G.R. No. 179901             April 14, 2008

BANCO DE ORO-EPCI, INC.,* petitioner, vs.JAPRL DEVELOPMENT CORPORATION, RAPID FORMING CORPORATION and JOSE U. AROLLADO, respondents.

D E C I S I O N

CORONA, J.:

This petition for review on certiorari1 seeks to set aside the decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 95659 and its resolution3 denying reconsideration.

After evaluating the financial statements of respondent JAPRL Development Corporation (JAPRL) for fiscal years 1998, 1999 and 2000,4 petitioner Banco de Oro-EPCI, Inc. extended credit facilities to it amounting to P230,000,0005 on March 28, 2003. Respondents Rapid Forming Corporation (RFC) and Jose U. Arollado acted as JAPRL's sureties.

Despite its seemingly strong financial position, JAPRL defaulted in the payment of four trust receipts soon after the approval of its loan.6 Petitioner later learned from MRM Management, JAPRL's financial adviser, that JAPRL had altered and falsified its financial statements. It allegedly bloated its sales revenues to post a big income from operations for the concerned fiscal years to project itself as a viable investment.7 The information alarmed petitioner. Citing relevant provisions of the Trust Receipt Agreement,8 it demanded immediate payment of JAPRL's outstanding obligations amounting to P194,493,388.98.9

SP Proc. No. Q-03-064

On August 30, 2003, JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in the Regional Trial Court (RTC) of Quezon City, Branch 90 (Quezon City RTC).10 It disclosed that it had been experiencing a decline in sales for the three preceding years and a staggering loss in 2002.11

Because the petition was sufficient in form and substance, a stay order12 was issued on September 28, 2003.13 However, the proposed rehabilitation plan for JAPRL and RFC was eventually rejected by the Quezon City RTC in an order dated May 9, 2005.14

Civil Case No. 03-991

Because JAPRL ignored its demand for payment, petitioner filed a complaint for sum of money with an application for the issuance of a writ of preliminary attachment against respondents in the RTC of Makati City, Branch 145 (Makati RTC) on August 21, 2003.15

Petitioner essentially asserted that JAPRL was guilty of fraud because it (JAPRL) altered and falsified its financial statements.16

The Makati RTC subsequently denied the application (for the issuance of a writ of preliminary attachment) for lack of merit as petitioner was unable to substantiate its allegations. Nevertheless, it ordered the service of summons on respondents.17 Pursuant to the said order, summonses were issued against respondents and were served upon them.

Respondents moved to dismiss the complaint due to an allegedly invalid service of summons.18 Because the officer's return stated that an "administrative assistant" had received the summons,19

JAPRL and RFC argued that Section 11, Rule 14 of the Rules of Court20 contained an exclusive list of persons on whom summons against a corporation must be served.21 An "administrative assistant" was not one of them. Arollado, on the other hand, cited Section 6, Rule 14 thereof22 which mandated personal service of summons on an individual defendant.23

The Makati RTC, in its October 10, 2005 order,24 noted that because corporate officers are often busy, summonses to corporations are usually received only by administrative assistants or secretaries of corporate officers in the regular course of business. Hence, it denied the motion for lack of merit.

Respondents moved for reconsideration25 but withdrew it before the Makati RTC could resolve the matter.26

RTC SEC Case No. 68-2008-C

On February 20, 2006, JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in the RTC of Calamba, Laguna, Branch 34 (Calamba RTC). Finding JAPRL's petition sufficient in form and in substance, the Calamba RTC issued a stay order27 on March 13, 2006.

In view of the said order, respondents hastily moved to suspend

the proceedings in Civil Case No. 03-991 pending in the Makati RTC.28

On July 7, 2006, the Makati RTC granted the motion with regard to JAPRL and RFC but ordered Arollado to file an answer. It ruled that, because he was jointly and solidarily liable with JAPRL and RFC, the proceedings against him should continue.29 Respondents moved for reconsideration30 but it was denied.31

On August 11, 2006, respondents filed a petition for certiorari32 in the CA alleging that the Makati RTC committed grave abuse of discretion in issuing the October 10, 2005 and July 7, 2006 orders.33 They asserted that the court did not acquire jurisdiction over their persons due to defective service of summons. Thus, the Makati RTC could not hear the complaint for sum of money.34

In its June 7, 2007 decision, the CA held that because the summonses were served on a mere administrative assistant, the Makati RTC never acquired jurisdiction over respondents. Thus, it granted the petition.35

Petitioner moved for reconsideration but it was denied.36 Hence, this petition.

Petitioner asserts that respondents maliciously evaded the service of summonses to prevent the Makati RTC from acquiring jurisdiction over their persons. Furthermore, they employed bad faith to delay proceedings by cunningly exploiting procedural technicalities to avoid the payment of their obligations.37

We grant the petition.

Respondents, in their petition for certiorari in the CA, questioned the jurisdiction of the Makati RTC over their persons (i.e., whether or not the service of summons was validly made). Therefore, it was only the October 10, 2005 order of the said trial court which they in effect assailed.38 However, because they withdrew their motion for reconsideration of the said order, it became final. Moreover, the petition was filed 10 months and 1 day after the assailed order was issued by the Makati RTC,39 way past the 60 days allowed by the Rules of Court. For these reasons, the said petition should have been dismissed outright by the CA.

More importantly, when respondents moved for the suspension of

proceedings in Civil Case No. 03-991 before the Makati RTC (on the basis of the March 13, 2006 order of the Calamba RTC), they waived whatever defect there was in the service of summons and were deemed to have submitted themselves voluntarily to the jurisdiction of the Makati RTC.40

We withhold judgment for the moment on the July 7, 2006 order of the Makati RTC suspending the proceedings in Civil Case No. 03-991 insofar as JAPRL and RFC are concerned. Under the Interim Rules of Procedure on Corporate Rehabilitation, a stay order defers all actions or claims against the corporation seeking rehabilitation41 from the date of its issuance until the dismissal of the petition or termination of the rehabilitation proceedings.42

The Makati RTC may proceed to hear Civil Case No. 03-991 only against Arollado if there is no ground to go after JAPRL and RFC (as will later be discussed). A creditor can demand payment from the surety solidarily liable with the corporation seeking rehabilitation.43

Respondents abused procedural technicalities (albeit unsuccessfully) for the sole purpose of preventing, or at least delaying, the collection of their legitimate obligations. Their reprehensible scheme impeded the speedy dispensation of justice. More importantly, however, considering the amount involved, respondents utterly disregarded the significance of a stable and efficient banking system to the national economy.44

Banks are entities engaged in the lending of funds obtained through deposits45 from the public.46 They borrow the public's excess money (i.e., deposits) and lend out the same.47 Banks therefore redistribute wealth in the economy by channeling idle savings to profitable investments.

Banks operate (and earn income) by extending credit facilities financed primarily by deposits from the public.48 They plough back the bulk of said deposits into the economy in the form of loans.49

Since banks deal with the public's money, their viability depends largely on their ability to return those deposits on demand. For this reason, banking is undeniably imbued with public interest. Consequently, much importance is given to sound lending practices and good corporate governance.50

Protecting the integrity of the banking system has become, by

large, the responsibility of banks. The role of the public, particularly individual borrowers, has not been emphasized. Nevertheless, we are not unaware of the rampant and unscrupulous practice of obtaining loans without intending to pay the same.

In this case, petitioner alleged that JAPRL fraudulently altered and falsified its financial statements in order to obtain its credit facilities. Considering the amount of petitioner's exposure in JAPRL, justice and fairness dictate that the Makati RTC hear whether or not respondents indeed committed fraud in securing the credit accomodation.

A finding of fraud will change the whole picture. In this event, petitioner can use the finding of fraud to move for the dismissal of the rehabilitation case in the Calamba RTC.

The protective remedy of rehabilitation was never intended to be a refuge of a debtor guilty of fraud.

Meanwhile, the Makati RTC should proceed to hear Civil Case No. 03-991 against the three respondents guided by Section 40 of the General Banking Law which states:

Section 40. Requirement for Grant of Loans or Other Credit Accommodations. Before granting a loan or other credit accommodation, a bank must ascertain that the debtor is capable of fulfilling his commitments to the bank.

Towards this end, a bank may demand from its credit applicants a statement of their assets and liabilities and of their income and expenditures and such information as may be prescribed by law or by rules and regulations of the Monetary Board to enable the bank to properly evaluate the credit application which includes the corresponding financial statements submitted for taxation purposes to the Bureau of Internal Revenue. Should such statements prove to be false or incorrect in any material detail, the bank may terminate any loan or credit accommodation granted on the basis of said statements and shall have the right to demand immediate repayment or liquidation of the obligation.

In formulating the rules and regulations under this Section, the Monetary Board shall recognize the peculiar characteristics of microfinancing, such as cash flow-based lending to the basic

sectors that are not covered by traditional collateral. (emphasis supplied)

Under this provision, banks have the right to annul any credit accommodation or loan, and demand the immediate payment thereof, from borrowers proven to be guilty of fraud. Petitioner would then be entitled to the immediate payment of P194,493,388.98 and other appropriate damages.51

Finally, considering that respondents failed to pay the four trust receipts, the Makati City Prosecutor should investigate whether or not there is probable cause to indict respondents for violation of Section 13 of the Trust Receipts Law.52

ACCORDINGLY, the petition is hereby GRANTED. The June 7, 2007 decision and August 31, 2007 resolution of the Court of Appeals in CA-G.R. SP No. 95659 are REVERSED and SET ASIDE.

The Regional Trial Court of Makati City, Branch 145 is ordered to proceed expeditiously with the trial of Civil Case No. 03-991 with regard to respondent Jose U. Arollado, and the other respondents if warranted.

SO ORDERED.

G.R. No. 150283             April 16, 2008

RYUICHI YAMAMOTO, petitioner, vs.NISHINO LEATHER INDUSTRIES, INC. and IKUO NISHINO, respondents.

D E C I S I O N

CARPIO MORALES, J.:

In 1983, petitioner, Ryuichi Yamamoto (Yamamoto), a Japanese national, organized under Philippine laws Wako Enterprises Manila, Incorporated (WAKO), a corporation engaged principally in leather tanning, now known as Nishino Leather Industries, Inc. (NLII), one of herein respondents.

In 1987, Yamamoto and the other respondent, Ikuo Nishino (Nishino), also a Japanese national, forged a Memorandum of Agreement under which they agreed to enter into a joint venture wherein Nishino would acquire such number of shares of stock equivalent to 70% of the authorized capital stock of WAKO.

Eventually, Nishino and his brother1 Yoshinobu Nishino (Yoshinobu) acquired more than 70% of the authorized capital stock of WAKO, reducing Yamamoto’s investment therein to, by his claim, 10%,2 less than 10% according to Nishino.3

The corporate name of WAKO was later changed to, as reflected earlier, its current name NLII.

Negotiations subsequently ensued in light of a planned takeover of NLII by Nishino who would buy-out the shares of stock of Yamamoto. In the course of the negotiations, Yoshinobu and Nishino’s counsel Atty. Emmanuel G. Doce (Atty. Doce) advised Yamamoto by letter dated October 30, 1991, the pertinent portions of which follow:

Hereunder is a simple memorandum of the subject matters discussed with me by Mr. Yoshinobu Nishino yesterday, October 29th, based on the letter of Mr. Ikuo Nishino from Japan, and which I am now transmitting to you.4

x x x x

12. Machinery and Equipment:

The following machinery/equipment have been contributed by you to the company:

Splitting machine - 1 unit

Samming machine - 1 unit

Forklift - 1 unit

Drums - 4 units

Toggling machine - 2 units

Regarding the above machines, you may take them out with you (for your own use and sale) if you want, provided, the value of such machines is deducted from your and Wako’s capital contributions, which will be paid to you.

Kindly let me know of your comments on all the above, soonest.

x x x x5 (Emphasis and underscoring supplied)

On the basis of such letter, Yamamoto attempted to recover the machineries and equipment which were, by Yamamoto’s admission, part of his investment in the corporation,6 but he was frustrated by respondents, drawing Yamamoto to file on January 15, 1992 before the Regional Trial Court (RTC) of Makati a complaint7 against them for replevin.

Branch 45 of the Makati RTC issued a writ of replevin after Yamamoto filed a bond. 8

In their Answer with Counterclaim,9 respondents claimed that the machineries and equipment subject of replevin form part of Yamamoto’s capital contributions in consideration of his equity in NLII and should thus be treated as corporate property; and that the above-said letter of Atty. Doce to Yamamoto was merely a proposal, "conditioned on [Yamamoto’s] sell-out to . . . Nishino of his entire equity,"10 which proposal was yet to be authorized by the stockholders and Board of Directors of NLII.

By way of Counterclaim, respondents, alleging that they suffered damage due to the seizure via the implementation of the writ of replevin over the machineries and equipment, prayed for the

award to them of moral and exemplary damages, attorney’s fees and litigation expenses, and costs of suit.

The trial court, by Decision of June 9, 1995, decided the case in favor of Yamamoto,11 disposing thus:

WHEREFORE, judgment is hereby rendered: (1) declaring plaintiff as the rightful owner and possessor of the machineries in question, and making the writ of seizure permanent; (2) ordering defendants to pay plaintiff attorney’s fees and expenses of litigation in the amount of Fifty Thousand Pesos (P50,000.00), Philippine Currency; (3) dismissing defendants’ counterclaims for lack of merit; and (4) ordering defendants to pay the costs of suit.

SO ORDERED.12 (Underscoring supplied)

On appeal,13 the Court of Appeals held in favor of herein respondents and accordingly reversed the RTC decision and dismissed the complaint.14 In so holding, the appellate court found that the machineries and equipment claimed by Yamamoto are corporate property of NLII and may not thus be retrieved without the authority of the NLII Board of Directors;15 and that petitioner’s argument that Nishino and Yamamoto cannot hide behind the shield of corporate fiction does not lie,16 nor does petitioner’s invocation of the doctrine of promissory estoppel.17 At the same time, the Court of Appeals found no ground to support respondents’ Counterclaim.18

The Court of Appeals having denied19 his Motion for Reconsideration,20 Yamamoto filed the present petition,21 faulting the Court of Appeals

A.

x x x IN HOLDING THAT THE VEIL OF CORPORATE FICTION SHOULD NOT BE PIERCED IN THE CASE AT BAR.

B.

x x x IN HOLDING THAT THE DOCTRINE OF PROMISSORY ESTOPPEL DOES NOT APPLY TO THE CASE AT BAR.

C.

x x x IN HOLDING THAT RESPONDENTS ARE NOT LIABLE FOR ATTORNEY’S FEES.22

The resolution of the petition hinges, in the main, on whether the advice in the letter of Atty. Doce that Yamamoto may retrieve the machineries and equipment, which admittedly were part of his investment, bound the corporation. The Court holds in the negative.

Indeed, without a Board Resolution authorizing respondent Nishino to act for and in behalf of the corporation, he cannot bind the latter. Under the Corporation Law, unless otherwise provided, corporate powers are exercised by the Board of Directors.23

Urging this Court to pierce the veil of corporate fiction, Yamamoto argues, viz:

During the negotiations, the issue as to the ownership of the Machiner[ies] never came up. Neither did the issue on the proper procedure to be taken to execute the complete take-over of the Company come up since Ikuo, Yoshinobu, and Yamamoto were the owners thereof, the presence of other stockholders being only for the purpose of complying with the minimum requirements of the law.

What course of action the Company decides to do or not to do depends not on the "other members of the Board of Directors". It depends on what Ikuo and Yoshinobu decide. The Company is but a mere instrumentality of Ikuo [and] Yoshinobu.24

x x x x

x x x The Company hardly holds board meetings. It has an inactive board, the directors are directors in name only and are there to do the bidding of the Nish[i]nos, nothing more. Its minutes are paper minutes. x x x 25

x x x x

The fact that the parties started at a 70-30 ratio and Yamamoto’s percentage declined to 10% does not mean the 20% went to others. x x x The 20% went to no one else but Ikuo himself. x x x Yoshinobu is the younger brother of Ikuo and has no say at all in the business. Only Ikuo makes the decisions. There

were, therefore, no other members of the Board who have not given their approval.26 (Emphasis and underscoring supplied)

While the veil of separate corporate personality may be pierced when the corporation is merely an adjunct, a business conduit, or alter ego of a person,27 the mere ownership by a single stockholder of even all or nearly all of the capital stocks of a corporation is not by itself a sufficient ground to disregard the separate corporate personality.28

The elements determinative of the applicability of the doctrine of piercing the veil of corporate fiction follow:

"1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;

2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of the plaintiff’s legal rights; and

3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

The absence of any one of these elements prevents "piercing the corporate veil ." In applying the ‘instrumentality’ or ‘alter ego’ doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant’s relationship to that operation."29 (Italics in the original; emphasis and underscoring supplied)

In relation to the second element, to disregard the separate juridical personality of a corporation, the wrongdoing or unjust act in contravention of a plaintiff’s legal rights must be clearly and convincingly established; it cannot be presumed.30 Without a demonstration that any of the evils sought to be prevented by the doctrine is present, it does not apply.31

In the case at bar, there is no showing that Nishino used the separate personality of NLII to unjustly act or do wrong to Yamamoto in contravention of his legal rights.

Yamamoto argues, in another vein, that promissory estoppel lies against respondents, thus:

Under the doctrine of promissory estoppel, x x x estoppel may arise from the making of a promise, even though without consideration, if it was intended that the promise should be relied upon and in fact it was relied upon, and if a refusal to enforce it would be virtually to sanction the perpetration of fraud or would result in other injustice.

x x x Ikuo and Yoshinobu wanted Yamamoto out of the Company. For this purpose negotiations were had between the parties. Having expressly given Yamamoto, through the Letter and through a subsequent meeting at the Manila Peninsula where Ikuo himself confirmed that Yamamoto may take out the Machinery from the Company anytime, respondents should not be allowed to turn around and do the exact opposite of what they have represented they will do.

In paragraph twelve (12) of the Letter, Yamamoto was expressly advised that he could take out the Machinery if he wanted to so, provided that the value of said machines would be deducted from his capital contribution x x x.

x x x x

Respondents cannot now argue that they did not intend for Yamamoto to rely upon the Letter. That was the purpose of the Letter to begin with. Petitioner[s] in fact, relied upon said Letter and such reliance was further strengthened during their meeting at the Manila Peninsula.

To sanction respondents’ attempt to evade their obligation would be to sanction the perpetration of fraud and injustice against petitioner.32 (Underscoring supplied)

It bears noting, however, that the aforementioned paragraph 12 of the letter is followed by a request for Yamamoto to give his "comments on all the above, soonest."33

What was thus proffered to Yamamoto was not a promise, but a mere offer, subject to his acceptance. Without acceptance, a mere offer produces no obligation.34

Thus, under Article 1181 of the Civil Code, "[i]n conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition." In the case at bar, there is no showing of compliance with the condition for allowing Yamamoto to take the machineries and equipment, namely, his agreement to the deduction of their value from his capital contribution due him in the buy-out of his interests in NLII. Yamamoto’s allegation that he agreed to the condition35 remained just that, no proof thereof having been presented.

The machineries and equipment, which comprised Yamamoto’s investment in NLII,36 thus remained part of the capital property of the corporation.37

It is settled that the property of a corporation is not the property of its stockholders or members.38 Under the trust fund doctrine, the capital stock, property, and other assets of a corporation are regarded as equity in trust for the payment of corporate creditors which are preferred over the stockholders in the distribution of corporate assets.39 The distribution of corporate assets and property cannot be made to depend on the whims and caprices of the stockholders, officers, or directors of the corporation unless the indispensable conditions and procedures for the protection of corporate creditors are followed.40

WHEREFORE, the petition is DENIED.

Costs against petitioner.

SO ORDERED.

G.R. No. 172302             February 4, 2008

PRYCE CORPORATION, petitioner, vs.THE COURT OF APPEALS and CHINA BANKING CORPORATION, respondents.

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

For our resolution is a petition for review on certiorari seeking to reverse the Decision1 of the Court of Appeals (Seventh Division) dated July 28, 2005 in CA-G.R. SP No. 88479.

Pryce Corporation, petitioner, was incorporated under Philippine laws on September 7, 1989. Its primary purpose was to develop real estate in Mindanao. It engaged in the development of memorial parks, operated a major hotel in Cagayan de Oro City, and produced industrial gases.

The 1997 Asian financial crisis, however, badly affected petitioner’s operations, resulting in heavy losses. It could not meet its obligations as they became due. It incurred losses of P943.09 million in 2001, P479.05 million in 2002, and P125.86 million in 2003.

Thus, on July 12, 2004, petitioner filed with the Regional Trial Court (RTC), Branch 138, Makati City, acting as Commercial Court, a petition for rehabilitation,2 docketed as Special Proceedings No. M-5901. Petitioner prayed for the appointment of a Rehabilitation Receiver from among the nominees named therein and the staying of the enforcement of all claims, monetary or otherwise against it. Petitioner also prayed that after due hearing, its proposed Rehabilitation Plan be approved. The salient features of the proposed Rehabilitation Plan3 are:

[1] the bank creditors will be paid through dacion en pago of assets already mortgaged to them, to the extent sufficient to pay off the outstanding obligations. The excess assets, if any, will be freed from liens and encumbrances and released to the petitioner.

[2] in case the value of the mortgaged assets for dacion is less than the amount of the obligation to be paid, the deficiency shall be settled by way of dacion of memorial park lots owned by the petitioner.

[3] pricing of the assets for dacion shall be based on the average of two valuation appraisals from independent third-party appraisers accredited with the Bangko Sentral ng Pilipinas (BSP) to be chosen by the creditors and acceptable to the petitioner, except for memorial park lots which shall be valued at P16,000 per lot.

[4] all penalties shall be waived by the creditors.

[5] interest on the loans shall be accrued only up to June 30, 2003.

[6] titles of properties and sales documents held by the bank as additional security but without actual mortgage on the properties will also be released to the petitioner after the dacion.

[7] memorial park mother titles mortgaged to a creditor bank shall be priced based on the value of individual memorial lots comprising those titles, the mother titles shall be released to the petitioner.

[8] for purpose of the dacion, the foreign currency loan from China Banking Corporation, the only US Dollar-denominated obligation, will be converted to peso based on the average exchange rate for the year 2003 (P54.2033 to US$1.00), being the mean of 12 monthly averages, as quoted on the statistics web page of the Bangko Sentral ng Pilipinas.

[9] the bank creditors will avail of the tax exemption and benefits offered under the Special Purpose Vehicle (SPV) Law or R.A. No. 9182 to minimize the dacion-related costs for all parties concerned. Any concerned bank or financial institution which does not avail of said tax exemption through its own fault will shoulder the applicable taxes and related fees for the dacion transaction.

[10] trade creditors will be paid through dacion of memorial park lots.

[11] any other debt not covered by mortgaged (sic) of assets or not falling under the aforementioned categories shall be paid through dacion of memorial park lots.

On July 13, 2004, the RTC issued a "Stay Order"4 directing that: all claims against petitioner be deferred; the initial hearing of the petition for rehabilitation be set on September 1, 2004; and all creditors and interested parties should file their respective

comments/oppositions to the petition. In the same Order, the RTC then appointed Gener T. Mendoza as Rehabilitation Receiver.

The petition was opposed by petitioner’s bank-creditors. The Bank of the Philippine Islands claimed that the petition and the proposed Rehabilitation Plan are coercive and violative of the contract. The Land Bank of the Philippines contended, among others, that the petition is unacceptable because of the unrealistic valuation of the properties subject of the dacion en pago.

The China Banking Corporation, respondent herein, alleged in its opposition that petitioner is solvent and that it filed the petition to force its creditors to accept dacion payments. In effect, petitioner passed on to the creditors the burden of marketing and financing unwanted memorial lots, while exempting it (petitioner) from paying interests and penalties.

On September 13, 2004, the RTC issued an Order,5 the dispositive portion of which reads:

WHEREFORE, the Petition is given due course. Let the Rehabilitation Plan, Annex J, Petition, be referred to Mr. Gener Mendoza, Rehabilitation Receiver, for evaluation and recommendation to be submitted not later than December 15, 2004.

SO ORDERED.

On December 6, 2004, the Rehabilitation Receiver, in compliance with the above Order, submitted an Amended Rehabilitation Plan, recommending the following:

1. Payment of all bank loans and long-term commercial papers (LTCP) through dacion en pago of PC’s real estate assets;

2. Payment of all non-bank, trade and other payables amounting to at least P500,000 each through a dacion of memorial park lots; and

3. Payment in cash over a three-year period, without interest, of all non-bank, trade and other payables amounting to less than P500,000 each. There are 290 of these creditors but their aggregate exposure to PC is only P7.64 million.

The Rehabilitation Receiver further proposed the following amendments with respect to the dacion payments to petitioner’s bank creditors:

1. The asset base from which the creditors may choose to be paid has been broadened. Each creditor will no longer be limited to assets already mortgaged to it and may elect to be paid from the many other assets of the company, including even those mortgaged to other creditors. Any secured creditor, however, shall have priority to acquire the assets mortgaged to it.

2. A third appraiser has been added to the two proposed by PC to undertake valuation of assets earmarked for dacion. With three appraisers, more representative values are likely to be obtained.

3. Valuation of the memorial lots has been configured to dovetail with values approved in the corporate rehabilitation of Pryce Gases, Inc. (PGI), a subsidiary of PC. Thus, any memorial lot ceded to secured creditors shall be valued at P13,125 per lot, and P17,500/lot for unsecured creditors.

On January 17, 2005, the RTC issued an Order approving the Amended Rehabilitation Plan and finding petitioner eligible to be placed in a state of corporate rehabilitation; and directing that its assets shall be held and disposed of and its liabilities paid and liquidated in the manner specified in the said Order.

Consequently, on February 23, 2005, respondent filed with the Court of Appeals a petition for review, docketed as CA-G.R. SP No. 88479. Respondent alleged that in approving the Amended Rehabilitation Plan, the RTC impaired the obligations of contracts, voided contractual stipulation and contravened the "avowed policy of the State" to maintain a competitive financial system.

On July 28, 2005, the Court of Appeals rendered its Decision granting respondent’s petition and reversing the assailed Orders of the RTC, thus:

WHEREFORE, premises considered, petition is hereby GRANTED. The assailed July 13, 2004, September 13, 2004 and January 17, 2005 Orders of the Regional Trial Court of Makati City, Branch 138, are hereby REVERSED and SET ASIDE.

SO ORDERED.

Petitioner herein seasonably filed a motion for reconsideration but it was denied by the appellate court in its Resolution dated April 12, 2006.

Hence, the instant recourse raising the sole issue of whether the Court of Appeals erred in denying the petition for rehabilitation of petitioner Pryce Corporation.

Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation6 provides:

SEC. 6. Stay Order.— If the court finds the petition to be sufficient in form and substance, it shall, not later than five (5) days from the filing of the petition, issue an Order (a) appointing a Rehabilitation Receiver and fixing his bond; (b) staying enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or otherwise, against the debtor, its guarantors and sureties not solidarily liable with the debtor; (c) prohibiting the debtor from selling, encumbering, transferring, or disposing in any manner any of its properties except in the ordinary course of business; (d) prohibiting the debtor from making any payment of its liabilities outstanding as of the date of filing of the petition; (e) prohibiting the debtor’s suppliers of goods or services from withholding supply of goods and services in the ordinary course of business for as long as the debtor makes payments for the services and goods supplied after the issuance of the stay order; (f) directing the payment in full of all administrative expenses incurred after the issuance of the stay order; (g) fixing the initial hearing on the petition not earlier than forty five (45) days but not later than sixty (60) days from the filing thereof; (h) directing the petitioner to publish the Order in a newspaper of general circulation in the Philippines once a week for two (2) consecutive weeks; (i) directing all creditors and all interested parties (including the Securities and Exchange Commission) to file and serve on the debtor a verified comment on or opposition to the petition, with supporting affidavits and documents, not later than ten (10) days before the date of the initial hearing and putting them on notice that their failure to do so will bar them from participating in the proceedings; and (j) directing the creditors and interested parties to secure from the court copies of the petition and its annexes within such time as to enable themselves to file their comment on or opposition to the petition and to prepare for the initial hearing of the petition.

Section 6 provides that the petition must be "sufficient in form and substance." In Rizal Commercial Banking Corporation v. Intermediate Appellate Court,7 this Court held that under Section 6(c) of P.D. No. 902-A,8 receivers may be appointed whenever: (1) necessary in order to preserve the rights of the parties-litigants; and/or (2) protect the interest of the investing public and creditors. The situations contemplated in these instances are serious in nature. There must exist a clear and imminent danger of losing the corporate assets if a receiver is not appointed. Absent such danger, such as where there are sufficient assets to sustain the rehabilitation plan and both investors and creditors are amply protected, the need for appointing a receiver does not exist. Simply put, the purpose of the law in directing the appointment of receivers is to protect the interests of the corporate investors and creditors.

We agree with the Court of Appeals that the petition for rehabilitation does not allege that there is a clear and imminent danger that petitioner will lose its corporate assets if a receiver is not appointed. In other words, the "serious situation test" laid down by Rizal Commercial Banking Corporation has not been met or at least substantially complied with. Significantly, the Stay Order dated July 13, 2004 issued by the RTC does not state any serious situation affecting petitioner’s corporate assets. We observe that in appointing Mr. Gener T. Mendoza as Rehabilitation Receiver, the only basis of the lower court was its finding that "the petition is sufficient in form and substance." However, it did not specify any reason or ground to sustain such finding. Clearly, the petition failed to comply with the "serious situation test."

As aptly held by the Court of Appeals:

There are serious requirements before rehabilitation can be ordered. That is why this stay order is issued only after a management committee or receiver is appointed. Before a management committee or receiver is appointed, the law expressly states the serious requirements that must first exist: (1) an imminent danger (National Development Company and New Agrix, Inc. v. Philippine Veterans Bank, G.R. Nos. 84132-33, December 10, 1990, 192 SCRA 257) of dissipation, loss, wastage or destruction of assets or of paralization of business operations of the liquid corporation which may be prejudicial to the interest of

minority stockholders, parties-litigants or to the general public, or (2) there is a necessity to preserve the rights and interests of the parties-litigants, of the investing public and of creditors.

In the case at bench, when the commercial court appointed a rehabilitation receiver, the very next day after the filing of the Petition for Rehabilitation, it is highly doubtful and well-nigh impossible, that, without any hearing yet held, the commercial court could have already gathered enough evidence before it to determine whether there was any imminent danger of dissipation of assets or of paralization of business operations to warrant the appointment of a rehabilitation receiver.9

In determining whether petitioner’s financial situation is serious and whether there is a clear and imminent danger that it will lose its corporate assets, the RTC, acting as commercial court, should conduct a hearing wherein both parties can present their respective evidence. Hence, a remand of the records of this case to the RTC is imperative.

WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals in CA-G.R. SP No. 88479 is AFFIRMED with the modification discussed above. Let the records of this case be REMANDED to the RTC, Branch 138, Makati City, sitting as Commercial Court, for further proceedings with dispatch to determine the merits of the petition for rehabilitation. No costs.

SO ORDERED.

G.R. No. 172812             February 12, 2008

AMELIA R. ENRIQUEZ and REMO SIA, petitioners, vs.BANK OF THE PHILIPPINE ISLANDS and LUIS A. PUENTEVELLA, AVP, respondents.

D E C I S I O N

TINGA, J.:

In this petition for review on certiorari, petitioners Amelia R. Enriquez (Enriquez) and Remo L. Sia (Sia) assail the Decision1 of the Court of Appeals dated 30 November 2005 affirming in toto the Decision2 of the Fourth Division of the National Labor Relations Commission (NLRC), Cebu City which dismissed their complaint for illegal dismissal and money claims. The NLRC had earlier reversed and set aside the decision of Executive Labor Arbiter Danilo C. Acosta finding that petitioners were illegally dismissed by respondent Bank of the Philippine Islands (BPI).

The antecedents, as culled from the records, are as follows:

Enriquez and Sia were the branch manager and assistant branch manager, respectively, of the BPI-Bacolod Singcang Branch. Enriquez was first employed by respondent bank in 1971 and had been an employee thereof for 32 years at the time of her termination,3 whereas Sia had been in respondent bank’s employ since 1974, or for a total of 29 years at the time of his dismissal.4

Respondent Luis A. Puentevella (Puentevella) is one of respondent’s principal officers and was impleaded in his personal capacity.

Petitioners maintain that on 27 December 2002, their branch experienced a heavy volume of transactions owing to the fact that it was the last banking day of the year. When banking hours came to a close, teller Geraldine Descartin (Descartin) purportedly discovered that she had a cash shortage of P36,000.00 and informed Sia about it. Sia, in turn, informed Enriquez of the problem and was directed to review the day’s transactions to trace its cause.5

Descartin claimed that the discrepancy was due to an innocent oversight and recalled that the unaccounted shortage was due to the failure of her mother-in-law, Remedios Descartin (Remedios),

to sign the withdrawal slip when the latter withdrew P36,000.00 earlier that day. With that explanation, Enriquez directed Descartin and her co-teller Evelyn Fregil (Fregil) to submit their written memorandum of the incident. Descartin was permitted to leave the bank to look for Remedios so that the latter could sign the withdrawal slip. At around 7:00 p.m., she returned to the bank with the signed withdrawal slip and debited the amount from the client’s account. Thus, petitioners aver, the transaction was regularized before the end of the day.6

It is the position of petitioners that as there was neither shortage nor loss to the bank because the initial discrepancy was accounted for and that it was due to a mere oversight, they put the matter to rest. In the meantime, Sia began to wind up his affairs as 27 December 2002 was his last working day with the bank before going on terminal leave prior to his optional retirement.

Respondents, however, have a different version of what transpired on 27 December 2002. According to them, teller Descartin’s shortage of P36,000.00, which she confided to her co-teller Fregil, was incurred because she had temporarily borrowed the money that week to pay her financial obligations but intended to return the same on the first week of January. Teller Fregil reported the matter to Sia and Enriquez, both of whom suggested that teller Descartin fill the shortage with a loan from her family. Teller Descartin replied that her family did not have the money, she instead borrowed the amount from her in-laws. Thus, at 5:21 p.m., teller Descartin posted the unsigned withdrawal slip for the amount of P36,000.00 against the joint account of her parents-in-law. As the amount exceeded the floor limit for tellers which would require the approval of a superior officer, either Enriquez or Sia approved the transaction at 5:22 p.m. as reflected on the account records. Teller Descartin thereafter left the bank to secure the signature of her mother-in-law Remedios and returned at past 7:00 p.m. with the signed withdrawal slip.7

On 28 December 2002, teller Fregil was allegedly informed that teller Descartin was going to prepare a "white lie" report, to be signed by both of them, stating that teller Descartin had inadvertently misplaced the withdrawal slip of her mother-in-law and that the transaction was regularized within the same day. On 2 January 2003, teller Fregil signed the report. However, in February 2003, teller Fregil bumped into a colleague assigned to the BPI-

Bacolod Main Branch and confided to the latter her uneasiness about the 27 December 2002 incident. The matter was reported and ultimately brought to the attention of respondent Puentevella.8

Thus, sometime in February 2003, respondent Puentevella initiated further investigation on the incident. Later, on 3 March 2003, teller Fregil retracted her original statement and instead executed another letter claiming that there was a cover-up of the shortage on the day in question. Respondents assert that the investigation conducted by the Auditing Division of BPI bolstered teller Fregil’s claims of irregularity as the audit report disclosed that petitioners failed to make the necessary report on the shortage and instead assisted in covering-up teller Descartin’s wrongdoing.

On 25 April 2003, petitioners were instructed to report to the BPI head office for polygraph testing. While they expressed their willingness to be interviewed, petitioners objected to the polygraph test. On 27 June 2003, petitioners received show-cause memos directing them to explain in writing why they should not be sanctioned for conflict of interest and breach of trust. Petitioners submitted their respective replies in which they denied the charges against them. On 14 July 2003, a committee of respondent bank conducted a hearing of the case and as part of the investigation, separately interviewed petitioners and tellers Descartin and Fregil. On 3 September 2003, petitioners were dismissed from employment on grounds of breach of trust and confidence and dishonesty.

Hence, on 4 September 2003, petitioners filed their respective Complaints9 for illegal dismissal against respondents and prayed for reinstatement or, in lieu thereof, payment of separation pay. Additionally, they sought backwages, retirement pay, attorney’s fees and moral and exemplary damages in the amount of P10,000,000.00.

After the submission by the parties of their position papers, Labor Arbiter Acosta rendered a Decision10 on 29 March 2004 finding that petitioners had been illegally dismissed. The dispositive portion of the decision states:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. DECLARING that complainants were illegally dismissed by

respondents;

2. ORDERING respondents to reinstate complainants to their former position without loss of seniority rights and to pay them their corresponding full back wages inclusive of allowances and other benefits as computed, in the sum of Pesos: ONE MILLION ONE HUNDRED SEVENTY-THREE THOUSAND, FOUR HUNDRED THIRTY-FOUR AND 50/100 ONLY (P1,173,434.50);

3. ORDERING respondents to jointly and severally pay complainants moral and exemplary damages in the amount of P3,000,000.00 each or a total of P6,000,000.00;

4. ORDERING respondents to jointly and severally pay attorney’s fees in the amount of P717,343.45 which is equivalent to 10% of the total judgment award, thereby making a total of SEVEN MILLION EIGHT HUNDRED NINETY THOUSAND, SEVEN HUNDRED SEVENTY-SEVEN AND 95/100 ONLY (P7,890,777.95), the same to be deposited with the Cashier of this Office within ten (10) calendar days from receipt of this Decision;

5. ORDERING respondents to jointly and severally pay complainants in case they reach the compulsory retirement age of 60 years old pending final resolution of this case, their Retirement pay equivalent to two (2) months latest salary for every year of service and their Separation pay equivalent to one (1) month salary for every year of service computed from the time they were hired up to their retirement period.11

Aggrieved, respondents appealed to the NLRC. Finding that the records substantiated the conclusion that petitioners tried to cover up teller Descartin’s infraction instead of taking the appropriate action thereon, the NLRC ruled that respondents had just cause to terminate their employment. Hence, the NLRC reversed and set aside the challenged decision and although it dismissed the complaint, it ordered respondents to give petitioners financial assistance equivalent to one-half month’s pay for every year of service.12

Petitioners thereafter elevated the case to the Court of Appeals. The appellate court, agreeing with the NLRC, denied petitioners’ appeal and affirmed in toto the latter’s assailed decision.

Before us, petitioners raise the following assignment of errors:

THE COURT OF APPEALS ERRED IN NOT DECLARING THAT RESPONDENTS’ APPEAL TO THE NLRC WAS DEFECTIVE FOR FAILING TO COMPLY WITH RULE VI, SECTION 4 OF THE NLRC RULES OF PROCEDURE.

THE APPEALED DECISION AND RESOLUTION OF THE COURT OF APPEALS ARE MANIFESTLY ERRONEOUS AND RENDERED IN DISREGARD OF THE EVIDENCE IN RECORD AND EXISTING JURISPRUDENCE.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN CONCLUDING THAT PETITIONERS WERE VALIDLY TERMINATED FROM EMPLOYMENT.

THE COURT OF APPEALS ERRED IN AFFIRMING THE NLRC’S DECISION AND RESOLUTION THAT ARE IRREGULAR AND ANOMALOUS.13

The petition should be denied.

Petitioners maintain that the Memorandum of Appeal14 filed by respondents before the NLRC should have been dismissed due to a defect in its verification. In particular, petitioners assert that the document was signed by Puentevella alone, who did not show any board resolution authorizing him to represent the corporation on appeal, in violation of Rule VI, Section 4 of the NLRC Rules of Procedure which provides:

Section 4. REQUISITES FOR PERFECTION OF APPEAL. A) The appeal shall be filed within the reglementary period as provided in Section 1 of this Rules, shall be verified by appellant himself in accordance with Section 4, Rule 7 of the Rules of Court x x x.

For their part, respondents argue that the board of directors of a corporation, in vesting authority to another person or body, does not necessarily have to be express and in writing at all times. They cited the following excerpt from the case of People’s Aircargo and Warehousing Co., Inc. v. Court of Appeals15 to support their contention:

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 xxx 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:

x x x

Under this provision, the power and the 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 which have been intentionally conferred, and also such powers as, in the 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 persons dealing with the officer or agent to believe that it has conferred."

x x x 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, 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, whether within or beyond the scope of his ordinary powers. x x x16

Therefore, according to respondents, there was acquiescence on

the part of BPI which amounted to a valid authority as it never showed any indication that it had not given its authority to respondent Puentevella to act on its behalf in the filing of the appeal with the NLRC.

After assiduously weighing the arguments of the parties, we find that a liberal construction of the rules is in order. To serve the interest of justice, compelling reason obtains to address respondents’ arguments and brush aside technicality. The Court frowns upon the practice of dismissing cases purely on procedural grounds.17 Instructive is our pronouncement in the case of Bank of the Philippine Islands v. Court of Appeals,18 thus:

Verification is simply intended to secure an assurance that the allegations in the pleading are true and correct and not the product of the imagination or a matter of speculation, and that the pleading is filed in good faith. x x x We see no circumvention of these objectives by the vice president’s signing the verification and certification without express authorization from any existing board resolution.

As explained in BPI’s Motion for Reconsideration, he was actually authorized to sign the verification and the certification, as shown by the written confirmation attached to the Motion. Furthermore, he is presumed to know the requirements for validly signing those documents. (Emphasis supplied)19

While it is true that rules of procedure are intended to promote rather than frustrate the ends of justice, and the swift unclogging of court dockets is a laudable objective, it nevertheless must not be met at the expense of substantial justice.20 This Court has time and again reiterated the doctrine that the rules of procedure are mere tools aimed at facilitating the attainment of justice, rather than its frustration. A strict and rigid application of the rules must always be eschewed when it would subvert the primary objective of the rules, that is, to enhance fair trials and expedite justice. Technicalities should never be used to defeat the substantive rights of the other party. Every party-litigant must be afforded the amplest opportunity for the proper and just determination of his cause, free from the constraints of technicalities.21 Considering that there was substantial compliance, a liberal interpretation of procedural rules in this labor case is more in keeping with the constitutional mandate to secure social justice.22

Having disposed of the procedural matter raised by petitioners, we now address the merits of the petition. There is no denying that loss of trust and confidence is a valid ground for termination of employment.23 Hence, the basic requisite for dismissal on the ground of loss of confidence is that the employee concerned holds a position of trust and confidence24 or is routinely charged with the care and custody of the employer’s money or property.25 Moreover, the breach must be related to the performance of the employee’s function.26 Also, it must be shown that the employee is a managerial employee, since the term "trust and confidence" is restricted to said class of employees.27 In reviewing this petition, we have fully taken into account the foregoing considerations.

Petitioners challenge the reliance of the assailed decisions on the letters and affidavits executed by Teller Fregil, which retracted her original statement dated 28 December 2002 consistent with petitioners’ version of the facts. While retractions are generally looked upon with disfavor by the courts, there may exist instances, as in the case at bar, when a retraction may be accepted. Before doing so, it is necessary to examine the circumstances surrounding it and the possible motives for reversing the previous declaration.

We find sufficient basis in evidence to accord full probative value to Teller Fregil’s retraction letter which she later affirmed through subsequent affidavits. The independent audit conducted by the auditing division of BPI notably supports her claim that the wrongdoing was concealed by petitioners from respondent bank. Moreover, a review of the teller’s transaction summary28 of teller Descartin reinforces the conclusion that the shortage in her pico box was due to a "temporary borrowing," the cover-up of which was sanctioned by petitioners.

It is likewise asserted by petitioners that under BPI’s bank policy, failure to report a shortage is not a ground to terminate employment. The argument is short-sighted.

BPI’s policy on tellers’ shortages is unambiguous. It requires that all shortages be declared properly and booked accordingly on the same day they are incurred.29 Furthermore, the same must be reported by the branch head to the designated bank officers and departments not later than the second banking day from the date of booking.30

The pertinent provisions of BPI’s Personnel Policies and Benefits Manual, in Chapter IV, Section 20 (B) thereof, provides:

2.1 Breach of Trust and Confidence; Dishonesty

x x x

2.1.2 Misappropriation, malversation or withholding of funds.

1st offense – dismissal

x x x

2.2 Violation of Operating Procedures

2.2.1 Willful non-observance of standard operating procedures in the handling of any transaction or work assignment for purposes of personal gain, profit, or advantage of another person.

1st offense – dismissal

x x x

3.5 Any employee who knowingly aids, abets, or conceals or otherwise deliberately permits the commission of any irregular or fraudulent act directed against the Unibank will be considered equally guilty as the principal perpetuators of the fraud or irregularity, and will be dealt with accordingly.

3.5.1 Management will not tolerate violations of banking and/or established procedures by an employee where there is a conflict-of-interest situation and where the irregular transaction or omission is intended to benefit the officer concerned or a related interest, at the Unibank’s expense or risk. x x x31

Taken together with the attending circumstances of the case, the failure of petitioners to report the cash shortage of teller Descartin, even if done in good faith, nonetheless resulted in their abetting the dishonesty committed by the latter. Under the personnel policies of respondent bank, this act of petitioners justifies their dismissal even on the first offense. Even assuming the version of petitioners as the truth, the fact remains that they willfully decided against reporting the shortage that occurred. As a result, in either situation, petitioners’ acts have caused respondents to have a

legitimate reason to lose the trust reposed in them as senior managerial employees. Their participation in the cover-up of the misconduct of teller Descartin makes them unworthy of the trust and confidence demanded by their positions.

It is well-settled that the power to dismiss an employee is a recognized prerogative that is inherent in the employer’s right to freely manage and regulate his business. An employer cannot be expected to retain an employee whose lack of morals, respect and loyalty to his employer or regard for his employer’s rules and appreciation of the dignity and responsibility of his office has so plainly and completely been bared.32 Thus, to compel respondent bank to keep petitioners in its employ after the latter have betrayed the confidence given to them would be unjust to respondent bank. The expectation of trust is more so magnified in the instant case in light of the nature of respondent bank’s business. The banking industry is imbued with public interest and is mandated by law to serve its clients with extraordinary care and diligence. To be able to fulfill this duty, it in turn must rely on the honesty and loyalty of its employees.33

As a final challenge to the decision of the appellate court, petitioners maintain that irregularity and anomaly attended the disposition of respondents’ appeal before the NLRC. In particular, petitioners bewail the alleged "breakneck speed" at which the appeal was resolved by Commissioner Oscar Uy who, they claim, took an unusual interest in the case. Petitioners’ counsel even filed a complaint against Commissioner Uy before the Ombudsman.

We must sustain the appellate court in treating such suppositions as mere allegations pending the result of the formal investigation by the Ombudsman. Absent a definitive finding on the accusations of irregularity, we cannot in this case consider petitioners’ arguments on the matter. It is a separate matter in itself which has to be addressed first by the Ombudsman in the case pending before it. At all events, the assailed decision at bar is basically sound, aligned with law and jurisprudence, and supported by the evidence on record.

Besides, the province of the instant Rule 45 petition for review is to correct errors of law committed by the Court of Appeals. After a judicious and meticulous review of the records of the case, we are convinced that the Court of Appeals did not err in finding that

petitioners were validly terminated from employment.

Clearly, as a measure of self-preservation against acts patently inimical to its interests, respondent bank had every right to dismiss petitioners for breach of trust, loss of confidence and dishonesty. Indeed, in cases of this nature, the fact that petitioners had been employees of BPI for a long time, if it is to be considered at all, should be taken against them. Their manifest condonation and even concealment of an offense prejudicial to their employer’s interest committed by a subordinate under their supervision reflect a regrettable lack of loyalty which they should have reinforced, instead of betrayed.34 So Sosito v. Aguinaldo Development Corporation35 prescribes:

While the Constitution is committed to the policy of social justice and the protection of the working class, it should not be supposed that every labor dispute will be automatically decided in favor of labor. Management also has its own rights which, as such, are entitled to respect and enforcement in the interest of simple fair play. Out of its concern for those with less privileges

in life, this Court has inclined more often than not toward the worker and upheld his cause in his conflicts with the employer. Such favoritism, however, has not blinded us to the rule that justice is in every case for the deserving, to be dispensed in the light of the established facts and the applicable law and doctrine.36

WHEREFORE, finding no reversible error, the instant petition is DENIED.

SO ORDERED.

G.R. No. 164182             February 26, 2008

POWER HOMES UNLIMITED CORPORATION, petitioner, vs.SECURITIES AND EXCHANGE COMMISSION AND NOEL MANERO, respondents.

D E C I S I O N

PUNO, C.J.:

This petition for review seeks the reversal and setting aside of the July 31, 2003 Decision1 of the Court of Appeals that affirmed the January 26, 2001 Cease and Desist Order (CDO)2 of public respondent Securities and Exchange Commission (SEC) enjoining petitioner Power Homes Unlimited Corporation’s (petitioner) officers, directors, agents, representatives and any and all persons claiming and acting under their authority, from further engaging in the sale, offer for sale or distribution of securities; and its June 18, 2004 Resolution3 which denied petitioner’s motion for reconsideration.

The facts: Petitioner is a domestic corporation duly registered with public respondent SEC on October 13, 2000 under SEC Reg. No. A200016113. Its primary purpose is:

To engage in the transaction of promoting, acquiring, managing, leasing, obtaining options on, development, and improvement of real estate properties for subdivision and allied purposes, and in the purchase, sale and/or exchange of said subdivision and properties through network marketing.4

On October 27, 2000, respondent Noel Manero requested public respondent SEC to investigate petitioner’s business. He claimed that he attended a seminar conducted by petitioner where the latter claimed to sell properties that were inexistent and without any broker’s license.

On November 21, 2000, one Romulo E. Munsayac, Jr. inquired from public respondent SEC whether petitioner’s business involves "legitimate network marketing."

On the bases of the letters of respondent Manero and Munsayac, public respondent SEC held a conference on December 13, 2000 that was attended by petitioner’s incorporators John Lim, Paul

Nicolas and Leonito Nicolas. The attendees were requested to submit copies of petitioner’s marketing scheme and list of its members with addresses.

The following day or on December 14, 2000, petitioner submitted to public respondent SEC copies of its marketing course module and letters of accreditation/authority or confirmation from Crown Asia, Fil-Estate Network and Pioneer 29 Realty Corporation.

On January 26, 2001, public respondent SEC visited the business premises of petitioner wherein it gathered documents such as certificates of accreditation to several real estate companies, list of members with web sites, sample of member mail box, webpages of two (2) members, and lists of Business Center Owners who are qualified to acquire real estate properties and materials on computer tutorials.

On the same day, after finding petitioner to be engaged in the sale or offer for sale or distribution of investment contracts, which are considered securities under Sec. 3.1 (b) of Republic Act (R.A.) No. 8799 (The Securities Regulation Code),5 but failed to register them in violation of Sec. 8.1 of the same Act,6 public respondent SEC issued a CDO that reads:

WHEREFORE, pursuant to the authority vested in the Commission, POWER HOMES UNLIMITED, CORP., its officers, directors, agents, representatives and any and all persons claiming and acting under their authority, are hereby ordered to immediately CEASE AND DESIST from further engaging in the sale, offer or distribution of the securities upon the receipt of this order.

In accordance with the provisions of Section 64.3 of Republic Act No. 8799, otherwise known as the Securities Regulation Code, the parties subject of this Cease and Desist Order may file a request for the lifting thereof within five (5) days from receipt.7

On February 5, 2001, petitioner moved for the lifting of the CDO, which public respondent SEC denied for lack of merit on February 22, 2001.

Aggrieved, petitioner went to the Court of Appeals imputing grave abuse of discretion amounting to lack or excess of jurisdiction on public respondent SEC for issuing the order. It also applied for a temporary restraining order, which the appellate court granted.

On May 23, 2001, the Court of Appeals consolidated petitioner’s case with CA-G.R. [SP] No. 62890 entitled Prosperity.Com, Incorporated v. Securities and Exchange Commission (Compliance and Enforcement Department), Cristina T. De La Cruz, et al.

On June 19, 2001, petitioner filed in the Court of Appeals a Motion for the Issuance of a Writ of Preliminary Injunction. On July 6, 2001, the motion was heard. On July 12, 2001, public respondent SEC filed its opposition. On July 13, 2001, the appellate court granted petitioner’s motion, thus:

Considering that the Temporary Restraining Order will expire tomorrow or on July 14, 2001, and it appearing that this Court cannot resolve the petition immediately because of the issues involved which require a further study on the matter, and considering further that with the continuous implementation of the CDO by the SEC would eventually result to the sudden demise of the petitioner’s business to their prejudice and an irreparable damage that may possibly arise, we hereby resolve to grant the preliminary injunction.

WHEREFORE, let a writ of preliminary injunction be issued in favor of petitioner, after posting a bond in the amount of P500,000.00 to answer whatever damages the respondents may suffer should petitioner be adjudged not entitled to the injunctive relief herein granted.8

On August 8, 2001, public respondent SEC moved for reconsideration, which was not resolved by the Court of Appeals.

On July 31, 2003, the Court of Appeals issued its Consolidated Decision. The disposition pertinent to petitioner reads:9

WHEREFORE, x x x x the petition for certiorari and prohibition filed by the other petitioner Powerhomes Unlimited Corporation is hereby DENIED for lack of merit and the questioned Cease and Desist Order issued by public respondent against it is accordingly AFFIRMED IN TOTO.

On June 18, 2004, the Court of Appeals denied petitioner’s motion for reconsideration;10 hence, this petition for review.

The issues for determination are: (1) whether public respondent

SEC followed due process in the issuance of the assailed CDO; and (2) whether petitioner’s business constitutes an investment contract which should be registered with public respondent SEC before its sale or offer for sale or distribution to the public.

On the first issue, Sec. 64 of R.A. No. 8799 provides:

Sec. 64. Cease and Desist Order. – 64.1. The Commission, after proper investigation or verification, motu proprio or upon verified complaint by any aggrieved party, may issue a cease and desist order without the necessity of a prior hearing if in its judgment the act or practice, unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public.

We hold that petitioner was not denied due process. The records reveal that public respondent SEC properly examined petitioner’s business operations when it (1) called into conference three of petitioner’s incorporators, (2) requested information from the incorporators regarding the nature of petitioner’s business operations, (3) asked them to submit documents pertinent thereto, and (4) visited petitioner’s business premises and gathered information thereat. All these were done before the CDO was issued by the public respondent SEC. Trite to state, a formal trial or hearing is not necessary to comply with the requirements of due process. Its essence is simply the opportunity to explain one’s position. Public respondent SEC abundantly allowed petitioner to prove its side.

The second issue is whether the business of petitioner involves an investment contract that is considered security11 and thus, must be registered prior to sale or offer for sale or distribution to the public pursuant to Section 8.1 of R.A. No. 8799, viz:

Section 8. Requirement of Registration of Securities. – 8.1. Securities shall not be sold or offered for sale or distribution within the Philippines, without a registration statement duly filed with and approved by the Commission. Prior to such sale, information on the securities, in such form and with such substance as the Commission may prescribe, shall be made available to each prospective purchaser.

Public respondent SEC found the petitioner "as a marketing company that promotes and facilitates sales of real properties and

other related products of real estate developers through effective leverage marketing." It also described the conduct of petitioner’s business as follows:

The scheme of the [petitioner] corporation requires an investor to become a Business Center Owner (BCO) who must fill-up and sign its application form. The Terms and Conditions printed at the back of the application form indicate that the BCO shall mean an independent representative of Power Homes, who is enrolled in the company’s referral program and who will ultimately purchase real property from any accredited real estate developers and as such he is entitled to a referral bonus/commission. Paragraph 5 of the same indicates that there exists no employer/employee relationship between the BCO and the Power Homes Unlimited, Corp.

The BCO is required to pay US$234 as his enrollment fee. His enrollment entitles him to recruit two investors who should pay US$234 each and out of which amount he shall receive US$92. In case the two referrals/enrollees would recruit a minimum of four (4) persons each recruiting two (2) persons who become his/her own down lines, the BCO will receive a total amount of US$147.20 after deducting the amount of US$36.80 as property fund from the gross amount of US$184. After recruiting 128 persons in a period of eight (8) months for each Left and Right business groups or a total of 256 enrollees whether directly referred by the BCO or through his down lines, the BCO who receives a total amount of US$11,412.80 after deducting the amount of US$363.20 as property fund from the gross amount of US$11,776, has now an accumulated amount of US$2,700 constituting as his Property Fund placed in a Property Fund account with the Chinabank. This accumulated amount of US$2,700 is used as partial/full down payment for the real property chosen by the BCO from any of [petitioner’s] accredited real estate developers.12

An investment contract is defined in the Amended Implementing Rules and Regulations of R.A. No. 8799 as a "contract, transaction or scheme (collectively ‘contract’) whereby a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others."13

It behooves us to trace the history of the concept of an investment contract under R.A. No. 8799. Our definition of an investment

contract traces its roots from the 1946 United States (US) case of SEC v. W.J. Howey Co.14 In this case, the US Supreme Court was confronted with the issue of whether the Howey transaction constituted an "investment contract" under the Securities Act’s definition of "security."15 The US Supreme Court, recognizing that the term "investment contract" was not defined by the Act or illumined by any legislative report,16 held that "Congress was using a term whose meaning had been crystallized"17 under the state’s "blue sky" laws18 in existence prior to the adoption of the Securities Act.19 Thus, it ruled that the use of the catch-all term "investment contract" indicated a congressional intent to cover a wide range of investment transactions.20 It established a test to determine whether a transaction falls within the scope of an "investment contract."21 Known as the Howey Test, it requires a transaction, contract, or scheme whereby a person (1) makes an investment of money, (2) in a common enterprise, (3) with the expectation of profits, (4) to be derived solely from the efforts of others.22

Although the proponents must establish all four elements, the US Supreme Court stressed that the Howey Test "embodies a flexible rather than a static principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits."23

Needless to state, any investment contract covered by the Howey Test must be registered under the Securities Act, regardless of whether its issuer was engaged in fraudulent practices.

After Howey came the 1973 US case of SEC v. Glenn W. Turner Enterprises, Inc. et al.24 In this case, the 9th Circuit of the US Court of Appeals ruled that the element that profits must come "solely" from the efforts of others should not be given a strict interpretation. It held that a literal reading of the requirement "solely" would lead to unrealistic results. It reasoned out that its flexible reading is in accord with the statutory policy of affording broad protection to the public. Our R.A. No. 8799 appears to follow this flexible concept for it defines an investment contract as a contract, transaction or scheme (collectively "contract") whereby a person invests his money in a common enterprise and is led to expect profits not solely but primarily from the efforts of others. Thus, to be a security subject to regulation by the SEC, an investment contract in our jurisdiction must be proved to be: (1) an investment of money, (2) in a common enterprise, (3) with expectation of profits, (4) primarily from efforts of others.

Prescinding from these premises, we affirm the ruling of the public respondent SEC and the Court of Appeals that the petitioner was engaged in the sale or distribution of an investment contract. Interestingly, the facts of SEC v. Turner25 are similar to the case at bar. In Turner, the SEC brought a suit to enjoin the violation of federal securities laws by a company offering to sell to the public contracts characterized as self-improvement courses. On appeal from a grant of preliminary injunction, the US Court of Appeals of the 9th Circuit held that self-improvement contracts which primarily offered the buyer the opportunity of earning commissions on the sale of contracts to others were "investment contracts" and thus were "securities" within the meaning of the federal securities laws. This is regardless of the fact that buyers, in addition to investing money needed to purchase the contract, were obliged to contribute their own efforts in finding prospects and bringing them to sales meetings. The appellate court held:

It is apparent from the record that what is sold is not of the usual "business motivation" type of courses. Rather, the purchaser is really buying the possibility of deriving money from the sale of the plans by Dare to individuals whom the purchaser has brought to Dare. The promotional aspects of the plan, such as seminars, films, and records, are aimed at interesting others in the Plans. Their value for any other purpose is, to put it mildly, minimal.

Once an individual has purchased a Plan, he turns his efforts toward bringing others into the organization, for which he will receive a part of what they pay. His task is to bring prospective purchasers to "Adventure Meetings."

The business scheme of petitioner in the case at bar is essentially similar. An investor enrolls in petitioner’s program by paying US$234. This entitles him to recruit two (2) investors who pay US$234 each and out of which amount he receives US$92. A minimum recruitment of four (4) investors by these two (2) recruits, who then recruit at least two (2) each, entitles the principal investor to US$184 and the pyramid goes on.

We reject petitioner’s claim that the payment of US$234 is for the seminars on leverage marketing and not for any product. Clearly, the trainings or seminars are merely designed to enhance petitioner’s business of teaching its investors the know-how of its

multi-level marketing business. An investor enrolls under the scheme of petitioner to be entitled to recruit other investors and to receive commissions from the investments of those directly recruited by him. Under the scheme, the accumulated amount received by the investor comes primarily from the efforts of his recruits.

We therefore rule that the business operation or the scheme of petitioner constitutes an investment contract that is a security under R.A. No. 8799. Thus, it must be registered with public respondent SEC before its sale or offer for sale or distribution to the public. As petitioner failed to register the same, its offering to the public was rightfully enjoined by public respondent SEC. The CDO was proper even without a finding of fraud. As an investment contract that is security under R.A. No. 8799, it must be registered with public respondent SEC, otherwise the SEC cannot protect the investing public from fraudulent securities. The strict regulation of securities is founded on the premise that the capital markets depend on the investing public’s level of confidence in the system.

IN VIEW WHEREOF, the petition is DENIED. The July 31, 2003 Decision of the Court of Appeals, affirming the January 26, 2001 Cease and Desist Order issued by public respondent Securities and Exchange Commission against petitioner Power Homes Unlimited Corporation, and its June 18, 2004 Resolution denying petitioner’s Motion for Reconsideration are AFFIRMED. No costs.

SO ORDERED.

G.R. No. 170585             October 6, 2008

DAVID C. LAO and JOSE C. LAO, petitioners, vs.DIONISIO C. LAO, respondents.

D E C I S I O N

REYES, R.T., J.:

IS the mere inclusion as shareholder in the General Information Sheet of a corporation sufficient proof that one is a shareholder in such corporation?

This is the main question for resolution in this petition for review on certiorari of the Amended Decision1 of the Court of Appeals (CA) affirming the Decision2 of the Regional Trial Court (RTC), Branch 11, Cebu City in CEB-25916-SRC.

The Facts

On October 15, 1998, petitioners David and Jose Lao filed a petition with the Securities and Exchange Commission (SEC) against respondent Dionisio Lao, president of Pacific Foundry Shop Corporation (PFSC). Petitioners prayed for a declaration as stockholders and directors of PFSC, issuance of certificates of shares in their name and to be allowed to examine the corporate books of PFSC.3

Petitioners claimed that they are stockholders of PFSC based on the General Information Sheet filed with the SEC, in which they are named as stockholders and directors of the corporation. Petitioner David Lao alleged that he acquired 446 shares in PFSC from his father, Lao Pong Bao, which shares were previously purchased from a certain Hipolito Lao. Petitioner Jose Lao, on the other hand, alleged that he acquired 333 shares from respondent Dionisio Lao himself.4

Respondent denied petitioners' claim. He alleged that the inclusion of their names in the corporation's General Information Sheet was inadvertently made. He also claimed that petitioners did not acquire any shares in PFSC by any of the modes recognized by law, namely subscription, purchase, or transfer. Since they were neither stockholders nor directors of PFSC, petitioners had no right to be issued certificates or stocks or to inspect its corporate

books.5

On June 19, 2000, Republic Act 8799, otherwise known as the Securities Regulation Code, was enacted, transferring jurisdiction over all intra-corporate disputes from the SEC to the RTC. Pursuant to the law, the petition with the SEC was transferred to the RTC in Cebu City and docketed as Civil Case No. CEB-25916-SRC. The case was consolidated with another intra-corporate dispute, Civil Case No. CEB-25910-SRC, filed by the Heirs of Uy Lam Tiong against respondent Dionisio Lao.6

During pre-trial, the parties agreed to submit the case for resolution based on the evidence on record.7

RTC Disposition

On December 19, 2001, the RTC rendered a Joint Decision8 with the following pertinent disposition, thus:

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by the Court in these cases:

(a) Denying the petition of David C. Lao and Jose C. Lao to be recognized as stockholders and directors of Pacific Foundry Shop Corporation, to be issued certificates of stock of said corporation and to be allowed to exercise rights of stockholders of the same corporation.9

In denying the petition, the RTC ratiocinated:

x x x Thus, the petitioners David C. Lao and Jose C Lao do not appear to have become registered stockholders of Pacific Foundry Shop corporation, as they do not appear to have acquired shares of stock of the corporation either as subscribers or by purchase from a holder of outstanding shares or by purchase from the corporation of additionally issued shares.

x x x x

Secondly, the claim or contention of the petitioners David C. Lao and Jose C. Lao is wanting in merit because they have no stock certificates in their names. A stock certificate, as we very well know, is the evidence of ownership of corporate stock. If ever the said petitioners acquired shares of stock of the corporation, there

is a need for their acquisition of said shares to be registered in the Stock and Transfer Book of the corporation. Registration is necessary to entitle a person to exercise the rights of a stockholder and to hold office as director or other offices (12 Fletcher 343). That is why it is explicitly provided in Section 63 of the Corporation Code of the Philippines that no transfer of shares of stock shall be valid until the transfer is recorded in the books of the corporation. An unregistered transfer is not valid as against the corporation (Uson vs. Diosomito, 61 Phil. 535). A transfer must be registered, or at least notice thereof given to the corporation for the purpose of registration, before the transferee can acquire any right as against the corporation other than the right to have the transfer registered (12 Fletcher 339). An unrecorded transferee can not enjoy the status of a stockholder, he can not vote nor he voted for (Price & Sulu Development Corp. vs. Martin, 58 Phil. 707). Until the transfer is registered, the transferee is not a stockholder but an outsider (Rivera vs. Florendo, G.R. No. L-57586, October 8, 1986). So, a person who has acquired or purchased shares of stock of a corporation, and who desires to be recognized as stockholder for the purpose of voting and exercising other rights of a stockholder, must secure such a standing by having the acquisition or transfer recorded in the corporate books (Price & Sulu development Corp. vs. Martin, supra). Unfortunately, in the cases at bench, the petitioners David C. Lao and Jose C. Lao did not secure such a standing. Consequently, their petition to be recognized as stockholders of Pacific Foundry Shop Corporation must fail.10

Petitioners appealed to the CA.

CA Disposition

On May 27, 2005, the CA rendered a Decision11 modifying that of the RTC, disposing as follows:

WHEREFORE, premises considered, judgment is hereby rendered modifying the Joint Decision dated December 19, 2001 of the trial court in so far as it relates to Civil Case No. CEB-25916-SRC by:

(a) Declaring that petitioners have owned since 1987 shares of stock in Pacific Foundry Shop Corporation, numbering 446 for petitioner-appellant David C. Lao and 333 for petitioner-appellant Jose C. Lao;

(b) Ordering respondent-appellee through the corporate secretary

to issue to petitioners-appellants the certificates of stock for the aforementioned number of shares;

(c) Ordering respondent-appellee, as President of Pacific Foundry Shop Corporation, to allow petitioners-appellants to exercise their rights as stock holders;

(d) Ordering respondent-appellee to call a stockholders meeting every fourth Saturday of January in accordance with the By-Laws of Pacific Foundry shop Corporation.12

The CA decision was penned by Justice Arsenio Magpale and concurred in by Justices Sesinando Villon and Enrico Lanzanas.

In modifying the RTC decision, the appellate court gave credence to the General Information Sheet submitted by petitioners that names them as stockholders of PFSC, thus:

The General Information Sheet of PFSC for the years 1987-1998 state that petitioners-appellants David C. Lao and Jose C. Lao own 446 and 333 shares, respectively, in PFSC. It is also indicated therein that David C. Lao occupied various key positions in PFSC from 1987-1998 and Jose C. Lao served as Director in PFSC from 1990-1998. The Sworn Statements of Uy Lam Tiong, former corporate secretary of the PFSC, also state that petitioners-appellants David C. Lao and Jose C. Lao, per corporate records of PFSC, own shares of stock numbering 446 and 333, respectively. The minutes of the Annual Stockholders Meeting of PFSC on January 28, 1988 at 3:00 o'clock p.m. shows that among those present were petitioners-appellants David C. Lao and Jose C. Lao. During the said meeting, petitioner-appellant David C. Lao was nominated and elected Director of PFSC. Withal, the Minutes of the Meeting of the Board of Directors of PFSC at its Office at Hipodromo, Cebu City, on January 28, 1988 at 4:00 p.m. disclose that petitioner-appellant David C. Lao was elected vice-president of PFSC. Both minutes were signed by the officers of PFSC including respondent-appellee.13

Respondent filed a motion for reconsideration14 of the CA decision.

On July 11, 2005, respondent moved to inhibit15 the ponente of the CA decision, Justice Magpale, from resolving his pending motion for reconsideration.

On July 22, 2005, Justice Magpale issued a Resolution16

voluntarily inhibiting himself from further participating in the resolution of the pending motion for reconsideration. Justice Magpale stated:

Although the undersigned ponente does not agree with the imputations of respondent-appellee and that the same are not any of those grounds mentioned in Rule 137 of the Revised Rules of Court, nonetheless the ponente voluntarily inhibits himself from further handling this case in order to free the entire court of the slightest suspicion of bias and prejudice against the respondent-appellee.17

Amended Decision

On August 31, 2005, the CA rendered an Amended Decision18

affirming that of the RTC, with a fallo reading:

IN VIEW OF THE FOREGOING, the May 27, 2005 Decision of this Court is hereby SET ASIDE and the Decision of the Regional Trial Court, Branch 11, Cebu City with respect to Civil Case No. 25916-SRC is hereby AFIRMED in toto.19

The Amended Decision was penned by Justice Enrico Lanzanas and concurred in by Justices Sesinando Villon and Vicente Yap. The CA stated:

Petitioners-appellants maintain that they acquired their shares of stocks through transfer - the third mode mentioned by the trial court. David C. Lao claims that he acquired his 446 shares through his father, Lao Pong Bao, when the latter purchased said shares from Hipolito Lao. On the other hand, Jose C. Lao asserts that he acquired his 333 shares through Dionisio C. Lao himself from the original 1,333 shares of stocks of the latter.

Petitioner-appellants asseverations are unavailing. To substantiate their statements, they merely relied on the General Information Sheets submitted to the Securities and Exchange Commission for the year 1987 to 1998, as well as on the Minutes of the Stockholders Meeting and Board of Directors Meeting held on January 28, 1988. They did not adduce evidence that would indubitably show that there was indeed a valid transfer of stocks, i.e. endorsement and delivery, from the transferors, Hipolito Lao and Dionisio Lao, to them as transferees.

x x x x

To our mind, David C. Lao utterly failed to confute the argument posited by respondent-appellee or demonstrate compliance with any of the statutory requirements as to warrant a favorable ruling on his part. No proof was ever shown that there was endorsement and delivery to him of the stock certificates representing the 446 shares of Hipolito Lao. Neither was the transfer registered in PFSC's Stock and Transfer Book. Conversely, Dionisio C. Lao was able to show conformity with the aforementioned requirements. Accordingly, it is but logical to conclude that the certificate of stock covering 446 shares of Hipolito Lao was in fact endorsed and delivered to Dionisio C. Lao and as such is reflected in PFSC's Stock and Transfer Book x x x.

In fact, it is a rule that private transactions are presumed to have been faire and regular and that the regular course of business is presumed to have been followed. Thus, the transfer made by Hipolito Lao of the 446 shares of stocks to Dionisio C. Lao is deemed to have been valid and well-founded unless proven otherwise. David C. Lao's mere allegation that Dionisio Lao illegally appropriated upon himself the 446 shares failed to hurdle such presumption. In this jurisdiction, neither fraud nor evil is presumed and the record does not show either as to establish by clear and sufficient evidence that may lead Us to believe such allegation. The party alleging the same has the burden of proof to present evidence necessary to establish his claim, unfortunately however petitioners failed to do so. The General Information Sheets and the Minutes of the Meetings adduced by petitioners-appellants do not prove such allegation of fraud or deceit. In the absence thereof, the presumption remains that private transactions have been fair and regular.

As for the alleged shares of Jose C. Lao, We find his position identically situated with David C. Lao. There is also no evidence on record that would clearly establish how he acquired said shares of PFSC. Jose C. Lao failed to show that there was endorsement and delivery to him of the stock certificates or any documents showing such transfer or assignment. In fact, the 333 shares being claimed by him is still under the name of Dionisio C. Lao was reflected by the Certificate of Stock as well as in PFSC's Stock and Transfer Book. Corollary, Jose C. Lao could not be considered a stockholder of PFSC in the absence of support reflecting his right

to the 333 shares other than the inclusion of his name in the General Information Sheets from 1987 to 1998 and the Minutes of the Stockholder's Meeting and Board of Director's Meeting.20

Petitioners moved for reconsideration but their motion was denied.21 Hence, the present petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure.

Issues

Petitioners raise five (5) issues for Our consideration, thus:

1. Whether or not the inhibition of Justice Arsenio J. Magpale is proper when there is no "extrinsic evidence of bias, bad faith, malice, or corrupt purpose" on the part of Justice Magpale, which is required by this Honorable Court in its decision in Webb, et al. v. People of the Philippines, 276 SCRA 243 [1997], as basis for disqualification.

2. Whether or not the inhibition of Justice Magpale constitutes, in effect, forum shopping, which is proscribed under Section 5, Rule 7 of the Rules of Court, as amended, and decisions of this Honorable Court.

3. Whether or not determination of ownership of shares of stock in a corporation shall be based on the Stock and Transfer Book alone, or other evidence can be considered pursuant to the decision of this Honorable Court in Tan v. Securities and Exchange Commission, 206 SCRA 740.

4. Whether or not the admissions and representations of respondent in the General Information Sheets submitted by him to the Securities and Exchange Commission during the years 1987 to 1998 that (a) petitioners were stockholders of Pacific Foundry Shop Corporation; that (b) petitioner David C. Lao and Jose C. Lao owned 446 and 333 shares in the corporation, respectively; and that (c) petitioners had been directors and officers of the corporation, as well as the Sworn Statement of Uy Lam Tiong, former Corporate Secretary, the Minutes of the Annual Stockholders Meeting of PFSC on January 28, 1988, and the Minutes of Meeting of the Board of Directors on January 28, 1988, mentioned by Justice Magpale in his ponencia, are sufficient proof of petitioners ownership of stocks in the corporation.

5. Whether or not respondent is stopped from questioning petitioners' ownership of stocks in the corporation in view of his admissions and representations in the General Information Sheets he submitted to the Securities and Exchange Commission from 1987 to 1998 that petitioners were stockholders and officers of the corporation.22

Essentially, only two (2) issues are raised in this petition. The first concerns the voluntary inhibition of Justice Magpale, while the second involves the substantive issue of whether or not petitioners are indeed stockholders of PFSC.

Our Ruling

We deny the petition.

Voluntary inhibition is within the sound discretion of a judge.

Petitioners claim that the motion to inhibit Justice Magpale from resolving the pending motion for reconsideration was improper and unethical. They assert that the "bias and prejudice" grounds alleged by private respondent were unsubstantiated and, worse, constituted proscribed forum shopping. They argue that Justice Magpale should have resolved the pending motion, instead of voluntarily inhibiting himself from the case.

In cases of voluntary inhibition, the law leaves to the sound discretion of the judge the decision to decide for himself the question of whether or not he will inhibit himself from the case. Section 1, Rule 137 of the Rules of Court provides:

Section 1. Disqualification of judges. - No judge or judicial officer shall sit in any case in which he, or his wife or child, is pecuniarily interested as heir, legatee, creditor, or otherwise, or in which he is related to either party within the sixth degree of consanguinity or affinity, or to counsel within the fourth degree, computed according to the rules of the civil law, or in which he has been executor, administrator, guardian, trustee, or counsel, or in which he has presided in any inferior court when his ruling or decision is the subject of review, without the written consent of all parties in interest, signed by them and entered upon the record.

A judge may, in the exercise of his sound discretion, disqualify himself from sitting in a case, for just or valid reasons other than

those mentioned above.

Here, Justice Magpale voluntarily inhibited himself "in order to free the entire court [CA] of the slightest suspicion of bias and prejudice x x x."23 We certainly cannot nullify the decision of Justice Magpale recusing himself from the case because that is a matter left entirely to his discretion. Nor can We fault him for doing so. No judge should preside in a case in which he feels that he is not wholly free, disinterested, impartial, and independent.

We agree with petitioners that it may seem unpalatable and even revolting when a losing party seeks the disqualification of a judge who had previously ruled against him in the hope that a new judge might be more favorable to him. But We cannot take that basic proposition too far. That Justice Magpale opted to voluntarily recuse himself from the appealed case is already fait accompli. It is, in popular idiom, water under the bridge.

Petitioners cannot bank on his voluntary inhibition to nullify the Amended Decision later issued by the appellate court. It is highly specious to assume that Justice Magpale would have ruled in favor of petitioners on the pending motion for reconsideration if he took a different course and opted to stay on with the case. It is also illogical to presume that the Amended Decision would not have been issued with or without the participation of Justice Magpale. The Amended Decision is too far removed from the issue of voluntary inhibition. It does not follow that petitioners would be better off were it not for the voluntary inhibition.

Petitioners failed to prove that they are shareholders of PSFC.

Petitioners insist that they are shareholders of PFSC. They claim purchasing shares in PFSC. Petitioner David Lao alleges that he acquired 446 shares in the corporation from his father, Lao Pong Bao, which shares were previously purchased from a certain Hipolito Lao. Petitioner Jose Lao, on the other hand, alleges that he acquired 333 shares from respondent Dionisio Lao.

Records, however, disclose that petitioners have no certificates of shares in their name. A certificate of stock is the evidence of a holder's interest and status in a corporation. It is a written instrument signed by the proper officer of a corporation stating or acknowledging that the person named in the document is the owner of a designated number of shares of its stock.24 It is prima

facie evidence that the holder is a shareholder of a corporation.

Nor is there any written document that there was a sale of shares, as claimed by petitioners. Petitioners did not present any deed of assignment, or any similar instrument, between Lao Pong Bao and Hipolito Lao; or between Lao Pong Bao and petitioner David Lao. There is likewise no deed of assignment between petitioner Jose Lao and private respondent Dionisio Lao.

Absent a written document, petitioners must prove, at the very least, possession of the certificates of shares in the name of the alleged seller. Again, they failed to prove possession. They failed to prove the due delivery of the certificates of shares of the sellers to them. Section 63 of the Corporation Code provides:

Sec. 63. Certificate of stock and transfer of shares. - The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred.

In contrast, respondent was able to prove that he is the owner of the disputed shares. He had in his possession the certificates of stocks of Hipolito Lao. The certificates of stocks were also properly endorsed to him. More importantly, the transfer was duly registered in the stock and transfer book of the corporation. Thus, as between the parties, respondent has proven his right over the disputed shares. As correctly ruled by the CA:

Au contraire, Dionisio C. Lao was able to show through competent evidence that he is undeniably the owner of the disputed shares of stocks being claimed by David C. Lao. He was able to validate that he has the physical possession of the certificates covering the shares of Hipolito Lao. Notably, it was Hipolito Lao who properly endorsed said certificates to herein Dionisio Lao and that such

transfer was registered in PFSC's Stock and Transfer Book. These circumstances are more in accord with the valid transfer contemplated by Section 63 of the Corporation Code.25

The mere inclusion as shareholder of petitioners in the General Information Sheet of PFSC is insufficient proof that they are shareholders of the company.

Petitioners bank heavily on the General Information Sheet submitted by PFSC to the SEC in which they were named as shareholders of PFSC. They claim that respondent is now estopped from contesting the General Information Sheet.

While it may be true that petitioners were named as shareholders in the General Information Sheet submitted to the SEC, that document alone does not conclusively prove that they are shareholders of PFSC. The information in the document will still have to be correlated with the corporate books of PFSC. As between the General Information Sheet and the corporate books, it is the latter that is controlling. As correctly ruled by the CA:

We agree with the trial court that mere inclusion in the General Information Sheets as stockholders and officers does not make one a stockholder of a corporation, for this may have come to pass by mistake, expediency or negligence. As professed by respondent-appellee, this was done merely to comply with the reportorial requirements with the SEC. This maybe against the law but "practice, no matter how long continued, cannot give rise to any vested right."

If a transferee of shares of stock who failed to register such transfer in the Stock and Transfer Book of the Corporation could not exercise the rights granted unto him by law as stockholder, with more reason that such rights be denied to a person who is not a stockholder of a corporation. Petitioners-appellants never secured such a standing as stockholders of PFSC and consequently, their petition should be denied.26

It should be stressed that the burden of proof is on petitioners to show that they are shareholders of PFSC. This is so because they do not have any certificates of shares in their name. Moreover, they do not appear in the corporate books as registered shareholders. If they had certificates of shares, the burden would have been with PFSC to prove that they are not shareholders of

the corporation.

As discussed, petitioners failed to hurdle their burden. There is no written document evidencing their claimed purchase of shares. We note that petitioners agreed to submit their case for decision based merely on the documents on record. Hence, no testimonial evidence was presented to prove the alleged purchase of shares. Absent any documentary or testimonial evidence, the bare assertion of petitioners that they are shareholders cannot prevail.

All told, We agree with the RTC and CA decision that petitioners are not shareholders of PFSC.

WHEREFORE, the petition is DENIED and the appealed Amended Decision AFFIRMED IN FULL.

SO ORDERED.