corporation law

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CECILIA CASTILLO, OSCAR DEL ROSARIO, ARTURO S. FLORES, XERXES NAVARRO,
MARIA ANTONIA TEMPLO and MEDICAL CENTER PARAÑAQUE, INC., petitioners,
vs.
ANGELES BALINGHASAY, RENATO BERNABE, ALODIA DEL ROSARIO, ROMEO
FUNTILA, TERESITA GAYANILO, RUSTICO JIMENEZ, ARACELI** JO, ESMERALDA
MEDINA, CECILIA MONTALBAN, VIRGILIO OBLEPIAS, CARMENCITA PARRENO, CESAR
REYES, REYNALDO SAVET, SERAPIO TACCAD, VICENTE VALDEZ, SALVACION
VILLAMORA, and HUMBERTO VILLAREAL, respondents.

The foregoing amendment was approved by the SEC on June 7, 1983. While the amendment granted the
right to vote and to be elected as directors or corporate officers only to holders of Class "A" shares,
holders of Class "B" stocks were granted the same rights and privileges as holders of Class "A" stocks
with respect to the payment of dividends.
On September 9, 1992, Article VII was again amended to provide as follows:
SEVENTH: That the authorized capital stock of the corporation is THIRTY TWO MILLION
PESOS (P32,000,000.00) divided as follows:

DECISION
QUISUMBING, J.:
For review on certiorari is the Partial Judgment1 dated November 26, 2001 in Civil Case No. 01-0140, of
the Regional Trial Court (RTC) of Parañaque City, Branch 258. The trial court declared the February 9,
2001, election of the board of directors of the Medical Center Parañaque, Inc. (MCPI) valid. The Partial
Judgment dismissed petitioners’ first cause of action, specifically, to annul said election for depriving
petitioners their voting rights and to be voted on as members of the board.
The facts, as culled from records, are as follows:

MCPI is a domestic corporation with offices at Dr. A. Santos Avenue, Sucat, Parañaque City. It was
organized sometime in September 1977. At the time of its incorporation, Act No. 1459, the old
Corporation Law was still in force and effect. Article VII of MCPI’s original Articles of Incorporation, as
approved by the Securities and Exchange Commission (SEC) on October 26, 1977, reads as follows:
SEVENTH. That the authorized capital stock of the corporation is TWO MILLION
(P2,000,000.00) PESOS, Philippine Currency, divided into TWO THOUSAND (2,000)
SHARES at a par value of P100 each share, whereby the ONE THOUSAND SHARES issued
to, and subscribed by, the incorporating stockholders shall be classified as Class A shares while
the other ONE THOUSAND unissued shares shall be considered as Class B shares. Only
holders of Class A shares can have the right to vote and the right to be elected as directors or as
corporate officers.2 (Stress supplied)
On July 31, 1981, Article VII of the Articles of Incorporation of MCPI was amended, to read thus:
SEVENTH. That the authorized capital stock of the corporation is FIVE MILLION
(P5,000,000.00) PESOS, divided as follows:
NO. OF SHARES
1,000
4,000

NO. OF SHARES
1,000
31,000

PAR VALUE
P1,000.00
1,000.00

Except when otherwise provided by law, only holders of Class "A" shares have the right to
vote and the right to be elected as directors or as corporate officers 4 (Stress and underscoring
supplied).
The SEC approved the foregoing amendment on September 22, 1993.

Petitioners and the respondents are stockholders of MCPI, with the former holding Class "B"
shares and the latter owning Class "A" shares.

CLASS
"A"
"B"

CLASS
"A"
"B"

PAR VALUE
P1,000.00
P1,000.00

Only holders of Class A shares have the right to vote and the right to be elected as directors or
as corporate officers.3 (Emphasis supplied)

On February 9, 2001, the shareholders of MCPI held their annual stockholders’ meeting and election for
directors. During the course of the proceedings, respondent Rustico Jimenez, citing Article VII, as
amended, and notwithstanding MCPI’s history, declared over the objections of herein petitioners, that no
Class "B" shareholder was qualified to run or be voted upon as a director. In the past, MCPI had seen
holders of Class "B" shares voted for and serve as members of the corporate board and some Class "B"
share owners were in fact nominated for election as board members. Nonetheless, Jimenez went on to
announce that the candidates holding Class "A" shares were the winners of all seats in the corporate board.
The petitioners protested, claiming that Article VII was null and void for depriving them, as Class "B"
shareholders, of their right to vote and to be voted upon, in violation of the Corporation Code (Batas
Pambansa Blg. 68), as amended.
On March 22, 2001, after their protest was given short shrift, herein petitioners filed a Complaint for
Injunction, Accounting and Damages, docketed as Civil Case No. CV-01-0140 before the RTC of
Parañaque City, Branch 258. Said complaint was founded on two (2) principal causes of action, namely:
a. Annulment of the declaration of directors of the MCPI made during the February 9, 2001
Annual Stockholders’ Meeting, and for the conduct of an election whereat all stockholders,
irrespective of the classification of the shares they hold, should be afforded their right to vote
and be voted for; and
b. Stockholders’ derivative suit challenging the validity of a contract entered into by the Board
of Directors of MCPI for the operation of the ultrasound unit.5
Subsequently, the complaint was amended to implead MCPI as party-plaintiff for purposes only of the
second cause of action.
Before the trial court, the herein petitioners alleged that they were deprived of their right to vote and to be
voted on as directors at the annual stockholders’ meeting held on February 9, 2001, because respondents
had erroneously relied on Article VII of the Articles of Incorporation of MCPI, despite Article VII being
contrary to the Corporation Code, thus null and void. Additionally, respondents were in estoppel, because

in the past, petitioners were allowed to vote and to be elected as members of the board. They further
claimed that the privilege granted to the Class "A" shareholders was more in the nature of a right granted
to founder’s shares.
In their Answer, the respondents averred that the provisions of Article VII clearly and categorically state
that only holders of Class "A" shares have the exclusive right to vote and be elected as directors and
officers of the corporation. They denied that the exclusivity was intended only as a privilege granted to
founder’s shares, as no such proviso is found in the Articles of Incorporation. The respondents further
claimed that the exclusivity of the right granted to Class "A" holders cannot be defeated or impaired by
any subsequent legislative enactment, e.g.the New Corporation Code, as the Articles of Incorporation is an
intra-corporate contract between the corporation and its members; between the corporation and its
stockholders; and among the stockholders. They submit that to allow Class "B" shareholders to vote and
be elected as directors would constitute a violation of MCPI’s franchise or charter as granted by the State.
At the pre-trial, the trial court ruled that a partial judgment could be rendered on the first cause of action
and required the parties to submit their respective position papers or memoranda.

The issue for our resolution is whether or not holders of Class "B" shares of the MCPI may be deprived of
the right to vote and be voted for as directors in MCPI.
Before us, petitioners assert that Article VII of the Articles of Incorporation of MCPI, which denied them
voting rights, is null and void for being contrary to Section 6 of the Corporation Code. They point out that
Section 6 prohibits the deprivation of voting rights except as to preferred and redeemable shares only.
Hence, under the present law on corporations, all shareholders, regardless of classification, other than
holders of preferred or redeemable shares, are entitled to vote and to be elected as corporate directors or
officers. Since the Class "B" shareholders are not classified as holders of either preferred or redeemable
shares, then it necessarily follows that they are entitled to vote and to be voted for as directors or officers.
The respondents, in turn, maintain that the grant of exclusive voting rights to Class "A" shares is clearly
provided in the Articles of Incorporation and is in accord with Section 5 9 of the Corporation Law (Act No.
1459), which was the prevailing law when MCPI was incorporated in 1977. They likewise submit that as
the Articles of Incorporation of MCPI is in the nature of a contract between the corporation and its
shareholders and Section 6 of the Corporation Code could not retroactively apply to it without violating
the non-impairment clause10 of the Constitution.

On November 26, 2001, the RTC rendered the Partial Judgment, the dispositive portion of which reads:
We find merit in the petition.
WHEREFORE, viewed in the light of the foregoing, the election held on February 9, 2001 is
VALID as the holders of CLASS "B" shares are not entitled to vote and be voted for and this
case based on the First Cause of Action is DISMISSED.
SO ORDERED.6
In finding for the respondents, the trial court ruled that corporations had the power to classify their shares
of stocks, such as "voting and non-voting" shares, conformably with Section 6 7 of the Corporation Code of
the Philippines. It pointed out that Article VII of both the original and amended Articles of Incorporation
clearly provided that only Class "A" shareholders could vote and be voted for to the exclusion of Class
"B" shareholders, the exception being in instances provided by law, such as those enumerated in Section 6,
paragraph 6 of the Corporation Code. The RTC found merit in the respondents’ theory that the Articles of
Incorporation, which defines the rights and limitations of all its shareholders, is a contract between MCPI
and its shareholders. It is thus the law between the parties and should be strictly enforced as to them. It
brushed aside the petitioners’ claim that the Class "A" shareholders were in estoppel, as the election of
Class "B" shareholders to the corporate board may be deemed as a mere act of benevolence on the part of
the officers. Finally, the court brushed aside the "founder’s shares" theory of the petitioners for lack of
factual basis.
Hence, this petition submitting the sole legal issue of whether or not the Court a quo, in rendering the
Partial Judgment dated November 26, 2001, has decided a question of substance in a way not in accord
with law and jurisprudence considering that:
1. Under the Corporation Code, the exclusive voting right and right to be voted granted by the
Articles of Incorporation of the MCPI to Class A shareholders is null and void, or already
extinguished;
2. Hence, the declaration of directors made during the February 9, 2001 Annual Stockholders’
Meeting on the basis of the purported exclusive voting rights is null and void for having been
done without the benefit of an election and in violation of the rights of plaintiffs and Class B
shareholders; and
3. Perforce, another election should be conducted to elect the directors of the MCPI, this time
affording the holders of Class B shares full voting right and the right to be voted.8

When Article VII of the Articles of Incorporation of MCPI was amended in 1992, the phrase "except when
otherwise provided by law" was inserted in the provision governing the grant of voting powers to Class
"A" shareholders. This particular amendment is relevant for it speaks of a law providing for exceptions to
the exclusive grant of voting rights to Class "A" stockholders. Which law was the amendment referring
to? The determination of which law to apply is necessary. There are two laws being cited and relied upon
by the parties in this case. In this instance, the law in force at the time of the 1992 amendment was the
Corporation Code (B.P. Blg. 68), not the Corporation Law (Act No. 1459), which had been repealed by
then.
We find and so hold that the law referred to in the amendment to Article VII refers to the Corporation
Code and no other law. At the time of the incorporation of MCPI in 1977, the right of a corporation to
classify its shares of stock was sanctioned by Section 5 of Act No. 1459. The law repealing Act No. 1459,
B.P. Blg. 68, retained the same grant of right of classification of stock shares to corporations, but with a
significant change. Under Section 6 of B.P. Blg. 68, the requirements and restrictions on voting rights
were explicitly provided for, such that "no share may be deprived of voting rights except those classified
and issued as "preferred" or "redeemable" shares, unless otherwise provided in this Code" and that "there
shall always be a class or series of shares which have complete voting rights." Section 6 of the
Corporation Code being deemed written into Article VII of the Articles of Incorporation of MCPI, it
necessarily follows that unless Class "B" shares of MCPI stocks are clearly categorized to be "preferred"
or "redeemable" shares, the holders of said Class "B" shares may not be deprived of their voting rights.
Note that there is nothing in the Articles of Incorporation nor an iota of evidence on record to show that
Class "B" shares were categorized as either "preferred" or "redeemable" shares. The only possible
conclusion is that Class "B" shares fall under neither category and thus, under the law, are allowed to
exercise voting rights.
One of the rights of a stockholder is the right to participate in the control and management of the
corporation that is exercised through his vote. The right to vote is a right inherent in and incidental to the
ownership of corporate stock, and as such is a property right. The stockholder cannot be deprived of the
right to vote his stock nor may the right be essentially impaired, either by the legislature or by the
corporation, without his consent, through amending the charter, or the by-laws.11
Neither do we find merit in respondents’ position that Section 6 of the Corporation Code cannot apply to
MCPI without running afoul of the non-impairment clause of the Bill of Rights. Section 148 12 of the
Corporation Code expressly provides that it shall apply to corporations in existence at the time of the
effectivity of the Code. Hence, the non-impairment clause is inapplicable in this instance. When Article

VII of the Articles of Incorporation of MCPI were amended in 1992, the board of directors and
stockholders must have been aware of Section 6 of the Corporation Code and intended that Article VII be
construed in harmony with the Code, which was then already in force and effect. Since Section 6 of the
Corporation Code expressly prohibits the deprivation of voting rights, except as to "preferred" and
"redeemable" shares, then Article VII of the Articles of Incorporation cannot be construed as granting
exclusive voting rights to Class "A" shareholders, to the prejudice of Class "B" shareholders, without
running afoul of the letter and spirit of the Corporation Code.
The respondents then take the tack that the phrase "except when otherwise provided by law" found in the
amended Articles is only a handwritten insertion and could have been inserted by anybody and that no
board resolution was ever passed authorizing or approving said amendment.
Said contention is not for this Court to pass upon, involving as it does a factual question, which is not
proper in this petition. In an appeal via certiorari, only questions of law may be reviewed. 13 Besides,
respondents did not adduce persuasive evidence, but only bare allegations, to support their suspicion. The
presumption that in the amendment process, the ordinary course of business has been followed 14 and that
official duty has been regularly performed15 on the part of the SEC, applies in this case.
WHEREFORE, the petition is GRANTED. The Partial Judgment dated November 26, 2001 of the
Regional Trial Court of Parañaque City, Branch 258, in Civil Case No. 01-0140 is REVERSED AND
SET ASIDE. No pronouncement as to costs.
SO ORDERED.

DONNINA C. HALLEY,
Petitioner,

Donnina C. Halley
Roberto V. Cabrera, Jr.
Albert T. Yu
Zenaida V. Yu
Rizalino C. Vineza
TOTAL

G.R. No. 157549

35,000
18,000
18,000
2,000
2,000
75,000

P 350,000.00
P 180,000.00
P 180,000.00
P 20,000.00
P 20,000.00
P750,000.00

P87,500.00
P45,000.00
P45,000.00
P5,000.00
P5,000.00
P187,500.00

Present:
CARPIO MORALES, Chairperson,
BRION,
BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.

-versus-

Printwellengaged in commercial and industrial printing.BMPI commissioned Printwell for the
printing of the magazine Philippines, Inc. (together with wrappers and subscription cards) that BMPI
published and sold. For that purpose, Printwell extended 30-day credit accommodations to BMPI.

Promulgated:
PRINTWELL, INC.,
Respondent.
May 30, 2011
x-----------------------------------------------------------------------------------------x

In the period from October 11, 1988 until July 12, 1989, BMPI placedwith Printwell several
orders on credit, evidenced byinvoices and delivery receipts totalingP316,342.76.Considering that BMPI

DECISION

paidonlyP25,000.00,Printwell suedBMPIon January 26, 1990 for the collection of the unpaid balance
BERSAMIN, J:

of P291,342.76 in the RTC.[4]

Stockholders of a corporation are liable for the debts of the corporation up to the extent of their
unpaid subscriptions. They cannot invoke the veil of corporate identity as a shield from liability, because

On February 8, 1990,Printwell amended thecomplaint in order to implead as defendants all the
original stockholders and incorporators to recover on theirunpaid subscriptions, as follows: [5]

the veil may be lifted to avoid defrauding corporate creditors.

Weaffirm with modification the decisionpromulgated on August 14, 2002, [1]whereby the Court
of Appeals(CA) upheld thedecision of the Regional Trial Court, Branch 71, in Pasig City (RTC), [2]ordering
the defendants (including the petitioner)to pay to Printwell, Inc. (Printwell) the principal sum

Name
Donnina C. Halley
Roberto V. Cabrera, Jr.
Albert T. Yu
Zenaida V. Yu
Rizalino C. Viñeza
TOTAL

Unpaid Shares
P 262,500.00
P135,000.00
P135,000.00
P15,000.00
P15,000.00
P 562,500.00

of P291,342.76 plus interest.
Antecedents

The defendants filed a consolidated answer,[6]averring that they all had paid their subscriptions in
full; that BMPI had a separate personality from those of its stockholders; thatRizalino C. Viñeza had

The petitioner wasan incorporator and original director of Business Media Philippines, Inc.
(BMPI), which, at its incorporation on November 12, 1987, [3]had an authorized capital stock
of P3,000,000.00 divided into 300,000 shares each with a par value of P10.00,of which 75,000 were
initially subscribed, to wit:
Subscriber

No. of shares

Total subscription

Amount paid

assigned his fully-paid up sharesto a certain Gerardo R. Jacinto in 1989; andthat the directors and
stockholders of BMPI had resolved to dissolve BMPI during the annual meetingheld on February 5, 1990.

To prove payment of their subscriptions, the defendantstockholderssubmitted in evidenceBMPI
official receipt (OR) no. 217, OR no. 218, OR no. 220,OR no. 221, OR no. 222, OR no. 223, andOR no.
227,to wit:
Receipt No.
217
218
220
221
222
223
227

Date
November 5, 1987
May 13, 1988
May 13, 1988
November 5, 1987
November 5, 1987
May 13, 1988
May 13, 1988

Name
Albert T. Yu
Albert T. Yu
Roberto V. Cabrera, Jr.
Roberto V. Cabrera, Jr.
Zenaida V. Yu
Zenaida V. Yu
Donnina C. Halley

Amount
P 45,000.00
P 135,000.00
P 135,000.00
P 45,000.00
P 5,000.00
P 15,000.00
P 262,500.00

b)

The claim that since there was no call by the Board of Directors of
defendant corporation for the payment of unpaid subscriptions will not
be a valid excuse to free individual defendants from liability. Since the
individual defendants are members of the Board of Directors of
defendantcorporation, it was within their exclusive power to prevent the
fulfillment of the condition, by simply not making a call for the payment
of the unpaid subscriptions. Their inaction should not work to their
benefit and unjust enrichment at the expense of plaintiff.

Assuming arguendo that the individual defendants have paid their unpaid
subscriptions, still, it is very apparent that individual defendants merely used the
corporate fiction as a cloak or cover to create an injustice; hence, the alleged
separate personality of defendant corporation should be disregarded (Tan Boon Bee
& Co., Inc. vs. Judge Jarencio, G.R. No. 41337, 30 June 1988).[14]
Applying the trust fund doctrine, the RTC declared the defendant stockholders liable to
Printwell pro rata, thusly:

In addition, the stockholderssubmitted other documentsin evidence, namely:(a) an audit report dated
March 30, 1989 prepared by Ilagan, Cepillo & Associates (submitted to the SEC and the BIR); [7](b)
[8]

[9]

BMPIbalance sheet and income statement as of December 31, 1988; (c) BMPI income tax return for the
year 1988 (stamped “received” by the BIR);[10](d) journal vouchers;[11](e) cash deposit slips;[12] and(f)Bank
of the Philippine Islands (BPI) savings account passbookin the name of BMPI. [13]
Ruling of the RTC

On November 3, 1993, the RTC rendereda decision in favor of Printwell, rejecting the allegation of
payment in full of the subscriptions in view of an irregularity in the issuance of the ORs and observingthat
the defendants had used BMPI’s corporate personality to evade payment and create injustice, viz:
The claim of individual defendants that they have fully paid their
subscriptions to defend[a]nt corporation, is not worthy of consideration, because: —
a)

in the case of defendants-spouses Albert and Zenaida Yu, it will be noted
that the alleged payment made on May 13, 1988 amounting
to P135,000.00, is covered by Official Receipt No. 218 (Exh. “2”),
whereas the alleged payment made earlier on November 5, 1987,
amounting to P5,000.00, is covered by Official Receipt No. 222 (Exh.
“3”). This is cogent proof that said receipts were belatedly issued just to
suit their theory since in the ordinary course of business, a receipt
issued earlier must have serial numbers lower than those issued on a
later date. But in the case at bar, the receipt issued on November 5,
1987 has serial numbers (222) higher than those issued on a later date
(May 13, 1988).

Defendant Business Media, Inc. is a registered corporation (Exhibits “A”,
“A-1” to “A-9”), and, as appearing from the Articles of Incorporation, individual
defendants have the following unpaid subscriptions:
Names
Unpaid Subscription
Donnina C. Halley
P262,500.00
Roberto V. Cabrera, Jr.
135.000.00
Albert T. Yu
135,000.00
Zenaida V. Yu
15,000.00
Rizalino V. Vineza
15,000.00
-------------------Total
P562,500.00
and it is an established doctrine that subscriptions to the capital stock of a
corporation constitute a fund to which creditors have a right to look for satisfaction
of their claims (Philippine National Bank vs. Bitulok Sawmill, Inc., 23 SCRA 1366)
and, in fact, a corporation has no legal capacity to release a subscriber to its capital
stock from the obligation to pay for his shares, and any agreement to this effect is
invalid (Velasco vs. Poizat, 37 Phil. 802).
The liability of the individual stockholders in the instant case shall be prorated as follows:
Names
Amount
Donnina C. Halley
P149,955.65
Roberto V. Cabrera, Jr.
77,144.55
Albert T. Yu
77,144.55
Zenaida V. Yu
8,579.00
Rizalino V. Vineza
8,579.00
-----------------Total
P321,342.75[15]

The RTC disposed as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against
defendants, ordering defendants to pay to plaintiff the amount of P291,342.76, as

principal, with interest thereon at 20% per annum, from date of default, until fully
paid, plus P30,000.00 as attorney’s fees, plus costs of suit.
Defendants’ counterclaims are ordered dismissed for lack of merit.
SO ORDERED.[16]

II.
IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO RULE THAT
INDIVIDUAL DEFENDANTS ARE LIABLE TO PAY THE PLAINTIFFAPPELLEE’S CLAIM BASED ON THEIR RESPECTIVE SUBSCRIPTION.
NOTWITHSTANDING OVERWHELMING EVIDENCE SHOWING FULL
SETTLEMENT OF SUBSCRIBED CAPITAL BY THE INDIVIDUAL
DEFENDANTS.

Ruling of the CA

All the defendants, except BMPI, appealed.

On August 14, 2002, the CA affirmed the RTC, holding that the defendants’ resort to the corporate
personality would createan injustice becausePrintwell would thereby be at a loss against whom it would

Spouses Donnina and Simon Halley, andRizalinoViñeza defined the following errors

assert the right to collect, viz:

committed by the RTC, as follows:
I.
THE TRIAL COURT ERRED IN HOLDING APPELLANTS-STOCKHOLDERS
LIABLE FOR THE LIABILITIES OF THE DEFENDANT CORPORATION.
II.
ASSUMING ARGUENDO THAT APPELLANTS MAY BE LIABLE TO THE
EXTENT OF THEIR UNPAID SUBSCRIPTION OF SHARES OF STOCK, IF
ANY, THE TRIAL COURT NONETHELESS ERRED IN NOT FINDING THAT
APPELLANTS-STOCKHOLDERS HAVE, AT THE TIME THE SUIT WAS
FILED, NO SUCH UNPAID SUBSCRIPTIONS.

On their part, Spouses Albert and Zenaida Yu averred:
I.
THE RTC ERRED IN REFUSING TO GIVE CREDENCE AND WEIGHT TO
DEFENDANTS-APPELLANTS SPOUSES ALBERT AND ZENAIDA YU’S
EXHIBITS 2 AND 3 DESPITE THE UNREBUTTED TESTIMONY THEREON
BY APPELLANT ALBERT YU AND THE ABSENCE OF PROOF
CONTROVERTING THEM.
II.
THE RTC ERRED IN HOLDING DEFENDANTS-APPELLANTS SPOUSES
ALBERT AND ZENAIDA YU PERSONALLY LIABLE FOR THE
CONTRACTUAL OBLIGATION OF BUSINESS MEDIA PHILS., INC. DESPITE
FULL PAYMENT BY SAID DEFENDANTS-APPELLANTS OF THEIR
RESPECTIVE SUBSCRIPTIONS TO THE CAPITAL STOCK OF BUSINESS
MEDIA PHILS., INC.

Settled is the rule that when the veil of corporate fiction is used as a means of
perpetrating fraud or an illegal act or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, the achievements or perfection of
monopoly or generally the perpetration of knavery or crime, the veil with which the
law covers and isolates the corporation from the members or stockholders who
compose it will be lifted to allow for its consideration merely as an aggregation of
individuals (First Philippine International Bank vs. Court of Appeals, 252 SCRA
259). Moreover, under this doctrine, the corporate existence may be disregarded
where the entity is formed or used for non-legitimate purposes, such as to evade a
just and due obligations or to justify wrong (Claparols vs. CIR, 65 SCRA 613).
In the case at bench, it is undisputed that BMPI made several orders on credit
from appellee PRINTWELL involving the printing of business magazines, wrappers
and subscription cards, in the total amount of P291,342.76 (Record pp. 3-5, Annex
“A”) which facts were never denied by appellants’ stockholders that they owe
appellee the amount of P291,342.76. The said goods were delivered to and received
by BMPI but it failed to pay its overdue account to appellee as well as the interest
thereon, at the rate of 20% per annum until fully paid. It was also during this time
that appellants stockholders were in charge of the operation of BMPI despite the
fact that they were not able to pay their unpaid subscriptions to BMPI yet greatly
benefited from said transactions. In view of the unpaid subscriptions, BMPI failed
to pay appellee of its liability, hence appellee in order to protect its right can collect
from the appellants’ stockholders regarding their unpaid subscriptions. To deny
appellee from recovering from appellants would place appellee in a limbo on where
to assert their right to collect from BMPI since the stockholders who are appellants
herein are availing the defense of corporate fiction to evade payment of its
obligations.[17]

Further, the CA concurred with the RTC on theapplicability of thetrust fund doctrine, under which
Roberto V. Cabrera, Jr. argued:
I.
IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO APPLY THE
DOCTRINE OF PIERCING THE VEIL OF CORPORATE PERSONALITY IN
ABSENCE OF ANY SHOWING OF EXTRA-ORDINARY CIRCUMSTANCES
THAT WOULD JUSTIFY RESORT THERETO.

corporate debtors might look to the unpaid subscriptions for the satisfaction of unpaid corporate debts,
stating thus:
It is an established doctrine that subscription to the capital stock of a
corporation constitute a fund to which creditors have a right to look up to for
satisfaction of their claims, and that the assignee in insolvency can maintain an

action upon any unpaid stock subscription in order to realize assets for the payment
of its debts (PNB vs. Bitulok Sawmill, 23 SCRA 1366).

Exh: “4” – YU – Official Receipt No. 223 dated May 13,
1988 amounting to P15,000.00 allegedly representing the full payment of
balance of subscriptions of stockholder Zenaida Yu. (Record p. 353).

Premised on the above-doctrine, an inference could be made that the funds,
which consists of the payment of subscriptions of the stockholders, is where the
creditors can claim monetary considerations for the satisfaction of their claims. If
these funds which ought to be fully subscribed by the stockholders were not paid or
remain an unpaid subscription of the corporation then the creditors have no other
recourse to collect from the corporation of its liability. Such occurrence was evident
in the case at bar wherein the appellants as stockholders failed to fully pay their
unpaid subscriptions, which left the creditors helpless in collecting their claim due
to insufficiency of funds of the corporation. Likewise, the claim of appellants that
they already paid the unpaid subscriptions could not be given weight because said
payment did not reflect in the Articles of Incorporations of BMPI that the unpaid
subscriptions were fully paid by the appellants’ stockholders. For it is a rule that a
stockholder may be sued directly by creditors to the extent of their unpaid
subscriptions to the corporation (Keller vs. COB Marketing, 141 SCRA 86).

Based on the above exhibits, we are in accord with the lower court’s
findings that the claim of the individual appellants that they fully paid their
subscription to the defendant BMPI is not worthy of consideration, because, in the
case of appellants SPS. YU, there is an inconsistency regarding the issuance of the
official receipt since the alleged payment made on May 13, 1988 amounting
to P135,000.00 was covered by Official Receipt No. 218 (Record, p. 352), whereas
the alleged payment made earlier on November 5, 1987 amounting to P5,000.00 is
covered by Official Receipt No. 222 (Record, p. 353). Such issuance is a clear
indication that said receipts were belatedly issued just to suit their claim that they
have fully paid the unpaid subscriptions since in the ordinary course of business, a
receipt is issued earlier must have serial numbers lower than those issued on a later
date. But in the case at bar, the receipt issued on November 5, 1987 had a serial
number (222) higher than those issued on May 13, 1988 (218). And even assuming
arguendo that the individual appellants have paid their unpaid subscriptions, still, it
is very apparent that the veil of corporate fiction may be pierced when made as a
shield to perpetuate fraud and/or confuse legitimate issues. (Jacinto vs. Court of
Appeals, 198 SCRA 211).[19]

Moreover, a corporation has no power to release a subscription or its capital
stock, without valuable consideration for such releases, and as against creditors, a
reduction of the capital stock can take place only in the manner and under the
conditions prescribed by the statute or the charter or the Articles of Incorporation.
(PNB vs. Bitulok Sawmill, 23 SCRA 1366).[18]

Spouses Halley and Viñeza moved for a reconsideration, but the CA denied their motion for
The CAdeclared thatthe inconsistency in the issuance of the ORs rendered the claim of full payment

reconsideration.

of the subscriptions to the capital stock unworthy of consideration; andheld that the veil of corporate
fiction could be pierced when it was used as a shield to perpetrate a fraud or to confuse legitimate issues,
to wit:
Finally, appellants SPS YU, argued that the fact of full payment for the
unpaid subscriptions was incontrovertibly established by competent testimonial and
documentary evidence, namely – Exhibits “1”, “2”, “3” & “4”, which were never
disputed by appellee, clearly shows that they should not be held liable for payment
of the said unpaid subscriptions of BMPI.
The reliance is misplaced.

Issues

Only Donnina Halley has come to the Court to seek a further review, positing the following for
our consideration and resolution, to wit:

We are hereby reproducing the contents of the above-mentioned exhibits, to
wit:
Exh: “1” – YU – Official Receipt No. 217 dated November 5,
1987 amounting to P45,000.00 allegedly representing the initial payment of
subscriptions of stockholder Albert Yu.
Exh: “2” – YU – Official Receipt No. 218 dated May 13, 1988
amounting to P135,000.00 allegedly representing full payment of balance
of subscriptions of stockholder Albert Yu. (Record p. 352).
Exh: “3” – YU – Official Receipt No. 222 dated November 5,
1987 amounting to P5,000.00 allegedly representing the initial payment of
subscriptions of stockholder Zenaida Yu.

I.
THE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE DECISION
THAT DID NOTSTATE THE FACTS AND THE LAW UPON WHICH THE
JUDGMENT WAS BASED BUT MERELY COPIED THE CONTENTS OF
RESPONDENT’S MEMORANDUM ADOPTING THE SAME AS THE REASON
FOR THE DECISION
II.
THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE
REGIONAL TRIAL COURT WHICH ESSENTIALLY ALLOWED THE
PIERCING OF THE VEIL OF CORPORATE FICTION
III.

THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE TRUST
FUND DOCTRINE WHEN THE GROUNDS THEREFOR HAVE NOT BEEN
SATISFIED.

On the first error, the petitioner contends that the RTC lifted verbatim from the memorandum of

The petition for review fails.
I
The RTC did not violate
the Constitution and the Rules of Court

Printwell; and submits that the RTCthereby violatedthe requirement imposed in Section 14, Article VIII of
the Constitution[20] as well as in Section 1,Rule 36 of the Rules of Court,[21]to the effect that a judgment or
final order of a court should state clearly and distinctly the facts and the law on which it is based. The

The contention of the petitioner, that the RTC merely copied the memorandum of Printwell in

petitioner claims that the RTC’s violation indicated that the RTC did not analyze the case before rendering

writing its decision, and did not analyze the records on its own, thereby manifesting a bias in favor of

its decision, thus denying her the opportunity to analyze the decision; andthat a suspicion of partiality

Printwell, is unfounded.

arose from the fact that the RTC decision was but a replica of Printwell’s memorandum.She
cites Francisco v. Permskul,[22] in which the Court has stated that the reason underlying the constitutional

It is noted that the petition for review merely generally alleges that starting from its page 5, the

requirement, that every decision should clearly and distinctly state the facts and the law on which it is

decision of the RTC “copied verbatim the allegations of herein Respondents in its Memorandum before

based, is to inform the reader of how the court has reached its decision and thereby give the losing party

the said court,” as if “the Memorandum was the draft of the Decision of the Regional Trial Court of

an opportunity to study and analyze the decision and enable such party to appropriately assign the errors

Pasig,”[23]but fails to specify either the portions allegedly lifted verbatim from the memorandum, or why

committed therein on appeal.

she regards the decision as copied. The omission renders thepetition for review insufficient to support her
contention, considering that the mere similarityin language or thought between Printwell’s memorandum

On the second and third errors, the petitioner maintains that the CA and the RTC erroneously
pierced the veil of corporate fiction despite the absence of cogent proof showing that she, as stockholder

and the trial court’s decisiondid not necessarily justify the conclusion that the RTC simply lifted verbatim
or copied from thememorandum.

of BMPI, had any hand in transacting with Printwell; thatthe CA and the RTC failed to appreciate the
evidence that she had fully paid her subscriptions; and the CA and the RTCwrongly relied on the articles

It is to be observed in this connection that a trial or appellate judge may occasionally viewa

of incorporation in determining the current list of unpaid subscriptions despite the articles of

party’s memorandum or brief as worthy of due consideration either entirely or partly. When he does so,

incorporationbeing at best reflectiveonly of the pre-incorporation status of BMPI.

the judgemay adopt and incorporatein his adjudicationthe memorandum or the parts of it he deems
suitable,and yet not be guilty of the accusation of lifting or copying from the memorandum. [24] This

As her submissions indicate, the petitioner assails the decisions of the CA on: ( a) the propriety of

isbecause ofthe avowed objective of the memorandum to contribute in the proper illumination and correct

disregarding the separate personalities of BMPI and its stockholdersby piercing the thin veil that separated

determination of the controversy.Nor is there anything untoward in the congruence of ideas and views

them; and (b) the application of the trust fund doctrine.

about the legal issues between himself and the party drafting the memorandum.The frequency of
similarities in argumentation, phraseology, expression, and citation of authorities between the decisions of

Ruling

the courts and the memoranda of the parties, which may be great or small, can be fairly attributable tothe
adherence by our courts of law and the legal profession to widely knownor universally accepted
precedents set in earlier judicial actions with identical factual milieus or posing related judicial dilemmas.

being used as a cloak or cover for fraud or illegality;as a justification for a wrong; as an alter ego, an
We also do not agree with the petitioner that the RTC’s manner of writing the

adjunct, or a business conduit for the sole benefit of the stockholders. [28] As a general rule, a corporation is

decisiondeprivedher ofthe opportunity to analyze its decisionas to be able to assign errors on appeal. The

looked upon as a legal entity, unless and until sufficient reason to the contrary appears. Thus,the courts

contrary appears, considering that she was able to impute and assignerrors to the RTCthat she extensively

always presume good faith, andfor that reason accord prime importance to the separate personality of the

discussed in her appeal in the CA, indicating her thorough analysis ofthe decision of the RTC.

corporation, disregarding the corporate personality only after the wrongdoing is first clearly and
convincingly established.[29]It thus behooves the courts to be careful in assessing the milieu where the

Our own readingof the trial court’s decision persuasively shows that the RTC did comply with

piercing of the corporate veil shall be done.[30]

the requirements regarding the content and the manner of writing a decision prescribed in the Constitution
and the Rules of Court. The decision of the RTC contained clear and distinct findings of facts, and stated

Although nowhere in Printwell’s amended complaint or in the testimonies Printwell offered

the applicablelaw and jurisprudence, fully explaining why the defendants were being held liable to the

can it be read or inferred from that the petitioner was instrumental in persuading BMPI to renege onits

plaintiff. In short, the reader was at once informed of the factual and legal reasons for the ultimate result.

obligation to pay; or that sheinduced Printwell to extend the credit accommodation by misrepresenting the
solvency of BMPI toPrintwell, her personal liability, together with that of her co-defendants,

II
Corporate personality not to be used to foster injustice

Printwell impleaded the petitioner and the other stockholders of BMPI for two reasons,
namely: (a) to reach the unpaid subscriptions because it appeared that such subscriptions were the
remaining visible assets of BMPI; and (b) to avoid multiplicity of suits.[25]

The petitionersubmits that she had no participation in the transaction between BMPI and
Printwell;that BMPI acted on its own; and that shehad no hand in persuading BMPI to renege on its
obligation to pay. Hence, she should not be personally liable.

remainedbecause the CA found her and the other defendant stockholders to be in charge of the operations
of BMPI at the time the unpaid obligation was transacted and incurred, to wit:
In the case at bench, it is undisputed that BMPI made several orders on
credit from appellee PRINTWELL involving the printing of business magazines,
wrappers and subscription cards, in the total amount of P291,342.76 (Record pp. 35, Annex “A”) which facts were never denied by appellants’ stockholders that they
owe(d) appellee the amount of P291,342.76. The said goods were delivered to and
received by BMPI but it failed to pay its overdue account to appellee as well as the
interest thereon, at the rate of 20% per annum until fully paid. It was also during
this time that appellants stockholders were in charge of the operation of BMPI
despite the fact that they were not able to pay their unpaid subscriptions to BMPI
yet greatly benefited from said transactions. In view of the unpaid subscriptions,
BMPI failed to pay appellee of its liability, hence appellee in order to protect its
right can collect from the appellants stockholders regarding their unpaid
subscriptions. To deny appellee from recovering from appellants would place
appellee in a limbo on where to assert their right to collect from BMPI since the
stockholders who are appellants herein are availing the defense of corporate fiction
to evade payment of its obligations.[31]

We rule against the petitioner’s submission.
It follows, therefore, that whether or not the petitioner persuaded BMPI to renege on its
Although a corporation has a personality separate and distinct from those of its stockholders,
directors, or officers,[26]such separate and distinct personality is merely a fiction created by law for the
sake of convenience and to promote the ends of justice. [27]The corporate personality may be disregarded,
and the individuals composing the corporation will be treated as individuals, if the corporate entity is

obligations to pay, and whether or not she induced Printwell to transact with BMPI were not
gooddefensesin the suit.
III
Unpaid creditor may satisfy its claim from
unpaid subscriptions;stockholders must
prove full payment oftheir subscriptions

Also, under the trust fund doctrine,a corporation has no legal capacity to release an original
Both the RTC and the CA applied the trust fund doctrineagainst the defendant stockholders,
including the petitioner.

subscriber to its capital stock from the obligation of paying for his shares, in whole or in part, [37] without a
valuable consideration,[38] or fraudulently, to the prejudice of creditors. [39]The creditor is allowed to
maintain an action upon any unpaid subscriptions and thereby steps into the shoes of the corporation for

The petitionerargues, however,that the trust fund doctrinewas inapplicablebecause she had

the satisfaction of its debt. [40]To make out a prima facie case in a suit against stockholders of an insolvent

already fully paid her subscriptions to the capital stock of BMPI. She thus insiststhat both lower courts

corporation to compel them to contribute to the payment of its debts by making good unpaid balances

erred in disregarding the evidence on the complete payment of the subscription, like receipts, income tax

upon their subscriptions, it is only necessary to establish that thestockholders have not in good faith paid

returns, and relevant financial statements.

the par value of the stocks of the corporation.[41]

The petitioner’s argumentis devoid of substance.

The petitionerposits that the finding of irregularity attending the issuance of the receipts (ORs)
issued to the other stockholders/subscribers should not affect her becauseher receipt did not suffer similar

The trust fund doctrineenunciates a –
xxx rule that the property of a corporation is a trust fund for the payment of
creditors, but such property can be called a trust fund ‘only by way of analogy or
metaphor.’ As between the corporation itself and its creditors it is a simple debtor,
and as between its creditors and stockholders its assets are in equity a fund for the
payment of its debts.[32]

The trust fund doctrine, first enunciated in the American case of Wood v. Dummer,[33]was
adopted in our jurisdiction in Philippine Trust Co. v. Rivera,[34]where thisCourt declared that:

irregularity.

Notwithstanding that the RTC and the CA did not find any irregularity in the OR issued in her
favor,we still cannot sustain the petitioner’s defense of full payment of her subscription.

In civil cases, theparty who pleads payment has the burden of proving it, that even where the
plaintiff must allege nonpayment, the general rule is that the burden rests on the defendant to prove
payment, rather than on the plaintiff to prove nonpayment. In other words, the debtor bears the burden of

It is established doctrine that subscriptions to the capital of a corporation
constitute a fund to which creditors have a right to look for satisfaction of their
claims and that the assignee in insolvency can maintain an action upon any unpaid
stock subscription in order to realize assets for the payment of its debts. (Velasco vs.
Poizat, 37 Phil., 802) xxx[35]

We clarify that the trust fund doctrineis not limited to reaching the stockholder’s unpaid
subscriptions. The scope of the doctrine when the corporation is insolvent encompasses not only the
capital stock, but also other property and assets generally regarded in equity as a trust fund for the
payment of corporate debts.[36]All assets and property belonging to the corporation held in trust for the
benefit of creditors thatwere distributed or in the possession of the stockholders, regardless of full
paymentof their subscriptions, may be reached by the creditor in satisfaction of its claim.

showing with legal certainty that the obligation has been discharged by payment. [42]

Apparently, the petitioner failed to discharge her burden.

A receipt is the written acknowledgment of the fact of payment in money or other settlement
between the seller and the buyer of goods, thedebtor or thecreditor, or theperson rendering services, and
theclient or thecustomer.[43]Althougha receipt is the best evidence of the fact of payment, it isnot
conclusive, but merely presumptive;nor is it exclusive evidence,considering thatparole evidence may also
establishthe fact of payment.[44]

The petitioner’s ORNo. 227,presentedto prove the payment of the balance of her subscription,

Theincome tax return (ITR) and statement of assets and liabilities of BMPI, albeit presented,

indicated that her supposed payment had beenmade by means of a check. Thus, to discharge theburden to

had no bearing on the issue of payment of the subscription because they did not by themselves prove

prove payment of her subscription, she had to adduce evidence satisfactorily proving that her payment by

payment. ITRsestablish ataxpayer’s liability for taxes or a taxpayer’s claim for refund. In the same

check wasregardedas payment under the law.

manner, the deposit slips and entries in the passbook issued in the name of BMPI were hardly
relevant due to their not reflecting the alleged payments.
[45]

Paymentis defined as the delivery of money. Yet, because a check is not money and only
substitutes for money, the delivery of a check does not operate as payment and does not discharge the
obligation under a judgment.

[46]

It is notable, too, that the petitioner and her co-stockholders did not support their allegation of

The delivery of a bill of exchange only produces the fact of payment when

complete payment of their respective subscriptions with the stock and transfer book of BMPI. Indeed,

the bill has been encashed.[47]The following passage fromBank of Philippine Islands v. Royeca[48]is

books and records of a corporation (including the stock and transfer book) are admissible in evidence in

enlightening:

favor of or against the corporation and its members to prove the corporate acts, its financial status and
other matters (like the status of the stockholders), and are ordinarily the best evidence of corporate acts

Settled is the rule that payment must be made in legal tender. A check is
not legal tender and, therefore, cannot constitute a valid tender of payment.
Since a negotiable instrument is only a substitute for money and not money,
the delivery of such an instrument does not, by itself, operate as payment.
Mere delivery of checks does not discharge the obligation under a judgment.
The obligation is not extinguished and remains suspended until the payment by
commercial document is actually realized.
To establish their defense, the respondents therefore had to present
proof, not only that they delivered the checks to the petitioner, but also that the
checks were encashed. The respondents failed to do so. Had the checks been
actually encashed, the respondents could have easily produced the cancelled
checks as evidence to prove the same. Instead, they merely averred that they
believed in good faith that the checks were encashed because they were not
notified of the dishonor of the checks and three years had already lapsed since
they issued the checks.
Because of this failure of the respondents to present sufficient proof of
payment, it was no longer necessary for the petitioner to prove non-payment,
particularly proof that the checks were dishonored. The burden of evidence is
shifted only if the party upon whom it is lodged was able to adduce preponderant
evidence to prove its claim.

Ostensibly, therefore, the petitioner’s mere submission of the receipt issued in exchange of the
check did not satisfactorily establish her allegation of full payment of her subscription. Indeed, she could
not even inform the trial court about the identity of her drawee bank, [49]and about whether the check was

and proceedings.[51]Specifically, a stock and transfer book is necessary as a measure of precaution,
expediency, and convenience because it provides the only certain and accurate method of establishing the
various corporate acts and transactions and of showing the ownership of stock and like matters. [52]That she
tendered no explanation why the stock and transfer book was not presented warrants the inference that the
book did not reflect the actual payment of her subscription.

Nor did the petitioner present any certificate of stock issued by BMPI to her. Such a certificate
covering her subscription might have been a reliable evidence of full payment of the subscriptions,
considering that under Section 65 of the Corporation Code a certificate of stock issues only to a
subscriber who has fully paid his subscription. The lack of any explanation for the absence of a stock
certificate in her favor likewise warrants an unfavorable inference on the issue of payment.

Lastly, the petitioner maintains that both lower courts erred in relying on the articles of
incorporationas proof of the liabilities of the stockholders subscribing to BMPI’s stocks, averring that
the articles of incorporationdid not reflect the latest subscription status of BMPI.

cleared and its amount paid to BMPI.[50]In fact, she did not present the check itself.
Although the articles of incorporation may possibly reflect only the pre-incorporation status of
a corporation, the lower courts’ reliance on that document to determine whether the original
subscribersalready fully paid their subscriptions or not was neither unwarranted nor erroneous. As earlier

explained, the burden of establishing the fact of full payment belonged not to Printwell even if it was the

decision of the trial court. The absence of the requisite findings from the RTC decision warrants the

plaintiff, but to the stockholders like the petitioner who, as the defendants, averredfull payment of their

deletion of the attorney’s fees.

subscriptions as a defense. Their failure to substantiate their averment of full payment, as well as their
failure to counter the reliance on the recitals found in the articles of incorporation simply meant their
failure or inability to satisfactorily prove their defense of full payment of the subscriptions.

ACCORDINGLY, we deny the petition for review on certiorari;and affirm with modification
the decision promulgated on August 14, 2002by ordering the petitionerto pay to Printwell, Inc. the sum
of P262,500.00, plus interest of 12% per annum to be computed from February 8, 1990 until full payment.

To reiterate, the petitionerwas liablepursuant to the trust fund doctrine for the corporate
obligation of BMPI by virtue of her subscription being still unpaid. Printwell, as BMPI’s creditor,had a

The petitioner shall paycost of suit in this appeal.

right to reachher unpaid subscription in satisfaction of its claim.
SO ORDERED.
IV
Liability of stockholders for corporate debts isup
to the extentof their unpaid subscription

The RTC declared the stockholders pro rata liable for the debt(based on the proportion to their
shares in the capital stock of BMPI); and held the petitionerpersonally liable onlyin the amount
of P149,955.65.

We do not agree. The RTC lacked the legal and factual support for its prorating the liability.
Hence, we need to modify the extent of the petitioner’s personal liability to Printwell. The prevailing rule
is that a stockholder is personally liable for the financial obligations of the corporation to the extent of his
unpaid subscription.[53]In view ofthe petitioner’s unpaid subscription being worth P262,500.00, shewas
liable up to that amount.

Interest is also imposable on the unpaid obligation. Absent any stipulation, interest is fixed at
12% per annum from the date the amended complaint was filed on February 8, 1990 until the obligation
(i.e., to the extent of the petitioner’s personal liability of P262,500.00) is fully paid.[54]

Lastly, we find no basis togrant attorney’s fees, the award for which must be supported by
findings of fact and of law as provided under Article 2208 of the Civil Code[55]incorporated in the body of

the letter, Exhibit 13. In said letter, he requested that his name be included in the
waiting list.
It appears that sometime in November 1995, McFoods expressed interest
in acquiring a share of the plaintiff, and one was acquired with the payment to the
plaintiff by McFoods ofP1,800,000 through Urban Bank (Exhibit 3). On December
15, 1995, the Deed of Absolute Sale, Exhibit 1, was executed by the plaintiff and
McFoods Stock Certificate No. A 2243 was issued to McFoods on January 5,
1996. On December 27, 1995, McFoods sent a letter to the plaintiff giving advise
(sic) of its offer to resell the share.
MAKATI SPORTS CLUB, INC.,
Petitioner,

It appears that while the sale between the plaintiff and McFoods was still
under negotiations, there were negotiations between McFoods and Hodreal for the
purchase by the latter of a share of the plaintiff. On November 24, 1995, Hodreal
paid McFoods P1,400,000. Another payment of P1,400,000 was made by Hodreal
to McFoods on December 27, 1995, to complete the purchase price of P2,800,000.

G.R. No. 178523
Present:

- versus -

CECILE H. CHENG, MC FOODS, INC., and RAMON SABARRE,
Respondents.

CARPIO, J.,
Chairperson,
NACHURA,
PERALTA,
ABAD, and
PEREZ,* JJ.

On February 7, 1996, plaintiff was advised of the sale by McFoods to
Hodreal of the share evidenced by Certificate No. 2243 for P2.8 Million. Upon
request, a new certificate was issued. In 1997, an investigation was conducted and
the committee held that there is prima facie evidence to show that defendant Cheng
profited from the transaction because of her knowledge.

Promulgated:

xxxx

June 16, 2010

Plaintiff’s evidence of fraud are – [a] letter of Hodreal dated July 7,
1995 where he expressed interest in buying one (1) share from the plaintiff with the
request that he be included in the waiting list of buyers; [b] declaration of Lolita
Hodreal in her Affidavit that in October 1995, she talked to Cheng who assured her
that there was one (1) available share at the price ofP2,800,000. The purchase to be
validated by paying 50% immediately and the balance after thirty (30) days; [c]
Marian Punzalan, Head, Membership Section of the plaintiff declared that she
informed Cheng of the intention of Hodreal to purchase one (1) share and she gave
to Cheng the contact telephone number of Hodreal; and [d] the authorization from
Sabarre to claim the stock certificate.[4]

x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:

Thus, petitioner sought judgment that would order respondents to pay the sum
This is a petition for review on certiorari[1] under Rule 45 of the Rules of Court, assailing the

of P1,000,000.00, representing the amount allegedly defrauded, together with interest and damages.

Decision[2] dated June 25, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 80631, affirming the
decision[3] dated August 20, 2003 of the Regional Trial Court (RTC), Branch 138, Makati City in Civil
Case No. 01-837.

After trial on the merits, the RTC rendered its August 20, 2003 decision, dismissing the
complaint, including all counterclaims.

The facts of the case, as narrated by the RTC and adopted by the CA, are as follows:

Aggrieved, Makati Sports Club, Inc. (MSCI) appealed to the CA, arguing that the RTC erred in

On October 20, 1994, plaintiff’s Board of Directors adopted a resolution
(Exhibit 7) authorizing the sale of 19 unissued shares at a floor price of P400,000
and P450,000 per share for Class A and B, respectively.

finding neither direct nor circumstantial evidence that Cecile H. Cheng (Cheng) had any fraudulent

Defendant Cheng was a Treasurer and Director of plaintiff in 1985. On
July 7, 1995, Hodreal expressed his interest to buy a share, for this purpose he sent

MSCI’s overwhelming evidence that Cheng and Mc Foods confabulated with one another at the expense

participation in the transaction between MSCI and Mc Foods, Inc. (Mc Foods), while it allegedly ignored

of MSCI.

After the submission of the parties’ respective briefs, the CA promulgated its assailed Decision,
affirming the August 20, 2003 decision of the RTC. Hence, this petition anchored on the grounds that—
THE APPELLATE COURT ERRED IN UPHOLDING THE
CONCLUSION OF THE TRIAL COURT THAT PETITIONER DID NOT
PROFFER CLEAR AND CONVINCING EVIDENCE SHOWING THAT THE
RESPONDENTS DEFRAUDED THE PETITIONER DESPITE OVERWHELMING
EVIDENCE TO THE CONTRARY AS SHOWN BY THE FOLLOWING:
(A) RESPONDENTS CHENG AND SABARRE’S
OWN ADMISSIONS, MARIAN PUNZALAN’S AFFIDAVIT,
AND OTHER PERTINENT DOCUMENTARY EVIDENCE
ALL UNEQUIVOCALLY PROVE THAT RESPONDENT
CHENG HAD INTIMATE
PARTICIPATION IN THE SALE OF MSCI’S UNISSUED
CLASS “A” SHARE TO MC FOODS, INC. FOR THE
CONSIDERATION OF ONE MILLION EIGHT HUNDRED
THOUSAND PESOS (PHP1,800,000.00).
(B) RESPONDENT CHENG’S ADMISSIONS AND
OTHER PERTINENT DOCUMENTARY EVIDENCE
RELATED TO THE SALE OF MSCI’S UNISSUED CLASS
“A” SHARE TO RESPONDENT MC FOODS, INC. AND
THE RESALE OF THE SAME TO SPOUSES HODREAL
PROVE THAT THE SALE OF THE SAID UNISSUED
SHARE TO MC FOODS, INC. AT ONE MILLION EIGHT
HUNDRED THOUSAND PESOS (PHP1,800,000.00) WAS
MADE WITH A VIEW TO RESELL THE SAME AT A
PROFIT TO THE HODREAL SPOUSES AT THE AMOUNT
OF TWO MILLION EIGHT HUNDRED PESOS
(PHP2,800,000.00); THE “RESALE” OF THE SAID SHARE
TO THE SPOUSES HODREAL OCCURRING EVEN
BEFORE MC FOODS, INC. GAINED OWNERSHIP OVER
THE SAID UNISSUED SHARE.
(C) THE UTTER LACK OF DOCUMENTARY
EVIDENCE SHOWING THAT MC FOODS, INC. EVINCED
A DESIRE TO PURCHASE PETITIONER’S UNISSUED
SHARES CONCLUSIVELY PROVES THAT MC FOODS,
INC. NEVER MADE ANY FORMAL OFFER TO BUY AN
UNISSUED M[SC]I SHARE FROM PETITIONER’S
BOARD OF DIRECTORS AND/OR MEMBERSHIP
COMMITTEE, COURSING THE SAID TRANSACTION
CLANDESTINELY THROUGH RESPONDENT CHENG.
(D)
RESPONDENT
CHENG’S
OWN
ADMISSIONS INDUBITABLY PROVE THAT SHE
DELIBERATELY CONCEALED THE FACT THAT THERE
WERE OTHER UNISSUED M[SC]I SHARES AVAILABLE
FOR PURCHASE BY THE SPOUSES HODREAL,
CHOOSING INSTEAD TO BROKER THE “RESALE” OF
THE SHARE PURCHASED BY MC FOODS, INC. FROM

MSCI TO THE SPOUSES HODREAL AT THE PRICE OF
TWO MILLION EIGHT HUNDRED THOUSAND PESOS
(PHP2,800,000.00) TO THE DETRIMENT OF THE
PETITIONER.
(E) RESPONDENTS
CHENG
AND
SABARRE’S ADMISSIONS, MSCI’S BY-LAWS AND
DOCUMENTARY EVIDENCE RELATING TO THE TWO
IRREGULAR SALES TRANSACTIONS ALL POINT TO
THE CONCLUSION THAT MC FOODS, INC. IN
RESELLING ITS MSCI SHARE TO SPOUSES HODREAL
FAILED TO GIVE MSCI A CREDIBLE OPPORTUNITY
TO REPURCHASE THE SAME IN ACCORDANCE WITH
SECTION 30 (E) OF MSCI’S BY-LAWS.
(F)
RESPONDENT
CHENG’S
OWN
DOCUMENTARY
EVIDENCE
PROVES
THAT
RESPONDENTS FALSIFIED AN ENTRY IN MC FOODS,
INC.’S “OFFER” TO SELL ITS SHARE TO MSCI IN AN
EFFORT TO COAT THE RESELLING OF THE SAID
SHARE TO SPOUSES HODREAL WITH A SEMBLANCE
OF REGULARITY[.]
(G) FINALLY,
PERHAPS
THE
MOST
OVERLOOKED MATTER BY THE TRIAL COURT AND
THE APPELLATE COURT IS THE SINGULAR
UNDENIABLE FACT THAT RESPONDENT CHENG
DURING THE PERIOD IN WHICH THE ABOVEMENTIONED TRANSACTIONS CAME INTO FRUITION
WAS A MEMBER OF THE BOARD OF DIRECTORS AND
THE TREASURER OF MSCI, THIS FACT ALONE
TAINTS THE PARTICIPATION OF RESPONDENT
CHENG IN THE SAID IRREGULAR TRANSACTIONS
WITH BAD FAITH.[5]

The petition should be denied.
At the outset, we note that this recourse is a petition for review on certiorari under Rule 45 of
the Rules of Court. Under Section 1 of the Rule, such a petition shall raise only questions of law which
must be distinctly alleged in the appropriate pleading. In a case involving a question of law, the resolution
of the issue must rest solely on what the law provides for a given set of facts drawn from the evidence
presented. Stated differently, there should be nothing in dispute as to the state of facts; the issue to be
resolved is merely the correctness of the conclusion drawn from the said facts. Once it is clear that the
issue invites a review of the probative value of the evidence presented, the question posed is one of
fact. If the query requires a reevaluation of the credibility of witnesses, or the existence or relevance of
surrounding circumstances and their relation to each other, then the issue is necessarily factual. [6]

A perusal of the assignment of errors and the discussion set forth by MSCI would readily show

with Mc Foods by providing it with an insider’s information as to the status of the shares of stock of

that the petition seeks a review of all the evidence presented before the RTC and reviewed by the CA;

MSCI and even, allegedly with unusual interest, facilitated the transfer of ownership of the subject share

therefore, the issue is factual. Accordingly, the petition should be dismissed outright, especially

of stock from Mc Foods to Hodreal, instead of an original, unissued share of stock. According to MSCI,

considering that the very same factual circumstances in this petition have already been ruled upon by the

Cheng’s fraudulent participation was clearly and overwhelmingly proven by the following circumstances:

CA.

(1) sometime in October 1995, Lolita Hodreal, wife of Hodreal, talked to Cheng about the purchase of one
Class “A” share of stock and the latter assured her that there was already an available share
However, MSCI seeks to evade this rule that the findings of fact made by the trial court,

for P2,800,000.00;[16] (2) the second installment payment of P1,400,000.00 of spouses Hodreal to Mc

particularly when affirmed by the appellate court, are entitled to great weight and even finality, claiming

Foods was received by Cheng on the latter’s behalf; [17] (3) Marian N. Punzalan (Punzalan), head of

that its case falls under two of the well-recognized exceptions, to wit: (1) that the judgment of the

MSCI’s membership section, informed Cheng about Hodreal’s intention to purchase a share of stock and

appellate court is premised on a misapprehension of facts or that it has failed to consider certain relevant

Cheng asked her if there was a quoted price for it, and for Hodreal’s contact number; [18] and (4) on January

facts which, if properly considered, will justify a different conclusion; and (2) that the findings of fact of

29, 1996, Cheng claimed Certificate A 2243 on behalf of Mc Foods, [19] per letter of authority dated January

the appellate court are ostensibly premised on the absence of evidence, but are contradicted by the

26, 1996, executed by Mc Foods in favor of Cheng.[20]

evidence on record.[7]
The Court is not convinced.
MSCI insists that Cheng, in collaboration with Mc Foods, committed fraud in transacting the
transfers involving Stock Certificate No. A 2243 (Certificate A 2243) on account of the following

It is noteworthy that, as early as July 7, 1995, Hodreal already expressed to the MSCI

circumstances—(1) on November 24, 1995, Joseph L. Hodreal (Hodreal) paid the first installment

Membership Committee his intent to purchase one Class “A” share and even requested if he could be

[8]

of P1,400,000.00 for the purchase of a Class “A” share in favor of Mc Foods; (2) on November 28,

included in the waiting list of buyers. However, there is no evidence on record that the Membership

1995, Mc Foods deposited to MSCI’s account an Allied Banking Corporation manager’s check for the

Committee acted on this letter by replying to Hodreal if there still were original, unissued shares then or if

[9]

(3) on

he would indeed be included in the waiting list[21] of buyers. All that Punzalan did was to inform Cheng of

December 15, 1995, MSCI and Mc Foods executed a Deed of Sale for the purchase of a Class “A” share;

Hodreal’s intent and nothing more, even as Cheng asked for Hodreal’s contact number. It may also be

[11]

(5) on

observed that, although established by Punzalan’s affidavit that she informed Cheng about Hodreal’s

December 27, 1995, Mc Foods sent a letter to MSCI, offering to sell its purchased share of stock in the

desire to purchase a Class “A” share and that Cheng asked for Hodreal’s contact number, it is not clear

purchase of the same share in the amount of P1,800,000.00, sans an official receipt from MSCI;

(4) on December 27, 1995, Hodreal paid the last installment of P1,400,000.00 to Mc Foods;

[13]

amount of P2,800,000.00;
[14]

[10]

[12]

(6) on January 5, 1996, Certificate A 2243 was issued to Mc Foods by MSCI;

and (7) on January 29, 1996, Mc Foods and Hodreal executed a Deed of Sale for the same share of

stock.

when Punzalan relayed the information to Cheng or if Cheng indeed initiated contact with Hodreal to
peddle Mc Foods’ purchased share.

[15]

While Punzalan declared that, in December 1995, she received a Deed of Absolute Sale
Based on the above incidents, MSCI asserts that Mc Foods never intended to become a

between MSCI and Mc Foods of a Class “A” share for P1,800,000.00 signed by Atty. Rico Domingo and

legitimate holder of its purchased Class “A” share but did so only for the purpose of realizing a profit in

Cheng, in their respective capacities as then President and Treasurer of MSCI, and by Ramon Sabarre, as

the amount of P1,000,000.00 at the expense of the former. MSCI further claims that Cheng confabulated

President of Mc Foods, what she merely did was to inquire from her immediate superior Becky Peñaranda

what share to issue; and the latter, in turn, replied that it should be an original share. Thereafter, Punzalan

name. The right of a transferee to have stocks transferred to its name is an inherent right flowing from its

prepared a letter, signed by then corporate secretary, Atty. Rafael Abiera, to be sent to MSCI’s stock

ownership of the stocks.[26]

transfer agent for the issuance of the corresponding certificate of stock. Then, Certificate A 2243 was
issued in favor of Mc Foods on January 5, 1996.

It is MSCI’s stance that Mc Foods violated Section 30(e) of MSCI’s Amended By-Laws on its preemptive rights, which provides—

Also in point are the powers and duties of the MSCI’s Membership Committee, viz.:
SEC. 29. (a) The Membership Committee shall process applications for
membership; ascertain that the requirements for stock ownership, including
citizenship, are complied with; submit to the Board its recommended on applicants
for inclusion in the Waiting List; take charge of auction sales of shares of stock; and
exercise such other powers and perform such other functions as may be authorized
by the Board.[22]

Charged with ascertaining the compliance of all the requirements for the purchase of MSCI’s shares of
stock, the Membership Committee failed to question the alleged irregularities attending Mc Foods’
purchase of one Class “A” share at P1,800,000.00. If there was really any irregularity in the transaction,
this inaction of the Management Committee belies MSCI’s cry of foul play on Mc Foods’ purchase of the
subject share of stock. In fact, the purchase price of P1,800,000.00 cannot be said to be detrimental to
MSCI, considering that it is the same price paid for a Class “A” share in the last sale of an original share

SEC. 30. x x x .
(e) Sale of Shares of Stockholder. Where the registered owner of share of
stock desires to sell his share of stock, he shall first offer the same in writing to the
Club at fair market value and the club shall have thirty (30) days from receipt of
written offer within which to purchase such share, and only if the club has excess
revenues over expenses (unrestricted retained earning) and with the approval of
two-thirds (2/3) vote of the Board of Directors. If the Club fails to purchase the
share, the stockholder may dispose of the same to other persons who are qualified to
own and hold shares in the club. If the share is not purchased at the price quoted by
the stockholder and he reduces said price, then the Club shall have the same preemptive right subject to the same conditions for the same period of thirty (30)
days. Any transfer of share, except by hereditary succession, made in violation of
these conditions shall be null and void and shall not be recorded in the books of the
Club.
The share of stock so acquired shall be offered and sold by the Club to those
in the Waiting List in the order that their names appear in such list, or in the absence
of a Waiting List, to any applicant.[27]

to Land Bank of the Philippines on September 25, 1995, and in the sale by Marina Properties Corporation
to Xanland Properties, Inc. on October 23, 1995. [23] These circumstances have not been denied by

We disagree.

MSCI. What is more, the purchase price ofP1,800,000.00 is P1,400,000.00 more than the floor price set
by the MSCI Board of Directors for a Class “A” share in its resolution dated October 20, 1994. [24]

Undeniably, on December 27, 1995, when Mc Foods offered for sale one Class “A” share of
stock to MSCI for the price of P2,800,000.00 for the latter to exercise its pre-emptive right as required by

Further, considering that Mc Foods tendered its payment of P1,800,000.00 to MSCI on November

Section 30(e) of MSCI’s Amended By-Laws, it legally had the right to do so since it was already an owner

28, 1995, even assuming arguendo that it was driven solely by the intent to speculate on the price of the

of a Class “A” share by virtue of its payment on November 28, 1995, and the Deed of Absolute Share

share of stock, it had all the right to negotiate and transact, at least on the anticipated and expected

dated December 15, 1995, notwithstanding the fact that the stock certificate was issued only on January 5,

ownership of the share, with Hodreal.

[25]

In other words, there is nothing wrong with the fact that the first

1996. A certificate of stock is the paper representative or tangible evidence of the stock itself and of the

installment paid by Hodreal preceded the payment of Mc Foods for the same share of stock to MSCI

various interests therein. The certificate is not a stock in the corporation but is merely evidence of the

because eventually Mc Foods became the owner of a Class “A” share covered by Certificate A

holder’s interest and status in the corporation, his ownership of the share represented thereby. It is not in

2243. Upon payment by Mc Foods of P1,800,000.00 to MSCI and the execution of the Deed of Absolute

law the equivalent of such ownership. It expresses the contract between the corporation and the

Sale on December 15, 1995, it then had the right to demand the delivery of the stock certificate in its

stockholder, but is not essential to the existence of a share of stock or the nature of the relation of

and convincing evidence, not by mere preponderance of evidence. [31] The party alleging the existence of

shareholder to the corporation.[28]

fraud has the burden of proof.[32] On the basis of the above disquisitions, this Court finds that petitioner
has failed to discharge this burden. No matter how strong the suspicion is on the part of petitioner, such

Therefore, Mc Foods properly complied with the requirement of Section 30(e) of the Amended ByLaws on MSCI’s pre-emptive rights. Without doubt, MSCI failed to repurchase Mc Foods’ Class “A”

suspicion does not translate into tangible evidence sufficient to nullify the assailed transactions involving
the subject MSCI Class “A” share of stock.

share within the thirty (30) day pre-emptive period as provided by the Amended By-Laws. It was only on
WHEREFORE, the petition is DENIED for lack of merit. The Decision dated June 25, 2007

January 29, 1996, or 32 days after December 28, 1995, when MSCI received Mc Foods’ letter of offer to
sell the share, that Mc Foods and Hodreal executed the Deed of Absolute Sale over the said share of
stock. While Hodreal had the right to demand the immediate execution of the Deed of Absolute Sale after
his full payment of Mc Foods’ Class “A” share, he did not do so. Perhaps, he wanted to wait for Mc

of the Court of Appeals in CA-G.R. CV No. 80631, affirming the decision dated August 20, 2003 of the
Regional Trial Court, Branch 138, Makati City in Civil Case No. 01-837, is AFFIRMED. Costs against
petitioner.

Foods to first comply with the pre-emptive requirement as set forth in the Amended By-Laws. Neither can
MSCI argue that Mc Foods was not yet a registered owner of the share of stock when the latter offered it
for resale, in order to void the transfer from Mc Foods to Hodreal. The corporation’s obligation to register
is ministerial upon the buyer’s acquisition of ownership of the share of stock. The corporation, either by
its board, its by-laws, or the act of its officers, cannot create restrictions in stock transfers. [29]

Moreover, MSCI’s ardent position that Cheng was in cahoots with Mc Foods in depriving it of
selling an original, unissued Class “A” share of stock for P2,800,000.00 is not supported by the evidence
on record. The mere fact that she performed acts upon authority of Mc Foods, i.e., receiving the payments
of Hodreal in her office and claiming the stock certificate on behalf of Mc Foods, do not by themselves,
individually or taken together, show badges of fraud, since Mc Foods did acts well within its rights and
there is no proof that Cheng personally profited from the assailed transaction. Even the statement of
MSCI that Cheng doctored the books to give a semblance of regularity to the transfers involving the share
of stock covered by Certificate A 2243 remains merely a plain statement not buttressed by convincing
proof.

Fraud is deemed to comprise anything calculated to deceive, including all acts, omissions, and
concealment involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in
the damage to another or by which an undue and unconscionable advantage is taken of another. [30] It is a
question of fact that must be alleged and proved. It cannot be presumed and must be established by clear

SO ORDERED

G.R. No. L-18062

The several demands made upon the company for the payment of the shortage in line with the liability it
has assumed having failed, the government commenced the present action on September 10, 1954 before
the Court of First Instance of Manila seeking to recover the amount of Pl3,867.24. The company in its
answer denied liability for said amount contending that the resolution of the board of directors wherein it
assumed responsibility for the act of the postmaster is ultra vires, and in any event its liability under said
resolution is only that of a guarantor who answers only after the exhaustion of the properties of the
principal, aside from the fact that the loss claimed by the plaintiff is not supported by the office record.

February 28, 1963

REPUBLIC
OF
THE
vs.
ACOJE MINING COMPANY, INC., defendant-appellant.
Office
of
the
Solicitor
Jalandoni & Jamir for defendant-appellant.

General

PHILIPPINES, plaintiff-appellee,

for

plaintiff-appellee.

BAUTISTA ANGELO, J.:
On May 17, 1948, the Acoje Mining Company, Inc. wrote the Director of Posts requesting the opening of
a post, telegraph and money order offices at its mining camp at Sta. Cruz, Zambales, to service its
employees and their families that were living in said camp. Acting on the request, the Director of Posts
wrote in reply stating that if aside from free quarters the company would provide for all essential
equipment and assign a responsible employee to perform the duties of a postmaster without compensation
from his office until such time as funds therefor may be available he would agree to put up the offices
requested. The company in turn replied signifying its willingness to comply with all the requirements
outlined in the letter of the Director of Posts requesting at the same time that it be furnished with the
necessary forms for the early establishment of a post office branch.
On April 11, 1949, the Director of Posts again wrote a letter to the company stating among other things
that "In cases where a post office will be opened under circumstances similar to the present, it is the policy
of this office to have the company assume direct responsibility for whatever pecuniary loss may be
suffered by the Bureau of Posts by reason of any act of dishonesty, carelessness or negligence on the part
of the employee of the company who is assigned to take charge of the post office," thereby suggesting that
a resolution be adopted by the board of directors of the company expressing conformity to the above
condition relative to the responsibility to be assumed buy it in the event a post office branch is opened as
requested. On September 2, 1949, the company informed the Director of Posts of the passage by its board
of directors of a resolution of the following tenor: "That the requirement of the Bureau of Posts that the
Company should accept full responsibility for all cash received by the Postmaster be complied with, and
that a copy of this resolution be forwarded to the Bureau of Posts." The letter further states that the
company feels that that resolution fulfills the last condition imposed by the Director of Posts and that,
therefore, it would request that an inspector be sent to the camp for the purpose of acquainting the
postmaster with the details of the operation of the branch office.
The post office branch was opened at the camp on October 13, 1949 with one Hilario M. Sanchez as
postmaster. He is an employee of the company. On May 11, 1954, the postmaster went on a three-day
leave but never returned. The company immediately informed the officials of the Manila Post Office and
the provincial auditor of Zambales of Sanchez' disappearance with the result that the accounts of the
postmaster were checked and a shortage was found in the amount of P13,867.24.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved
by this Honorable Court, without prejudice to the parties adducing other evidence to prove their case not
covered by this stipulation of facts. 1äwphï1.ñët
After trial, the court a quo found that, of the amount claimed by plaintiff totalling P13,867.24, only the
sum of P9,515.25 was supported by the evidence, and so it rendered judgment for the plaintiff only for the
amount last mentioned. The court rejected the contention that the resolution adopted by the company is
ultra vires and that the obligation it has assumed is merely that of a guarantor.
Defendant took the present appeal.
The contention that the resolution adopted by the company dated August 31, 1949 is ultra vires in the
sense that it has no authority to act on a matter which may render the company liable as a guarantor has no
factual or legal basis. In the first place, it should be noted that the opening of a post office branch at the
mining camp of appellant corporation was undertaken because of a request submitted by it to promote the
convenience and benefit of its employees. The idea did not come from the government, and the Director of
Posts was prevailed upon to agree to the request only after studying the necessity for its establishment and
after imposing upon the company certain requirements intended to safeguard and protect the interest of the
government. Thus, after the company had signified its willingness to comply with the requirement of the
government that it furnish free quarters and all the essential equipment that may be necessary for the
operation of the office including the assignment of an employee who will perform the duties of a
postmaster, the Director of Posts agreed to the opening of the post office stating that "In cases where a
post office will be opened under circumstances similar to the present, it is the policy of this office to have
the company assume direct responsibility for whatever pecuniary loss may be suffered by the Bureau of
Posts by reason of any act of dishonesty, carelessness or negligence on the part of the employee of the
company who is assigned to take charge of the post office," and accepting this condition, the company,
thru its board of directors, adopted forthwith a resolution of the following tenor: "That the requirement of
the Bureau of Posts that the company should accept full responsibility for all cash received by the
Postmaster, be complied with, and that a copy of this resolution be forwarded to the Bureau of Posts." On
the basis of the foregoing facts, it is evident that the company cannot now be heard to complain that it is
not liable for the irregularity committed by its employee upon the technical plea that the resolution
approved by its board of directors is ultra vires. The least that can be said is that it cannot now go back on
its plighted word on the ground of estoppel.
The claim that the resolution adopted by the board of directors of appellant company is an ultra vires act
cannot also be entertained it appearing that the same covers a subject which concerns the benefit,
convenience and welfare of its employees and their families. While as a rule an ultra vires act is one
committed outside the object for which a corporation is created as defined by the law of its organization
and therefore beyond the powers conferred upon it by law (19 C.J.S., Section 965, p. 419), there are
however certain corporate acts that may be performed outside of the scope of the powers expressly
conferred if they are necessary to promote the interest or welfare of the corporation. Thus, it has been held

that "although not expressly authorized to do so a corporation may become a surety where the particular
transaction is reasonably necessary or proper to the conduct of its business," 1 and here it is undisputed that
the establishment of the local post office is a reasonable and proper adjunct to the conduct of the business
of appellant company. Indeed, such post office is a vital improvement in the living condition of its
employees and laborers who came to settle in its mining camp which is far removed from the postal
facilities or means of communication accorded to people living in a city or municipality..
Even assuming arguendo that the resolution in question constitutes an ultra vires act, the same however is
not void for it was approved not in contravention of law, customs, public order or public policy. The
term ultra viresshould be distinguished from an illegal act for the former is merely voidable which may be
enforced by performance, ratification, or estoppel, while the latter is void and cannot be validated. 2 It
being merely voidable, an ultra vires act can be enforced or validated if there are equitable grounds for
taking such action. Here it is fair that the resolution be upheld at least on the ground of estoppel. On this
point, the authorities are overwhelming:
The weight of authority in the state courts is to the effect that a transaction which is
merely ultra vires and not malum in se or malum prohibitum, is, if performed by one party, not
void as between the parties to all intents and purposes, and that an action may be brought
directly on the transaction and relief had according to its terms. (19 C.J.S., Section 976, p.
432, citing Nettles v. Rhett, C.C.A.S.C., 94 F. 2d, reversing, D.C., 20 F. Supp. 48)
This rule is based on the consideration that as between private corporations, one party cannot
receive the benefits which are embraced in total performance of a contract made with it by
another party and then set up the invalidity of the transaction as a defense." (London &
Lancashire Indemnity Co. of America v. Fairbanks Steam Shovel Co., 147 N.E. 329, 332, 112
Ohio St. 136.)
The defense of ultra vires rests on violation of trust or duty toward stockholders, and should
not be entertained where its allowance will do greater wrong to innocent parties dealing with
corporation..
The acceptance of benefits arising from the performance by the other party may give rise to an
estoppel precluding repudiation of the transaction. (19 C.J.S., Section 976, p. 433.)
The current of modern authorities favors the rule that where the ultra vires transaction has
been executed by the other party and the corporation has received the benefit of it, the law
interposes an estoppel, and will not permit the validity of the transaction or contract to be
questioned, and this is especially true where there is nothing in the circumstances to put the
other party to the transaction on notice that the corporation has exceeded its powers in entering
into it and has in so doing overstepped the line of corporate privileges. (19 C.J.S., Section 977,
pp. 435-437, citing Williams v. Peoples Building & Loan Ass'n, 97 S.W. 2d 930, 193 Ark. 118;
Hays v. Galion Gas Light Co., 29 Ohio St. 330)
Neither can we entertain the claim of appellant that its liability is only that of a guarantor. On this point,
we agree with the following comment of the court a quo: "A mere reading of the resolution of the Board
of Directors dated August 31, 1949, upon which the plaintiff based its claim would show that the
responsibility of the defendant company is not just that of a guarantor. Notice that the phraseology and the
terms employed are so clear and sweeping and that the defendant assumed 'full responsibility for all cash

received by the Postmaster.' Here the responsibility of the defendant is not just that of a guarantor. It is
clearly that of a principal."
WHEREFORE, the decision appealed from is affirmed. No costs.

CARPIO MORALES, J.:
Inland Construction and Development Corp. (Inland) obtained various loans and other credit
accommodations from petitioner, then known as Associated Citizens Bank ([the bank] which later became
United Overseas Bank, Phils., and still later Westmost Bank) in 1977.

To secure the payment of its obligations, Inland executed real estate mortgages over three real
properties in Pasig City covered by Transfer Certificates of Title Nos. 4820, 4821 and 4822.[1]

Inland likewise issued promissory notes in favor of the bank, viz:

Promissory Note No. BD-2739-77
Amount: P155,000.00
Due Date: January 2, 1978[2]
WESTMONT BANK (formerly ASSOCIATED CITIZENS
BANK and now UNITED OVERSEAS BANK, PHILS.) AND
THE PROVINCIAL SHERIFF OF RIZAL,
Petitioners,
- versus -

Promissory Note No. BD-2884-77
Amount: P880,000.00
Due Date: February 23, 1978[3]

G.R. No. 123650
Present:

Promissory Note No. BD-2997
Amount: P60,000.00
Due Date: March 22, 1978[4] (Emphasis supplied)

QUISUMBING, J., Chairperson,
CARPIO MORALES,
VELASCO, JR.
NACHURA,* and
BRION, JJ.

INLAND CONSTRUCTION AND DEVELOPMENT CORP.,
Respondent.

When the first and second promissory notes fell due, Inland defaulted in its payments. It,

x - - - - - - - - - - - - - - - - - - - - - - - - -x

however, authorized the bank to debit P350,000 from its savings account to partially satisfy its obligations.

WESTMONT BANK (formerly ASSOCIATED CITIZENS
BANK and now UNITED OVERSEAS BANK, PHILS.),
Petitioner,

[5]

G.R. No. 123822
- versus -

It appears that by a Deed of Assignment, Conveyance and Release dated May 2, 1978, Felix Aranda,
President of Inland, assigned and conveyed all his rights and interests at Hanil-Gonzales Construction &
Development (Phils.) Corporation (Hanil-Gonzales Corporation) in favor of Horacio Abrantes (Abrantes),

COURT OF APPEALS andINLAND CONSTRUCTION AND
DEVELOPMENT CORP.,
Respondents.
x---------------------------------------------DECISION

Promulgated:
March 23, 2009

Executive Vice-President and General Manager of Hanil-Gonzales Corporation. Under the same Deed of
Assignment, it appears that Abrantes assumed, among other obligations of Inland and Aranda,Promissory
Note No. BD-2884-77 in the amount of P800,000 as shown in the May 26, 1978 Deed of Assignment of

Obligation in which Aranda and Inland, on one hand, and Abrantes and Hanil-Gonzales Corporation, on
the other, forged as follows:
x x x x.
WHEREAS, among the obligations assumed by Mr. HORACIO C.
ABRANTES [in the May 2, 1978 Deed] is the account of the FIRST PARTY
(Aranda and Inland) in favor of the ASSOCIATED CITIZENS BANK as evidenced
by Promissory Note No. BD-2884-77 in the amount of EIGHT HUNDRED
EIGHTY THOUSAND (P880,000.00) PESOS, x x x x;
WHEREAS, the parties herein have agreed to obtain the conformity
of the ASSOCIATED CITIZENS BANK to the foregoing arrangement x x x x;

assumption of the loan was very well known to the defendant Bank and the latter
posed no objection to it. In fact, the positive act on the part of the defendant in
restructuring the loan of the assignee attest to its consent in the said
transaction. The evidence on record conveys the fact that the Hanil-Gonzales
Const. and Development Corp. assumed the obligation of the plaintiff on the
SECOND NOTE. Later, it asked the defendant for a restructuring of its loan,
including theP880,000.00 loan. Thereafter, payments were made by the assignee to
the defendant Bank. The preponderance of evidence tilts heavily in favor of the
plaintiff claiming that a case ofdelegacion occurs.[10] (Emphasis and italics
supplied; Underscoring in the original)

It accordingly rendered judgment in favor of Inland by Decision [11] of March 31, 1992, the dispositive
portion of which reads:

NOW, THEREFORE, the herein parties have mutually agreed that the
SECOND PARTY (Abrantes and Hanil-Gonzalez) shall assume full and complete
liability and responsibility for the payment to ASSOCIATED CITIZENS BANK
Promissory Note No. BD-2884-77 x x x x.
THE SECOND PARTY shall make such necessary arrangements with
the ASSOCIATED CITIZENS BANK for the full liquidation of said account, x x x
x.

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendants, permanently, perpetually and forever restraining and
enjoining the defendants Associated Citizens Bank and the Sheriff of this
Court from proceeding with the foreclosure of and conducting an auction
sale on the real estate covered by and embraced in Transfer Certificates of Title
Nos. 4820, 4821 and 4822 of the Register of Deeds of Rizal (now Pasig, Metro
Manila) and to refund to plaintiff the amount of P8,866.89, with legal interest
thereon from the filing of the complaint until full payment, with costs.

x x x x. (Emphasis and underscoring supplied)
SO ORDERED. (Emphasis and underscoring supplied)

The bank’s Account Officer, Lionel Calo Jr. (Calo), signed for its conformity to the deed. [6]

The bank appealed the trial court’s decision to the Court of Appeals which, by
Decision[12] of May 31, 1995, modified the same, disposing as follows:[13]

On December 14, 1979, Inland was served a Notice of Sheriff’s Sale foreclosing the real estate
mortgages over its real properties, prompting it

to file a complaint for injunction against the bank and

the Provincial Sheriff of Rizal at the Regional Trial Court (RTC) of Pasig City.[7] This complaint was later
amended.[8]

Answering the amended complaint, the bank underscored that it “had no knowledge, much less
did it give its conformity to the alleged assignment of the obligation covered by PN# BD-2884 [-77].” [9]

The trial court found that the bank ratified the act of its account officer Calo, thus:
x x x x. Culled from the evidence on record, the Court finds that the
defendant Bank ratified the act of Calo when its Executive Committee failed to
repudiate the assignment within a reasonable time and even approved the
request for a restructuring of Liberty Const. & Dev. Corp./Hanil-Gonzales
Construction & Development Corp.’s obligations, which included
the P880,000.00 loan (Exhibit “U” to “X”, and its submarkings). Clearly, the

WHEREFORE, the decision appealed from is hereby AFFIRMED only
insofar as it finds appellant Associated Bank to have ratified the Deed of
Assignment (Exhibit “O”), butREVERSED in all other respects, and judgment is
accordingly rendered ordering the plaintiff-appellee Inland Construction and
Development Corporation to pay defendant-appellant Associated Bank the sum of
One Hundred Eighty Six Thousand Two Hundred Forty One Pesos and Eighty Six
Centavos (P186,241.86) with legal interest thereon computed from December 21,
1979 until the same is fully paid.
No pronouncement as to costs.
SO ORDERED. (Underscoring supplied)

In affirming the observation of the trial court that the bank ratified the assignment of Inland’s
Promissory Note No. BD-2884-77, the appellate court discoursed as follows:
In the instant case, both the assignors (Aranda and Inland) and
assignees (Abrantes and Hanil-Gonzales) in the subject deed of assignment have
been major clients of Associated Bank for several years with accounts amounting to
millions of pesos. For several years, Associated Bank had, either intentionally

or negligently, been habitually clothing Calo with the apparent powers to
perform acts in behalf of the bank. x x x x.
x x x x.
Calo signed the subject deed of assignment on or about May
26, 1978. The principal obligation covered by the deed involved a hefty sum of
eight hundred eighty thousand pesos (P880,000.00). Despite the enormity of the
amount involved, Associated Bank never made any attempt to repudiate the act
of Calo until almost seven (7) years later, when Mitos C. Olivares, Manager of
the Cash Department of Associated Bank, issued an INTER-OFFICE
MEMORANDUM dated May 20, 1985 which pertinently reads:
“2) Conforme of Associated Bank signed by Lionel Calo Jr. has no
bearing since he has no authority to sign for the bank as he was only an account
officer with no signing authority;

Both petitions for review impute error on the part of the appellate court in
…AFFIRMING THE FINDING OF THE TRIAL COURT THAT
PETITIONER HAVE [SIC] RATIFIED THE DEED OF ASSIGNMENT (EXH.
“O”).

The bank, which had, as reflected early on, become known as Westmont Bank (petitioner),
maintains that Calo had no authority to bind it in the Deed of Assignment and that a single, isolated
unauthorized act of its agent is not sufficient to establish that it clothed him with apparent
authority. Petitioner adds that the records fail to disclose evidence of similar acts of Calo executed either
in its favor or in favor of other parties. [19] Moreover, petitioner reasserts that the unauthorized act of Calo

x x x x.
5) I suggest, Mr. Calo be asked to be present at court hearings to explain
why he signed for the bank, knowing his limitations”
The abovequoted inter-office memorandum is addressed internally
to the other offices within Associated Bank. It is not addressed to Inland or
any outsider for that matter. Worse, it was not even offered in evidence by
Associated Bank to give Inland the opportunity to object to or comment on the
said document, but was merely attached as one of the annexes to the bank’s
MEMORANDUM FOR DEFENDANTS. Obviously, no evidentiary weight may
be attached to said inter-office memorandum, which is even self serving. In fact, it
ought not to be considered at all. (Emphasis and underscoring supplied)

never came to its knowledge, hence, it is not estopped from repudiating the Deed of Assignment. [20]

The petitions fail.

The general rule remains that, in the absence of authority from the board of directors, no
person, not even its officers, can validly bind a corporation. [21] If a corporation, however, consciously lets
one of its officers, or any other agent, to act within the scope of an apparent authority, it will be estopped

The appellate court, however, specifically mentioned that the “lower court erred when it

from denying such officer’s authority.[22]

rendered a decision which ‘permanently, perpetually and forever’ restrains the sheriff from proceeding
The records show that Calo was the one assigned to transact on petitioner’s behalf respecting

with the threatened foreclosure auction sale of the subject mortgage properties.”[14]

the loan transactions and arrangements of Inland as well as those of Hanil-Gonzales and Abrantes. Since
The bank moved for partial reconsideration of the appellate court’s decision on the aspect of its
ratification of the Deed of Assignment but the same was denied by Resolution [15] of January 24, 1996.

it conducted business through Calo, who is an Account Officer, it is presumed that he had authority to sign
for the bank in the Deed of Assignment.

The bank, via two different counsels, [16] filed before this Court separate petitions for review,

Petitioner cannot feign ignorance of the May 26, 1978 Deed of Assignment, the pertinent

G.R. No. 123650, Associated Citizens Bank, et al. v. Court of Appeals, et al;and G.R. No.

portion of which was quoted above. Notably, assignee Abrantes notified petitioner about his assumption

123822, Westmont Bank (formerly Associated Bank) v. Inland Construction & Development

of Inland’s obligation. Thus, in his July 26, 1979 letter to petitioner, he wrote:

Corp., assailing the same appellate court’s decision. Owing to a series of oversight,

[17]

the petition in G.R.

123650 was initially dismissed but was later reinstated by Resolution of June 21, 1999.
The records[18] show that Inland failed to file its comment and memorandum on the petitions.

This refers to the accounts of Liberty Construction and Development
Corporation (LCDC) and our sister-company, Hanil-Gonzalez Construction &
Development Corporation (HGCDC) which as of July 31, 1979 was computed
at P1,814,442.40, inclusive of interest, penalties and fees, net of marginal
deposits. This includes the account of

Inland Construction & Development Corporation which had been assumed by HGCDC.
[23]
(Emphasis and underscoring supplied)

Unmistakably, the

Court’s directive

in Yao Ka Sin Trading is that a corporation

should first prove by clear evidence that its corporate officer is not in fact authorized to act on its
That petitioner sent the following reply-letter, dated November 29, 1982, to the above-quoted letter to it of
assignee Abrantes indicates that it had full and complete knowledge of the assumption by Abrantes of

behalf before the burden of evidence shifts to the other party to prove, by previous specific acts, that an
officer was clothed by the corporation with apparent authority.

Inland’s obligation:
It bears noting that in Westmont Bank v. Pronstroller,[27] the therein petitioner Westmont Bank,
We are pleased to advise you that our Executive Committee in its
meeting last November 25, 1982, has approved your request for the restructuring of
your outstanding obligations x x x x.[24] (Underscoring supplied)

through a management committee, proved that it rejected the letter-agreement entered into by its assistant
vice-president. Consequently, the therein respondent had to prove by citing other instances of the said
officer’s apparent authority to bind the bank-therein petitioner.

Respecting this reply-letter of the bank granting Hanil-Gonzales’ request to restructure its
loans, petitioner, as a banking institution, is expected to have exercised the highest degree of diligence and

In the present petitions, petitioner-bank failed to discharge its primary burden of proving that

meticulousness in the conduct of its business. When it received the loan restructuring request, with

Calo was not authorized to bind it, as it did not present proof that Calo was unauthorized. It did not

specific mention of Inland’s Promissory Note No. BD-2884-77, petitioner-bank was under obligation to

present, much less cite, any Resolution from its Board of Directors or its Charter or By-laws from which

fastidiously scrutinize such loan account. And since it clearly approved the request for restructuring, any

the Court could reasonably infer that he indeed had no authority to sign in its behalf or bind it in the Deed

“uncertainty” that its reply-letter approving such request may not thus work to prejudice Hanil-Gonzales

of Assignment. The May 20, 1985 inter-office memorandum[28] stating that Calo had “no signing

or Inland.

authority” remains self-serving as it does not even form part of petitioner’s body of evidence.

Petitioner relies heavily, however, on the Court’s pronouncement in Yao Ka Sin Trading that it
was incumbent upon, in this case, Inland to prove that petitioner had clothed its account officer with
apparent power to conform to the Deed of Assignment.[25]
Petitioner’s simplistic reading of Yao Ka Sin Trading v. Court of Appeals[26] does not
impress. In Yao Ka Sin Trading, the therein respondent cement company had shown by clear and

Thus, the assertion that the petitioner cannot be faulted for its delay in repudiating the apparent
authority of Calo is similarly flawed, there being no evidence on record that it had actually repudiated
such apparent authority. It should be noted that it was the bank which pleaded that defense in the first
place. What is extant in the records is a reasonable certainty that the bank had ratified the Deed of
Assignment.

convincing evidence that its president was not authorized to undertake a particular transaction. It
presented its by-laws stating that only its board of directors has the power to enter into an agreement or
contract of any kind. The company’s board of directors even forthwith issued a resolution to repudiate
the contract. Thus, it was only after the company successfully discharged its burden that the other party,
the therein petitioner Yao Ka Sin Trading, had to prove that indeed the cement company had clothed its
president with the apparent power to execute the contract by evidence of similar acts executed in its favor
or in favor of other parties.

The assumption that a ruling on the issue of ratification would affect any and all foreclosure
proceedings on the mortgaged properties remains unfounded. For the challenged appellate court’s
Decision[29] still mentioned the possibility of foreclosing on the mortgaged properties as Inland was still
indebted to the bank in the amount of P186, 241.86 covering the other two promissory notes (No. BD2739-77 and No. BD-2997) and other obligations that Inland was not able to satisfy upon maturity.

Both the trial court’s and the appellate court’s inferences and conclusion that petitioner ratified
its account officer’s act are thus rationally based on evidence and circumstances duly highlighted in their

BPI FB, through Sebastian, guaranteed the payment of P14,667,687.01 representing 17% per
annum interest of P100 million deposited by FMIC. The latter, in turn, assured BPI FB that it
will maintain its deposit of P100 million for a period of one year on condition that the interest
of 17% per annum is paid in advance.

respective decisions. Absent any serious abuse or evident lack of basis or capriciousness of any kind, the
This agreement between the parties was reached through their communications in writing.

lower courts’ findings of fact are conclusive upon this Court.[30]

WHEREFORE, the petitions are DENIED. The decision of the Court of Appeals in CA-G.R.

However, on August 29, 1989, on the basis of an Authority to Debit signed by Ong and Ma.
Theresa David, Senior Manager of FMIC, BPI FB transferred P80 million from FMIC’s
current account to the savings account of Tevesteco Arrastre – Stevedoring, Inc. (Tevesteco).

CV No. 39634 is AFFIRMED.

Costs against petitioner.

SO ORDERED.

BPI
FAMILY
SAVINGS
BANK,
vs.
FIRST METRO INVESTMENT CORPORATION, respondent.

Subsequently, BPI FB paid FMIC 17% interest or P14,667,687.01 upon clearance of the
latter’s check deposit.

INC., petitioner,

DECISION

FMIC denied having authorized the transfer of its funds to Tevesteco, claiming that the
signatures of Ong and David were falsified. Thereupon, to recover immediately its deposit,
FMIC, on September 12, 1989, issued BPI FB check no. 129077 for P86,057,646.72 payable to
itself and drawn on its deposit with BPI FB SFDM branch. But upon presentation for payment
on September 13, 1989, BPI FB dishonored the check as it was "drawn against insufficient
funds" (DAIF).
Consequently, FMIC filed with the Regional Trial Court, Branch 146, Makati City Civil Case
No. 89-5280 against BPI FB. FMIC likewise caused the filing by the Office of the State
Prosecutors of an Information for estafa against Ong, de Asis, Sebastian and four others.
However, the Information was dismissed on the basis of a demurrer to evidence filed by the
accused.

SANDOVAL-GUTIERREZ, J.:
For our resolution is the instant petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, assailing the Decision 1 dated July 4, 1997 and Resolution2 dated January 28, 1998
of the Court of Appeals in CA-G.R. CV No. 44986, "First Metro Investment Corporation vs. BPI Family
Bank."

On October 1, 1993, the trial court rendered its Decision in Civil Case No. 89-5280, the
dispositive portion of which reads:
"Premises considered, judgment is rendered in favor of plaintiff, ordering defendant
to pay:

The facts as found by the trial court and affirmed by the Court of Appeals are as follows:

a. the amount of P80 million with interest at the legal rate from the time
this complaint was filed less P14,667,678.01;

First Metro Investment Corporation (FMIC), respondent, is an investment house organized
under Philippine laws. Petitioner, Bank of Philippine Islands Family Savings Bank, Inc. is a
banking corporation also organized under Philippine laws.
On August 25, 1989, FMIC, through its Executive Vice President Antonio Ong, opened current
account no. 8401-07473-0 and deposited METROBANK check no. 898679 of P100 million
with BPI Family Bank* (BPI FB) San Francisco del Monte Branch (Quezon City). Ong made
the deposit upon request of his friend, Ador de Asis, a close acquaintance of Jaime Sebastian,
then Branch Manager of BPI FB San Francisco del Monte Branch. Sebastian’s aim was to
increase the deposit level in his Branch.

b. the amount of P100,000.00 as reasonable attorney’s fees; and
c. the cost.
SO ORDERED."
On appeal by both parties, the Court of Appeals rendered a Decision affirming the assailed Decision with
modification, thus:
"WHEREFORE, considering all the foregoing, this Court hereby modifies the decision of the
trial court and adjudges BPI Family Bank liable to First Metro Investment Corporation for the

amount of P65,332,321.99 plus interest at 17% per annum from August 29, 1989 until fully
restored. Further, this 17% interest shall itself earn interest at 12% from October 4, 1989 until
fully paid.
SO ORDERED."
BPI FB then filed a motion for reconsideration but was denied by the Court of Appeals.
In the instant petition, BPI FB ascribes to the Appellate Court the following assignments of error:
"A. IN VALIDATING A CLEARLY ILLEGAL AND VOID AGREEMENT BETWEEN FMIC
AND AN OVERSTEPPING BRANCH MANAGER OF BPI FB, THE COURT OF APPEALS
DECIDED THE APPEALED CASE IN A MANNER NOT IN ACCORDANCE WITH LAW
OR THE APPLICAPLE DECISIONS OF THE HONORABLE COURT.
B. THE COURT OF APPEALS TOTALLY IGNORED THE JUDICIAL ADMISSIONS
MADE BY FMIC WHEN IT CHARACTERIZED THE TRANSACTION BETWEEN FMIC
AND BPI FB AS A TIME DEPOSIT WHEN IN FACT IT WAS AN INTEREST-BEARING
CURRENT ACCOUNT WHICH, UNDER THE EXISTING BANK REGULATIONS, WAS
AN ILLEGAL TRANSACTION.
C. THE COURT OF APPEALS COMMITTED AN EGREGIOUS ERROR IN RULING
THAT BPI FB CLOTHED ITS BRANCH MANAGER WITH APPARENT AUTHORITY TO
ENTER INTO SUCH A PATENTLY ILLEGAL ARRANGEMENT.
D. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT REFUSED
TO CONSIDER THE NEGLIGENT ACTS COMMITTED BY FMIC ITSELF WHICH LED
TO THE TRANSFER OF THE P80 MILLION FROM THE FMIC ACCOUNT TO THE
TEVESTECO ACCOUNT.
E. THE COURT OF APPEALS DID NOT ADHERE TO SETTLED JURISPRUDENCE
WHEN IT ADJUDGED BPI FB LIABLE TO FMIC FOR AN AMOUNT WHICH WAS
MORE THAN WHAT WAS CONTEMPLATED OR PRAYED FOR IN FMIC’S
COMPLAINT, MOTION FOR RECONSIDERATION OF THE TRIAL COURT’S DECISION
AND APPEAL BRIEF.
F. IN SUPPORT OF ITS ALTERNATIVE PRAYER, PETITIONER SUBMITS THAT THE
COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT ORDERING THE
CONSOLIDATION OF THE INSTANT CASE WITH THE TEVESTECO CASE WHICH IS
STILL PENDING BEFORE THE MAKATI REGIONAL TRIAL COURT."
Petitioner BPI FB contends that the Court of Appeals erred in awarding the 17% per annum interest
corresponding to the amount deposited by respondent FMIC. Petitioner insists that respondent’s deposit is
not a special savings account similar to a time deposit, but actually a demand deposit, withdrawable upon
demand,proscribed from earning interest under Central Bank Circular 777. Petitioner further contends
that the transaction is not valid as its Branch Manager, Jaime Sebastian, clearly overstepped his authority
in entering into such an agreement with respondent’s Executive Vice President.

We hold that the parties did not intend the deposit to be treated as a demand deposit but rather as an
interest-earning time deposit not withdrawable any time. This is quite obvious from the communications
between Jaime Sebastian, petitioner’s Branch Manager, and Antonio Ong, respondent’s Executive Vice
President. Both agreed that the deposit of P100 million was non-withdrawable for one year upon
payment in advance of the 17% per annum interest. Respondent’s time deposit of P100 million was
accepted by petitioner as shown by a deposit slip prepared and signed by Ong himself who indicated
therein the account number to which the deposit is to be credited, the name of FMIC as depositor or
account holder, the date of deposit, and the amount of P100 million as deposit in check. Clearly, when
respondent FMIC invested its money with petitioner BPI FB, they intended theP100 million as a time
deposit, to earn 17% per annum interest and to remain intact until its maturity date one year thereafter.
Ordinarily, a time deposit is defined as "one the payment of which cannot legally be required within such
a specified number of days."3
In contrast, demand deposits are "all those liabilities of the Bangko Sentral and of other banks which are
denominated in Philippine currency and are subject to payment in legal tender upon demand by the
presentation of (depositor’s) checks."4
While it may be true that barely one month and seven days from the date of deposit, respondent FMIC
demanded the withdrawal of P86,057,646.72 through the issuance of a check payable to itself, the same
was made as a result of the fraudulent and unauthorized transfer by petitioner BPI FB of its P80 million
deposit to Tevesteco’s savings account. Certainly, such was a normal reaction of respondent as a depositor
to petitioner’s failure in its fiduciary duty to treat its account with the highest degree of care.
Under this circumstance, the withdrawal of deposit by respondent FMIC before the one-year maturity date
did not change the nature of its time deposit to one of demand deposit.
On another tack, petitioner’s argument that Central Bank regulations prohibit demand deposit from
earning interest is bereft of merit.
Under Central Bank Circular No. 22, Series of 1994, "demand deposits shall not be subject to any
interest rate ceiling." This, in effect, is an open authority to pay interest on demand deposits, such interest
not being subject to any rate ceiling.
Likewise, time deposits are not subject to interest rate ceiling. In fact, the rate ceiling was abolished and
even allowed to float depending on the market conditions. Sections 1244 and 1244.1 of the Manual of
Regulations of the Central Bank of the Philippines provide:
"Sec. 1244. Interest on time deposit. Time deposits shall not be subject to any interest rate
ceiling.
Sec. 1244.1. Time of payment. Interest on time deposit may be paid at maturity or upon
withdrawal or in advance. Provided, however, That interest paid in advance shall not exceed
the interest for one year."
Thus, even assuming that respondent’s account with petitioner is a demand deposit, still it would earn
interest.

Going back to the unauthorized transfer of respondent’s funds to Tevesteco, in its attempt to evade any
liability therefor, petitioner now impugns the validity of the subject agreement on the ground that its
Branch Manager, Jaime Sebastian, overstepped the limits of his authority in accepting respondent’s
deposit with 17% interest per annum. We have held that if a corporation knowingly permits its officer, or
any other agent, to perform acts within the scope of an apparent authority, holding him out to the public as
possessing power to do those acts, the corporation will, as against any person who has dealt in good faith
with the corporation through such agent, be estopped from denying such authority. 5 We reiterated this
doctrine in Prudential Bank vs. Court of Appeals,6 thus:
"A bank holding out its officers and agent as worthy of confidence will not be permitted to
profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their
employment; nor will it be permitted to shirk its responsibility for such frauds, even though no
benefit may accrue to the bank therefrom. Accordingly, a banking corporation is liable to
innocent third persons where the representation is made in the course of its business by an
agent acting within the general scope of his authority even though the agent is secretly abusing
his authority and attempting to perpetrate a fraud upon his principal or some other person for
his own ultimate benefit."
In Francisco vs. Government Service Insurance System,7 we ruled:
"Corporate transactions would speedily come to a standstill were every person dealing with a
corporation held duty-bound to disbelieve every act of its responsible officers, no matter how
regular they should appear on their face. This Court has observed in Ramirez vs. Orientalist
Co., 38 Phil. 634, 654-655, that –
‘In passing upon the liability of a corporation in cases of this kind it is always well
to keep in mind the situation as it presents itself to the third party with whom the
contract is made. Naturally he can have little or no information as to what occurs in
corporate meetings; and he must necessarily rely upon the external manifestations
of corporate consent. The integrity of commercial transactions can only be
maintained by holding the corporation strictly to the liability fixed upon it by its
agents in accordance with law; and we would be sorry to announce a doctrine which
would permit the property of a man in the city of Paris to be whisked out of his
hands and carried into a remote quarter of the earth without recourse against the
corporation whose name and authority had been used in the manner disclosed in this
case. As already observed, it is familiar doctrine that if a corporation knowingly
permits one of its officers, or any other agent, to do acts within the scope of an
apparent authority, and thus holds him out to the public as possessing power to do
those acts, the corporation will, as against any one who has in good faith dealt with
the corporation through such agent, be estopped from denying his authority; and
where it is said ‘if the corporation permits,’ this means the same as ‘if the thing is
permitted by the directing power of the corporation.’"
Petitioner maintains that respondent should have first inquired whether the deposit of P100 Million and
the fixing of the interest rate were pursuant to its (petitioner’s) internal procedures. Petitioner’s stance is a
futile attempt to evade an obligation clearly established by the intent of the parties. What transpires in the

corporate board room is entirely an internal matter. Hence, petitioner may not impute negligence on the
part of respondent’s representative in failing to find out the scope of authority of petitioner’s Branch
Manager. Indeed, the public has the right to rely on the trustworthiness of bank managers and their acts.
Obviously, confidence in the banking system, which necessarily includes reliance on bank managers, is
vital in the economic life of our society.
Significantly, the transaction was actually acknowledged and ratified by petitioner when it paid respondent
in advance the interest for one year. Thus, petitioner is estopped from denying that it authorized its Branch
Manager to enter into an agreement with respondent’s Executive Vice President concerning the deposit
with the corresponding 17% interest per annum.
Anent the award of interest, petitioner contends that such award is not in order as it had not been prayed
for by respondent in its complaint nor was it an issue agreed upon by the parties during the pre-trial of the
case. Nonetheless, the rule is well settled that when the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing, as in this case. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. 8 Besides, the matter of how much interest respondent is
entitled to falls squarely within the issues framed by the parties in their respective pleadings filed with the
court a quo. At any rate, courts may indeed grant the relief warranted by the allegations and proof even if
no such specific relief is prayed for if only to conclude a complete and thorough resolution of the issues
involved.9
Finally, petitioner faults the Court of Appeals in not ordering the consolidation of Civil Case No. 89-4996
(filed by petitioner against Tevesteco) with Civil Case No. 89-5280 (the instant case). According to
petitioner, had there been consolidation of these two cases, it would have been shown that the P80 Million
transferred to Tevesteco’s account were proceeds of a loan extended by respondent FMIC to Tevesteco.
Suffice it to state that as found by both the trial court and the Appellate Court, petitioner’s transfer of
respondent’s P80M to Tevesteco was unauthorized and tainted with fraud.
At this point, we must emphasize that this Court is not a trier of facts. Thus, we uphold the finding of both
lower courts that petitioner failed to exercise that degree of diligence required by the nature of its
obligations to its depositors. A bank is under obligation to treat the accounts of its depositors with
meticulous care, whether such account consists only of a few hundred pesos or of million of pesos. 10 Here,
petitioner cannot claim it exercised such a degree of care required of it and must, therefore, bear the
consequence.
WHEREFORE, the petition is DENIED. The assailed Decision dated July 4, 1997 and the Resolution
dated January 28, 1998 of the Court of Appeals in CA-G.R. CV No. 44986 are hereby AFFIRMED. Costs
against petitioner.
SO ORDERED.

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