precisely a recognition by the courts that the fiduciary standards could not be upheld where the fiduciary was acting for two entities with competing interests. This doctrine rests fundamentally on the unfairness, in particular circumstances, of an officer or director taking advantage of an opportunity for his own personal profit when the interest of the corporation justly calls for protection. It is not denied that a member of the Board of Directors of the San Miguel Corporation has access to sensitive and highly confidential information, such as: (a) marketing strategies and pricing structure; (b) budget for expansion and diversification; (c) research and development; and (d) sources of funding, availability of personnel, proposals of mergers or tie-ups with other firms. It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel Corporation, who is also the officer or owner of a competing corporation, from taking advantage of the information which he acquires as director to promote his individual or corporate interests to the prejudice of San Miguel Corporation and its stockholders, that the questioned amendment of the by-laws was made. Certainly, where two corporations are competitive in a substantial sense, it would seem improbable, if not impossible, for the director, if he were to discharge effectively his duty, to satisfy his loyalty to both corporations and place the performance of his corporation duties above his personal concerns. The offer and assurance of Gokongwei that to avoid any possibility of his taking unfair advantage of his position as director of San Miguel Corporation, he would absent himself from meetings at which confidential matters would be discussed, would not detract from the validity and reasonableness of the by-laws involved. Apart from the

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impractical results that would ensue from such arrangement, it would be inconsistent with Gokongwei's primary motive in running for board membership — which is to protect his investments in San Miguel Corporation. More important, such a proposed norm of conduct would be against all accepted principles underlying a director's duty of fidelity to the corporation, for the policy of the law is to encourage and enforce responsible corporate management.

3. Pursuant to the second paragraph of section 51 of the Corporation Law, "(t)he record of all business transactions of the corporation and minutes of any meeting shall be open to the inspection of any director, member or stockholder of the corporation at reasonable hours." The stockholder's right of inspection of the corporation's books and records is based upon their ownership of the assets and property of the corporation. It is, therefore, an incident of ownership of the corporate property, whether this ownership or interest be termed an equitable ownership, a beneficial ownership, or a quasi-ownership. This right is predicated upon the necessity of self-protection. It is generally held by majority of the courts that where the right is granted by statute to the stockholder, it is given to him as such and must be exercised by him with respect to his interest as a stockholder and for some purpose germane thereto or in the interest of the corporation. In other words, the inspection has to be germane to the petitioner's interest as a stockholder, and has to be proper and lawful in character and not inimical to the interest of the corporation. The "general rule that stockholders are entitled to full information as to the management of the corporation and the manner of expenditure of its funds, and to inspection to obtain such information, especially where it appears that the company is being mismanaged or that it is being managed for the personal benefit of officers or directors or certain of the stockholders to the exclusion of others." While the right of a stockholder to examine the books and records of a corporation for a lawful purpose is a matter of law, the right of such stockholder to examine the books and records of a wholly-owned subsidiary of the corporation in which he is a stockholder is a different thing. Stockholders are entitled to inspect the books and records of a corporation in order to investigate the conduct of the management, determine the financial condition of the corporation, and generally take an account of the stewardship of the officers and directors. herein, considering that the foreign subsidiary is wholly owned by San Miguel Corporation and, therefore, under Its control, it would be more in accord with equity, good faith and fair dealing to construe the statutory right of petitioner as stockholder to inspect the books and records of the corporation as extending to books and records of such wholly owned subsidiary which are in the corporation's possession and control.

4. Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds in any other corporation or business or for any purpose other than the main purpose for which it was organized" provided that its Board of Directors has been so authorized by the affirmative vote of stockholders holding shares entitling them to exercise at least two-thirds of the voting power. If the investment is made in pursuance of the corporate purpose, it does not need the approval of the stockholders. It is only when the purchase of shares is done solely for investment and not to accomplish the purpose of its incorporation that the vote of approval of the stockholders holding shares entitling them to exercise at least two-thirds of the voting power is necessary. As stated by the corporation, the purchase of beer manufacturing facilities by SMC was an investment in the same business stated as its main purpose in its Articles of Incorporation, which is to

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manufacture and market beer. It appears that the original investment was made in 1947-1948, when SMC, then San Miguel Brewery, Inc., purchased a beer brewery in Hongkong (Hongkong Brewery & Distillery, Ltd.) for the manufacture and marketing of San Miguel beer thereat. Restructuring of the investment was made in 1970-1971 thru the organization of SMI in Bermuda as a tax free reorganization. Assuming arguendo that the Board of Directors of SMC had no authority to make the assailed investment, there is no question that a corporation, like an individual, may ratify and thereby render binding upon it the originally unauthorized acts of its officers or other agents. This is true because the questioned investment is neither contrary to law, morals, public order or public policy. It is a corporate transaction or contract which is within the corporate powers, but which is defective from a purported failure to observe in its execution the requirement of the law that the investment must be authorized by the affirmative vote of the stockholders holding two-thirds of the voting power. This requirement is for the benefit of the stockholders. The stockholders for whose benefit the requirement was enacted may, therefore, ratify the investment and its ratification by said stockholders obliterates any defect which it may have had at the outset. Besides, the investment was for the purchase of beer manufacturing and marketing facilities which is apparently relevant to the corporate purpose. The mere fact that the corporation submitted the assailed investment to the stockholders for ratification at the annual meeting of 10 May 1977 cannot be construed as an admission that the corporation had committed an ultra vires act, considering the common practice of corporations of periodically submitting for the ratification of their stockholders the acts of their directors, officers and managers.

3.People's Aircargo and Warehousing Co. Inc. vs. Court of Appeals [GR 117847, 7 October 1998]First Division, Panganiban (J): 4 concurFacts: People's Aircargo and Warehousing Co. Inc. (PAWCI) is a domestic corporation, which was organizedin the middle of 1986 to operate a customs bonded warehouse at the old Manila International Airport in PasayCity. To obtain a license for the corporation from the Bureau of Customs, Antonio Punsalan Jr., thecorporation president, solicited a proposal from Stefani Saño for the preparation of a feasibility study. Sañosubmitted a letter-proposal dated 17 October 1986 ("First Contract") to Punsalan, for the project feasibilitystudy (market, technical, and financial feasibility) and preparation of pertinent documentation requirementsfor the application, worth P350,000. Initially, Cheng Yong, the majority stockholder of PAWCI, objected toSaño's offer, as another company priced a similar proposal at only P15,000. However, Punsalan preferredSaño's services because of the latter's membership in the task force, which was supervising the transition of

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the Bureau of Customs from the Marcos government to the Aquino Administration. On 17 October 1986,PAWCI, through Punsalan, sent Saño a letter confirming their agreement. Accordingly, Saño prepared afeasibility study for PAWCI which eventually paid him the balance of the contract price, although notaccording to the schedule agreed upon. On 4 December 1986, upon Punsalan's request, Saño sent PAWCIanother letter-proposal ("Second Contract") formalizing its proposal for consultancy services in the amount ofP400,000. On 10 January 1987, Andy Villaceren, vice president of PAWCI, received the operations manualprepared by Saño. PAWCI submitted said operations manual to the Bureau of Customs in connection with theformer's application to operate a bonded warehouse; thereafter, in May 1987, the Bureau issued to it a licenseto operate, enabling it to become one of the three public customs bonded warehouses at the internationalairport. Saño also conducted, in the third week of January 1987 in the warehouse of PAWCI, a three-daytraining seminar for the latter's employees. On 25 March 1987, Saño joined the Bureau of Customs as specialassistant to then Commissioner Alex Padilla, a position he held until he became technical assistant to thenCommissioner Miriam Defensor-Santiago on 7 March 1988. Meanwhile, Punsalan sold his shares in PAWCIand resigned as its president in 1987. On 9 February 1988, Saño filed a collection suit against PAWCI. Healleged that he had prepared an operations manual for PAWCI, conducted a seminar-workshop for itsemployees and delivered to it a computer program; but that, despite demand, PAWCI refused to pay him forhis services. PAWCI, in its answer, denied that Saño had prepared an operations manual and a computerprogram or conducted a seminar-workshop for its employees. It further alleged that the letter-agreement wassigned by Punsalan without authority, in collusion with Saño in order to unlawfully get some money fromPAWCI, and despite his knowledge that a group of employees of the company had been commissioned by theboard of directors to prepare an operations manual. The Regional Trial Court (RTC) of Pasay City, Branch110, rendered a Decision dated 26 October 1990 declared the Second Contract unenforceable or simulated.

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However, since Saño had actually prepared the operations manual and conducted a training seminar forPAWCI and its employees, the trial court awarded P60,000 to the former, on the ground that no one should beunjustly enriched at the expense of another (Article 2142, Civil Code). The trial Court determined the amount"in light of the evidence presented by defendant on the usual charges made by a leading consultancy firm onsimilar services." Upon appeal, and on 28 February 1994, the appellate court modified the decision of the trialcourt, and declared the Second Contract valid and binding on PAWCI, which was held liable to Saño in thefull amount of P400,000, representing payment of Saño services in preparing the manual of operations and inthe conduct of a seminar for PAWCI. As no new ground was raised by PAWCI, reconsideration of thedecision was denied in the Resolution promulgated on 28 October 1994. PAWCI filed the Petition for Review.Issue: Whether a single instance where the corporation had previously allowed its president to enter into acontract with another without a board resolution expressly authorizing him, has clothed its president withapparent authority to execute the subject contract.Held: Apparent authority is derived not merely from practice. Its existence may be ascertained through (1)the general manner in which the corporation holds out an officer or agent as having the power to act or, inother words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in hisacts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scopeof his ordinary powers. It requires presentation of evidence of similar act(s) executed either in its favor or infavor of other parties. It is not the quantity of similar acts which establishes apparent authority, but the vestingof a corporate officer with the power to bind the corporation. Herein, PAWCI, through its president AntonioPunsalan Jr., entered into the First Contract without first securing board approval. Despite such lack of boardapproval, PAWCI did not object to or repudiate said contract, thus "clothing" its president with the power tobind the corporation. The grant of apparent authority to Punsalan is evident in the testimony of Yong — senior

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vice president, treasurer and major stockholder of PAWCI. The First Contract was consummated,implemented and paid without a hitch. Hence, Sano should not be faulted for believing that Punsalan'sconformity to the contract in dispute was also binding on petitioner. It is familiar doctrine that if a corporationknowingly permits one of its officers, or any other agent, to act within the scope of an apparent authority, itholds him out to the public as possessing the power to do those acts; and thus, the corporation will, as againstanyone who has in good faith dealt with it through such agent, be estopped from denying the agent's authority.Furthermore, Saño prepared an operations manual and conducted a seminar for the employees of PAWCI inaccordance with their contract. PAWCI accepted the operations manual, submitted it to the Bureau ofCustoms and allowed the seminar for its employees. As a result of its aforementioned actions, PAWCI wasgiven by the Bureau of Customs a license to operate a bonded warehouse. Granting arguendo then that theSecond Contract was outside the usual powers of the president, PAWCI's ratification of said contract andacceptance of benefits have made it binding, nonetheless. The enforceability of contracts under Article1403(2) is ratified "by the acceptance of benefits under them" under Article 1405.

4. Marc II Marketing, Inc. and Lucila Joson, petitioners, v. Alfredo M. Joson, respondentFacts:Marc II Marketing, Inc. and Lucila Joson is assailing the decision of the CA for reversing andsettling aside the Resolution of the National Labor Relations Commission.Marc II Marketing, Inc. is a corporation duly organized and existing under and by virtue of the laws of the Philippines. It is primarily engaged in buying, marketing, selling and distributing inretail or wholesale for export or import household appliances and products and other items.Petitioner Lucila V. Joson is the President and majority stockholder of the corporation.Before Marc II Marketing, Inc. was officially incorporated, Alfredo M. Joson has already beenengaged by Lucila, in her capacity as President, to work as General Manager of the corporaton and itwas formalized through the execution of a Management Contract dated in 1994 under MarcMarketing, Inc., as Marc II Marketing, Inc. was yet to be incorporated. For occupying the saidposition, respondent was among the corporation’s corporate officers by the express provision of Section 1, Article IV of its by-laws.Alfredo was appointed as one of its officers with the designation or title of General Managerto function as a managing director with other duties and responsibilities that the Board may provideand authorized.However, in 1997, Marc II Marketing Inc. decided to stop and cease its operation

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asevidenced by an Affidavit of Non-Operation due to poor sales collection aggravated by theinefficient management of its affairs. Alfredo was informed of the cessation of its businessoperations and the termination of his services as General Manager. He filed action forreinstatement and money claim against petitioners.Issue:Whether or not Marc II Marketing Inc.’s Board of Directors could create a position forcorporate officers through an enabling clause found in its corporate by-laws?Decision:The Court held that in the context of PD 902-A, corporate officers are those officers of acorporation who are given that character eitherby the Corporation Code or by the corporation’s by-laws. Section 25 of the Corporation Code specifically enumerated who are these corporateofficers, namely: president, secretary, treasurer and such other officers as may be provided for inthe by-laws.Acareful examination of Marc II Marketing Inc.’s by-laws, particularly paragraph 1, Section 1of Article IV explicitly revealed that its corporate officers are composed only of chairman, president,one/more vice president, treasurer and secretary. The position of general manager was not amongthose enumerated. Meanwhile, paragraph 2, Section 1 of Article IV of the corporation’s by-lawsempowered its Board of Directors to appoint such officers as it may determine necessary or proper,making this an enabling provision for approving a resolution to make the position of generalmanager a corporate officer. All of these acts were done without first amending its by-laws so as toinclude the General Manager in its roster of corporate officers.Though the Board of Directors may create appointive positions other than the positions of corporate officers, the persons occupying such positions cannot be viewed as corporate officersunder Section 25 of the Corporation Code. The said provision of the Corporation Code safeguardsthe constitutionally enshrined right of every employee to security of tenure and prevents thecreation of a corporate officer position by a simple inclusion in the corporate by-laws of an enablingclause empowering the Board of Directors

5. SPOUSES ROBERTO & EVELYN DAVID and COORDINATED GROUP, INC., petitioners, vs. CONSTRUCTION INDUSTRY AND ARBITRATION COMMISSION and SPS. NARCISO & AIDA QUIAMBAO, respondents.D E C I S I O NPUNO, J.:

This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court, assailing the Decision and Resolution of the Court of Appeals, dated June 30, 2003 and August 27, 2003, respectively, in CA-G.R. SP No. 72736.

Petitioner COORDINATED GROUP, INC. (CGI) is a corporation engaged in the construction business, with petitioner-spouses ROBERTO and EVELYN DAVID as its President and Treasurer, respectively.

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The records reveal that on October 7, 1997, respondent-spouses NARCISO and AIDA QUIAMBAO engaged the services of petitioner CGI to design and construct a five-storey concrete office/residential building on their land in Tondo, Manila. The Design/Build Contract of the parties provided that: (a) petitioner CGI shall prepare the working drawings for the construction project; (b) respondents shall pay petitioner CGI the sum of Seven Million Three Hundred Nine Thousand Eight Hundred Twenty-One and 51/100 Pesos (P7,309,821.51) for the construction of the building, including the costs of labor, materials and equipment, and Two Hundred Thousand Pesos (P200,000.00) for the cost of the design; and (c) the construction of the building shall be completed within nine (9) months after securing the building permit.

The completion of the construction was initially scheduled on or before July 16, 1998 but was extended to November 15, 1998 upon agreement of the parties. It appears, however, that petitioners failed to follow the specifications and plans as previously agreed upon. Respondents demanded the correction of the errors but petitioners failed to act on their complaint. Consequently, respondents rescinded the contract on October 31, 1998, after paying 74.84% of the cost of construction.

Respondents then engaged the services of another contractor, RRA and Associates, to inspect the project and assess the actual accomplishment of petitioners in the construction of the building. It was found that petitioners revised and deviated from the structural plan of the building without notice to or approval by the respondents.[1]

Respondents filed a case for breach of contract against petitioners before the Regional Trial Court (RTC) of Manila. At the pre-trial conference, the parties agreed to submit the case for arbitration to the CONSTRUCTION INDUSTRY ARBITRATION COMMISSION (CIAC). Respondents filed a request[2] for arbitration with the CIAC and nominated Atty. Custodio O. Parlade as arbitrator. Atty. Parlade was appointed by the CIAC as sole arbitrator to resolve the dispute. With the agreement of the parties, Atty. Parlade designated Engr. Loreto C. Aquino to assist him in assessing the technical aspect of the case. The RTC of Manila then dismissed the case and transmitted its records to the CIAC.[3]

After conducting hearings and two (2) ocular inspections of the construction site, the arbitrator rendered judgment against petitioners, thus:

AWARD

In summary, award is hereby made in favor of the Quiambaos against the Respondents, jointly and severally, as follows:

Lost Rentals - P1,680,000.00Cost to Complete, Rectification, etc. - 2,281,028.71Damages due to erroneous staking - 117,000.00Professional fees for geodeticsurveys, etc. - 72,500.00

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Misc. expenses/ professionalfees of engineers - 118,642.50Bills for water and electricity, PLDT - 15,247.68Attorney’s Fees - 100,000.00Moral Damages - 250,000.00Exemplary Damages - 250,000.00-----------------

TOTAL P4,884,418.89

There is likewise an award in favor of the Respondents (petitioners herein) and against the Claimants (respondents herein) for the value of the materials and equipment left at (the) site (in) the amount of P238,372.75. Respondent CGI is likewise credited with an 80% accomplishment having a total value of P5,847,857.20.

All other claims and counterclaims are hereby dismissed for lack of merit.

To recapitulate: Payments alreadymade to CGI - P5,275,041.00Amount awardedabove to Claimants - 4,864,418.89---------------------Total 10,159,459.89Payments due CGI for 80%work accomplishment - P5,847,857.20Cost of materials andequipment - 238,372.75--------------------Total : P6,086,299.95Deducting this amount of P6,086,229.95 from P10,159,459.89, the result is a net award in favor the Claimants of (sic) the amount of P4,073,229.94.

WHEREFORE, the Respondents are hereby ordered to pay, jointly and severally, the Claimants the amount of P4,073,229.94 with interest at 6% per annum from the date of the promulgation of this Award, and 12% per annum of the net award, including accrued interest, from the time it becomes final and executory until it is fully paid.

Each party is hereby directed to pay to the Commission P15,000.00 as such party’s share in the expert’s fees paid to Engr. Loreto C. Aquino.

SO ORDERED.[4]

Petitioners appealed to the Court of Appeals which affirmed the arbitrator’s Decision but deleted the award for lost rentals.[5]

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Unsatisfied, petitioners filed this petition for review on certiorari, raising the following issues:

I. THERE WAS NO BASIS, IN FACT AND IN LAW, TO ALLOW RESPONDENTS TO UNILATERALLY RESCIND THE DESIGN/BUILT CONTRACT, AFTER PETITIONERS HAVE (SIC) SUBSTANTIALLY PERFORMED THEIR OBLIGATION UNDER THE SAID CONTRACT.

II. THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONERS JOINTLY AND SEVERALLY LIABLE WITH CO-PETITIONER COORDINATED (GROUP, INC.), IN CLEAR VIOLATION OF THE DOCTRINE OF SEPARATE JURIDICAL PERSONALITY.

We find no merit in the petition.

Executive Order No. 1008 entitled, “Construction Industry Arbitration Law” provided for an arbitration mechanism for the speedy resolution of construction disputes other than by court litigation. It recognized the role of the construction industry in the country’s economic progress as it utilizes a large segment of the labor force and contributes substantially to the gross national product of the country.[6] Thus, E.O. No. 1008 vests on the Construction Industry Arbitration Commission (CIAC) original and exclusive jurisdiction over disputes arising from or connected with construction contracts entered into by parties who have agreed to submit their case to voluntary arbitration. Section 19 of E.O. No. 1008 provides that its arbitral award shall be appealable to the Supreme Court only on questions of law.[7]

There is a question of law when the doubt or difference in a given case arises as to what the law is on a certain set of facts, and there is a question of fact when the doubt arises as to the truth or falsity of the alleged facts.[8] Thus, for a question to be one of law, it must not involve an examination of the probative value of the evidence presented by the parties and there must be no doubt as to the veracity or falsehood of the facts alleged.[9]

In the case at bar, it is readily apparent that petitioners are raising questions of fact. In their first assigned error, petitioners claim that at the time of rescission, they had completed 80% of the construction work and still have 15 days to finish the project. They likewise insist that they constructed the building in accordance with the contract and any modification on the plan was with the consent of the respondents.

These claims of petitioners are refuted by the evidence on record. In holding that respondents were justified in rescinding the contract, the Court of Appeals upheld the factual findings of the sole arbitrator, thus:

x x x

(A)s the Building was taking shape, they noticed deviations from the approved plans and specifications for the Building. Most noticeable were two (2) concrete columns in the middle of the basement which effectively and permanently obstructed the basement for the parking of

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vehicles x x x. In addition, three (3) additional concrete columns were constructed from the ground floor to the roof deck x x x which affected the overall dimension of the building such as altering the specified beam depths, passageways and windows. In addition, Mrs. Quiambao provided a virtual litany of alleged defects, to wit: (a) the Building was not vertically plumbed xxx; (b) provisions for many architectural members were not provided for, such as, (i) the recesses for window plant boxes are lacking xxx, (ii) provisions for precast molding are lacking xxx, (iii) canopies are also lacking x x x; (c) misaligned walls, ugly discrepancies and gaps; (d) skewed walls to floors/landings; (e) low head clearances and truncated beams x x x; (f) narrow and disproportionate stairs xxx one (1) instead of two (2) windows at the fire exit x x x, (g) absence of water-proofing along the basement wall x x x and at the roof deck which caused leaks that damages the mezzanine floor x x x; (h) the use of smaller diagonal steel trusses at the penthouse. x x x There were others which were shown during the site inspection such as: (1) L-shaped kitchen counters instead of the required U-shaped counters x x x; (2) failure to provide marble tops for the kitchen counters; (3) installation of single-tub sinks where the plans called for double-type stainless kitchen sinks x x x; (4) installation of much smaller windows than those required; (5) misaligned window easements to wall, (6) floors were damaged by roof leaks, (6) poor floor finish, misaligned tiles, floors with “kapak” and disproportionate drawers and cabinets. A more comprehensive list of alleged defects, deviations and complaints of the Quiambaos is found in a report marked Exhibit C-144. Many of these defects were seen during the site inspection and the only defense and comment of CGI was that these were punch-list items which could have been corrected prior to completion and turn-over of the Building had the Contract not been terminated by the Claimants (respondents here). x x x Thus, x x x (petitioner) CGI argued that: “In any construction work, before a contractor turns-over the project to the owner, punchlisting of defects is done so as to ensure compliance and satisfaction of both the contractor and the owner. Punch listing means that the contractor will list all major and minor defects and rectifies them before the turnover of the project to the owner. After all defects had been arranged, the project is now turned over to the owner. For this particular project, no turn over was made by the contractor to the owner yet. Actually, we were already pinpointing these defects for punch listing before we were terminated illegally. As alleged by the owner, the deficiencies mentioned are stubouts of water closets at toilets, roofing and framing, doors, cabinets, ceiling and stairs and other were not yet completed and rectified by us. In fact we were counting on our project engineer in charge x x x to do this in as much as this is one of his duties to do for the company. x x x” Confirmatory of this assertion of CGI that it was willing to undertake the appropriate corrective works (whether or not the items are punch-list items) is Exhibit C-88 which is a letter prepared by CGI’s Windell F. Vizconde, checked by CGI’s Gary M. Garcia and noted by CGI’s Benjie Lipardo, addressed to the Quiambaos which stated that:

“As per our discussion during the last meeting dated Sept. 28, 1998 the following items was (sic) confirmed and clarified. These are described as follows:

“1. All ceiling cornices shall be installed as per plan specification which is 1” x 4” in size.

“2. All baseboards shall be installed as per plan specification which is wood 1” x 4” in size.

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“3. Electrical Meter center and main panel breaker should be retained to its present location.

“4. Elevation of office, dining and stair lobby of ground floor shall be 4” higher than the elevation of parking area (subject for verification).

“5. All door jambs at C.R. has (sic) to be replaced with concrete framing jambs.

“6. All ceilings mailers should be 2 x 2 in size.

“7. All plywood ceiling that was damaged by rain water shall be replaced.

“8. Provide a pipe chase for the enclosure of soil stack pipe and water line pipe at the ground floor level between grid line 3-4 along the light well area.

“9. Front side elevation view shall be follow (sic) as per plan specialy (sic) at 4th flr.

“10. One column at basement floor along grid line 2# B has to be verified by the structural designer if ever it is safe to removed (sic) the column and what will be their (sic) recommendation to support the load.

“11. Existing doors D-2 and D-3 shall be replaced a (sic) new one.”

While Mrs. Quiambao appeared not to have given her conformity, this document from CGI is an admission by CGI of the deficiencies in the construction of the Building which needed to be corrected.

It appears that concrete samples taken from the basement, ground floor, mezzanine and 2nd floor of the Building were subjected to a concrete core test by Geotesting International, Inc., geotechnical and materials testing engineers. A report dated January 20, 1999 x x x showed x x x that (5) samples x x x failed the test. Sample S2 while it showed a comprehensive strength of 3147 psi, the corrective strength in psi was below the specified comprehensive strength of 3000 psi. CGI failed to produce evidence of similar tests during the construction of the Building although it is normal construction practice for the contractor to provide samples for concrete core tests.

Deformed reinforcing steel bar specimens from the building were subjected to physical tests. These tests were conducted at the Materials Testing Laboratory of the Department of Civil Engineering, College of Engineering, University of the Philippines. x x x There were 18 samples and x x x 8 failed the test although all of them passed the cold bend test. x x x CGI submitted Quality Test Certificates issued by Steel Asia certifying to the mechanical test results and chemical composition of the steel materials tested x x x. However, the samples were provided by the manufacturer, not by CGI, to Steel Asia, and there is no showing that the materials supplied by the manufacturer to CGI for the Building formed part of the steel materials, part of which was tested.

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x x x

Regarding the additional columns at the basement and at the first floor to the roof deck of the Building, which effectively restricted the use of the basement as a parking area, and likewise reduced the area which could be used by the Quiambaos in the different floors of the Building, Engr. Roberto J. David admitted that these represented a design change which was made and implemented by CGI without the conformnity of the Claimants. The Contract specifically provided in Article II that “the CONTRACTOR shall submit to the OWNER all designs for the OWNER’S approval.” This implies necessarily that all changes in the approved design shall likewise be submitted to the OWNER for approval. This change, in my view, is the single most serious breach of the Contract committed by CGI which justified the decision of the Claimants to terminate the Contract. x x x (T)here is no evidence to show that the Quiambaos approved the revision of the structural plans to provide for the construction of the additional columns. x x x

x x x Engr. Villasenor defended his structural design as adequate. He admitted that the revision of the plans which resulted in the construction of additional columns was in pursuance of the request of Engr. David to revise the structural plans to provide for a significant reduction of the cost of construction. When Engr. David was asked for the justification for the revision for the plans, he confirmed that he wanted to reduce the cost of construction. In any case, whether the cause of revision of the plans was the under-design of the foundation or for reasons of economy, it is CGI which is at fault. CGI prepared the structural plans and quoted the price for constructing the Building. The Quiambaos accepted both the plans and the price. If CGI made a mistake in designing the foundation or in estimating the cost of construction, it was at fault. It cannot correct that mistake by revising the plans and implementing the revisions without informing the Quiambaos and obtaining their unequivocal approval of such changes.

In addition, CGI admitted that no relocation survey was made by it prior to the construction of the Building. Consequently, a one-meter portion of the Building was constructed beyond the property line. In justification, Engr. Barba V. Santos declared that CGI made the layout of the proposed structure based on the existing fence. x x x (I)t is understood that a contractor, in constructing a building, must first conduct a relocation survey before construction precisely to avoid the situation which developed here, that the Building was not properly constructed within the owner’s property line. x x x This resulted in the under-utilization of the property, small as it is, and the exposure of the Quiambaos to substantial damages to the owner of the adjoining property encroached upon.

A third major contested issue concerned the construction of the cistern. x x x A cistern is an underground tank used to collect water for drinking purposes. The contentious points regarding the construction of the cistern are: first, that the cistern was designed to accumulate up to 10,000 gallons of water; as constructed, its capacity was less than the design capacity. Second, there is no internal partition separating the cistern from the sump pit. x x x

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Considering that the cistern is a receptacle for the collection of drinking water, it is incomprehensible why the Respondents (herein petitioners), in the design and construction of the cistern, has (sic) not taken the necessary measures to make certain that the water in the cistern will be free from contamination. x x x

Thus, granting the arguments of the Respondents (herein petitioners) that the observed defects in the Building could be corrected before turn-over and acceptance of the Building if CGI had been allowed to complete its construction, the construction of additional columns, the construction of the Building such that part of it is outside the property line established a sufficient legal and factual basis for the decision of the Quiambaos to terminate the Contract. The fact that five (5) of nine (9) the (sic) concrete samples subjected to a core test, and eight (8) of eighteen (18) deformed reinforcing steel bar specifics subjected to physical tests failed the tests and the under-design of the cistern was established after the Contract was terminated also served to confirm the justified suspicion of the Quiambaos that the Building was defective or was not constructed according to approved plans and specifications.[10] (emphases supplied)

These are technical findings of fact made by expert witnesses and affirmed by the arbitrator. They were also affirmed by the Court of Appeals. We find no reason to revise them.

The second assigned error likewise involves a question of fact. It is contended that petitioner-spouses David cannot be held jointly and severally liable with petitioner CGI in the payment of the arbitral award as they are merely its corporate officers.

At first glance, the issue may appear to be a question of law as it would call for application of the law on the separate liability of a corporation. However, the law can be applied only after establishing a factual basis, i.e., whether petitioner-spouses as corporate officers were grossly negligent in ordering the revisions on the construction plan without the knowledge and consent of the respondent-spouses. On this issue, the Court of Appeals again affirmed the factual findings of the arbitrator, thus:

As a general rule, the officers of a corporation are not personally liable for their official acts unless it is shown that they have exceeded their authority. However, the personal liability of a corporate director, trustee or officer, along with corporation, may so validly attach when he assents to a patently unlawful act of the corporation or for bad faith or gross negligence in directing its affairs.

The following findings of public respondent (CIAC) would support its ruling in holding petitioners severally and jointly liable with the Corporation:

“ x x x When asked whether the Building was underdesigned considering the poor quality of the soil, Engr. Villasenor defended his structural design as adequate. He admitted that the revision of the plans which resulted in the construction of additional columns was in pursuance of the request of Engr. David to revise the structural plans to provide for a significant reduction of the

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cost of construction. When Engr. David was asked for the justification for the revision of the plans, he confirmed that he wanted to reduce the cost of construction. x x x” (emphases supplied)[11]

Clearly, the case at bar does not raise any genuine issue of law. We reiterate the rule that factual findings of construction arbitrators are final and conclusive and not reviewable by this Court on appeal, except when the petitioner proves affirmatively that: (1) the award was procured by corruption, fraud or other undue means; (2) there was evident partiality or corruption of the arbitrators or of any of them; (3) the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; (4) one or more of the arbitrators were disqualified to act as such under section nine of Republic Act No. 876 and willfully refrained from disclosing such disqualifications or of any other misbehavior by which the rights of any party have been materially prejudiced; or (5) the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite award upon the subject matter submitted to them was not made.[12] Petitioners failed to show that any of these exceptions applies to the case at bar.

Finally, it bears to remind petitioners of this Court’s ruling in the 1993 case of Hi-Precision Steel Center, Inc. vs. Lim Kim Steel Builders, Inc.[13] which emphasized the rationale for limiting appeal to legal questions in construction cases resolved through arbitration, thus:

x x x Consideration of the animating purpose of voluntary arbitration in general, and arbitration under the aegis of the CIAC in particular, requires us to apply rigorously the above principle embodied in Section 19 that the Arbitral Tribunal’s findings of fact shall be final and inappealable (sic).

Voluntary arbitration involves the reference of a dispute to an impartial body, the members of which are chosen by the parties themselves, which parties freely consent in advance to abide by the arbitral award issued after proceedings where both parties had the opportunity to be heard. The basic objective is to provide a speedy and inexpensive method of settling disputes by allowing the parties to avoid the formalities, delay, expense and aggravation which commonly accompany ordinary litigation, especially litigation which goes through the entire hierarchy of courts. Executive Order No. 1008 created an arbitration facility to which the construction industry in the Philippines can have recourse. The Executive Order was enacted to encourage the early and expeditious settlement of disputes in the construction industry, a public policy the implementation of which is necessary and important for the realization of the national development goals.

Aware of the objective of voluntary arbitration in the labor field, in the construction industry, and in other area for that matter, the Court will not assist one or the other or even both parties in any effort to subvert or defeat that objective for their private purposes. The Court will not review the factual findings of an arbitral tribunal upon the artful allegation that such body had “misapprehended facts” and will not pass upon issues which are, at bottom, issues of fact, no matter how cleverly disguised they might be as “legal questions.” The parties here had recourse

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to arbitration and chose the arbitrators themselves; they must have had confidence in such arbitrators. The Court will not, therefore, permit the parties to relitigate before it the issues of facts previously presented and argued before the Arbitral Tribunal, save only where a clear showing is made that, in reaching its factual conclusions, the Arbitral Tribunal committed an error so egregious and hurtful to one party as to constitute a grave abuse of discretion resulting in lack or loss of jurisdiction. Prototypical examples would be factual conclusions of the Tribunal which resulted in deprivation of one or the other party of a fair opportunity to present its position before the Arbitral Tribunal, and an award obtained through fraud or the corruption of arbitrators. Any other more relaxed rule would result in setting at naught the basic objective of a voluntary arbitration and would reduce arbitration to a largely inutile institution. (emphases supplied)

IN VIEW WHEREOF, the petition is DISMISSED for lack of merit. Costs against petitioners.

SO ORDERED.

Austria-Martinez, Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.

6. Inter-Asia Investments Industries vs. CA Case DigestInter-Asia Investments Industries vs. Court of Appeals[GR 125778, 10 June 2003]

Facts: On 1 September 1978, Inter-Asia Industries, Inc. (Inter-Asia), by a Stock Purchase Agreement (the Agreement), sold to Asia Industries, Inc. (Asia Industries) for and in consideration of the sum of P19,500,000.00 all its right, title and interest in and to all the outstanding shares of stock of FARMACOR, INC. (FARMACOR). The Agreement was signed by Leonides P. Gonzales and Jesus J. Vergara, presidents of Inter-Asia and Asia Industries, respectively. Under paragraph 7 of the Agreement, Inter-Asia as seller made warranties and representations. The Agreement was later amended with respect to the "Closing Date," originally set up at 10:00 a.m. of 30 September 1978, which was moved to 31 October 1978, and to the mode of payment of the purchase price. The Agreement, as amended, provided that pending submission by SGV of FARMACOR's audited financial statements as of 31 October 1978, Asia Industries may retain the sum of P7,500,000.00 out of the stipulated purchase price of P19,500,000.00; that from this retained amount of P7,500,000.00, Asia Industries may deduct any shortfall on the Minimum Guaranteed Net Worth of P12,000,000.00; and that if the amount retained is not sufficient to make up for the deficiency in the Minimum Guaranteed Net Worth, Inter-Asia shall pay the difference within 5 days from date of receipt of the audited financial statements.

Asia Industries paid Inter-Asia a total amount of P12,000,000.00: P5,000,000.00 upon the signing of the Agreement, and P7,000,000.00 on 2 November 1978. From the STATEMENT OF INCOME AND DEFICIT attached to the financial report dated 28 November 1978 submitted by SGV, it appears that FARMACOR had, for the 10 months ended 31 October 1978, a deficit of P11,244,225.00. Since the stockholder's equity amounted to P10,000,000.00, FARMACOR had a net worth deficiency of P1,244,225.00. The guaranteed net worth shortfall thus amounted to

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P13,244,225.00 after adding the net worth deficiency of P1,244,225.00 to the Minimum Guaranteed Net Worth of P12,000,000.00. The adjusted contract price, therefore, amounted to P6,225,775.00 which is the difference between the contract price of P19,500,000.00 and the shortfall in the guaranteed net worth of P13,224,225.00. Asia Industries having already paid Inter-Asia P12,000,000.00, it was entitled to a refund of P5,744,225.00. Inter-Asia thereafter proposed, by letter of 24 January 1980, signed by its president, that Asia Industries's claim for refund be reduced to P4,093,993.00, it promising to pay the cost of the Northern Cotabato Industries, Inc. (NOCOSII) superstructures in the amount of P759,570.00. To the proposal respondent agreed. Inter-Asia, however, welched on its promise.

Inter-Asia's total liability thus stood at P4,853,503.00 (P4,093,993.00 plus P759,570.00) exclusive of interest. On 5 April 1983, Asia Industries filed a complaint against Inter-Asia with the Regional Trial Court of Makati, one of two causes of action of which was for the recovery of above-said amount of P4,853,503.00 17 plus interest. Denying Asia Industries's claim, Inter-Asia countered that Asia Industries failed to pay the balance of the purchase price and accordingly set up a counterclaim. Finding for Asia Industries, the trial court rendered on 27 November 1991 a Decision, ordering Inter-Asia to pay Asia Industries the sum of P4,853,503.00 plus interest thereon at the legal rate from the filing of the complaint until fully paid, the sum of P30,000.00 as attorney's fees and the costs of suit; and (b) dismissing the counterclaim. On appeal to the Court of Appeals, and by Decision of 25 January 1996, the Court of Appeals affirmed the trial court's decision. Inter-Asia's motion for reconsideration of the decision having been denied by the Court of Appeals by Resolution of 11 July 1996, Inter-Asia filed the petition for review on certiorari.

Issue: Whether the 24 January 1980 letter signed by Inter-Asia’s president is valid and binding.

Held: The 24 January 1980 letter signed by Inter-Asia's president is valid and binding. As held in the case of People's Aircargo and Warehousing Co., Inc. v. Court of Appeals, the general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. A corporation is a juridical person, separate and distinct from its stockholders and members, "having . . . powers, attributes and properties expressly authorized by law or incident to its existence." Being a juridical entity, a corporation may act through its board of directors, which exercises almost all corporate powers, lays down all corporate business policies and is responsible for the efficiency of management, as provided in Section 23 of the Corporation Code of the Philippines. Under this provision, the power and responsibility to decide whether the corporation should enter into a contract that will bind the corporation is lodged in the board, subject to the articles of incorporation, bylaws, or relevant provisions of law. However, just as a natural person may authorize another to do certain acts for and on his behalf, the board of directors may validly delegate some of its functions and powers to officers, committees or agents. The authority of such individuals to bind the corporation is generally derived from law, corporate bylaws or authorization from the board, either expressly or impliedly by habit, custom or acquiescence in the general course of business, viz: "A corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that [the] authority to do so has been conferred upon him, and this includes powers as, in the

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usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation has caused person dealing with the officer or agent to believe that it has conferred.... [A]pparent authority is derived not merely from practice. Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within or beyond the scope of his ordinary powers. It requires presentation of evidence of similar acts executed either in its favor or in favor of other parties. It is not the quantity of similar acts which establishes apparent authority, but the vesting of a corporate officer with the power to bind the corporation." Hence, an officer of a corporation who is authorized to purchase the stock of another corporation has the implied power to perform all other obligations arising therefrom, such as payment of the shares of stock. By allowing its president to sign the Agreement on its behalf, Inter-Asia clothed him with apparent capacity to perform all acts which are expressly, impliedly and inherently stated therein.

7. Lapu-lapu Foundation Inc., vs. Tan, [G.R. No. 126006. January 29, 2004]Post under case digests, Commercial Law at Friday, February 03, 2012 Posted by Schizophrenic MindFacts: Elias Q. Tan, then President Lapulapu Foundation, Inc., obtained four loans from Allied Banking Corporation covered by four promissory notes in the amounts of P100, 000 each. When the entire obligation became due, it was not paid despite demands by the bank. The Bank filed with the RTC a complaint seeking payment by Lapulapu Foundation and Elias Tan, jointly and solidarily, of the sum representing their loan obligation, exclusive of interests, penalty charges, attorney’s fees and costs.

The Foundation denied incurring indebtedness from the Bank alleging that Tan obtained the loans in his personal capacity, for his own use and benefit and on the strength of the personal information he furnished the Bank. The Foundation maintained that it never authorized petitioner Tan to co-sign in his capacity as its President any promissory note and that the Bank fully knew that the loans contracted were made in Tan’s personal capacity and for his own use and that the Foundation never benefited, directly or indirectly, there from.

For his part, Tan admitted that he contracted the loans from the Bank in his personal capacity. The parties, however, agreed that the loans were to be paid from the proceeds of Tan’s shares of common stocks in the Lapulapu Industries Corporation, a real estate firm. The loans were covered by promissory notes which were automatically renewable (“rolled-over”) every year at an amount including unpaid interests, until such time as petitioner Tan was able to pay the same from the proceeds of his aforesaid shares.

Issue: May the Foundation correctly raise as a defense that it did not authorize Tan to obtain the loans involved and therefore it may not be held solidarily liable for them?

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Held: NO. The Court agrees with the CA that the petitioners cannot hide behind the corporate veil under the following circumstances:

The evidence shows that Tan has been representing himself as the President of Lapulapu Foundation, Inc. He opened a savings account and a current account in the names of the corporation, and signed the application form as well as the necessary specimen signature cards twice, for himself and for the foundation. He submitted a notarized Secretary’s Certificate from the corporation, attesting that he has been authorized, inter alia, to sign for and in behalf of the Lapulapu Foundation any and all checks, drafts or other orders with respect to the bank; to transact business with the Bank, negotiate loans, agreements, obligations, promissory notes and other commercial documents; and to initially obtain a loan for P100, 000.00 from any bank. Under these circumstances, the Foundation is liable for the transactions entered into by Tan on its behalf.

Per its Secretary’s Certificate, the Foundation had given Tan ostensible and apparent authority to inter alia deal with the Bank. Accordingly, the petitioner Foundation is estopped from questioning Tan’s authority to obtain the subject loans from the Bank. It is a familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts; and thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent’s authority.

8. JOHN F. MCLEOD vs. NATIONAL LABOR RELATIONS COMMISSION (FIRST DIVISION), FILIPINAS SYNTHETIC FIBER CORPORATION (FILSYN), FAR EASTERN TEXTILE MILLS, INC., STA. ROSA TEXTILES, INC., (PEGGY MILLS, INC.), PATRICIO L. LIM, AND ERIC HU G.R. NO. 146667 January 23, 2007 Ponente: CARPIO,J . FACTS:On February 2, 1995, John F. McLeod filed a complaint for: 1. retirement benefits 2. vacation and sick leave benefits 3. non-payment of unused airline tickets 4. holiday pay 5. underpayment of salary 6. 13th month pay 7. moral and exemplary damages 8.attorney’s fees plus interest, against Filipinas Synthetic Corporation (FILSYN), Far Eastern Textile Mills, Inc., Sta. Rosa Textiles, Inc. (SRTI), Patricio Lim (President of PMI) and Eric Hu. Complainant was the Vice President and Plant Manager of the plant of Peggy Mills, Inc. (PMI) at Sta. Rosa, Laguna. Filsyn sold Peggy Mills, Inc. to Far Eastern Textile Mills, Inc. and this was renamed as Sta. Rosa Textile (SRTI) with Patricio Lim as Chairman and President. The owners of Far Eastern Textiles decided for cessation of operations of Sta. Rosa Textiles. On two occasions, complainant wrote letters to Patricio Lim requesting for his retirement and other benefits. In the last quarter of 1994 respondents offered complainant compromise settlement of only P300,000.00 which complainant rejected. The Labor Arbiter held all respondents as jointly and solidarily liable for complainant’s money

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claims. The NLRC reversed and set aside the ruling of the Labor Arbiter and a new one was entered ordering only respondent Peggy Mills, Inc. (PMI) to pay the money claims. All other claims were dismissed for lack of merit. The Court of Appeals affirmed the decision of the NLRC with modification. It held Patricio Lim as jointly and solidarily liable with Peggy Mills, Inc. (PMI) to pay the money claims to McLeod.

ISSUE:Whether or not Patricio Lim, as President of PMI, could be held jointly and solidarily liable with PMI.

HELD:No, Patricio Lim is absolved from personal liability. A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. The rule is that obligations incurred by the corporation, acting through its directors, officers, and employees, are its sole liabilities. Personal liability 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 bad 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 persons; (2) 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 objection; (3) they agree to hold themselves personally and solidarily liable with the corporation; or (4) they are made by specific provision of law personally answerable for their corporate action. Considering that McLeod failed to prove any of the foregoing exceptions in the present case, McLeod cannot hold Patricio solidarily liable with PMI. The records are bereft of any evidence that Patricio acted with malice or bad faith. Bad faith is a question of fact and is evidentiary. Bad faith does not connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious wrongdoing. It means breach of a known duty through some ill motive or interest. It partakes of the nature of fraud. In the present case, there is nothing substantial on record to show that Patricio acted in badfaith in terminating McLeod’s services to warrant Patricio’s personal liability. PMI had no otherchoice but to stop plant operations. The work stoppage therefore was by necessity. The company could no longer continue with its plant operations because of the serious business losses that it had suffered. The mere fact that Patricio was president and director of PMI is not a ground to conclude thathe should be held solidarily liable with PMI for McLeod’s money claims.

9. ANTONIO CARAG vs. NLRCG.R. No. 147590 April 2, 2007FACTS: National Federation of Labor Unions and Mariveles Apparel Corporation Labor Union (collectively, complainants), on behalf of all of Mariveles Apparel Corporation’s rank and file employees, filed a complaint a ainst MAC for ille al dismissal bro! ht abo!t by its ille al clos! re of b!siness" #n their position paper dated $ %an!ary &'' , NAFLU and MACLU moved to implead Atty" Antonio Cara and Armando avid, bein o*ners of the MAC Corporation, to !

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arantee the satisfaction of any +!d ment a*ard on the basis of Article & (c) of the -hilippine Labor Code" Atty" %osh!a -astores, as co!nsel for respondents, s!bmitted a position paper dated

& Febr!ary &'' and stated that complainants sho!ld not have impleaded Cara and avid beca!se MAC is act!ally o*ned by a consorti!m of banks" Cara and avid o*n shares in MAC only to .!alify them to serve as MAC/s officers" 0itho!t any f!rther proceedin s, Arbiter 1rti !erra rendered her ecision dated &2 %!ne &'' rantin the motion to implead Cara and avid" #n the same ecision, Arbiter 1rti !erra declared Cara and avid solidarily liable *ith MAC r! lin that corporate officers *ho dismissed employees in bad faith or *antonly violate labor standard la*s or *hen the company had already ceased operations and there is no *ay by *hich a +!d ment in favor of employees co!ld be satisfied, corporate officers can be held +ointly and severally liable *ith the company" Cara , thro! h a separate co!nsel, filed an appeal dated $3 A! !st &'' before the NL4C" 5e also filed a motion to red!ce bond" #n a 4esol!tion prom!l ated on 6 %an!ary &''6, the NL4C 7hird ivision denied the motion to red!ce bond" 7he NL4C stated that to rant a red!ction of bond on the ro!nd that the appeal is meritorio!s *o!ld be tantamo!nt to r!lin on the merits of the appeal" 1n Febr!ary &$, &''6, Cara filed his petition for certiorari before CA" 7he CA affirmed the decision of Arbiter 1rti ! erra and the resol!tion of NL4C" Motion for reconsideration *as like*ise denied" 5ence this petition for revie* on certiorari"ISSUE: 0hether or not Antonio Cara shall be held personally liable for the payment of ille ally dismissed employees"RULING: 8ection $& makes a director personally liable for corporate debts if he *ilf!lly and kno*in ly votes for or assents to patently !nla*f!l acts of the corporation" 8ection $& also makes a director personally liable if he is !ilty of ross ne li ence or bad faith in directin the affairs of the corporation"Complainants did not alle e in their complaint that Cara *ilf!lly and kno*in ly voted for or assented to any patently !nla*f!l act of MAC" Complainants did not present any evidence sho*in that Cara *ilf!lly and kno*in ly voted for or assented to any patently !nla*f!l act of MAC" Neither did Arbiter 1rti !erra make any findin to this effect in her

ecision"Complainants did not also alle e that Cara is !ilty of ross ne li ence or bad faith in directin the affairs of MAC" Complainants did not present any evidence sho*in

that Cara is !ilty of ross ne li ence or bad faith in directin the affairs of MAC" Neither did Arbiter 1rti !erra make any findin to this effect in her ecision"After statin *hat she believed is the la* on the matter, Arbiter 1rti !erra stopped there and did not make any findin that Cara is !ilty of bad faith or of *anton violation of labor standard la*s" Arbiter 1rti !erra did not specify *hat act of bad faith Cara committed, or *hat partic!lar labor standard la*s he violated" 7o hold a director personally liable for debts of the corporation, and th!s pierce the veil of corporate fiction, the bad faith or *ron doin of the director m!st be established clearly and convincin ly" 9ad faith is never pres!med" 9ad faith does not connote bad +!d ment or ne li ence" 9ad faith imports a dishonest p!rpose" 9ad faith means breach of a kno*n d!ty thro!

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h some ill motive or interest" 9ad faith partakes of the nat!re of fra!d" Neither does bad faith arise a!tomatically +!st beca!se a corporation fails to comply *ith the notice re.!irement of labor la*s on company clos!re or dismissal of employees" 7he fail!re to ive notice is not an !nla*f!l act beca!se the la* does not define s!ch fail!re as !nla*f!l" 8!ch fail!re to ive notice is a violation of proced!ral d!e process b!t does not amo!nt to an !nla*f!l or criminal act" 8!ch proced!ral defect is called ille al dismissal beca!se it fails to comply *ith mandatory proced!ral re.!irements, b!t it is not ille al in the sense that it constit!tes an !nla*f!l or criminal act"For a *ron doin to make a director personally liable for debts of the corporation, the *ron doin approved or assented to by the director m!st be a patently !nla*f!l act" Mere fail!re to comply *ith the notice re.!irement of labor la*s on company clos!re or dismissal of employees does not amo!nt to a patently !nla*f!l act" -atently !nla*f!l acts are those declared !nla*f!l by la* *hich imposes penalties for commission of s!ch !nla*f!l acts" 7here m!st be a la* declarin the act !nla*f!l and penali:in the act"#n this case, Article ;$ of the Labor Code, re.!irin a one<month prior notice to employees and the epartment of Labor and =mployment before any permanent clos!re of a company, does not state that non<compliance *ith the notice is an !nla*f!l act p!nishable !nder the Code" 7here is no provision in any other Article of the Labor Code declarin fail!re to ive s! ch notice an !nla*f!l act and providin for its penalty" Complainants did not alle e or prove, and Arbiter 1rti !erra did not make any findin , that Cara approved or assented to any patently ! nla*f!l act to *hich the la* attaches a penalty for its commission" 1n this score alone, Cara cannot be held personally liable for the separation pay of complainants"

10. SECOND DIVISION

[G.R. No. 170352, June 01 : 2011]

MEGAN SUGAR CORPORATION, PETITIONER, VS. REGIONAL TRIAL COURT OF ILOILO, BRANCH 68, DUMANGAS, ILOILO; NEW FRONTIER SUGAR CORPORATION AND EQUITABLE PCI BANK, RESPONDENTS.D E C I S I O N

PERALTA, J.:

Before this Court is a petition for review on certiorari,[1] under Rule 45 of the Rules of Court, seeking to set aside the August 23, 2004 Decision[2] and October 12, 2005 Resolution[3] of the Court of Appeals (CA), in CA-G.R. SP No. 75789.

The facts of the case are as follows:

On July 23, 1993, respondent New Frontier Sugar Corporation (NFSC) obtained a loan from respondent Equitable PCI Bank (EPCIB). Said loan was secured by a real estate mortgage over NFSC's land consisting of ninety-two (92) hectares located in Passi City, Iloilo, and a chattel mortgage over NFSC's sugar mill.

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On November 17, 2000, because of liquidity problems and continued indebtedness to EPCIB, NFSC entered into a Memorandum of Agreement[4] (MOA) with Central Iloilo Milling Corporation (CIMICO), whereby the latter agreed to take-over the operation and management of the NFSC raw sugar factory and facilities for the period covering crop years 2000 to 2003.

On April 19, 2002, NFSC filed a compliant for specific performance and collection[5] against CIMICO for the latter's failure to pay its obligations under the MOA.

In response, CIMICO filed with the Regional Trial Court (RTC) of Dumangas, Iloilo, Branch 68, a case against NFSC for sum of money and/or breach of contract.[6] The case was docketed as Civil Case No. 02-243.

On May 10, 2002, because of NFSC's failure to pay its debt, EPCIB instituted extra-judicial foreclosure proceedings over NFSC's land and sugar mill. During public auction, EPCIB was the sole bidder and was thus able to buy the entire property and consolidate the titles in its name. EPCIB then employed the services of Philippine Industrial Security Agency (PISA) to help it in its effort to secure the land and the sugar mill.

On September 16, 2002, CIMICO filed with the RTC an Amended Complaint[7] where it impleaded PISA and EPCIB. As a result, on September 25, 2002, upon the motion of CIMICO, the RTC issued a restraining order, directing EPCIB and PISA to desist from taking possession over the property in dispute. Hence, CIMICO was able to continue its possession over the property.

On October 3, 2002, CIMICO and petitioner Megan Sugar Corporation (MEGAN) entered into a MOA[8] whereby MEGAN assumed CIMICO's rights, interests and obligations over the property. As a result of the foregoing undertaking, MEGAN started operating the sugar mill on November 18, 2002.

On November 22, 2002, Passi Iloilo Sugar Central, Inc. (Passi Sugar) filed with the RTC a Motion for Intervention claiming to be the vendee of EPCIB. Passi Sugar claimed that it had entered into a Contract to Sell[9] with EPCIB after the latter foreclosed NFSC's land and sugar mill.

On November 29, 2002, during the hearing on the motion for intervention, Atty. Reuben Mikhail Sabig (Atty. Sabig) appeared before the RTC and entered his appearance as counsel for MEGAN. Several counsels objected to Atty. Sabig's appearance since MEGAN was not a party to the proceedings; however, Atty. Sabig explained to the court that MEGAN had purchased the interest of CIMICO and manifested that his statements would bind MEGAN.

On December 10, 2002, EPCIB filed a Motion for Delivery/Deposit of Mill Shares/Rentals.[10]

On December 11, 2002, Passi Sugar filed a Motion to Order Deposit of Mill Share Production of "MEGAN" and/or CIMICO.[11] On the same day, NFSC filed a Motion to Order Deposit of

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Miller's Share (37%) or the Lease Consideration under the MOA between NFSC and CIMICO.[12]

On December 27, 2002, NFSC filed another Motion to Hold in Escrow Sugar Quedans or Proceeds of Sugar Sales Equivalent to Miller's Shares.[13]

On January 16, 2003, the RTC issued an Order[14] granting EPCIB's motion for the placement of millers' share in escrow. The dispositive portion of which reads:

WHEREFORE, in view of the foregoing, the motions to place the mill's share in escrow to the court is hereby GRANTED.

Megan Sugar Corporation or its director-officer, Mr. Joey Concha, who is General Manager of Megan, is ordered to deposit in escrow within five (5) days upon receipt of this order, the sugar quedans representing the miller's share to the Court starting from December 19, 2002 and thereafter, in every Friday of the week pursuant to the Memorandum of Agreement executed by plaintiff CIMICO and defendant NFSC.

SO ORDERED. [15]

On January 29, 2003, Atty. Sabig filed an Omnibus Motion for Reconsideration and Clarification.[16] On February 19, 2003, the RTC issued an Order[17] denying said motion.

On February 27, 2003, EPCIB filed an Urgent Ex-Parte Motion for Execution,[18] which was granted by the RTC in an Order[19] dated February 28, 2003.

Aggrieved by the orders issued by the RTC, MEGAN filed before the CA a petition for certiorari,[20] dated March 5, 2003. In said petition, MEGAN argued mainly on two points; first, that the RTC erred when it determined that MEGAN was subrogated to the obligations of CIMICO and; second, that the RTC had no jurisdiction over MEGAN.

On August 23, 2004, the CA issued a Decision dismissing MEGAN's petition, the dispositive portion of which reads:

WHEREFORE, premises considered, the Petition for Certiorari is hereby DENIED and forthwith DISMISSED for lack of merit. Cost against petitioner.

SO ORDERED.[21]

In denying MEGAN's petition, the CA ruled that since Atty. Sabig had actively participated before the RTC, MEGAN was already estopped from assailing the RTC's jurisdiction.

Aggrieved, MEGAN then filed a Motion for Reconsideration,[22] which was, however, denied by the CA in Resolution dated October 12, 2005.

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Hence, herein petition, with MEGAN raising the following issues for this Court's consideration, to wit:

I.

WHETHER OR NOT THE PETITIONER IS ESTOPPED FROM QUESTIONING THE ASSAILED ORDERS BECAUSE OF THE ACTS OF ATTY. REUBEN MIKHAIL SABIG.

II.

WHETHER OR NOT THE REGIONAL TRIAL COURT HAD JURISDICTION TO ISSUE THE ORDERS DATED JANUARY 16, 2003, FEBRUARY 19, 2003 AND FEBRUARY 28, 2003.[23]

The petition is not meritorious.

MEGAN points out that its board of directors did not issue a resolution authorizing Atty. Sabig to represent the corporation before the RTC. It contends that Atty. Sabig was an unauthorized agent and as such his actions should not bind the corporation. In addition, MEGAN argues that the counsels of the different parties were aware of Atty. Sabig's lack of authority because he declared in court that he was still in the process of taking over the case and that his voluntary appearance was just for the hearing of the motion for intervention of Passi Sugar.

Both EPCIB and NFSC, however, claim that MEGAN is already estopped from assailing the authority of Atty. Sabig. They contend that Atty. Sabig had actively participated in the proceedings before the RTC and had even filed a number of motions asking for affirmative relief. They also point out that Jose Concha (Concha), who was a member of the Board of Directors of MEGAN, accompanied Atty. Sabig during the hearing. Lastly, EPCIB and NFSC contend that all the motions, pleadings and court orders were sent to the office of MEGAN; yet, despite the same, MEGAN never repudiated the authority of Atty. Sabig.

After a judicial examination of the records pertinent to the case at bar, this Court agrees with the finding of the CA that MEGAN is already estopped from assailing the jurisdiction of the RTC.

Relevant to the discussion herein is the transcript surrounding the events of the November 29, 2002 hearing of Passi Sugar's motion for intervention, to wit:

ATTY. ARNOLD LEBRILLA:

Appearing as counsel for defendant PCI Equitable Bank, your Honor.

ATTY. CORNELIO PANES:

Also appearing as counsel for defendant New Frontier Sugar Corporation.

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ATTY. ANTONIO SINGSON:

I am appearing, your Honor, as counsel for Passisugar.

ATTY. REUBEN MIKHAIL SABIG:

Appearing your Honor, for Megan Sugar, Inc.

ATTY. LEBRILLA: Your Honor, the counsel for the plaintiff CIMICO has not yet arrived.

ATTY. SABIG: Your Honor, we have been furnished of a copy of the motion. I've talked to Atty. [Leonardo] Jiz and he informed me that he cannot attend this hearing because we are in the process of taking over this case. However, the Passisugar had intervened and we have to appear because we have been copy furnished of the motion, and also, your Honor, since the motion will directly affect Megan and we are appearing in this hearing despite the fact that we had not officially received the copy of the motion. Anyway, your Honor, since we are in the process of taking over this case, Atty. Jiz told me that he cannot appear today.

COURT: Here is the representative from CIMICO.

ATTY. PANES: Yes, your Honor, Atty. Gonzales is here.

ATTY. NELIA JESUSA GONZALES:

I am appearing in behalf of the plaintiff CIMICO, your Honor.

x x x x

COURT: Shall we tackle first your motion for intervention?

ATTY. SINGSON: Yes, your Honor.

ATTY. PANES: Yes, your Honor, and I would like to make a manifestation in relation to the appearance made by Atty. Sabig. Megan is not, in anyway, a party [to] this case and if he must join, he can file a motion for intervention. We would like to reiterate our stand that he cannot participate in any proceeding before this Court particularly in this case.

COURT: Yes, that is right.

ATTY. SINGSON: Yes, your Honor, unless there is a substitution of the plaintiff.

ATTY. SABIG: I understand, your Honor, that we have been served a copy of this motion.

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ATTY. PANES: A service copy of the motion is only a notice and it is not, in anyway, [a] right for him to appear as a party.

COURT: Just a moment, Atty. Panes. Shall we allow Atty. Sabig to finish first?

ATTY. SABIG: This motion directly affects us and that's why we're voluntarily appearing, just for this hearing on the motion and not for the case itself, specifically for the hearing [on] this motion. That's our appearance for today because we have been served and we have to protect our interest. We are not saying that we are taking over the case but there is a hearing for the motion in intervention and we have been served a copy, that's why we appear voluntarily.

ATTY. LEBRILLA: Your Honor, please, for the defendant, we do not object to the appearance of the counsel for Megan provided that the counsel could assure us that whatever he says [all through] in this proceeding will [bind] his client, your Honor, as he is duly authorized by the corporation, under oath, your Honor, that whatever he says here is binding upon the corporation.

ATTY. SABIG: Yes, your Honor.

COURT: But I thought all the while that your motion for intervention will implead Megan.

ATTY. SINGSON: We will not yet implead them, your Honor.

COURT: Why will you not implead them because they are now in possession of the mill?

ATTY. SINGSON: That's why we want to be clarified. In what capacity is Megan entering into the picture? That's the point now that we would like to ask them. So, whatever statement you'll be making here will bind Megan?

ATTY. SABIG: Yes, your Honor. Specifically for the hearing because apparently, we have to voluntarily appear since they furnished us a copy that would directly affect our rights.

x x x x

COURT: Are you saying that you are appearing now in behalf of Megan?

ATTY. SABIG: Yes, your Honor.

COURT: And whatever statement you made here will bind Megan?

ATTY. SABIG: Yes, your Honor.

x x x x

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COURT: That's why you're being asked now what interest [does] Megan have here?

ATTY. SABIG: We are already in possession of the mill, your Honor.

ATTY. SINGSON: You are in possession of the mill. [On] what authority are you in possession, this Megan group?

ATTY. SABIG: We have a Memorandum of Agreement which we entered, your Honor, and they transferred their [referring to CIMICO] rights to us.[24]

The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against his own act, representations, or commitments to the injury of one to whom they were directed and who reasonably relied thereon. The doctrine of estoppel springs from equitable principles and the equities in the case. It is designed to aid the law in the administration of justice where without its aid injustice might result. It has been applied by this Court wherever and whenever special circumstances of a case so demand.[25]

Based on the events and circumstances surrounding the issuance of the assailed orders, this Court rules that MEGAN is estopped from assailing both the authority of Atty. Sabig and the jurisdiction of the RTC. While it is true, as claimed by MEGAN, that Atty. Sabig said in court that he was only appearing for the hearing of Passi Sugar's motion for intervention and not for the case itself, his subsequent acts, coupled with MEGAN's inaction and negligence to repudiate his authority, effectively bars MEGAN from assailing the validity of the RTC proceedings under the principle of estoppel.

In the first place, Atty. Sabig is not a complete stranger to MEGAN. As a matter of fact, as manifested by EPCIB, Atty. Sabig and his law firm SABIG SABIG & VINGCO Law Office has represented MEGAN in other cases[26] where the opposing parties involved were also CIMICO and EPCIB. As such, contrary to MEGAN's claim, such manifestation is neither immaterial nor irrelevant,[27] because at the very least, such fact shows that MEGAN knew Atty. Sabig.

MEGAN can no longer deny the authority of Atty. Sabig as they have already clothed him with apparent authority to act in their behalf. It must be remembered that when Atty. Sabig entered his appearance, he was accompanied by Concha, MEGAN's director and general manager. Concha himself attended several court hearings, and on December 17, 2002, even sent a letter[28] to the RTC asking for the status of the case. A corporation may be held in estoppel from denying as against innocent third persons the authority of its officers or agents who have been clothed by it with ostensible or apparent authority.[29]Atty. Sabig may not have been armed with a board resolution, but the appearance of Concha made the parties assume that MEGAN had knowledge of Atty. Sabig's actions and, thus, clothed Atty. Sabig with apparent authority such that the parties were made to believe that the proper person and entity to address was Atty. Sabig. Apparent authority, or what is sometimes referred to as the "holding out" theory, or doctrine of ostensible agency, imposes liability, not as the result of the reality of a

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contractual relationship, but rather because of the actions of a principal or an employer in somehow misleading the public into believing that the relationship or the authority exists.[30]

Like the CA, this Court notes that MEGAN never repudiated the authority of Atty. Sabig when all the motions, pleadings and court orders were sent not to the office of Atty. Sabig but to the office of MEGAN, who in turn, would forward all of the same to Atty. Sabig, to wit:

x x x All the motions, pleadings and other notices in the civil case were mailed to Atty. Reuben Mikhail P. Sabig, Counsel for Megan Sugar, NFSC Compound, Barangay Man-it, Passi, Iloilo City which is the address of the Sugar Central being operated by Megan Sugar. The said address is not the real office address of Atty. Sabig. As pointed out by private respondent Equitable PCI Bank, the office address of Atty. Sabig is in Bacolod City. All orders, pleadings or motions filed in Civil Case 02-243 were received in the sugar central being operated by Megan Central and later forwarded by Megan Sugar to Atty. Sabig who is based in Bacolod City. We find it incredible that, granting that there was no authority given to said counsel, the record shows that it was received in the sugar mill operated by Megan and passed on to Atty. Sabig. At any stage, petitioner could have repudiated Atty. Sabig when it received the court pleadings addressed to Atty. Sabig as their counsel.[31]

One of the instances of estoppel is when the principal has clothed the agent with indicia of authority as to lead a reasonably prudent person to believe that the agent actually has such authority.[32] With the case of MEGAN, it had all the opportunity to repudiate the authority of Atty. Sabig since all motions, pleadings and court orders were sent to MEGAN's office. However, MEGAN never questioned the acts of Atty. Sabig and even took time and effort to forward all the court documents to him.

To this Court's mind, MEGAN cannot feign knowledge of the acts of Atty. Sabig, as MEGAN was aware from the very beginning that CIMICO was involved in an on-going litigation. Such fact is clearly spelled out in MEGAN's MOA with CIMICO, to wit:

WHEREAS, CIMICO had filed a 2nd Amended Complaint for Sum of Money, Breach of Contract and Damages with Preliminary Injunction with a Prayer for a Writ of Temporary Restraining Order against the NEW FRONTIER SUGAR CORPORATION, pending before Branch 68 of the Regional Trial Court, based in Dumangas, Iloilo, Philippines, entitled CENTRAL ILOILO MILLING CORPORATION (CIMICO) versus NEW FRONTIER SUGAR CORPORATION (NFSC), EQUITABLE PCI BANK and PHILIPPINE INDUSTRIAL SECURITY AGENCY docketed as CIVIL CASE NO. 02-243;[33]

Considering that MEGAN's rights stemmed from CIMICO and that MEGAN was only to assume the last crop period of 2002-2003 under CIMICO's contract with NFSC,[34] it becomes improbable that MEGAN would just wait idly by for the final resolution of the case and not send a lawyer to protect its interest.

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In addition, it bears to point out that MEGAN was negligent when it did not assail the authority of Atty. Sabig within a reasonable time from the moment when the first adverse order was issued. To restate, the January 16, 2003 RTC Order directed MEGAN to deposit a sizable number of sugar quedans. With such an order that directly affects the disposition of MEGAN's assets and one that involves a substantial amount, it is inconceivable for Atty. Sabig or for Concha not to inform MEGAN's board of such an order or for one of the directors not to hear of such order thru other sources. As manifested by NFSC, MEGAN is a family corporation and Concha is the son-in-law of Eduardo Jose Q. Miranda (Eduardo), the President of MEGAN. Elizabeth Miranda, one of the directors, is the daughter of Eduardo. MEGAN's treasurer, Ramon Ortiz is a cousin of the Mirandas.[35] Thus, given the nature and structure of MEGAN's board, it is unimaginable that not a single director was aware of the January 16, 2003 RTC Order. However, far from repudiating the authority of Atty. Sabig, Atty. Sabig even filed a Manifestation[36] that MEGAN will deposit the quedans, as directed by the RTC, every "Friday of the week."

MEGAN had all the opportunity to assail the jurisdiction of the RTC and yet far from doing so, it even complied with the RTC Order. With the amount of money involved, it is beyond belief for MEGAN to claim that it had no knowledge of the events that transpired. Moreover, it bears to stress that Atty. Sabig even filed subsequent motions asking for affirmative relief, more important of which is his March 27, 2003 Urgent Ex-Parte Motion[37] asking the RTC to direct the Sugar Regulatory Administration (SRA) to release certain quedans in favor of MEGAN on the premise that the same were not covered by the RTC Orders. Atty. Sabig manifested that 30% of the value of the quedans will be deposited in court as payment for accrued rentals. Noteworthy is the fact that Atty. Sabig's motion was favorably acted upon by the RTC. Like the CA, this Court finds that estoppel has already set in. It is not right for a party who has affirmed and invoked the jurisdiction of a court in a particular matter to secure an affirmative relief to afterwards deny that same jurisdiction to escape a penalty.[38] The party is barred from such conduct not because the judgment or order of the court is valid but because such a practice cannot be tolerated for reasons of public policy.[39]

Lastly, this Court also notes that on April 2, 2003, Atty. Sabig again filed an Urgent Ex-Parte Motion[40] asking the RTC to direct the SRA to release certain quedans not covered by the RTC Orders. The same was granted by the RTC in an Order[41] dated April 2, 2003. Curiously, however, Rene Imperial, the Plant Manager of MEGAN, also signed the April 2, 2003 RTC Order and agreed to the terms embodied therein. If Atty. Sabig was not authorized to act in behalf of MEGAN, then why would MEGAN's plant manager sign an official document assuring the RTC that he would deliver 30% of the value of the quedans earlier released to MEGAN pursuant to the March 27, 2003 Order?

The rule is that the active participation of the party against whom the action was brought, coupled with his failure to object to the jurisdiction of the court or administrative body where the action is pending, is tantamount to an invocation of that jurisdiction and a willingness to abide by the resolution of the case and will bar said party from later on impugning the court or body's jurisdiction.[42] Based on the preceding discussion, this Court holds that MEGAN's challenge to Atty. Sabig's authority and the RTC's jurisdiction was a mere afterthought after having received

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an unfavorable decision from the RTC. Certainly, it would be unjust and inequitable to the other parties if this Court were to grant such a belated jurisdictional challenge.

WHEREFORE, premises considered, the petition is DENIED. The August 23, 2004 Decision and October 12, 2005 Resolution of the Court of Appeals, in CA-G.R. SP No. 75789, are AFFIRMED.

SO ORDERED.

Carpio, (Chairperson), Nachura, Peralta, Abad, and Mendoza, JJ.

Agency; agency by estoppel. The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against his own act, representations, or commitments to the injury of one to whom they were directed and who reasonably relied thereon. The doctrine of estoppel springs from equitable principles and the equities in the case. It is designed to aid the law in the administration of justice where without its aid injustice might result. It has been applied by this Court wherever and whenever special circumstances of a case so demand.

Based on the events and circumstances surrounding the issuance of the assailed orders, this Court rules that MEGAN is estopped from assailing both the authority of Atty. Sabig and the jurisdiction of the RTC. While it is true, as claimed by MEGAN, that Atty. Sabig said in court that he was only appearing for the hearing of Passi Sugar’s motion for intervention and not for the case itself, his subsequent acts, coupled with MEGAN’s inaction and negligence to repudiate his authority, effectively bars MEGAN from assailing the validity of the RTC proceedings under the principle of estoppel. Megan Sugar Corporation v. Regional Trial Court of Iloilo, Br. 68, Dumangas, Iloilo; New Frontier Sugar Corp., et al., G.R. No. 170352. June 1, 2011