GREAT ASIAN SALES CENTER CORPORATION and TAN CHONG LIN, petitioners, vs. THE COURT OF APPEALS and BANCASIA FINANCE AND INVESTMENT CORPORATION, respondents.

D E C I S I O N

CARPIO, J.:

The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Revised Rules on Civil Procedure assailing the June 9, 1992 Decision

[1] of the Court of Appeals

[2] in CA-G.R. CV No.

20167. The Court of Appeals affirmed the January 26, 1988 Decision[3]

of the Regional Trial Court of Manila, Branch 52,

[4]ordering petitioners Great Asian Sales Center Corporation (―Great Asian‖ for brevity)

and Tan Chong Lin to pay, solidarily, respondent Bancasia Finance and Investment Corporation (―Bancasia‖ for brevity) the amount of P1,042,005.00. The Court of Appeals affirmed the trial court‘s award of interest and costs of suit but deleted the award of attorney‘s fees.

The Facts

Great Asian is engaged in the business of buying and selling general merchandise, in particular household appliances. On March 17, 1981, the board of directors of Great Asian approved a resolution authorizing its Treasurer and General Manager, Arsenio Lim Piat, Jr. (―Arsenio‖ for brevity) to secure a loan from Bancasia in an amount not to exceed P1.0 million. The board resolution also authorized Arsenio to sign all papers, documents or promissory notes necessary to secure the loan. On February 10, 1982, the board of directors of Great Asian approved a second resolution authorizing Great Asian to secure a discounting line with Bancasia in an amount not exceeding P2.0 million. The second board resolution also designated Arsenio as the authorized signatory to sign all instruments, documents and checks necessary to secure the discounting line.

On March 4, 1981, Tan Chong Lin signed a Surety Agreement in favor of Bancasia to guarantee, solidarily, the debts of Great Asian to Bancasia. On January 29, 1982, Tan Chong Lin signed a Comprehensive and Continuing Surety Agreement in favor of Bancasia to guarantee, solidarily, the debts of Great Asian to Bancasia. Thus, Tan Chong Lin signed two surety agreements (―Surety Agreements‖ for brevity) in favor of Bancasia.

Great Asian, through its Treasurer and General Manager Arsenio, signed four (4) Deeds of Assignment of Receivables (―Deeds of Assignment‖ for brevity), assigning to Bancasia fifteen (15) postdated checks. Nine of the checks were payable to Great Asian, three were payable to ―New Asian Emp.‖, and the last three were payable to cash. Various customers of Great Asian issued these postdated checks in payment for appliances and other merchandise.

Great Asian and Bancasia signed the first Deed of Assignment on January 12, 1982 covering four postdated checks with a total face value of P244,225.82, with maturity dates not later than March 17, 1982. Of these four postdated checks, two were dishonored. Great Asian and Bancasia signed the second Deed of Assignment also on January 12, 1982 covering four postdated checks with a total face value of P312,819.00, with maturity dates not later than April 1, 1982. All these four checks were dishonored. Great Asian and Bancasia signed the third Deed of Assignment on February 11, 1982 covering eight postdated checks with a total face value of P344,475.00, with maturity dates not later than April 30, 1982. All these eight checks were dishonored. Great Asian and Bancasia signed the fourth Deed of Assignment on March 5, 1982 covering one postdated check with a face value of P200,000.00, with maturity date on March 18, 1982. This last check was also dishonored. Great Asian assigned the postdated checks to Bancasia at a discount rate of less than 24% of the face value of the checks.

Arsenio endorsed all the fifteen dishonored checks by signing his name at the back of the checks. Eight of the dishonored checks bore the endorsement of Arsenio below the stamped name of ―Great Asian Sales Center‖, while the rest of the dishonored checks just bore the signature of Arsenio. The drawee banks dishonored the fifteen checks on maturity when deposited for collection by Bancasia, with any of the following as reason for the dishonor: ―account closed‖, ―payment stopped‖, ―account under garnishment‖, and ―insufficiency of funds‖. The total amount of the fifteen dishonored checks is P1,042,005.00. Below is a table of the fifteen dishonored checks:

Drawee Bank Check No. Amount Maturity Date 1

st Deed

Solid Bank C-A097480 P137,500.00 March 16, 1982 Pacific Banking Corp. 23950 P47,211.00 March 17, 1982 2

nd Deed

Metrobank 030925 P68,722.00 March 19, 1982 030926 P45,230.00 March 19, 1982 Solidbank C-A097478 P140,000.00 March 23, 1982 Pacific Banking Corp. CC 769910 P58,867.00 April 1, 1982 3

rd Deed

Phil. Trust Company 060835 P21,228.00 April 21, 1982 060836 P22,187.00 April 28, 1982 Allied Banking Corp. 11251624 P41,773.00 April 22, 1982 11251625 P38,592.00 April 29, 1982 Pacific Banking Corp. 237984 P37,886.00 April 23, 1982 237988 P47,385.00 April 28, 1982 237985 P46,748.00 April 30, 1982 Security Bank & Trust Co. 22061 P88,676.00 April 30, 1982 4

th Deed

Pacific Banking Corp. 860178 P200,000.00 March 18, 1982

After the drawee bank dishonored Check No. 097480 dated March 16, 1982, Bancasia referred the matter to its lawyer, Atty. Eladia Reyes, who sent by registered mail to Tan Chong Lin a letter dated March 18, 1982, notifying him of the dishonor and demanding payment from him. Subsequently, Bancasia sent by personal delivery a letter dated June 16, 1982 to Tan Chong Lin, notifying him of the dishonor of the fifteen checks and demanding payment from him. Neither Great Asian nor Tan Chong Lin paid Bancasia the dishonored checks.

On May 21, 1982, Great Asian filed with the then Court of First Instance of Manila a petition for insolvency, verified under oath by its Corporate Secretary, Mario Tan. Attached to the verified petition was a ―Schedule and Inventory of Liabilities and Creditors of Great Asian Sales Center Corporation,‖ listing Bancasia as one of the creditors of Great Asian in the amount of P1,243,632.00.

On June 23, 1982, Bancasia filed a complaint for collection of a sum of money against Great Asian and Tan Chong Lin. Bancasia impleaded Tan Chong Lin because of the Surety Agreements he signed in favor of Bancasia. In its answer, Great Asian denied the material allegations of the complaint claiming it was unfounded, malicious, baseless, and unlawfully instituted since there was already a pending insolvency proceedings, although Great Asian subsequently withdrew its petition for voluntary insolvency. Great Asian further raised the alleged lack of authority of Arsenio to sign the Deeds of Assignment as well as the absence of consideration and consent of all the parties to the Surety Agreements signed by Tan Chong Lin.

Ruling of the Trial Court

The trial court rendered its decision on January 26, 1988 with the following findings and conclusions:

―From the foregoing facts and circumstances, the Court finds that the plaintiff has established its causes of action against the defendants. The Board Resolution (Exh. ―T‖), dated March 17, 1981, authorizing Arsenio Lim Piat, Jr., general manager and treasurer of the defendant Great Asian to apply and negotiate for a loan accommodation or credit line with the plaintiff Bancasia in an amount not exceeding One Million Pesos (P1,000,000.00), and the other Board Resolution approved on February 10, 1982, authorizing Arsenio Lim Piat, Jr., to obtain for defendant Asian Center a discounting line with Bancasia at prevailing discounting rates in an amount not to exceed Two Million Pesos (P2,000,000.00), both of which were intended to secure money from the plaintiff financing firm to finance the business operations of defendant Great Asian, and pursuant to which Arsenio Lim Piat, Jr. was able to have the aforementioned fifteen (15) checks totaling P1,042,005.00 discounted with the plaintiff, which transactions were obviously known by the beneficiary thereof, defendant Great Asian, as in fact, in its aforementioned Schedule and Inventory of Liabilities and Creditors (Exh. DD, DD-1) attached to its Verified Petition for Insolvency, dated May 12, 1982 (pp. 50-56), the defendant Great Asian admitted an existing liability to the plaintiff, in the amount of P1,243,632.00, secured by it, by way of ‗financing accommodation,‘ from the said financing institution Bancasia Finance and Investment Corporation, plaintiff herein, sufficiently establish the liability of the defendant Great Asian to the plaintiff for the amount ofP1,042,005.00 sought to be recovered by the latter in this case.

[5]

xxx

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the two (2) defendants ordering the latter, jointly and severally, to pay the former: (a) The amount of P1,042,005.00, plus interest thereon at the legal rate from the filing of the complaint until the same is fully paid; (b) Attorney‘s fees equivalent to twenty per cent (20%) of the total amount due; and (c) The costs of suit. SO ORDERED.‖

[6]

Ruling of the Court of Appeals

On appeal, the Court of Appeals sustained the decision of the lower court, deleting only the award of attorney‘s fees, as follows:

―As against appellants‘ bare denial of it, the Court is more inclined to accept the appellee‘s version, to the effect that the subject deeds of assignment are but individual transactions which -- being collectively evidentiary of the loan accommodation and/or credit line it granted the appellant corporation -- should not be taken singly and distinct therefrom. In addition to its plausibility, the proposition is, more importantly, adequately backed by the documentary evidence on record. Aside from the aforesaid Deeds of Assignment (Exhs. ―A‖, ―D‖, ―I‖, and ―R‖) and the Board Resolutions of the appellant corporation‘s Board of Directors (Exhs. ―T‖, ―U‖ and ―V‖), the appellee -- consistent with its theory -- interposed the Surety Agreements the appellant Tan Chong Lin executed (Exhs. ―W‖ and ―X‖), as well as the demand letters it served upon the latter as surety (Exhs. ―Y‖ and ―Z‖). It bears emphasis that the second Resolution of the appellant corporation‘s Board of Directors (Exh. ―V‖) even closely coincides with the execution of the February 11, 1982 and March 5, 1982 Deeds of Assignment (Exhs. ―I‖ and ―R‖). Were the appellants‘ posturings true, it seems rather strange that the appellant Tan Chong Lin did not even protest or, at least, make known to the appellee what he -- together with the appellant corporation -- represented to be a corporate larceny to which all of them supposedly fell prey. In the petition for voluntary insolvency it filed, the appellant corporation, instead, indirectly acknowledged its indebtedness in terms of financing accommodations to the appellee, in an amount which, while not exactly matching the sum herein sought to be collected, approximates the same (Exhs. ―CC‖, ―DD‖ and ―DD-1‖).

[7]

xxx

The appellants contend that the foregoing warranties enlarged or increased the surety‘s risk, such that appellant Tan Chong Lin should be released from his liabilities (pp. 37-44, Appellant‘s Brief). Without

saying more, the appellants‘ position is, however, soundly debunked by the undertaking expressed in the Comprehensive and Continuing Surety Agreements (Exhs. ―W‖ and ―X‖), to the effect that the ―xxx surety/ies, jointly and severally among themselves and likewise with the principal, hereby agree/s and bind/s himself to pay at maturity all the notes, drafts, bills of exchange, overdrafts and other obligations which the principal may now or may hereafter owe the creditor xxx.‖ With the possible exception of the fixed ceiling for the amount of loan obtainable, the surety undertaking in the case at bar is so comprehensive as to contemplate each and every condition, term or warranty which the principal parties may have or may be minded to agree on. Having affixed his signature thereto, the appellant Tan Chong Lin is expected to have, at least, read and understood the same.

xxx

With the foregoing disquisition, the Court sees little or no reason to go into the appellants‘ remaining assignments of error, save the matter of attorney‘s fees. For want of a statement of the rationale therefore in the body of the challenged decision, the trial court‘s award of attorney‘s fees should be deleted and disallowed (Abrogar vs. Intermediate Appellate Court, 157 SCRA 57). WHEREFORE, the decision appealed from is MODIFIED, to delete the trial court‘s award of attorney‘s fees. The rest is AFFIRMED in toto. SO ORDERED.‖

[8]

The Issues

The petition is anchored on the following assigned errors:

―1. The respondent Court erred in not holding that the proper parties against whom this action for collection should be brought are the drawers and indorser of the checks in question, being the real parties in interest, and not the herein petitioners.

2. The respondent Court erred in not holding that the petitioner-corporation is discharged from liability for failure of the private respondent to comply with the provisions of the Negotiable Instruments Law on the dishonor of the checks.

3. The respondent Court erred in its appreciation and interpretation of the effect and legal consequences of the signing of the deeds of assignment and the subsequent indorsement of the checks by Arsenio Lim Piat, Jr. in his individual and personal capacity and without stating or indicating the name of his supposed principal.

4. The respondent Court erred in holding that the assignment of the checks is a loan accommodation or credit line accorded by the private respondent to petitioner-corporation, and not a purchase and sale thereof.

5. The respondent Court erred in not holding that there was a material alteration of the risk assumed by the petitioner-surety under his surety agreement by the terms, conditions, warranties and obligations assumed by the assignor Arsenio Lim Piat, Jr. under the deeds of assignment or receivables.

6. The respondent Court erred in holding that the petitioner-corporation impliedly admitted its liability to private respondent when the former included the latter as one of its creditors in its petition for voluntary insolvency, although no claim was filed and proved by the private respondent in the insolvency court.

7. The respondent Court erred in holding the petitioners liable to private respondent on the transactions in question.‖

[9]

The issues to be resolved in this petition can be summarized into three:

1. WHETHER ARSENIO HAD AUTHORITY TO EXECUTE THE DEEDS OF ASSIGNMENT AND THUS BIND GREAT ASIAN;

2. WHETHER GREAT ASIAN IS LIABLE TO BANCASIA UNDER THE DEEDS OF ASSIGNMENT FOR BREACH OF CONTRACT PURSUANT TO THE CIVIL CODE, INDEPENDENT OF THE NEGOTIABLE INSTRUMENTS LAW;

3. WHETHER TAN CHONG LIN IS LIABLE TO GREAT ASIAN UNDER THE SURETY AGREEMENTS.

The Court’s Ruling

The petition is bereft of merit.

First Issue: Authority of Arsenio to Sign the Deeds of Assignment

Great Asian asserts that Arsenio signed the Deeds of Assignment and indorsed the checks in his personal capacity. The primordial question that must be resolved is whether Great Asian authorized Arsenio to sign the Deeds of Assignment. If Great Asian so authorized Arsenio, then Great Asian is bound by the Deeds of Assignment and must honor its terms.

The Corporation Code of the Philippines vests in the board of directors the exercise of the corporate powers of the corporation, save in those instances where the Code requires stockholders‘ approval for certain specific acts. Section 23 of the Code provides:

―SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees x x x.‖

In the ordinary course of business, a corporation can borrow funds or dispose of assets of the corporation only on authority of the board of directors. The board of directors normally designates one or more corporate officers to sign loan documents or deeds of assignment for the corporation.

To secure a credit accommodation from Bancasia, the board of directors of Great Asian adopted two board resolutions on different dates, the first on March 17, 1981, and the second on February 10, 1982. These two board resolutions, as certified under oath by Great Asian‘s Corporate Secretary Mario K. Tan, state:

First Board Resolution ―RESOLVED, that the Treasurer of the corporation, Mr. Arsenio Lim Piat, Jr., be authorized as he is authorized to apply for and negotiate for a loan accommodation or credit line in the amount not to exceed ONE MILLION PESOS (P1,000,000.00), with Bancasia Finance and Investment Corporation, and likewise to sign any and all papers, documents, and/or promissory notes in connection with said loan accommodation or credit line, including the power to mortgage such properties of the corporation as may be needed to effectuate the same.‖

[10] (Emphasis supplied)

Second Board Resolution ―RESOLVED that Great Asian Sales Center Corp. obtain a discounting line with BANCASIA FINANCE & INVESTMENT CORPORATION, at prevailing discounting rates, in an amount not to exceed** TWO MILLION PESOS ONLY (P2,000,000),** Philippine Currency. RESOLVED FURTHER, that the corporation secure such other forms of credit lines with BANCASIA FINANCE & INVESTMENT CORPORATION in an amount not to exceed** TWO MILLION PESOS ONLY (P2,000,000.00),** PESOS, under such terms and conditions as the signatories may deem fit and proper. RESOLVED FURTHER, that the following persons be authorized individually, jointly or collectively to sign, execute and deliver any and all instruments, documents, checks, sureties, etc. necessary or incidental to secure any of the foregoing obligation:

(signed) Specimen Signature 1. ARSENIO LIM PIAT, JR._ 2. _______________________ 3. _______________________ 4. _______________________ PROVIDED FINALLY that this authority shall be valid, binding and effective until revoked by the Board of Directors in the manner prescribed by law, and that BANCASIA FINANCE & INVESTMENT CORPORATION shall not be bound by any such revocation until such time as it is noticed in writing of such revocation.‖

[11] (Emphasis supplied)

The first board resolution expressly authorizes Arsenio, as Treasurer of Great Asian, to apply for a “loan accommodation or credit line” with Bancasia for not more than P1.0 million. Also, the first resolution explicitly authorizes Arsenio to sign any document, paper or promissory note, including mortgage deeds over properties of Great Asian, to secure the loan or credit line from Bancasia.

The second board resolution expressly authorizes Great Asian to secure a ―discounting line” from Bancasia for not more than P2.0 million. The second board resolution also expressly empowers Arsenio, as the authorized signatory of Great Asian, ―to sign, execute and deliver any and all documents, checks x x x necessary or incidental to secure‖ the discounting line. The second board resolution specifically authorizes Arsenio to secure the discounting line ―under such terms and conditions as (he) x x x may deem fit and proper.‖

As plain as daylight, the two board resolutions clearly authorize Great Asian to secure a loan or discounting line from Bancasia. The two board resolutions also categorically designate Arsenio as the authorized signatory to sign and deliver all the implementing documents, including checks, for Great Asian. There is no iota of doubt whatsoever about the purpose of the two board resolutions, and about the authority of Arsenio to act and sign for Great Asian. The second board resolution even gave Arsenio full authority to agree with Bancasia on the terms and conditions of the discounting line. Great Asian adopted the correct and proper board resolutions to secure a loan or discounting line from Bancasia, and Bancasia had a right to rely on the two board resolutions of Great Asian. Significantly, the two board resolutions specifically refer to Bancasia as the financing institution from whom Great Asian will secure the loan accommodation or discounting line.

Armed with the two board resolutions, Arsenio signed the Deeds of Assignment selling, and endorsing, the fifteen checks of Great Asian to Bancasia. On the face of the Deeds of Assignment, the contracting parties are indisputably Great Asian and Bancasia as the names of these entities are expressly mentioned therein as the assignor and assignee, respectively. Great Asian claims that Arsenio signed the Deeds of Assignment in his personal capacity because Arsenio signed above his printed name, below which was the word ―Assignor‖, thereby making Arsenio the assignor. Great Asian conveniently omits to state that the first paragraph of the Deeds expressly contains the following words: ―the ASSIGNOR, Great Asian Sales Center, a domestic corporation x x x herein represented by its Treasurer Arsenio Lim Piat, Jr.‖ The assignor is undoubtedly Great Asian, represented by its Treasurer, Arsenio. The only issue to determine is whether the Deeds of Assignment are indeed the transactions the board of directors of Great Asian authorized Arsenio to sign under the two board resolutions.

Under the Deeds of Assignment, Great Asian sold fifteen postdated checks at a discount, over three months, to Bancasia. The Deeds of Assignment uniformly state that Great Asian, –

―x x x for valuable consideration received, does hereby SELL, TRANSFER, CONVEY, and ASSIGN, unto the ASSIGNEE, BANCASIA FINANCE & INVESTMENT CORP., a domestic corporation x x x, the following ACCOUNTS RECEIVABLES due and payable to it, having an aggregate face value of x x x.‖

The Deeds of Assignment enabled Great Asian to generate instant cash from its fifteen checks, which were still not due and demandable then. In short, instead of waiting for the maturity dates of the fifteen postdated checks, Great Asian sold the checks to Bancasia at less than the total face value of the

checks. In exchange for receiving an amount less than the face value of the checks, Great Asian obtained immediately much needed cash. Over three months, Great Asian entered into four transactions of this nature with Bancasia, showing that Great Asian availed of a discounting line with Bancasia.

In the financing industry, the term ―discounting line‖ means a credit facility with a financing company or bank, which allows a business entity to sell, on a continuing basis, its accounts receivable at a discount.

[12] The term ―discount‖ means the sale of a receivable at less than its face value. The purpose

of a discounting line is to enable a business entity to generate instant cash out of its receivables which are still to mature at future dates. The financing company or bank which buys the receivables makes its profit out of the difference between the face value of the receivable and the discounted price. Thus, Section 3 (a) of the Financing Company Act of 1998 provides:

―Financing companies‖ are corporations x x x primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial or agricultural enterprises by discounting or factoring commercial papers or accounts receivable, or by buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness, or by financial leasing of movable as well as immovable property.‖ (Emphasis supplied)

This definition of ―financing companies‖ is substantially the same definition as in the old Financing Company Act (R.A. No. 5980).

[13]

Moreover, Section 1 (h) of the New Rules and Regulations adopted by the Securities and Exchange Commission to implement the Financing Company Act of 1998 states:

―Discounting‖ is a type of receivables financing whereby evidences of indebtedness of a third party, such as installment contracts, promissory notes and similar instruments, are purchased by, or assigned to, a financing company in an amount or for a consideration less than their face value.‖ (Emphasis supplied)

Likewise, this definition of ―discounting‖ is an exact reproduction of the definition of ―discounting‖ in the implementing rules of the old Finance Company Act.

Clearly, the discounting arrangements entered into by Arsenio under the Deeds of Assignment were the very transactions envisioned in the two board resolutions of Great Asian to raise funds for its business. Arsenio acted completely within the limits of his authority under the two board resolutions. Arsenio did exactly what the board of directors of Great Asian directed and authorized him to do.

Arsenio had all the proper and necessary authority from the board of directors of Great Asian to sign the Deeds of Assignment and to endorse the fifteen postdated checks. Arsenio signed the Deeds of Assignment as agent and authorized signatory of Great Asian under an authority expressly granted by its board of directors. The signature of Arsenio on the Deeds of Assignment is effectively also the signature of the board of directors of Great Asian, binding on the board of directors and on Great Asian itself. Evidently, Great Asian shows its bad faith in disowning the Deeds of Assignment signed by its own Treasurer, after receiving valuable consideration for the checks assigned under the Deeds.

Second Issue: Breach of Contract by Great Asian

Bancasia‘s complaint against Great Asian is founded on the latter‘s breach of contract under the Deeds of Assignment. The Deeds of Assignment uniformly stipulate

[14] as follows:

―If for any reason the receivables or any part thereof cannot be paid by the obligor/s, the ASSIGNOR unconditionally and irrevocably agrees to pay the same, assuming the liability to pay, by way of penalty three per cent (3%) of the total amount unpaid, for the period of delay until the same is fully paid. In case of any litigation which the ASSIGNEE may institute to enforce the terms of this agreement, the ASSIGNOR shall be liable for all the costs, plus attorney‘s fees equivalent to twenty-five

(25%) per cent of the total amount due. Further thereto, the ASSIGNOR agrees that any and all actions which may be instituted relative hereto shall be filed before the proper courts of the City of Manila, all other appropriate venues being hereby waived.

The last Deed of Assignment[15]

contains the following added stipulation:

―xxx Likewise, it is hereby understood that the warranties which the ASSIGNOR hereby made are deemed part of the consideration for this transaction, such that any violation of any one, some, or all of said warranties shall be deemed as deliberate misrepresentation on the part of the ASSIGNOR. In such event, the monetary obligation herein conveyed unto the ASSIGNEE shall be conclusively deemed defaulted, giving rise to the immediate responsibility on the part of the ASSIGNOR to make good said obligation, and making the ASSIGNOR liable to pay the penalty stipulated hereinabove as if the original obligor/s of the receivables actually defaulted. xxx‖

Obviously, there is one vital suspensive condition in the Deeds of Assignment. That is, in case the drawers fail to pay the checks on maturity, Great Asian obligated itself to pay Bancasia the full face value of the dishonored checks, including penalty and attorney‘s fees. The failure of the drawers to pay the checks is a suspensive condition,

[16] the happening of which gives rise to Bancasia‘s right to demand

payment from Great Asian. This conditional obligation of Great Asian arises from its written contracts with Bancasia as embodied in the Deeds of Assignment. Article 1157 of the Civil Code provides that -

―Obligations arise from: (1) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punished by law; and (5) Quasi-delicts.‖

By express provision in the Deeds of Assignment, Great Asian unconditionally obligated itself to pay Bancasia the full value of the dishonored checks. In short, Great Asian sold the postdated checks on with recourse basis against itself. This is an obligation that Great Asian is bound to faithfully comply because it has the force of law as between Great Asian and Bancasia. Article 1159 of the Civil Code further provides that -

―Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.‖

Great Asian and Bancasia agreed on this specific with recourse stipulation, despite the fact that the receivables were negotiable instruments with the endorsement of Arsenio. The contracting parties had the right to adopt the with recourse stipulation which is separate and distinct from the warranties of an endorser under the Negotiable Instruments Law. Article 1306 of the Civil Code provides that –

―The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.‖

The explicit with recourse stipulation against Great Asian effectively enlarges, by agreement of the parties, the liability of Great Asian beyond that of a mere endorser of a negotiable instrument. Thus, whether or not Bancasia gives notice of dishonor to Great Asian, the latter remains liable to Bancasia because of the with recourse stipulation which is independent of the warranties of an endorser under the Negotiable Instruments Law.

There is nothing in the Negotiable Instruments Law or in the Financing Company Act (old or new), that prohibits Great Asian and Bancasia parties from adopting the with recourse stipulation uniformly found in the Deeds of Assignment. Instead of being negotiated, a negotiable instrument may be assigned.

[17]Assignment of a negotiable instrument is actually the principal mode of conveying accounts

receivable under the Financing Company Act. Since in discounting of receivables the assignee is subrogated as creditor of the receivable, the endorsement of the negotiable instrument becomes necessary to enable the assignee to collect from the drawer. This is particularly true with checks because

collecting banks will not accept checks unless endorsed by the payee. The purpose of the endorsement is merely to facilitate collection of the proceeds of the checks.

The purpose of the endorsement is not to make the assignee finance company a holder in due course because policy considerations militate against according finance companies the rights of a holder in due course.

[18] Otherwise, consumers who purchase appliances on installment, giving their promissory

notes or checks to the seller, will have no defense against the finance company should the appliances later turn out to be defective. Thus, the endorsement does not operate to make the finance company a holder in due course. For its own protection, therefore, the finance company usually requires the assignor, in a separate and distinct contract, to pay the finance company in the event of dishonor of the notes or checks.

As endorsee of Great Asian, Bancasia had the option to proceed against Great Asian under the Negotiable Instruments Law. Had it so proceeded, the Negotiable Instruments Law would have governed Bancasia‘s cause of action. Bancasia, however, did not choose this route. Instead, Bancasia decided to sue Great Asian for breach of contract under the Civil Code, a right that Bancasia had under the express with recourse stipulation in the Deeds of Assignment.

The exercise by Bancasia of its option to sue for breach of contract under the Civil Code will not leave Great Asian holding an empty bag. Great Asian, after paying Bancasia, is subrogated back as creditor of the receivables. Great Asian can then proceed against the drawers who issued the checks. Even if Bancasia failed to give timely notice of dishonor, still there would be no prejudice whatever to Great Asian. Under the Negotiable Instruments Law, notice of dishonor is not required if the drawer has no right to expect or require the bank to honor the check, or if the drawer has countermanded payment.

[19] In the instant case, all the checks were dishonored for any of the following reasons: ―account

closed‖, ―account under garnishment‖, insufficiency of funds‖, or ―payment stopped‖. In the first three instances, the drawers had no right to expect or require the bank to honor the checks, and in the last instance, the drawers had countermanded payment.

Moreover, under common law, delay in notice of dishonor, where such notice is required, discharges the drawer only to the extent of the loss caused by the delay.

[20] This rule finds application in

this jurisdiction pursuant to Section 196 of the Negotiable Instruments Law which states, ―Any case not provided for in this Act shall be governed by the provisions of existing legislation, or in default thereof, by the rules of the Law Merchant.‖ Under Section 186 of the Negotiable Instruments Law, delay in the presentment of checks discharges the drawer. However, Section 186 refers only to delay in presentment of checks but is silent on delay in giving notice of dishonor. Consequently, the common law or Law Merchant can supply this gap in accordance with Section 196 of the Negotiable Instruments Law.

One other issue raised by Great Asian, that of lack of consideration for the Deeds of Assignment, is completely unsubstantiated. The Deeds of Assignment uniformly provide that the fifteen postdated checks were assigned to Bancasia ―for valuable consideration.‖ Moreover, Article 1354 of the Civil Code states that, ―Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary.‖ The record is devoid of any showing on the part of Great Asian rebutting this presumption. On the other hand, Bancasia‘s Loan Section Manager, Cynthia Maclan, testified that Bancasia paid Great Asian a consideration at the discount rate of less than 24% of the face value of the postdated checks.

[21] Moreover, in its verified petition for voluntary insolvency, Great Asian

admitted its debt to Bancasia when it listed Bancasia as one of its creditors, an extra-judicial admission that Bancasia proved when it formally offered in evidence the verified petition for insolvency.

[22] The

Insolvency Law requires the petitioner to submit a schedule of debts that must ―contain a full and true statement of all his debts and liabilities.‖

[23] The Insolvency Law even requires the petitioner to state in his

verification that the schedule of debts contains ―a full, correct and true discovery of all my debts and liabilities x x x.‖

[24] Great Asian cannot now claim that the listing of Bancasia as a creditor was not an

admission of its debt to Bancasia but merely an acknowledgment that Bancasia had sent a demand letter to Great Asian.

Great Asian, moreover, claims that the assignment of the checks is not a loan accommodation but a sale of the checks. With the sale, ownership of the checks passed to Bancasia, which must now, according to Great Asian, sue the drawers and indorser of the check who are the parties primarily liable

on the checks. Great Asian forgets that under the Deeds of Assignment, Great Asian expressly undertook to pay the full value of the checks in case of dishonor. Again, we reiterate that this obligation of Great Asian is separate and distinct from its warranties as indorser under the Negotiable Instruments Law.

Great Asian is, however, correct in saying that the assignment of the checks is a sale, or more properly a discounting, of the checks and not a loan accommodation. However, it is precisely because the transaction is a sale or a discounting of receivables, embodied in separate Deeds of Assignment, that the relevant provisions of the Civil Code are applicable and not the Negotiable Instruments Law.

At any rate, there is indeed a fine distinction between a discounting line and a loan accommodation. If the accounts receivable, like postdated checks, are sold for a consideration less than their face value, the transaction is one of discounting, and is subject to the provisions of the Financing Company Act. The assignee is immediately subrogated as creditor of the accounts receivable. However, if the accounts receivable are merely used as collateral for the loan, the transaction is only a simple loan, and the lender is not subrogated as creditor until there is a default and the collateral is foreclosed.

In summary, Great Asian‘s four contracts assigning its fifteen postdated checks to Bancasia expressly stipulate the suspensive condition that in the event the drawers of the checks fail to pay, Great Asian itself will pay Bancasia. Since the common condition in the contracts had transpired, an obligation on the part of Great Asian arose from the four contracts, and that obligation is to pay Bancasia the full value of the checks, including the stipulated penalty and attorney‘s fees.

Third Issue: The liability of surety Tan Chong Lin

Tan Chong Lin, the President of Great Asian, is being sued in his personal capacity based on the Surety Agreements he signed wherein he solidarily held himself liable with Great Asian for the payment of its debts to Bancasia. The Surety Agreements contain the following common condition:

―Upon failure of the Principal to pay at maturity, with or without demand, any of the obligations above mentioned, or in case of the Principal‘s failure promptly to respond to any other lawful demand made by the Creditor, its successors, administrators or assigns, both the Principal and the Surety/ies shall be considered in default and the Surety/ies agree/s to pay jointly and severally to the Creditor all outstanding obligations of the Principal, whether due or not due, and whether held by the Creditor as Principal or agent, and it is agreed that a certified statement by the Creditor as to the amount due from the Principal shall be accepted by the Surety/ies as correct and final for all legal intents and purposes.‖

Indisputably, Tan Chong Lin explicitly and unconditionally bound himself to pay Bancasia, solidarily with Great Asian, if the drawers of the checks fail to pay on due date. The condition on which Tan Chong Lin‘s obligation hinged had happened. As surety, Tan Chong Lin automatically became liable for the entire obligation to the same extent as Great Asian.

Tan Chong Lin, however, contends that the following warranties in the Deeds of Assignment enlarge or increase his risks under the Surety Agreements:

―The ASSIGNOR warrants: 1. the soundness of the receivables herein assigned; 2. that said receivables are duly noted in its books and are supported by appropriate documents; 3. that said receivables are genuine, valid and subsisting; 4. that said receivables represent bona fide sale of goods, merchandise, and/or services rendered in the ordinary course of its business transactions; 5. that the obligors of the receivables herein assigned are solvent; 6. that it has valid and genuine title to and indefeasible right to dispose of said accounts; 7. that said receivables are free from all liens and encumbrances; 8. that the said receivables are freely and legally transferable, and that the obligor/s therein will not interpose any objection to this assignment, and has in fact given his/their consent hereto.‖

Tan Chong Lin maintains that these warranties in the Deeds of Assignment materially altered his obligations under the Surety Agreements, and therefore he is released from any liability to Bancasia. Under Article 1215 of the Civil Code, what releases a solidary debtor is a ―novation, compensation, confusion or remission of the debt‖ made by the creditor with any of the solidary debtors. These warranties, however, are the usual warranties made by one who discounts receivables with a financing company or bank. The Surety Agreements, written on the letter head of ―Bancasia Finance & Investment Corporation,‖ uniformly state that ―Great Asian Sales Center x x x has obtained and/or desires to obtain loans, overdrafts, discounts and/or other forms of credits from‖ Bancasia. Tan Chong Lin was clearly on notice that he was holding himself as surety of Great Asian which was discounting postdated checks issued by its buyers of goods and merchandise. Moreover, Tan Chong Lin, as President of Great Asian, cannot feign ignorance of Great Asian‘s business activities or discounting transactions with Bancasia. Thus, the warranties do not increase or enlarge the risks of Tan Chong Lin under the Surety Agreements. There is, moreover, no novation of the debt of Great Asian that would warrant release of the surety.

In any event, the provisions of the Surety Agreements are broad enough to include the obligations of Great Asian to Bancasia under the warranties. The first Surety Agreement states that:

―x x x herein Surety/ies, jointly and severally among themselves and likewise with principal, hereby agree/s and bind/s himself/themselves to pay at maturity all the notes, drafts, bills of exchange, overdraft and other obligations of every kind which the Principal may now or may hereafter owe the Creditor, including extensions or renewals thereof in the sum *** ONE MILLION ONLY*** PESOS (P1,000,000.00), Philippine Currency, plus stipulated interest thereon at the rate of sixteen percent (16%) per annum, or at such increased rate of interest which the Creditor may charge on the Principal‘s obligations or renewals or the reduced amount thereof, plus all the costs and expenses which the Creditor may incur in connection therewith.

x x x

Upon failure of the Principal to pay at maturity, with or without demand, any of the obligations above mentioned, or in case of the Principal’s failure promptly to respond to any other lawful demand made by the Creditor, its successors, administrators or assigns, both the Principal and the Surety/ies shall be considered in default and the Surety/ies agree/s to pay jointly and severally to the Creditor all outstanding obligations of the Principal, whether due or not due, and whether held by the Creditor as Principal or agent, and it is agreed that a certified statement by the Creditor as to the amount due from the Principal shall be accepted by the Surety/ies as correct and final for all legal intents and purposes. (Emphasis supplied)

The second Surety Agreement contains the following provisions:

―x x x herein Surety/ies, jointly and severally among themselves and likewise with PRINCIPAL, hereby agree and bind themselves to pay at maturity all the notes, drafts, bills of exchange, overdraft and other obligations of every kind which the PRINCIPAL may now or may hereafter owe the Creditor, including extensions and/or renewals thereof in the principal sum not to exceed TWO MILLION (P2,000,000.00) PESOS, Philippine Currency, plus stipulated interest thereon, or such increased or decreased rate of interest which the Creditor may charge on the principal sum outstanding pursuant to the rules and regulations which the Monetary Board may from time to time promulgate, together with all the cost and expenses which the CREDITOR may incur in connection therewith. If for any reason whatsoever, the PRINCIPAL should fail to pay at maturity any of the obligations or amounts due to the CREDITOR, or if for any reason whatsoever the PRINCIPAL fails to promptly respond to and comply with any other lawful demand made by the CREDITOR, or if for any reason whatsoever any obligation of the PRINCIPAL in favor of any person or entity should be considered as defaulted, then both the PRINCIPAL and the SURETY/IES shall be considered in default under the terms of this Agreement. Pursuant thereto, the SURETY/IES agree/s to pay jointly and severally with the PRINCIPAL, all outstanding obligations of the CREDITOR, whether due or not due, and whether owing to the PRINCIPAL in its personal capacity or as agent of any person, endorsee, assignee or transferee. x x x. (Emphasis supplied)

Article 1207 of the Civil Code provides, ‖xxx There is a solidary liability only when the obligation expressly so states, or when the law or nature of the obligation requires solidarity.‖ The stipulations in the Surety Agreements undeniably mandate the solidary liability of Tan Chong Lin with Great Asian. Moreover, the stipulations in the Surety Agreements are sufficiently broad, expressly encompassing ―all the notes, drafts, bills of exchange, overdraft and other obligations of every kind which the PRINCIPAL may now or may hereafter owe the Creditor”. Consequently, Tan Chong Lin must be held solidarily liable with Great Asian for the nonpayment of the fifteen dishonored checks, including penalty and attorney‘s fees in accordance with the Deeds of Assignment.

The Deeds of Assignment stipulate that in case of suit Great Asian shall pay attorney‘s fees equivalent to 25% of the outstanding debt. The award of attorney‘s fees in the instant case is justified,

[25] not only because of such stipulation, but also because Great Asian and Tan Chong Lin acted

in gross and evident bad faith in refusing to pay Bancasia‘s plainly valid, just and demandable claim. We deem it just and equitable that the stipulated attorney‘s fee should be awarded to Bancasia.

The Deeds of Assignment also provide for a 3% penalty on the total amount due in case of failure to pay, but the Deeds are silent on whether this penalty is a running monthly or annual penalty. Thus, the 3% penalty can only be considered as a one-time penalty. Moreover, the Deeds of Assignment do not provide for interest if Great Asian fails to pay. We can only award Bancasia legal interest at 12% interest per annum, and only from the time it filed the complaint because the records do not show that Bancasia made a written demand on Great Asian prior to filing the complaint.

[26] Bancasia made an extrajudicial

demand on Tan Chong Lin, the surety, but not on the principal debtor, Great Asian.

WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 20167 is AFFIRMED with MODIFICATION. Petitioners are ordered to pay, solidarily, private respondent the following amounts: (a) P1,042,005.00 plus 3% penalty thereon, (b) interest on the total outstanding amount in item (a) at the legal rate of 12% per annum from the filing of the complaint until the same is fully paid, (c) attorney‘s fees equivalent to 25% of the total amount in item (a), including interest at 12% per annum on the outstanding amount of the attorney‘s fees from the finality of this judgment until the same is fully paid, and (c) costs of suit.

SO ORDERED.

FACTS:

March 17, 1981: Great Asian BOD approved a resolution authorizing its Treasurer and General

Manager, Arsenio Lim Piat, Jr. (Arsenio) to secure a loan, not exceeding 1M, from Bancasia

February 10, 1982: Great Asian BOD approved a resolution authorizing Great Asian to secure a

discounting line with Bancasia in an amount not exceeding P2M

also designated Arsenio as the authorized signatory to sign all instruments, documents and checks

necessary to secure the discounting line

Tan Chong Lin signed 2 surety agreements in favor of Bancasia

Great Asian, through its Treasurer and General Manager Arsenio, signed 4 Deeds of Assignment of

Receivables (Deeds of Assignment), assigning to Bancasia 15 postdated checks:

9 checks were payable to Great Asian

3 were payable to "New Asian Emp."

3 were payable to cash

various customers of Great Asian issued these postdated checks in payment for appliances and

other merchandise.

Deed of Assignments of assignment:

January 12, 1982: 4 post-dated checks of P244,225.82 maturing March 17, 1982, 2 were dishonored

January 12, 1982: 4 post-dated checks of P312,819 maturing April 1, 1982, all 4 were dishonored

February 11, 1982: 8 postdated checks of P344,475 maturing April 30, 1982, all 8 checks were

dishonored

March 5, 1982: 1 postdated checks of P200K maturing March 18, 1982 also dishonored

Great Asian assigned the postdated checks to Bancasia at a discount rate of less than 24% of the

face value of the checks

Arsenio endorsed all the 15 dishonored checks by signing his name at the back of the checks

8 dishonored checks bore the endorsement of Arsenio below the stamped name of "Great Asian

Sales Center"

7 dishonored checks just bore the signature of Arsenio

The drawee banks dishonored the 15 checks on maturity when deposited for collection by Bancasia,

with any of the following as reason for the dishonor:

"account closed"

"payment stopped"

"account under garnishment"

"insufficiency of funds

March 18, 1982: Bancasia's lawyer,Atty. Eladia Reyes, sent by registered mail to Tan Chong Lin a

letter notifying him of the dishonor and demanding payment from him

June 16, 1982: Bancasia sent by personal delivery a letter to Tan Chong Lin

May 21, 1982: Great Asian filed a case before the CFI for insolvency listing Bancasia as one of the

creditors of Great Asian in the amount of P1,243,632.00

June 23, 1982: Bancasia filed a complaint for collection of a sum of money against Great Asian and

Tan Chong Lin

CFI: favored Bancasia ordering Great Asian and Tan Chong Lin to pay jointly and severally

CA: deleted atty. fees

ISSUE: W/N Bancasia and Tang Chon Lin should be held liable under the Civil Code because it was a

separate and distinct deed of assignment

HELD: YES. Affirmed with Modification

As plain as daylight, the two board resolutions clearly authorize Great Asian to secure a loan or

discounting line from Bancasia

Clearly, the discounting arrangements entered into by Arsenio under the Deeds of Assignment were

the very transactions envisioned in the two board resolutions of Great Asian to raise funds for its

business.

There is nothing in the Negotiable Instruments Law or in the Financing Company Act (old or new),

that prohibits Great Asian and Bancasia parties from adopting the with recourse stipulation uniformly

found in the Deeds of Assignment. Instead of being negotiated, a negotiable instrument may be

assigned.

the endorsement does not operate to make the finance company a holder in due course. For its own

protection, therefore, the finance company usually requires the assignor, in a separate and distinct

contract, to pay the finance company in the event of dishonor of the notes or checks. (only security)

Otherwise, consumers who purchase appliances on installment, giving their promissory notes or

checks to the seller, will have no defense against the finance company should the applianceslater turn

out to be defective

As endorsee of Great Asian, Bancasia had the option to proceed against Great Asian under the

Negotiable Instruments Law. Had it so proceeded, the Negotiable Instruments Law would have

governed Bancasia‘s cause of action. Bancasia, however, did not choose this route.

Instead, Bancasia decided to sue Great Asian for breach of contract under the Civil Code, a right that

Bancasia had under the express with recourse stipulation in the Deeds of Assignment.

Great Asian, after paying Bancasia, is subrogated back as creditor of the receivables. Great Asian

can then proceed against the drawers who issued the checks. Even if Bancasia failed to give timely

notice of dishonor, still there would be no prejudice whatever to Great Asian.

Under the Negotiable Instruments Law, notice of dishonor is not required if the drawer has no right to

expect or require the bank to honor the check, or if the drawer has countermanded payment

In the instant case, all the checks were dishonored for any of the following reasons:

"account closed"

"account under garnishment"

"insufficiency of funds"

drawers had no right to expect or require the bank to honor the checks

"payment stopped"

drawers had countermanded payment

Moreover, under common law, delay in notice of dishonor, where such notice is required, discharges

the drawer only to the extent of the loss caused by the delay.

Again, we reiterate that this obligation of Great Asian is separate and distinct from its warranties as

indorser under the Negotiable Instruments Law.Civil Code are applicable and not the

Negotiable Instruments Law.

separate Deeds of Assignment - provisions of the Civil Code are applicable (NOT

NegotiableInstruments Law)

Great Asian‘s four contracts assigning its fifteen postdated checks to Bancasia expressly stipulate the

suspensive condition that in the event the drawers of the checks fail to pay, Great Asian itself will pay

Bancasia

The stipulations in the Surety Agreements undeniably mandate the solidary liability of Tan Chong Lin

with Great Asian

Moreover, the stipulations in the Surety Agreements are sufficiently broad, expressly encompassing

"all the notes, drafts, bills of exchange, overdraft and other obligations of every kind which the

PRINCIPAL may now or may hereafter owe the Creditor"

[G.R. No. 144661 and 144797. June 15, 2005]

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. SPOUSES FRANCISCO ONG and LETICIA ONG,respondents.

D E C I S I O N

GARCIA, J.:

Appealed to this Court by way of a petition for review on certiorari are the Decision[1]

dated March 5, 1999 and Resolution dated July 19, 2000 of the Court of Appeals in CA-G.R. CV No. 54919, affirming in toto an earlier decision of the Regional Trial Court at Cagayan de Oro City, Branch 23, which ruled in favor of herein respondents, the Spouses Francisco Ong and Leticia Ong, in a suit for breach of contract and/or specific performance with prayer for writ of preliminary injunction and damages thereat commenced by them against petitionerDevelopment Bank of the Philippines (DBP).

Petitioner filed by registered mail a motion for extension time to submit petition, paying the corresponding docket fees therefor by money order. Upon receipt of the motion, the Court docketed the case as G.R. No. 144797. Before actual receipt of said motion, however, petitioner personally filed its petition, which was docketed with a lower number as G.R. No. 144661. What then appears to be two (2) cases before us are actually just one, now the subject of this decision.

The facts are simple and undisputed:

Petitioner‘s foreclosed asset, formerly owned by one Enrique Abada under TCT No. T-4786 and located at Corrales Extension, Cagayan de Oro City is the subject of this controversy. On May 25, 1988, respondent Francisco Ong with the conformity of his wife Leticia Ong, addressed a written offer to petitioner thru its branch manager at Cagayan de Oro City to buy the subject property on a negotiated sale basis and submitted his ―best and last offer‖ to purchase

[2] under

the following terms:

PURCHASE PRICE…………………………… P136,000.00 DOWNPAYMENT …………………………….. 14,000.00 BALANCE …………………………………… P122,000.00 TERM: C A S H MODE OF PAYMENT: Payable upon ejection of occupants on the property

subject of my offer.

I/We am/are depositing the amount of P14,000.00 in cash/check to accompany my/our offer, it being expressly understood, however, that the same does not bind the DBP to the offer until after my/our receipt of its approval by the higher authorities of the bank. Should the bank receive an offer from a third-party buyer higher by more than 5% or at more advantageous term accompanied by a deposit of at least 10% of the offered price, or a higher offer from the former-owner for at least the updated Total Claim of the Bank accompanied by a minimum deposit of 20% of the purchase price, the Bank may favorably consider the higher offer and thereafter refund my/our deposit within three (3) working days after the determination of the most advantageous offer.

The foregoing offer was duly ―NOTED‖ by petitioner‘s branch head at its Cagayan de Oro City Branch, Jose Z. Lagrito (Lagrito, for brevity), and Official Receipt No. 3081947 was issued for the amount of P14,000.00 as respondents‘ deposit.

In a letter dated October 21, 1988[3]

, sent to respondents via registered mail, Lagrito informed the spouses that the bank recently received an offer from another interested third-party-buyer of the same property at the same price and term, ―but better and more advantageous to the Bank considering that the buyer will assume the responsibility at her expense for the ejectment of present occupants in the said property” . Nonetheless, respondents were given in the same letter three (3) days within which ―to match the said offer‖, failing in which the Bank ―will immediately award the said property to the other buyer‖, in which event respondents‘ deposit of P14,000.00 shall be refunded to them upon surrender of O.R. No. 3081947.

In yet another written offer dated October 28, 1988[4]

, respondents matched the said offer of the second interested buyer by assuming the responsibility ―at my/our own expense for the ejection of squatters/occupants, if any, on the property‖.

On April 7, 1989, there was a conference between respondents, together with their counsel, and the bank whereat respondents were informed why the sale could not be awarded to them. Thereafter, in a letter dated September 6, 1990

[5], respondents were notified that the property

would instead be offered for public bidding on September 24, 1990 at ten 10:00 o‘clock in the morning.

Feeling aggrieved by such turn of events, respondents filed with the Regional Trial Court at Cagayan de Oro City a complaint for breach of contract and/or specific performance against petitioner. Thereat, the complaint was docketed as Civil Case No. 90-422 which was raffled to Branch 23 of the court.

After pre-trial, the parties agreed to submit the case for judgment based on the pleadings. Accordingly, the trial court required them to submit simultaneously their respective memoranda within thirty (30) days. Only petitioner filed its memorandum.

In a decision[6]

dated April 25, 1995, the trial court dismissed the complaint finding that there was ―no perfected contract of sale‖ between the parties, hence, ―there is no breach to speak of since there was no contract from the very beginning‖. However, upon respondents‘ motion for reconsideration, the trial court vacated its judgment and set the case for the reception of evidence. This time, only the respondents adduced their evidence consisting of the lone testimony of respondent Francisco Ong and the documents identified by him in the course thereof.

In his testimony, Ong gave the respondents‘ version of what supposedly transpired in their transaction with petitioner. According to him, he and his wife went to the bank branch at Cabayan de Oro City and looked for Roy Palasan, a bank clerk thereat and told the latter that they were interested to buy two (2) lots. Palasan went to talk to Lagrito, the branch manager. Palasan returned to the spouses and informed them that the branch manager agreed to sell the property to them. Palasan further told them that they will be required to pay ten (10%) percent of the purchase price as downpayment, adding that if they were to pay the purchase price in cash, they would be entitled to a ten (10%) percent discount. After some computations, respondents rounded up the purchase price at P136,000.00 and pegged the downpayment therefor at P14,000.00. They were then required by Palasan to sign a bank form supposedly to express their firm offer to purchase the subject property. But since the form signed by them contains the statement that the approval of higher authorities of the bank is required to close the deal, respondents queried Palasan about it. Palasan, however, told them that the documents were only for formality purposes, and further assured them that the branch manager has already agreed to sell the subject property to them.

Having completed the presentation of their evidence, respondents rested their case. For its part, petitioner no longer adduced any evidence but merely opted to formally offer its documentary exhibits. Thereafter, the case was submitted for resolution.

On September 26, 1996, the trial court came out with a new decision,[7]

this time rendering judgment for the respondents, as follows:

WHEREFORE, by reason of preponderance of evidence, the Court hereby finds in favor of the plaintiffs as against the defendant and hereby orders the defendant:

1. To execute a final sale of the lot subject matter of the contract of sale at the original agreed price of P136,000.00;

2. Defendant to accept the balance of the purchase price from the plaintiffs; 3. Defendant to pay moral damages in the amount of P30,000.00; 4. Defendant to refund the amount of P10,000.00 actual litigation expenses; and to pay

attorney‘s fees in the amount of P20,000.00. SO ORDERED.

Therefrom, petitioner went on appeal to the Court of Appeals in CA-G.R. CV No. 54919, and, on March 5, 1999, the appellate court rendered the herein assailed decision

[8] affirming in toto that of

the trial court, thus:

ACCORDINGLY, the foregoing premises considered, the appealed decision is hereby AFFIRMED in toto.

SO ORDERED.

With its motion for reconsideration of the same decision having been denied by the Court of Appeals in its equally challenged resolution of July 19, 2000,

[9] petitioner is now with us thru the

present recourse on the following grounds:

A.

THAT THE RESPONDENTS‘ INTRODUCTION OF PAROL EVIDENCE TO PROVE THE ALLEGED MEETING OF MINDS BETWEEN THE PARTIES WAS NOT SANCTIONED BY RULE 130, SEC. 9, RULES OF COURT, CONTRARY TO THE FINDINGS OF THE LOWER COURTS, CONSIDERING THAT THERE WAS NO WRITTEN CONTRACT THAT WAS EVER EXECUTED BY THE PARTIES IN THIS CASE, BUT MERELY UNILATERAL WRITTEN COMMUNICATIONS, AT BEST CONSTITUTING OFFERS AND COUNTER-OFFERS.

B.

THAT THE QUANTUM OF PROOF IS WANTING TO PROVE THE ALLEGED PERFECTION OF CONTRACT OF SALE BETWEEN THE PARTIES BASED ON THE SOLE, UNCORROBORATED, ORAL TESTIMONY THUS FAR PRESENTED BY THE RESPONDENTS.

C.

THAT THE BURDEN OF PROOF THAT THERE WAS PERFECTION OF THE CONTRACT OF SALE BETWEEN THE PARTIES BASICALLY REST WITH THE RESPONDENTS, NOTWITHSTANDING THE NON-OBJECTION ON THE PART OF HEREIN PETITIONER DURING THE INTRODUCTION OF THAT ―PAROL EVIDENCE‖; THE ADMISSIBILITY OF PETITIONER‘S (sic.) PAROL EVIDENCE DOES NOT AUTOMATICALLY RIPEN THE TESTIMONY AS A TRUTH RESPECTING A MATTER OF FACT AS ITS CREDIBILITY AND TRUSTWORTHINESS AND WEIGHT ARE STILL SUBJECT TO JUDICIAL SCRUTINY AND APPRECIATION.

D.

THAT THERE WAS ACTUALLY OPPOSITION ON THE PART OF THE PETITIONER TO THE CONTENTS OF THE ORAL TESTIMONY OF THE RESPONDENT REGARDING THE ALLEGED PERFECTION OF CONTRACT OF SALE BECAUSE THE PETITIONER HAD ALREADY INTERPOSED THEIR DEFENSES WHEN IT FILED A MEMORANDUM ATTACHING THEREIN THE DOCUMENTARY AS WELL AS DECLARATIONS IN ITS PLEADINGS ON THE NON-PERFECTION OF SUCH CONTRACT WHEN THE CASE WAS THEN SUBMITTED FOR JUDGMENT ON THE PLEADINGS, AS AGREED BY THE PARTIES DURING THE PRE-TRIAL, AND SUCH EVIDENCES WERE ALREADY PASSED UPON BY THE COURT WHEN IT RENDERED A JUDGMENT DATED APRIL 25, 1995.

We GRANT the petition.

At the very core of the controversy is the question of whether or not there actually was a perfected contract of sale between petitioner and respondents, for which the Court may compel petitioner to issue a board resolution approving the sale and to execute the final deed of sale in respondents‘ favor, and/or hold petitioner liable for a breach thereof. Needless to state, without a perfected contract of sale, there could be no cause of action for specific performance or breach thereof.

The trial court went on one direction by ruling in its earlier decision of April 25, 1995 that there was no perfected contract, but upon respondents‘ motion for reconsideration, went exactly the opposite path by completely reversing itself in its herein challenged decision of September 26, 1996.

Apparently, the trial court‘s ruling that there was already a perfected contract of sale was premised on its following factual findings:

1. That plaintiff [respondents] made a downpayment in a check that was subsequently encashed by the defendant [petitioner] bank;

2. That the sister-in-law of plaintiff [respondents] entered into the same arrangement and was able to buy the property she wanted to buy from defendant [petitioner] bank;

3. That defendant [petitioner] never presented any witness to rebut the positive and clear testimony of plaintiff [respondents] that it was a perfected contract of sale entered into by the former with the defendant [petitioner] bank.

[10]

Sustaining the foregoing factual findings of the trial court, the appellate court wrote in its assailed decision of March 5, 1999:

This positive and clear testimony of [respondent] Ong was not objected to nor rebutted by the [petiotioner]. Notably, the bank personnel involved in the transaction, namely, Roy Palasan and the Branch Manager of the [petitioner‘s] Cagayan de Oro Branch, Joe Lagrito, were never presented to refute the testimony of the [respondents] that the bank has agreed to sell the property to the [respondents]. Suffice it to state that [respondents] were entitled to rely on the representation of Lagrito who, after all, is the bank‘s manager. Under the premise that a bank is bound by the obligation contracted by its officers, the contract of sale between [petitioner] and the [respondents] was perfected when Palasan and Lagrito communicated the approval of the sale of the lot to the [respondents].

Significantly, the unrebutted testimony of Francisco Ong reveals that Norma Silfavan, [respondents‘] sister, made a similar offer to the [petitioner] under the same terms and conditions as to that of the [respondents], and was likewise assured by the same bank personnel that her offer, along with the [respondents‘] offer was already approved. Eventually, the transaction resulted in a consummated sale between Silfavan and DBP. Under these premises, We can not see any reason why the [petitioner] did not accord the same treatment to the [respondents] who were similarly situated.

Evidently, the two (2) courts below were convinced that the actuation of Palasan, a mere bank clerk, upon which respondents relied in believing that their offer to purchase was already approved by the bank manager, would bind the bank to a perfected contract of sale between the parties in this case. The Court of Appeals further added that the acceptance of the offer to purchase was sufficiently established from theparol evidence adduced by respondents during the trial.

We do not agree.

Concededly, in petitions for review on certiorari, our task is not to review once again the factual findings of the Court of Appeals and the trial court, but to determine if, on the basis of the facts thus found, the conclusions of law reached are correct or not.

Judging from the findings of the two (2) courts below and the testimony of respondent Francisco Ong himself, it appears clear to us that the transaction between the respondents and the petitioner was limited to Palasan, one of the clerks of petitioner‘s branch in Cagayan de Oro City. Lagrito, the branch manager, had no personal or direct communication with respondents to express his alleged consent to the sale transaction. Thus, the undisputed evidence showed that it was Palasan, a mere bank clerk, and not the branch manager himself who assured respondents that theirs was a closed deal.

We are very much aware of our pronouncement in Rural Bank of Milaor vs. Ocfemia,[11]

involving a mandamus suit where the supposed buyer of a foreclosed property from a bank sought a court order to compel the bank to issue the required board resolution confirming the sale between the parties therein. There, this Court, speaking thru Mr. Justice Artemio Panganiban, stated:

Notwithstanding the putative authority of the manager to bind the bank in the Deed of Sale, petitioner has failed to file an answer to the Petition below within the reglementary period, let

alone present evidence controverting such authority. Indeed, when one of herein respondents, Marife S. Niño, went to the bank to ask for the board resolution, she was merely told to bring the receipts. The bank failed to categorically declare that Tena had no authority. This Court stresses the following:

―. . . 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 manifestation 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 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.‘‖

[12]

In this light, the bank is estopped from questioning the authority of the bank manager to enter into the contract of sale. If a corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, it holds the agent out to the public as possessing the power to do those acts; thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent's authority.

[13]

Unquestionably, petitioner has authorized Tena to enter into the Deed of Sale. Accordingly, it has a clear legal duty to issue the board resolution sought by respondents. Having authorized her to sell the property, it behooves the bank to confirm the Deed of Sale so that the buyers may enjoy its full use.

There is, however, a striking and very material difference between the aforecited case and the one at bar. For, unlike in Milaor where it was the branch manager who approved the sale for and in behalf of the bank, here, there is absolutely no approval whatsoever by any responsible bank officer of the petitioner. True it is that the signature of branch manager Lagrito appears below the typewritten word ―NOTED‖ at the bottom of respondents‘ offer to purchase dated May 25, 1988.

[14] By no stretch of imagination, however, can the mere ―NOTING‖ of such an offer be taken

to mean an approval of the supposed sale. Quite the contrary, the very circumstance that the offer to purchase was merely ―NOTED‖ by the branch manager and not ―approved‖, is a clear indication that there is no perfected contract of sale to speak of.

The representation of Roy Palasan, a mere clerk at petitioner‘s Cagayan de Oro City branch, that the manager had already approved the sale, even if true, cannot bind the petitioner bank to a contract of sale with respondents, it being obvious to us that such a clerk is not among the bank officers upon whom such putative authority may be reposed by a third party. There is, thus, no legal basis to bind petitioner into any valid contract of sale with the respondents, given the absolute absence of any approval or consent by any responsible officer of petitioner bank.

And because there is here no perfected contract of sale between the parties, respondents‘ action for breach of contract and/or specific performance is simply without any leg to stand on and must therefore fall.

We also disagree with the Court of Appeals that the encashment of the check representing the P14,000.00 deposit in relation to respondents‘ offer to purchase is an indication or proof of perfection of a contract of sale. It must be noted that the very documents

[15] signed by the

respondents as their offer to purchase unmistakably state that the deposit shall only form part of the purchase price if the offer to purchase is approved, ―it being expressly understood xxx that the same (i.e., the deposit) does not bind DBP to the offer until my/our receipt of its approval by higher authorities of the bank‖. It may be so that the official receipt issued therefor by the petitioner termed such deposit as a ―downpayment‖. But the very written offers of the respondents unequivocably and invariably speak of such amount as ―deposit‖, ―above deposit‖, ―we are depositing the amount of P14,000.00‖. Since there never was any approval or acceptance by the higher authorities of petitioner of respondents‘ offer to purchase, the encashment of the check can not in any way represent partial payment of any purchase price.

With the hard reality that no approval or acceptance of respondents‘ offer to buy exists in this case, any independent transaction between petitioner and another third-party, like the one involving respondents‘ sister, would be irrelevant and immaterial insofar as respondents‘ own transaction with the petitioner is concerned. Besides, apart from saying that respondents‘ sister ―made a similar offer to the [petitioner] under the same terms and conditions as to that of the [respondents], and was likewise assured by the same bank personnel that her offer xxx was already approved‖, which eventually resulted into a ―consummated sale between (the sister) and DBP‖, the Court of Appeals made no finding that the sister‘s transaction with the petitioner was made exactly under the same circumstances obtaining in the present case. In any event, petitioner‘s favorable action on the offer of respondents‘ sister is hardly, if ever, relevant and determinative in the resolution of the legal issue presented in this case.

In sum, we cannot, in law, sustain the herein challenged issuances of the Court of Appeals.

WHEREFORE, the instant petition is GRANTED and the assailed decision and resolution of the Court of Appeals REVERSED and SET ASIDE. The complaint filed in this case is accordingly DISMISSED.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 144805 June 8, 2006 EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners,

vs. ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION), ETEROUTREMER, S.A. and FAR EAST BANK & TRUST COMPANY, Respondents.

D E C I S I O N CALLEJO, SR., J.: On appeal via a Petition for Review on Certiorari is the Decision

1 of the Court of Appeals (CA) in

CA-G.R. CV No. 51022, which affirmed the Decision of the Regional Trial Court (RTC), Pasig City, Branch 165, in Civil Case No. 54887, as well as the Resolution

2 of the CA denying the

motion for reconsideration thereof. The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine

laws. Since 1950, it had been engaged in the manufacture of roofing materials and pipe products. Its manufacturing operations were conducted on eight parcels of land with a total area of 47,233 square meters. The properties, located in Mandaluyong City, Metro Manila, were covered by Transfer Certificates of Title Nos. 451117, 451118, 451119, 451120, 451121, 451122, 451124 and 451125 under the name of Far East Bank & Trust Company, as trustee. Ninety (90%) percent of the shares of stocks of EC were owned by Eteroutremer S.A. Corporation (ESAC), a corporation organized and registered under the laws of Belgium.

3 Jack Glanville, an Australian

citizen, was the General Manager and President of EC, while Claude Frederick Delsaux was the Regional Director for Asia of ESAC. Both had their offices in Belgium.

In 1986, the management of ESAC grew concerned about the political situation in the Philippines and wanted to stop its operations in the country. The Committee for Asia of ESAC instructed Michael Adams, a member of EC‘s Board of Directors, to dispose of the eight parcels of land. Adams engaged the services of realtor/broker Lauro G. Marquez so that the properties could be offered for sale to prospective buyers. Glanville later showed the properties to Marquez.

Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo B. Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter dated September 12, 1986, Marquez declared that he was authorized to sell the properties for P27,000,000.00 and that the terms of the sale were subject to negotiation.

4

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo Litonjua, Jr., and his brother Antonio K. Litonjua. The Litonjua siblings offered to buy the property for P20,000,000.00 cash. Marquez apprised Glanville of the Litonjua siblings‘ offer and relayed the same to Delsaux in Belgium, but the latter did not respond. On October 28, 1986, Glanville telexed Delsaux in Belgium, inquiring on his position/ counterproposal to the offer of the Litonjua siblings. It was only on February 12, 1987 that Delsaux sent a telex to Glanville stating that, based on the "Belgian/Swiss decision," the final offer was "US$1,000,000.00 and P2,500,000.00 to cover all existing obligations prior to final liquidation."

5

Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua, Jr. accepted the counterproposal of Delsaux. Marquez conferred with Glanville, and in a Letter dated February 26, 1987, confirmed that the Litonjua siblings had accepted the counter-proposal of Delsaux. He also stated that the Litonjua siblings would confirm full payment within 90 days after execution and preparation of all documents of sale, together with the necessary governmental clearances.

6

The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank & Trust Company, Ermita Branch, and drafted an Escrow Agreement to expedite the sale.

7

Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale would be implemented. In a telex dated April 22, 1987, Glanville informed Delsaux that he had met with the buyer, which had given him the impression that "he is prepared to press for a satisfactory conclusion to the sale."

8 He also emphasized to Delsaux that the buyers were concerned

because they would incur expenses in bank commitment fees as a consequence of prolonged period of inaction.

9

Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of the Philippines, the political situation in the Philippines had improved. Marquez received a telephone call from Glanville, advising that the sale would no longer proceed. Glanville followed it up with a Letter dated May 7, 1987, confirming that he had been instructed by his principal to inform Marquez that "the decision has been taken at a Board Meeting not to sell the properties on which Eternit Corporation is situated."

10

Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC Regional Office had decided not to proceed with the sale of the subject land, to wit:

May 22, 1987 Mr. L.G. Marquez

L.G. Marquez, Inc. 334 Makati Stock Exchange Bldg. 6767 Ayala Avenue Makati, Metro Manila Philippines

Dear Sir: Re: Land of Eternit Corporation I would like to confirm officially that our Group has decided not to proceed with the sale of the

land which was proposed to you. The Committee for Asia of our Group met recently (meeting every six months) and examined the

position as far as the Philippines are (sic) concerned. Considering [the] new political situation since the departure of MR. MARCOS and a certain stabilization in the Philippines, the Committee has decided not to stop our operations in Manila. In fact, production has started again last week, and (sic) to recognize the participation in the Corporation.

We regret that we could not make a deal with you this time, but in case the policy would change at a later state, we would consult you again.

x x x Yours sincerely, (Sgd.)

C.F. DELSAUX

cc. To: J. GLANVILLE (Eternit Corp.)11

When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding

payment for damages they had suffered on account of the aborted sale. EC, however, rejected their demand.

The Litonjuas then filed a complaint for specific performance and damages against EC (now the Eterton Multi-Resources Corporation) and the Far East Bank & Trust Company, and ESAC in the RTC of Pasig City. An amended complaint was filed, in which defendant EC was substituted by Eterton Multi-Resources Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and Deogracias G. Eufemio were impleaded as additional defendants on account of their purchase of ESAC shares of stocks and were the controlling stockholders of EC.

In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not doing business in the Philippines, it cannot be subject to the jurisdiction of Philippine courts; the Board and stockholders of EC never approved any resolution to sell subject properties nor authorized Marquez to sell the same; and the telex dated October 28, 1986 of Jack Glanville was his own personal making which did not bind EC.

On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed the amended complaint.

12The fallo of the decision reads:

WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer, S.A. is dismissed on the ground that there is no valid and binding sale between the plaintiffs and said defendants.

The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of cause of action.

The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer, S.A. is also dismissed for lack of merit.

13

The trial court declared that since the authority of the agents/realtors was not in writing, the sale is void and not merely unenforceable, and as such, could not have been ratified by the principal. In any event, such ratification cannot be given any retroactive effect. Plaintiffs could not assume that defendants had agreed to sell the property without a clear authorization from the corporation concerned, that is, through resolutions of the Board of Directors and stockholders. The trial court also pointed out that the supposed sale involves substantially all the assets of defendant EC which would result in the eventual total cessation of its operation.

14

The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court erred in concluding that the real estate broker in the instant case needed a written authority from appellee corporation and/or that said broker had no such written authority; and (2) the lower court committed grave error of law in holding that appellee corporation is not legally bound for specific performance and/or damages in the absence of an enabling resolution of the board of directors."

15 They averred that Marquez acted merely as a broker or go-between and not as agent

of the corporation; hence, it was not necessary for him to be empowered as such by any written authority. They further claimed that an agency by estoppel was created when the corporation clothed Marquez with apparent authority to negotiate for the sale of the properties. However, since it was a bilateral contract to buy and sell, it was equivalent to a perfected contract of sale, which the corporation was obliged to consummate.

In reply, EC alleged that Marquez had no written authority from the Board of Directors to bind it; neither were Glanville and Delsaux authorized by its board of directors to offer the property for sale. Since the sale involved substantially all of the corporation‘s assets, it would necessarily need the authority from the stockholders.

On June 16, 2000, the CA rendered judgment affirming the decision of the RTC. 16

The Litonjuas filed a motion for reconsideration, which was also denied by the appellate court.

The CA ruled that Marquez, who was a real estate broker, was a special agent within the purview of Article 1874 of the New Civil Code. Under Section 23 of the Corporation Code, he needed a special authority from EC‘s board of directors to bind such corporation to the sale of its properties. Delsaux, who was merely the representative of ESAC (the majority stockholder of EC) had no authority to bind the latter. The CA pointed out that Delsaux was not even a member of the board of directors of EC. Moreover, the Litonjuas failed to prove that an agency by estoppel had been created between the parties.

In the instant petition for review, petitioners aver that

I THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED

CONTRACT OF SALE. II

THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT MARQUEZ NEEDED A WRITTEN AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE SALE CAN BE PERFECTED.

III THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX

HAVE THE NECESSARY AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY PERMITTED BY RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN APPARENT AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING POWER TO SELL THE SAID PROPERTIES.

17

Petitioners maintain that, based on the facts of the case, there was a perfected contract of sale of the parcels of land and the improvements thereon for "US$1,000,000.00 plus P2,500,000.00 to cover obligations prior to final liquidation." Petitioners insist that they had accepted the counter-offer of respondent EC and that before the counter-offer was withdrawn by respondents, the acceptance was made known to them through real estate broker Marquez.

Petitioners assert that there was no need for a written authority from the Board of Directors of EC for Marquez to validly act as broker/middleman/intermediary. As broker, Marquez was not an ordinary agent because his authority was of a special and limited character in most respects. His only job as a broker was to look for a buyer and to bring together the parties to the transaction. He was not authorized to sell the properties or to make a binding contract to respondent EC; hence, petitioners argue, Article 1874 of the New Civil Code does not apply.

In any event, petitioners aver, what is important and decisive was that Marquez was able to communicate both the offer and counter-offer and their acceptance of respondent EC‘s counter-offer, resulting in a perfected contract of sale.

Petitioners posit that the testimonial and documentary evidence on record amply shows that Glanville, who was the President and General Manager of respondent EC, and Delsaux, who was the Managing Director for ESAC Asia, had the necessary authority to sell the subject property or, at least, had been allowed by respondent EC to hold themselves out in the public as having the power to sell the subject properties. Petitioners identified such evidence, thus:

1. The testimony of Marquez that he was chosen by Glanville as the then President and General Manager of Eternit, to sell the properties of said corporation to any interested party, which authority, as hereinabove discussed, need not be in writing.

2. The fact that the NEGOTIATIONS for the sale of the subject properties spanned SEVERAL MONTHS, from 1986 to 1987;

3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the Petitioners;

4. The GOOD FAITH of Petitioners in believing Eternit‘s offer to sell the properties as evidenced by the Petitioners‘ ACCEPTANCE of the counter-offer;

5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the Security Bank and that an ESCROW agreement was drafted over the subject properties;

6. Glanville‘s telex to Delsaux inquiring "WHEN WE (Respondents) WILL IMPLEMENT ACTION TO BUY AND SELL";

7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced the fact that Petitioners‘ offer was allegedly REJECTED by both Glanville and Delsaux.

18

Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to petitioners‘ offer and thereafter reject such offer unless they were authorized to do so by respondent EC. Petitioners insist that Delsaux confirmed his authority to sell the properties in his letter to Marquez, to wit:

Dear Sir, Re: Land of Eternit Corporation I would like to confirm officially that our Group has decided not to proceed with the sale of the

land which was proposed to you.

The Committee for Asia of our Group met recently (meeting every six months) and examined the position as far as the Philippines are (sic) concerned. Considering the new political situation since the departure of MR. MARCOS and a certain stabilization in the Philippines, the Committee has decided not to stop our operations in Manila[.] [I]n fact production started again last week, and (sic) to reorganize the participation in the Corporation.

We regret that we could not make a deal with you this time, but in case the policy would change at a later stage we would consult you again.

In the meantime, I remain Yours sincerely, C.F. DELSAUX

19

Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were knowingly permitted by respondent EC to sell the properties within the scope of an apparent authority. Petitioners insist that respondents held themselves to the public as possessing power to sell the subject properties.

By way of comment, respondents aver that the issues raised by the petitioners are factual, hence, are proscribed by Rule 45 of the Rules of Court. On the merits of the petition, respondents EC (now EMC) and ESAC reiterate their submissions in the CA. They maintain that Glanville, Delsaux and Marquez had no authority from the stockholders of respondent EC and its Board of Directors to offer the properties for sale to the petitioners, or to any other person or entity for that matter. They assert that the decision and resolution of the CA are in accord with law and the evidence on record, and should be affirmed in toto.

Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and Delsaux, conformed to the written authority of Marquez to sell the properties. The authority of Glanville and Delsaux to bind respondent EC is evidenced by the fact that Glanville and Delsaux negotiated for the sale of 90% of stocks of respondent EC to Ruperto Tan on June 1, 1997. Given the significance of their positions and their duties in respondent EC at the time of the transaction, and the fact that respondent ESAC owns 90% of the shares of stock of respondent EC, a formal resolution of the Board of Directors would be a mere ceremonial formality. What is important, petitioners maintain, is that Marquez was able to communicate the offer of respondent EC and the petitioners‘ acceptance thereof. There was no time that they acted without the knowledge of respondents. In fact, respondent EC never repudiated the acts of Glanville, Marquez and Delsaux.

The petition has no merit. Anent the first issue, we agree with the contention of respondents that the issues raised by

petitioner in this case are factual. Whether or not Marquez, Glanville, and Delsaux were authorized by respondent EC to act as its agents relative to the sale of the properties of respondent EC, and if so, the boundaries of their authority as agents, is a question of fact. In the absence of express written terms creating the relationship of an agency, the existence of an agency is a fact question.

20 Whether an agency by estoppel was created or whether a person

acted within the bounds of his apparent authority, and whether the principal is estopped to deny the apparent authority of its agent are, likewise, questions of fact to be resolved on the basis of the evidence on record.

21 The findings of the trial court on such issues, as affirmed by the CA, are

conclusive on the Court, absent evidence that the trial and appellate courts ignored, misconstrued, or misapplied facts and circumstances of substance which, if considered, would warrant a modification or reversal of the outcome of the case.

22

It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the Rules of Court because the Court is not a trier of facts. It is not to re-examine and assess the evidence on record, whether testimonial and documentary. There are, however, recognized exceptions where the Court may delve into and resolve factual issues, namely:

(1) When the conclusion is a finding grounded entirely on speculations, surmises, or conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings of the Court of Appeals are contrary to those of the trial court; (8) when the findings of fact are conclusions without citation of specific evidence on which they

are based; (9) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion; and (10) when the findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record.

23

We have reviewed the records thoroughly and find that the petitioners failed to establish that the instant case falls under any of the foregoing exceptions. Indeed, the assailed decision of the Court of Appeals is supported by the evidence on record and the law.

It was the duty of the petitioners to prove that respondent EC had decided to sell its properties and that it had empowered Adams, Glanville and Delsaux or Marquez to offer the properties for sale to prospective buyers and to accept any counter-offer. Petitioners likewise failed to prove that their counter-offer had been accepted by respondent EC, through Glanville and Delsaux. It must be stressed that when specific performance is sought of a contract made with an agent, the agency must be established by clear, certain and specific proof.

24

Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines, provides:

SEC. 23. The Board of Directors or Trustees. – Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified.

Indeed, a corporation is a juridical person separate and distinct from its members or stockholders and is not affected by the personal rights,

obligations and transactions of the latter.25

It may act only through its board of directors or, when authorized either by its by-laws or by its board resolution, through its officers or agents in the normal course of business. The general principles of agency govern the relation between the corporation and its officers or agents, subject to the articles of incorporation, by-laws, or relevant provisions of law.

26

Under Section 36 of the Corporation Code, a corporation may sell or convey its real properties, subject to the limitations prescribed by law and the Constitution, as follows:

SEC. 36. Corporate powers and capacity. – Every corporation incorporated under this Code has the power and capacity:

x x x x 7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise

deal with such real and personal property, including securities and bonds of other corporations, as the transaction of a lawful business of the corporation may reasonably and necessarily require, subject to the limitations prescribed by the law and the Constitution.

The property of a corporation, however, is not the property of the stockholders or members, and as such, may not be sold without express authority from the board of directors.

27 Physical acts,

like the offering of the properties of the corporation for sale, or the acceptance of a counter-offer of prospective buyers of such properties and the execution of the deed of sale covering such property, can be performed by the corporation only by officers or agents duly authorized for the purpose by corporate by-laws or by specific acts of the board of directors.

28 Absent such valid

delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with, the performance of authorized duties of such director, are not binding on the corporation.

29

While a corporation may appoint agents to negotiate for the sale of its real properties, the final say will have to be with the board of directors through its officers and agents as authorized by a board resolution or by its by-laws.

30An unauthorized act of an officer of the corporation is not

binding on it unless the latter ratifies the same expressly or impliedly by its board of directors. Any sale of real property of a corporation by a person purporting to be an agent thereof but without written authority from the corporation is null and void. The declarations of the agent alone are generally insufficient to establish the fact or extent of his/her authority.

31

By the contract of agency, a person binds himself to render some service or to do something in representation on behalf of another, with the consent or authority of the latter.

32 Consent of both

principal and agent is necessary to create an agency. The principal must intend that the agent

shall act for him; the agent must intend to accept the authority and act on it, and the intention of the parties must find expression either in words or conduct between them.

33

An agency may be expressed or implied from the act of the principal, from his silence or lack of action, or his failure to repudiate the agency knowing that another person is acting on his behalf without authority. Acceptance by the agent may be expressed, or implied from his acts which carry out the agency, or from his silence or inaction according to the circumstances.

34 Agency

may be oral unless the law requires a specific form.35

However, to create or convey real rights over immovable property, a special power of attorney is necessary.

36 Thus, when a sale of a

piece of land or any portion thereof is through an agent, the authority of the latter shall be in writing, otherwise, the sale shall be void.

37

In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of the Board of Directors of respondent EC empowering Marquez, Glanville or Delsaux as its agents, to sell, let alone offer for sale, for and in its behalf, the eight parcels of land owned by respondent EC including the improvements thereon. The bare fact that Delsaux may have been authorized to sell to Ruperto Tan the shares of stock of respondent ESAC, on June 1, 1997, cannot be used as basis for petitioners‘ claim that he had likewise been authorized by respondent EC to sell the parcels of land.

Moreover, the evidence of petitioners shows that Adams and Glanville acted on the authority of Delsaux, who, in turn, acted on the authority of respondent ESAC, through its Committee for Asia,

38 the Board of Directors of respondent ESAC,

39 and the Belgian/Swiss component of the

management of respondent ESAC.40

As such, Adams and Glanville engaged the services of Marquez to offer to sell the properties to prospective buyers. Thus, on September 12, 1986, Marquez wrote the petitioner that he was authorized to offer for sale the property forP27,000,000.00 and the other terms of the sale subject to negotiations. When petitioners offered to purchase the property for P20,000,000.00, through Marquez, the latter relayed petitioners‘ offer to Glanville; Glanville had to send a telex to Delsaux to inquire the position of respondent ESAC to petitioners‘ offer. However, as admitted by petitioners in their Memorandum, Delsaux was unable to reply immediately to the telex of Glanville because Delsaux had to wait for confirmation from respondent ESAC.

41 When Delsaux finally responded to Glanville on February

12, 1987, he made it clear that, based on the "Belgian/Swiss decision" the final offer of respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to cover all existing obligations prior to final liquidation.

42 The offer of Delsaux emanated only from the "Belgian/Swiss decision," and

not the entire management or Board of Directors of respondent ESAC. While it is true that petitioners accepted the counter-offer of respondent ESAC, respondent EC was not a party to the transaction between them; hence, EC was not bound by such acceptance.

While Glanville was the President and General Manager of respondent EC, and Adams and Delsaux were members of its Board of Directors, the three acted for and in behalf of respondent ESAC, and not as duly authorized agents of respondent EC; a board resolution evincing the grant of such authority is needed to bind EC to any agreement regarding the sale of the subject properties. Such board resolution is not a mere formality but is a condition sine qua non to bind respondent EC. Admittedly, respondent ESAC owned 90% of the shares of stocks of respondent EC; however, the mere fact that a corporation owns a majority of the shares of stocks of another, or even all of such shares of stocks, taken alone, will not justify their being treated as one corporation.

43

It bears stressing that in an agent-principal relationship, the personality of the principal is extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which the latter would have him do. Such a relationship can only be effected with the consent of the principal, which must not, in any way, be compelled by law or by any court.

44

The petitioners cannot feign ignorance of the absence of any regular and valid authority of respondent EC empowering Adams, Glanville or Delsaux to offer the properties for sale and to sell the said properties to the petitioners. A person dealing with a known agent is not authorized, under any circumstances, blindly to trust the agents; statements as to the extent of his powers; such person must not act negligently but must use reasonable diligence and prudence to ascertain whether the agent acts within the scope of his authority.

45 The settled rule is that,

persons dealing with an assumed agent are bound at their peril, and if they would hold the

principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to prove it.

46 In this case, the

petitioners failed to discharge their burden; hence, petitioners are not entitled to damages from respondent EC.

It appears that Marquez acted not only as real estate broker for the petitioners but also as their agent. As gleaned from the letter of Marquez to Glanville, on February 26, 1987, he confirmed, for and in behalf of the petitioners, that the latter had accepted such offer to sell the land and the improvements thereon. However, we agree with the ruling of the appellate court that Marquez had no authority to bind respondent EC to sell the subject properties. A real estate broker is one who negotiates the sale of real properties. His business, generally speaking, is only to find a purchaser who is willing to buy the land upon terms fixed by the owner. He has no authority to bind the principal by signing a contract of sale. Indeed, an authority to find a purchaser of real property does not include an authority to sell.

47

Equally barren of merit is petitioners‘ contention that respondent EC is estopped to deny the existence of a principal-agency relationship between it and Glanville or Delsaux. For an agency by estoppel to exist, the following must be established: (1) the principal manifested a representation of the agent‘s authority or knowlingly allowed the agent to assume such authority; (2) the third person, in good faith, relied upon such representation; (3) relying upon such representation, such third person has changed his position to his detriment.

48 An agency by

estoppel, which is similar to the doctrine of apparent authority, requires proof of reliance upon the representations, and that, in turn, needs proof that the representations predated the action taken in reliance.

49 Such proof is lacking in this case. In their communications to the petitioners,

Glanville and Delsaux positively and unequivocally declared that they were acting for and in behalf of respondent ESAC.

Neither may respondent EC be deemed to have ratified the transactions between the petitioners and respondent ESAC, through Glanville, Delsaux and Marquez. The transactions and the various communications inter se were never submitted to the Board of Directors of respondent EC for ratification.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners.

SO ORDERED.

G.R. No. 76801 August 11, 1995

LOPEZ REALTY, INC., AND ASUNCION LOPEZ GONZALES, petitioners, vs. FLORENTINA FONTECHA, ET AL., AND THE NATIONAL LABOR RELATIONS COMMISSION, respondents.

PUNO, J.:

The controversy at bench arose from a complaint filed by private respondents, 1 namely, Florentina

Fontecha, Mila Refuerzo, Marcial Mamaril, Perfecto Bautista, Edward Mamaril, Marissa Pascual and Allan Pimentel, against their employer Lopez Realty Incorporated (petitioner) and its majority stockholder, Asuncion Lopez Gonzales, for alleged non-payment of their gratuity pay and other benefits.

2 The case

was docketed as NLRC-NCR Case No. 2-2176-82.

Lopez Realty, Inc., is a corporation engaged in real estate business, while petitioner Asuncion Lopez Gonzales is one of its majority shareholders. Her interest in the company vis-a-vis the other shareholders is as follows:

1 Asuncion Lopez Gonzales 7831 shares

2 Teresita Lopez Marquez 7830 shares

3 Arturo F. Lopez 7830 shares

4 Rosendo de Leon 4 shares

5 Benjamin Bernardino 1 share

6 Leo Rivera 1 share

Except for Arturo F. Lopez, the rest of the shareholders also sit as members of the Board of Directors.

As found by the Labor arbiter. 3 sometime in 1978, Arturo Lopez submitted a proposal relative to

the distribution of certain assets of petitioner corporation among its three (3) main shareholders. The proposal had three (3) aspects, viz: (1) the sale of assets of the company to pay for its obligations; (2) the transfer of certain assets of the company to its three (3) main shareholders, while some other assets shall remain with the company; and (3) the reduction of employees with provision for their gratuity pay. The proposal was deliberated upon and approved in a special

meeting of the board of directors held on April 17, 1978.

It appears that petitioner corporation approved two (2) resolutions providing for the gratuity pay of its employees, viz: (a) Resolution No. 6, Series of 1980, passed by the stockholders in a special meeting held on September 8, 1980, resolving to set aside, twice a year, a certain sum of money for the gratuity pay of itsretiring employees and to create a Gratuity Fund for the said contingency; and (b) Resolution No. 10,Series of 1980, setting aside the amount of P157,750.00

as Gratuity Fund covering the period from 1950 up to 1980.

Meanwhile, on July 28, 1981, board member and majority stockholder Teresita Lopez Marquez died.

On August 17, 1981, except for Asuncion Lopez Gonzales who was then abroad, the remaining members of the Board of Directors, namely: Rosendo de Leon, Benjamin Bernardino, and Leo Rivera, convened a special meeting and passed a resolution which reads:

Resolved, as it is hereby resolved that the gratuity (pay) of the employees be given as follows:

(a) Those who will be laid off be given the full amount of gratuity;

(b) Those who will be retained will receive 25% of their gratuity (pay) due on September 1, 1981, and another 25% on January 1, 1982, and 50% to be retained by the office in the meantime. (emphasis supplied)

Private respondents were the retained employees of petitioner corporation. In a letter, dated August 31, 1981, private respondents requested for the full payment of their gratuity pay. Their request was granted in a special meeting held on September 1, 1981. The relevant, portion of the minutes of the said board meeting reads:

In view of the request of the employees contained in the letter dated August 31, 1981, it was also decided that, all those remaining employees will receive another 25% (of their gratuity) on or before October 15, 1981 and another 25% on or before the end of November, 1981 of their respective gratuity.

At that, time, however, petitioner Asuncion Lopez Gonzales was still abroad. Allegedly, while she was still out of the country, she sent a cablegram to the corporation, objecting to certain matters taken up by the board in her absence, such as the sale of some of the assets of the corporation. Upon her return, she flied a derivative suit with the Securities and Exchange Commission (SEC) against majority shareholder Arturo F. Lopez.

Notwithstanding the "corporate squabble" between petitioner Asuncion Lopez Gonzales and Arturo Lopez, the first two (2) installments of the gratuity pay of private respondents Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista were paid by petitioner corporation.

Also, petitioner corporation had prepared the cash vouchers and checks for the third installments of gratuity pay of said private respondents (Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista). For some reason, said vouchers were cancelled by petitioner Asuncion Lopez Gonzales.

Likewise, the first, second and third installments of gratuity pay of the rest of private respondents, particularly, Edward Mamaril, Marissa Pascual and Allan Pimentel, were prepared but cancelled by petitioner Asuncion Lopez Gonzales. Despite private respondents' repeated demands for their gratuity pay, corporation refused to pay the same.

4

On July 23, 1984, Labor Arbiter Raymundo R. Valenzuela rendered judgment in favor of private respondents.

5

Petitioners appealed the adverse ruling of the Labor arbiter to public respondent National Labor Relations Commission. The appeal focused on the alleged non-ratification and non-approval of the assailed August 17, 1981 and September 1, 1981 Board Resolutions during the Annual Stockholders' Meeting held on March 1, 1982. Petitioners further insisted that the payment of the gratuity to some of the private respondents was a mere "mistake" on the part of petitioner corporation since, pursuant to Resolution No. 6, dated September 8, 1980, and Resolution No. 10, dated October 6, 1980, said gratuity pay should be given only upon the employees' retirement.

On November 20, 1985, public respondent, through its Second Division, dismissed the appeal for lack of merit, the pertinent portion of which states:

6

We cannot agree with the contention of respondents (petitioners') that the Labor Arbiter a quocommitted abuse of discretion in his decision.

Respondents' (petitioners') contention that, the two (2) resolutions dated 17 August 1981 and 1 September 1981 . . . which were not approved in the annual stockholders meeting had no force and effect, deserves scant consideration. The records show that the stockholders did not revoke nor nullify these resolutions granting gratuities to complainants.

On record, it appears that the said resolutions arose from the legitimate creation of the Board of Directors who steered the corporate affairs of the corporation. . . .

Respondents' (petitioners') allegation that the three (3) complainants, Mila E. Refuerzo, Marissa S. Pascual and Edward Mamaril, who had resigned after filing the complaint on February 8, 1982, were precluded to (sic) receive gratuity because the said resolutions referred to only retiring employee could not be given credence. A reading of Resolutions dated 17 August 1981 and 1 September 1981 disclosed that there were periods mentioned for the payment of complainants' gratuities. This disproves respondents'

argument allowing gratuities upon retirement of employees. Additionally, the proposed distribution of assets (Exh. C-1) filed by Mr. Arturo F. Lopez also made mention of gratuity pay, " . . . (wherein) an employee who desires to resign from the LRI will be given the gratuity pay he or she earned." (Emphasis supplied) Let us be reminded, too, that the complainants' resignation was not voluntary but it was pressurized (sic) due to "power

struggle" which was evident between Arturo Lopez and Asuncion Gonzales.

The respondents' (petitioners') contention of a mistake to have been committed in granting the first two (2) installments of gratuities to complainants Perfecto Bautista, Florentina Fontecha, Marcial Mamaril and Mila Refuerzo, (has) no legal leg to stand on. The record is bereft of any evidence that the Board of Directors had passed a resolution nor is there any minutes of whatever nature proving mistakes in the award of damages (sic).

With regard to the award of service incentive leave and others, the Commission finds no cogent reason to disturb the appealed decision.

We affirm.

WHEREFORE, let the appealed decision be, as it is hereby, AFFIRMED and let the instant appeal (be) dismissed for lack of merit.

SO ORDERED.

Petitioners reconsidered. 7 In their motion for reconsideration, petitioners assailed the validity of

the board resolutions passed on August 17, 1981 and September 1, 1981, respectively, and claimed, for the first time, that petitioner Asuncion Lopez Gonzales was not notified of the special board meetings held on said dates. The motion for reconsideration was denied by the Second Division on July 24, 1986.

On September 4, 1986, petitioners filed another motion for reconsideration. Again, the motion was denied by public respondent in a Minute Resolution dated November 19, 1986.

8

Hence, the petition. As prayed for, we issued a Temporary Restraining Order, 9 enjoining public

respondent from enforcing or executing the Resolution, dated November 20, 1986 (sic), in NLRC-NCR-2-2176-82.

10

The sole issue is whether or not public respondent acted with grave abuse of discretion in holding that private respondents are entitled to receive their gratuity pay under the assailed board resolutions dated August 17, 1951 and September 1, 1981.

Petitioners contend that the board resolutions passed on August 17, 1981 and September 1, 1981, granting gratuity pay to their retained employees, are ultra vires on the ground that petitioner Asuncion Lopez Gonzales was not duly notified of the said special meetings. They aver, further, that said board resolutions were not ratified by the stockholders of the corporation pursuant to Section 28 1/2 of the Corporation Law (Section 40 of the Corporation Code). They also insist that the gratuity pay must be given only to the retiring employees, to the exclusion of the retained employees or those who voluntarily resigned from their posts.

At the outset, we note that petitioners allegation on lack of notice to petitioner Asuncion Lopez Gonzales was raised for the first time in the in their motion for reconsideration filed before public respondent National Labor Relations Commission, or after said public respondent had affirmed the decision of the labor arbiter. To stress, in their appeal before the NLRC, petitioners never

raised the issue of lack of notice to Asuncion Lopez Gonzales. The appeal dealt with (a) the failure of the stockholders to ratify the assailed resolutions and (b) the alleged "mistake" committed by petitioner corporation in giving the gratuity pay to some of its employees who are yet to retire from employment.

In their comment, 11

private respondents maintain that the new ground of lack of notice was not raised before the labor arbiter, hence, petitioners are barred from raising the same on appeal. Private respondents claim, further, that such failure on the part of petitioners, had deprived them the opportunity to present evidence that, in a subsequent special board meeting held on September 29, 1981, the subject resolution dated September 1, 1981, was unanimously approved by the board of directors of petitioner corporation, including petitioner Asuncion Lopez Gonzales.

12

Indeed, it would be offensive to the basic rules of fair play and justice to allow petitioners to raise questions which have not been passed upon by the labor arbiter and the public respondent NLRC. It is well settled that questions not raised in the lower courts cannot, be raised for the first time on appeal.

13 Hence, petitioners may not invoke any other ground, other than those it

specified at the labor arbiter level, to impugn the validity of the subject resolutions.

We now come to petitioners' argument that the resolutions passed by the board of directors during the special meetings on August 1, 1981, and September 1, 1981, were ultra vires for lack of notice.

The general rule is that a corporation, through its board of directors, should act in the manner and within the formalities, if any, prescribed by its charter or by the general law.

14 Thus, directors

must act as a body in a meeting called pursuant to the law or the corporation's by-laws, otherwise, any action taken therein may be questioned by any objecting director or shareholder.

15

Be that as it may, jurisprudence 16

tells us that an action of the board of directors during a meeting, which was illegal for lack of notice, may be ratified either expressly, by the action of the directors in subsequent legal meeting, or impliedly, by the corporation's subsequent course of conduct. Thus, in one case,

17 it was held:

. . . In 2 Fletcher, Cyclopedia of the Law of Private Corporations (Perm. Ed.) sec. 429, at page 290, it is stated:

Thus, acts of directors at a meeting which was illegal because of want of notice may be ratified by the directors at a subsequent legal meeting, or by the corporations course of conduct . . .

Fletcher, supra, further states in sec. 762, at page 1073-1074:

Ratification by directors may be by an express resolution or vote to that effect, or it may be implied from adoption of the act, acceptance or acquiescence. Ratification may be effected by a resolution or vote of the board of directors expressly ratifying previous acts either of corporate officers or agents; but it is not necessary, ordinarily, to show a meeting and formal action by the board of directors in order to establish a ratification.

In American Casualty Co., v. Dakota Tractor and Equipment Co., 234 F. Supp. 606, 611

(D.N.D. 1964), the court stated:

Moreover, the unauthorized acts of an officer of a corporation may be ratified by the corporation by conduct implying approval and adoption of the act in question. Such ratification may be express or may be inferred from silence and inaction.

In the case at bench, it was established that petitioner corporation did not issue any resolution revoking nor nullifying the board resolutions granting gratuity pay to private respondents. Instead, they paid the gratuity pay, particularly, the first two (2) installments thereof, of private respondents Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista.

Despite the alleged lack of notice to petitioner Asuncion Lopez Gonzales at that time the assailed resolutions were passed, we can glean from the records that she was aware of the corporation's obligation under the said resolutions. More importantly, she acquiesced thereto. As pointed out by private respondents, petitioner Asuncion Lopez Gonzales affixed her signature on Cash Voucher Nos. 81-10-510 and 81-10-506, both dated October 15, 1981, evidencing the 2nd installment of the gratuity pay of private respondents Mila Refuerzo and Florentina Fontecha.

18

We hold, therefore, that the conduct of petitioners after the passage of resolutions dated August, 17, 1951 and September 1, 1981, had estopped them from assailing the validity of said board resolutions.

Assuming, arguendo, that there was no notice given to Asuncion Lopez Gonzalez during the special meetings held on August 17, 1981 and September 1, 1981, it is erroneous to state that the resolutions passed by the board during the said meetings were ultra vires. In legal parlance, "ultra vires" act refers to one which is not within the corporate powers conferred by the Corporation Code or articles of incorporation or not necessary or incidental in the exercise of the powers so conferred.

19

The assailed resolutions before us cover a subject which concerns the benefit and welfare of the company's employees. To stress, providing gratuity pay for its employees is one of the express powers of the corporation under the Corporation Code, hence, petitioners cannot invoke the doctrine of ultra vires to avoid any liability arising from the issuance the subject resolutions.

20

We reject petitioners' allegation that private respondents, namely, Mila Refuerzo, Marissa Pascual and Edward Mamaril who resigned from petitioner corporation after the filing of the case, are precluded from receiving their gratuity pay. Pursuant to board resolutions dated August 17, 1981 and September 1, 1981, respectively, petitioner corporation obliged itself to give the gratuity pay of its retained employees in four (4) installments: on September 1, 1981; October 15, 1981; November, 1981; and January 1, 1982. Hence, at the time the aforenamed private respondents tendered their resignation, the aforementioned private respondents were already entitled to receive their gratuity pay.

Petitioners try to convince us that the subject resolutions had no force and effect in view of the non-approval thereof during the Annual Stockholders' Meeting held on March 1, 1982. To strengthen their position, petitioners cite section 28 1/2 of the Corporation Law (Section 40 of the Corporation Code). We are not persuaded.

The cited provision is not applicable to the case at bench as it refers to the sale, lease, exchange or disposition of all or substantially all of the corporation's assets, including its goodwill. In such a case, the action taken by the board of directors requires the authorization of the stockholders on record.

It will be observed that, except far Arturo Lopez, the stockholders of petitioner corporation also sit as members of the board of directors. Under the circumstances in field, it will be illogical and

superfluous to require the stockholders' approval of the subject resolutions. Thus, even without the stockholders' approval of the subject resolutions, petitioners are still liable to pay private respondents' gratuity pay.

IN VIEW WHEREOF, the instant petition is DISMISSED for lack of merit and the temporary restraining order we issued on February 9, 1987 is LIFTED. Accordingly, the assailed resolution of the National Labor Relations Commission in NLRC-NCR-2176-82 is AFFIRMED. This decision is immediately executory. Costs against petitioners.

SO ORDERED

G.R. No. 137619 February 6, 2001

REYNALDO L. LAUREANO, petitioner, vs. BORMAHECO, INC. and EDGARDO C. CRUZ, respondents.

GONZAGA-REYES, J.:

This is a Petition for Review on Certiorari under Rule 45 seeking to set aside the decision1 of the Court of

Appeals2 which dismissed the Petition for Certiorari in CA-G.R. SP No. 45908.

The antecedents of this case are as follows:3

On December 11, 1962, the spouses Reynaldo Laureano and Florencia Laureano obtained various credit accommodations from the Philippine National Cooperative Bank (PNCB, for brevity), and, as a security therefor, constituted a real estate mortgage upon two (2) lots located at Bel-Air, Makati City, with Transfer Certificate of Title Nos. 59664 and 59665. The Laureano spouses failed to pay their indebtedness. Consequently, PNCB filed a verified application for extra-judicial foreclosure of the real estate mortgage with the Office of the Sheriff of the Regional Trial Court of Makati. On February 20, 1984, a public auction sale was conducted by the Sheriff, and the two lots were purchased by the PNCB as the highest bidder. On the same day, a Certificate of Sale was issued in favor of the bank and registered with the Register of Deeds of Makati City.1âwphi1.nêt

The Laureano spouses failed to redeem the two lots within the one-year period. On March 20, 1985, ownership was consolidated in the name of the PNCB, and new titles with TCT Nos. 136823 and 136824 were issued.

On September 26, 1988, PNCB sold several properties including the two lots to Bormaheco, Inc. (Bormaheco, for brevity). Immediately thereafter, new titles with TCT Nos. 157724 and 157725 were issued in favor of Bormaheco.

On October 20, 1988, Bormaheco filed with the Regional Trial Court of Makati4 and Ex parte Petition for

the Issuance of Writ of Possession (hereafter ex parte petition) for the two lots, docketed as LRC Case No. M-1530. The RTC of Makati ordered the service of a copy of the ex parte petition upon the Laureano spouses. Reynaldo Laureano filed a Motion to Dismiss the ex parte petition on the ground of lack of jurisdiction of the RTC of Makati over the subject matter of the case. The RTC of Makati denied the Motion to Dismiss, and this was challenged by Reynaldo Laureano in a Petition for Certiorari filed with the Court of Appeals (CA-G.R. SP No. 16284). The Court of Appeals dismissed the petition, and denied the corresponding Motion for Reconsideration. The decision of the Court of Appeals was further challenged by Laureano in a Petition for Review filed with the Supreme Court (G.R. No. 87813), but the High Court sustained the said decision and denied the petition in a Resolution dated November 23, 1989. The petitioner's Motion for Reconsideration was denied with finality on January 22, 1990.

On January 18, 1989, LIDECO Corporation filed a Motion for Intervention and to Admit Attached Complaint in Intervention in LRC Case No. M-1530, alleging that it is the owner and possessor of two buildings constructed on the two lots subject of the ex parte petition for the issuance of writ of possession. The complaint for intervention was initially admitted by the RTC, but was stricken off upon motion by Bormaheco alleging that LIDECO Corporation was not a duly registered corporation, and hence had no legal personality. Laureano Investment and Development Corporation, the majority of the stock of which is held by the Laureano spouses, filed an Urgent Motion to Substitute Party Intervenor (LIDECO Corporation) and to Adopt Complaint in Intervention and All Pleadings, but this was denied by the RTC. Laureano Investment and Development Corporation assailed the two RTC Orders

5 in a Petition for

Certiorari filed with the Court of Appeals (C.A. G.R. No. 22763). The Court of Appeals dismissed the petition, and such dismissal was questioned by Laureano Investment and Development Corporation in the Petition for Review filed with the Supreme Court (G.R. No. 100468).

In the meantime, on October 24, 1991, the RTC of Makati, Branch 141, issued an order granting the ex partepetition for the issuance of a writ of possession. On 8 November 1991, Bormaheco, Inc. filed a motion for execution of the RTC Order. Three days later, Reynaldo Laureano filed an Urgent Motion to Dismiss Petition and To Strike Pleadings Filed by Bormaheco on the ground of lack of legal capacity of Bormaheco, Inc. to file the ex parte petition. The resolution of these motions was held in abeyance by the RTC in deference to the case pending with the Supreme Court (G.R. No. 100468). On May 6, 1997, the Supreme Court denied the Petition for Review in G.R. 100468.

On September 25, 1997, the RTC of Makati6 issued the contested Order directing the issuance of a Writ

of Execution/Possession in favor Bormaheco, Inc. Reynaldo Laureano filed a Motion for Reconsideration which was denied by the RTC in the contested Order dated November 4, 1997.

On November 10, 1997, Reynaldo Laureano filed a Petition for Certiorari with the Court of Appeals to annul the two RTC Orders (dated September 25, 1997 and November 4, 1997).

7 The Petition was

dismissed by the Court of Appeals in a Decision promulgated on June 18, 1998. The Motion for Reconsideration filed by Laureano was denied on February 18, 1999. Hence this petition.

The issues, as set forth by the petitioner in his Memorandum, are as follows:8

I.

Did not the Court of Appeals err as a matter of law when it affirmed the trial court's Order of September 25, 1997 and Order of November 4, 1997, and failed to hold as violative of due process the issuance by the trial court of the Order of September 25, 1997 (which finally approved and granted Bormaheco, Inc.'s Petition for the Issuance of Writ of Possession, etc.) when petitioner's "Urgent Motion To Dismiss Petition and To Strike Pleadings Filed by Bormaheco, Inc." was still pending and unresolved?

II.

Did not the Court of Appeals err as a matter of law when it did not hold that the trial court had denied petitioner his right to a hearing?

We rule on both issues in the negative. The appellate court committed no error in dismissing the Petition for Certiorari in CA-G.R. SP No. 45908, and in affirming the questioned orders of the trial court.

After a careful examination of the records of the proceedings of this case, we fail to see any violation of due process by the regional trial court. A second look at the antecedents is in order.

The Philippine National Cooperative Bank foreclosed the real estate mortgage executed by the Laureano spouses on the two lots. For failure of the said spouses to redeem the properties during the one-year

period, ownership of the lots was consolidated in the name of the PNCB, the purchaser in the foreclosure sale. New titles with TCT Nos. 136823 and 136824 were issued under PNCB's name.

As the purchaser of the properties in the extra-judicial foreclosure sale, the PNCB is entitled to a writ of possession therefor. The law on extra-judicial foreclosure of mortgage

9 provides that a purchaser in an

extra-judicial foreclosure sale may take possession of the foreclosed property even before the expiration of the redemption period, provided he furnishes the necessary bond. Possession of the property may be obtained by filing an ex parte motion with the regional trial court of the province or place where the property or part thereof is situated.

10Upon filing of the motion and the required bond, it becomes a

ministerial duty of the court to order the issuance of a writ of possession in favor of the purchaser.11

After the expiration of the one-year period without redemption being effected by the property owner, the right of the purchaser to the possession of the foreclosed property becomes absolute. The basis of this right to possession is the purchaser's ownership of the property.

12 Mere filing of an ex parte motion for the

issuance of the writ of possession would suffice,13

and no bond is required.14

Instead of seeking the issuance of a writ of possession, however, PNCB sold the two lots to private respondent Bormaheco, Inc. By virtue of the sale, Bormaheco became the new owner of the lots, entitled to all rights and interests its predecessor PNCB has therein, including the right to a writ of possession.

On October 20, 1988, Bormaheco, Inc. filed an Ex-parte Petition for the issuance of a Writ of Possession. By the nature of the petition

15, no notice needed to be served upon interested in the subject property.

Hence, there was no necessity of giving notice to the Laureano spouses, especially since they already lost all their interests in the properties when they failed to redeem the same. Nonetheless, the RTC of Makati ordered the service of a copy of the petition upon the Laureano spouses.

16 Reynaldo Laureano, as

an oppositor, even moved to dismiss the ex parte petition on the ground of lack of jurisdiction of the court over the subject matter of the case. The RTC denied the Motion to Dismiss, so Laureano went up to the Court of Appeals on Certiorari. The petition for certiorari (CA-G.R. SP No. 16284) was dismissed by the Court of Appeals, and the Petition for Review of the dismissal was denied by this Court for lack of merit (G.R. No. 87813).

On October 24, 1990, the ex parte petition for the issuance of a writ of possession was granted by the RTC of Makati. Subsequently, Bormaheco, Inc. filed a Motion for Execution thereof. On September, 11, 1991, Reynaldo Laureano filed another motion to dismiss, this time denominated as an Urgent Motion to Dismiss Petition and to Strike Pleadings Filed Pleadings Filed by Bormaheco, on the ground of lack of legal capacity of Bormaheco, Inc. to file the petition.

The proceedings of the ex parte petition were even held in abeyance when an intervention sought by LIDECO corporation and a subsequent motion to substitute LIDECO as intervenor filed by Laureano Investment and Development Corporation were both denied by the RTC of Makati, and the latter corporation, again, went up to the Court of Appeals on certiorari. The Petition for Certiorari (CA-G.R. SP No. 22763) was dismissed by the Court of Appeals, and the corresponding Petition for Review (G.R. No. 100468) filed with this Court was denied.

A few months thereafter, the RTC of Makati issued the questioned order dated September 25, 1997, which resolved the motions pending before the said court, including the motion for execution filed by Bormaheco and the supplemental motion to dismiss the ex parte petition filed by Reynaldo Laureano. The Urgent Motion to Dismiss earlier filed by Laureano was not among the motions listed to be resolved in the Order. Nevertheless, the ground raised in the Urgent Motion to Dismiss, i.e. the lack of legal personality of Bormaheco, Inc., and hence, lack of legal capacity to file the ex parte petition, was addressed by the

RTC, to wit:

xxx To put the issues in their proper perspective, it is best that the motions filed by the oppositor Reynaldo Laureano be first resolved. The motions adverted to above sought the dismissal of the

petition on the sole ground that BORMAHECO, Inc. was not yet in existence as [a] corporation at the time of the filing of the petition on 21 October 1988. xxx

xxx xxx xxx

It is now to late in the day to question the legal personality of the petitioner. Such legal infirmity had been cured by the formal registration of BORMAHECO, INC. as a corporate name with the Securities and Exchange Commission on 13 March 1991. Its predecessor was Border Machinery and Heavy Equipment Co., Inc. which used BORMAHECO, INC. as an acronym. Thus, on 1 October 1950, the articles of incorporation of Border Machinery and Heavy Equipment Co., Inc. was amended and it specifically used BORMAHECO, INC. as its acronym. In said amended articles of incorporation, it was certified:

"FIRST. That the name [of] said corporation shall be BORDER MACHINERY AND HEAVY EQUIPMENT CO., INC. (BORMAHECO, INC.)"

In a larger sense, BORMAHECO, INC. had been registered with the Securities and Exchange Commission upon filing of the said amended articles of incorporation with the Securities and Exchange Commission in 1950. This Court therefore denies the oppositor's motions adverted to above. xxx xxx

A Motion for Reconsideration (of the September 25, 1997 RTC Order) filed by Laureano was denied by the lower court in the contested Order dated November 4, 1997. Laureano questioned the two RTC Orders by way of a Petition for Certiorari with the Court of Appeals, and the issue set forth in the Urgent Motion to Dismiss was resolved anew by the appellate court, to wit:

We are, on the other hand, satisfied that the private respondent was incorporated as early as February 23, 1951 by the SEC as "Border Machinery and Heavy Equipment Company, Inc." with a corporate life of fifty (50) years. The by-laws of the Border Machinery x x was registered with the SEC on April 21, 1951. The business name of the private respondent, in turn, was registered with the Bureau of Domestic Trade in 1978 as BORMAHECO; as BORMAHECO, Inc. in 1983; and as BORMAHECO, Incorporated in 1988. Aside from that, the private respondent was given business permits by the Mayor of Makati, in the name of BORMAHECO, Inc. in 1988 and BORMAHECO, Inc. in 1991.

The amendment or change of corporate name of Border Machinery x x to BORMAHECO, Inc., was approved by the SEC on March 13, 1991.

Certainly, the amendment did not make the private respondent a new corporation, but it just continued its operation and remained as the original corporation of 1951. An authorized change in the name of a corporation has no more effect upon its identity as a change of name of a natural person. The rights of the corporation were not affected and neither were the obligations lessened or added.

xxx xxx xxx

The Petition for Certiorari was dismissed by the Court of Appeals. Still unfazed, the petitioner now comes to us through this petition for review, alleging lack of due process in the proceedings which transpired in the courts below.

As aforestated, we fail to see the lack of due process claimed by the petitioner. On the contrary, the petitioner has been afforded more than what is due. The petitioner was given notice despite the petition being ex parte. He was allowed opposition despite his lack of interest over the subject properties. He

caused the delay of the ex partepetition through legal maneuverings, and in fact, managed to reach this Court at least three times in the process. A simple ex parte petition for the issuance of a writ of possession has become a protracted litigation and, to date, has been pending for more than twelve (12) years. What is manifest, therefore, is the abuse by the petitioner of the legal processes, effectively defeating justice which has long been denied the private respondent. This Court will not countenance such practice of the petitioner and his counsel.

Upon the claim of forum shopping, the private respondent has listed down a number of cases filed by the spouses Reynaldo and Florencia Laureano, allegedly involving the same properties, and is asking this Court to declare the Laureano spouses guilty of forum shopping. This is the second time that this Court has encountered this long list of cases, the first instance being in the case of Laureano Investment and Development Corporation vs. Court of Appeals

17. Unfortunately, as in the aforecited case, Bormaheco did

not go beyond the enumeration of the cases, leaving its allegation of forum shopping bare and unsubstantiated. Without any showing that the cases listed have identity of parties, causes of action and reliefs sought,

18 neither can we make any valid determination as to whether the rules on non-forum

shopping were violated.

WHEREFORE, premises considered, the petition is hereby DENIED for utter lack of merit, and the questioned decision of the Court of Appeals is AFFIRMED. The counsel for the petitioner, Atty. Eduardo R. Robles, is hereby ADMONISHED to be more circumspect in his availment of legal processes, and any future indiscretion shall be dealt with more severely. Treble costs against the petitioner.1âwphi1.nêt

SO ORDERED.

[G.R. No. 117897. May 14, 1997]

ISLAMIC DIRECTORATE OF THE PHILIPPINES, MANUEL F. PEREA and SECURITIES & EXCHANGE COMMISSION, petitioners, vs. COURT OF APPEALS and IGLESIA NI CRISTO, respondents.

D E C I S I O N

HERMOSISIMA, JR., J.:

The subject of this petition for review is the Decision of the public respondent Court of Appeals,

[1] dated October 28, 1994, setting aside the portion of the Decision of the Securities and

Exchange Commission (SEC, for short) in SEC Case No. 4012 which declared null and void the sale of two (2) parcels of land in Quezon City covered by the Deed of Absolute Sale entered into by and between private respondent Iglesia Ni Cristo (INC, for short) and the Islamic Directorate of the Philippines, Inc., Carpizo Group, (IDP, for short).

The following facts appear of record.

Petitioner IDP-Tamano Group alleges that sometime in 1971, Islamic leaders of all Muslim major tribal groups in the Philippines headed by Dean Cesar Adib Majul organized and incorporated the ISLAMIC DIRECTORATE OF THE PHILIPPINES (IDP), the primary purpose of which is to establish an Islamic Center in Quezon City for the construction of a ―Mosque (prayer place), Madrasah (Arabic School), and other religious infrastructures‖ so as to facilitate the effective practice of Islamic faith in the area.

[2]

Towards this end, that is, in the same year, the Libyan government donated money to the IDP to purchase land at Culiat, Tandang Sora, Quezon City, to be used as a Center for the Islamic populace. The land, with an area of 49,652 square meters, was covered by two titles: Transfer Certificate of Title Nos. RT-26520 (176616)

[3] and RT-26521 (170567),

[4] both registered in the name of IDP.

It appears that in 1971, the Board of Trustees of the IDP was composed of the following per Article 6 of its Articles of Incorporation:

Senator Mamintal Tamano[5]

Congressman Ali Dimaporo

Congressman Salipada Pendatun

Dean Cesar Adib Majul

Sultan Harun Al-Rashid Lucman

Delegate Ahmad Alonto

Commissioner Datu Mama Sinsuat

Mayor Aminkadra Abubakar[6]

According to the petitioner, in 1972, after the purchase of the land by the Libyan government in the name of IDP, Martial Law was declared by the late President Ferdinand Marcos. Most of the members of the 1971 Board of Trustees like Senators Mamintal Tamano, Salipada Pendatun, Ahmad Alonto, and Congressman Al-Rashid Lucman flew to the Middle East to escape political persecution.

Thereafter, two Muslim groups sprung, the Carpizo Group, headed by Engineer Farouk Carpizo, and the Abbas Group, led by Mrs. Zorayda Tamano and Atty. Firdaussi Abbas. Both groups claimed to be the legitimate IDP. Significantly, on October 3, 1986, the SEC, in a suit between these two contending groups, came out with a Decision in SEC Case No. 2687 declaring the election of both the Carpizo Group and the Abbas Group as IDP board members to be null and void. The dispositive portion of the SEC Decision reads:

―WHEREFORE, judgment is hereby rendered declaring the elections of both the petitioners[7]

and respondents

[8] as null and void for being violative of the Articles of Incorporation of petitioner

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

SO ORDERED.‖[9]

Neither group, however, took the necessary steps prescribed by the SEC in its October 3, 1986 Decision, and, thus, no valid election of the members of the Board of Trustees of IDP was ever called. Although the Carpizo Group

[10] attempted to submit a set of by-laws, the SEC found that, aside

from Engineer Farouk Carpizo and Atty. Musib Buat, those who prepared and adopted the by-laws were not bona fide members of the IDP, thus rendering the adoption of the by-laws likewise null and void.

On April 20, 1989, without having been properly elected as new members of the Board of Trustees of IDP, the Carpizo Group caused to be signed an alleged Board Resolution

[11] of the IDP, authorizing the

sale of the subject two parcels of land to the private respondent INC for a consideration of P22,343,400.00, which sale was evidenced by a Deed of Absolute Sale

[12] dated April 20, 1989.

On May 30, 1991, the petitioner 1971 IDP Board of Trustees headed by former Senator Mamintal Tamano, or the Tamano Group, filed a petition before the SEC, docketed as SEC Case No. 4012, seeking to declare null and void the Deed of Absolute Sale signed by the Carpizo Group and the INC since the group of Engineer Carpizo was not the legitimate Board of Trustees of the IDP.

Meanwhile, private respondent INC, pursuant to the Deed of Absolute Sale executed in its favor, filed an action for Specific Performance with Damages against the vendor, Carpizo Group, before Branch 81 of the Regional Trial Court of Quezon City, docketed as Civil Case No. Q-90-6937, to compel said group to clear the property of squatters and deliver complete and full physical possession thereof to INC. Likewise, INC filed a motion in the same case to compel one Mrs. Leticia P. Ligon to produce and surrender to the Register of Deeds of Quezon City the owner‘s duplicate copy of TCT Nos. RT-26521 and RT-26520 covering the aforementioned two parcels of land, so that the sale in INC‘s favor may be registered and new titles issued in the name of INC. Mrs. Ligon was alleged to be the mortgagee of the two parcels of land executed in her favor by certain Abdulrahman R.T. Linzag and Rowaida Busran-Sampaco claimed to be in behalf of the Carpizo Group.

The IDP-Tamano Group, on June 11, 1991, sought to intervene in Civil Case No. Q-90-6937 averring, inter alia:

―xxx xxx xxx

2. That the Intervenor has filed a case before the Securities and Exchange Commission (SEC) against Mr. Farouk Carpizo, et, al., who, through false schemes and machinations, succeeded in executing the Deed of Sale between the IDP and the Iglesia Ni Kristo (plaintiff in the instant case) and which Deed of Sale is the subject of the case at bar;

3. That the said case before the SEC is docketed as Case No. 04012, the main issue of which is whether or not the aforesaid Deed of Sale between IDP and the Iglesia ni Kristo is null and void, hence, Intervenor‘s legal interest in the instant case. A copy of the said case is hereto attached as Annex ‗A‘;

4. That, furthermore, Intervenor herein is the duly constituted body which can lawfully and legally represent the Islamic Directorate of the Philippines;

xxx xxx xxx.‖[13]

Private respondent INC opposed the motion arguing, inter alia, that the issue sought to be litigated by way of intervention is an intra-corporate dispute which falls under the jurisdiction of the SEC.

[14]

Judge Celia Lipana-Reyes of Branch 81, Regional Trial Court of Quezon City, denied petitioner‘s motion to intervene on the ground of lack of juridical personality of the IDP-Tamano Group and that the issues being raised by way of intervention are intra-corporate in nature, jurisdiction thereto properly pertaining to the SEC.

[15]

Apprised of the pendency of SEC Case No. 4012 involving the controverted status of the IDP-Carpizo Group but without waiting for the outcome of said case, Judge Reyes, on September 12, 1991, rendered Partial Judgment in Civil Case No. Q-90-6937 ordering the IDP-Carpizo Group to comply with its obligation under the Deed of Sale of clearing the subject lots of squatters and of delivering the actual possession thereof to INC.

[16]

Thereupon, Judge Reyes in another Order, dated March 2, 1992, pertaining also to Civil Case No. Q-90-6937, treated INC as the rightful owner of the real properties and disposed as follows:

―WHEREFORE, Leticia P. Ligon is hereby ordered to produce and/or surrender to plaintiff[17]

the owner‘s copy of RT-26521 (170567) and RT-26520 (176616) in open court for the registration of the Deed of Absolute Sale in the latter‘s name and the annotation of the mortgage executed in her favor by herein defendant Islamic Directorate of the Philippines on the new transfer certificate of title to be issued to plaintiff.

SO ORDERED.‖[18]

On April 6, 1992, the above Order was amended by Judge Reyes directing Ligon ―to deliver the owner‘s duplicate copies of TCT Nos. RT-26521 (170567) and RT-26520 (176616) to the Register of Deeds of Quezon City for the purposes stated in the Order of March 2, 1992.‖

[19]

Mortgagee Ligon went to the Court of Appeals, thru a petition for certiorari, docketed as CA-G.R. No. SP-27973, assailing the foregoing Orders of Judge Reyes. The appellate court dismissed her petition on October 28, 1992.

[20]

Undaunted, Ligon filed a petition for review before the Supreme Court which was docketed as G.R. No. 107751.

In the meantime, the SEC, on July 5, 1993, finally came out with a Decision in SEC Case No. 4012 in this wise:

―1. Declaring the by-laws submitted by the respondents[21]

as unauthorized, and hence, null and void.

2. Declaring the sale of the two (2) parcels of land in Quezon City covered by the Deed of Absolute Sale entered into by Iglesia ni Kristo and the Islamic Directorate of the Philippines, Inc.

[22] null and void.

3. Declaring the election of the Board of Directors[23]

of the corporation from 1986 to 1991 as null and void;

4. Declaring the acceptance of the respondents, except Farouk Carpizo and Musnib Buat, as members of the IDP null and void.

No pronouncement as to cost.

SO ORDERED.‖[24]

Private respondent INC filed a Motion for Intervention, dated September 7, 1993, in SEC Case No. 4012, but the same was denied on account of the fact that the decision of the case had become final and executory, no appeal having been taken therefrom.

[25]

INC elevated SEC Case No. 4012 to the public respondent Court of Appeals by way of a special civil action for certiorari, docketed as CA-G.R. SP No. 33295. On October 28, 1994, the court a quo promulgated a Decision in CA-G.R. SP No. 33295 granting INC‘s petition. The portion of the SEC Decision in SEC Case No. 4012 which declared the sale of the two (2) lots in question to INC as void was ordered set aside by the Court of Appeals.

Thus, the IDP-Tamano Group brought the instant petition for review, dated December 21, 1994, submitting that the Court of Appeals gravely erred in:

1) Not upholding the jurisdiction of the SEC to declare the nullity of the sale;

2) Encouraging multiplicity of suits; and

3) Not applying the principles of estoppel and laches.[26]

While the above petition was pending, however, the Supreme Court rendered judgment in G.R. No. 107751 on the petition filed by Mrs. Leticia P. Ligon. The Decision, dated June 1, 1995, denied the Ligon petition and affirmed the October 28, 1992 Decision of the Court of Appeals in CA-G.R. No. SP-27973 which sustained the Order of Judge Reyes compelling mortgagee Ligon to surrender the owner‘s duplicate copies of TCT Nos. RT-26521 (170567) and RT-26520 (176616) to the Register of Deeds of Quezon City so that the Deed of Absolute Sale in INC‘s favor may be properly registered.

Before we rule upon the main issue posited in this petition, we would like to point out that our disposition in G.R. No. 107751 entitled, ―Ligon v. Court of Appeals,‖ promulgated on June 1, 1995, in no wise constitutes res judicata such that the petition under consideration would be barred if it were the case. Quite the contrary, the requisites of res judicata do not obtain in the case at bench.

Section 49, Rule 39 of the Revised Rules of Court lays down the dual aspects of res judicata in actions in personam, to wit:

―Effect of judgment. - The effect of a judgment or final order rendered by a court or judge of the Philippines, having jurisdiction to pronounce the judgment or order, may be as follows:

xxx xxx xxx

(b) In other cases the judgment or order is, with respect to the matter directly adjudged or as to any other matter that could have been raised in relation thereto, conclusive between the parties and their successors in interest by title subsequent to the commencement of the action or special proceeding, litigating for the same thing and under the same title and in the same capacity;

(c) In any other litigation between the same parties or their successors in interest, that only is deemed to have been adjudged in a former judgment which appears upon its face to have been so adjudged, or which was actually and necessarily included therein or necessary thereto.‖

Section 49(b) enunciates the first concept of res judicata known as ―bar by prior judgment,‖ whereas, Section 49(c) is referred to as ―conclusiveness of judgment.‖

There is ―bar by former judgment‖ when, between the first case where the judgment was rendered, and the second case where such judgment is invoked, there is identity of parties, subject matter and cause of action. When the three identities are present, the judgment on the merits rendered in the first constitutes an absolute bar to the subsequent action. But where between the first case wherein judgment is rendered and the second case wherein such judgment is invoked, there is only identity of parties but there is no identity of cause of action, the judgment is conclusive in the second case, only as to those matters actually and directly controverted and determined, and not as to matters merely involved therein. This is what is termed ―conclusiveness of judgment.‖

[27]

Neither of these concepts of res judicata find relevant application in the case at bench. While there may be identity of subject matter (IDP property) in both cases, there is no identity of parties. The principal parties in G.R. No. 107751 were mortgagee Leticia P. Ligon, as petitioner, and the Iglesia Ni Cristo, as private respondent. The IDP, as represented by the 1971 Board of Trustees or the Tamano Group, was only made an ancillary party in G.R. No. 107751 as intervenor.

[28] It was never originally a principal party

thereto. It must be noted that intervention is not an independent action, but is merely collateral, accessory, or ancillary to the principal action. It is just an interlocutory proceeding dependent on or subsidiary to the case between the original parties.

[29] Indeed, the IDP-Tamano Group cannot be

considered a principal party in G.R. No. 107751 for purposes of applying the principle of res

judicata since the contrary goes against the true import of the action of intervention as a mere subsidiary proceeding without an independent life apart from the principal action as well as the intrinsic character of the intervenor as a mere subordinate party in the main case whose right may be said to be only in aid of the right of the original party.

[30] It is only in the present case, actually, where the IDP-Tamano Group

became a principal party, as petitioner, with the Iglesia Ni Cristo, as private respondent. Clearly, there is no identity of parties in both cases.

In this connection, although it is true that Civil Case No. Q-90-6937, which gave rise to G.R. No. 107751, was entitled, “Iglesia Ni Kristo, Plaintiff v. Islamic Directorate of the Philippines, Defendant,”

[31] the IDP can not be considered essentially a formal party thereto for the simple reason that

it was not duly represented by a legitimate Board of Trustees in that case. As a necessary consequence, Civil Case No. Q-90-6937, a case for Specific Performance with Damages, a mere action in personam, did not become final and executory insofar as the true IDP is concerned since petitioner corporation, for want of legitimate representation, was effectively deprived of its day in court in said case. Res inter alios judicatae nullum aliis praejudicium faciunt. Matters adjudged in a cause do not prejudice those who were not parties to it.

[32] Elsewise put, no person (natural or juridical) shall be affected by a proceeding to which

he is a stranger.[33]

Granting arguendo, that IDP may be considered a principal party in Ligon, res judicata as a ―bar by former judgment‖ will still not set in on the ground that the cause of action in the two cases are different. The cause of action in G.R. No. 107751 is the surrender of the owner‘s duplicate copy of the transfer certificates of title to the rightful possessor thereof, whereas the cause of action in the present case is the validity of the Carpizo Group-INC Deed of Absolute Sale.

Res Judicata in the form of ―conclusiveness of judgment‖ cannot likewise apply for the reason that any mention at all in Ligon as to the validity of the disputed Carpizo Board-INC sale may only be deemed incidental to the resolution of the primary issue posed in said case which is: Who between Ligon and INC has the better right of possession over the owner‘s duplicate copy of the TCTs covering the IDP property? G.R. No. 107751 cannot be considered determinative and conclusive on the matter of the validity of the sale for this particular issue was not the principal thrust of Ligon. To rule otherwise would be to cause grave and irreparable injustice to IDP which never gave its consent to the sale, thru a legitimate Board of Trustees.

In any case, while it is true that the principle of res judicata is a fundamental component of our judicial system, it should be disregarded if its rigid application would involve the sacrifice of justice to technicality.

[34]

The main question though in this petition is: Did the Court of Appeals commit reversible error in setting aside that portion of the SEC‘s Decision in SEC Case No. 4012 which declared the sale of two (2) parcels of land in Quezon City between the IDP-Carpizo Group and private respondent INC null and void?

We rule in the affirmative.

There can be no question as to the authority of the SEC to pass upon the issue as to who among the different contending groups is the legitimate Board of Trustees of the IDP since this is a matter properly falling within the original and exclusive jurisdiction of the SEC by virtue of Sections 3 and 5(c) of Presidential Decree No. 902-A:

―Section 3. The Commission shall have absolute jurisdiction, supervision and control over all corporations, partnerships or associations, who are the grantees of primary franchises and/or a license or

permit issued by the government to operate in the Philippines xxx xxx.‖

x x x x x x x x x

Section 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as

expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving:

x x x x x x x x x

c) Controversies in the selection or appointment of directors, trustees, officers, or managers of such corporations, partnerships or associations. x x x.‖

If the SEC can declare who is the legitimate IDP Board, then by parity of reasoning, it can also declare who is not the legitimate IDP Board. This is precisely what the SEC did in SEC Case No. 4012 when it adjudged the election of the Carpizo Group to the IDP Board of Trustees to be null and void.

[35] By this

ruling, the SEC in effect made the unequivocal finding that the IDP-Carpizo Group is a bogus Board of Trustees. Consequently, the Carpizo Group is bereft of any authority whatsoever to bind IDP in any kind of transaction including the sale or disposition of IDP property.

It must be noted that SEC Case No. 4012 is not the first case wherein the SEC had the opportunity to pass upon the status of the Carpizo Group. As far back as October 3, 1986, the SEC, in Case No. 2687,

[36] in a suit between the Carpizo Group and the Abbas Group, already declared the election of the

Carpizo Group (as well as the Abbas Group) to the IDP Board as null and void for being violative of the Articles of Incorporation.

[37] Nothing thus becomes more settled than that the IDP-Carpizo Group with

whom private respondent INC contracted is a fake Board.

Premises considered, all acts carried out by the Carpizo Board, particularly the sale of the Tandang Sora property, allegedly in the name of the IDP, have to be struck down for having been done without the consent of the IDP thru a legitimate Board of Trustees. Article 1318 of the New Civil Code lays down the essential requisites of contracts:

―There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.‖

All these elements must be present to constitute a valid contract. For, where even one is absent, the contract is void. As succinctly put by Tolentino, consent is essential for the existence of a contract, and where it is wanting, the contract is non-existent.

[38] In this case, the IDP, owner of the subject parcels of

land, never gave its consent, thru a legitimate Board of Trustees, to the disputed Deed of Absolute Sale executed in favor of INC. This is, therefore, a case not only of vitiated consent, but one where consent on the part of one of the supposed contracting parties is totally wanting. Ineluctably, the subject sale is void and produces no effect whatsoever.

The Carpizo Group-INC sale is further deemed null and void ab initio because of the Carpizo Group‘s failure to comply with Section 40 of the Corporation Code pertaining to the disposition of all or substantially all assets of the corporation:

―Sec. 40. Sale or other disposition of assets. - Subject to the provisions of existing laws on illegal combinations and monopolies, a corporation may, by a majority vote of its board of directors or trustees, sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and assets, including its goodwill, upon terms and conditions and for such consideration, which may be money, stocks, bonds or other instruments for the payment of money or other property or consideration, as its board of directors or trustees may deem expedient, when authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock; or in case of non-stock corporation,

by the vote of at least two-thirds (2/3) of the members, in a stockholders’ or members’ meeting duly called for the purpose. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally: Provided, That any dissenting stockholder may exercise his appraisal right under the

conditions provided in this Code.

A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated.

x x x x x x x x x.‖

The Tandang Sora property, it appears from the records, constitutes the only property of the IDP. Hence, its sale to a third-party is a sale or disposition of all the corporate property and assets of IDP falling squarely within the contemplation of the foregoing section. For the sale to be valid, the majority vote of the legitimate Board of Trustees, concurred in by the vote of at least 2/3 of the bona fide members of the corporation should have been obtained. These twin requirements were not met as the Carpizo Group which voted to sell the Tandang Sora property was a fake Board of Trustees, and those whose names and signatures were affixed by the Carpizo Group together with the sham Board Resolution authorizing the negotiation for the sale were, from all indications, not bona fide members of the IDP as they were made to appear to be. Apparently, there are only fifteen (15) official members of the petitioner corporation including the eight (8) members of the Board of Trustees.

[39]

All told, the disputed Deed of Absolute Sale executed by the fake Carpizo Board and private respondent INC was intrinsically void ab initio.

Private respondent INC nevertheless questions the authority of the SEC to nullify the sale for being made outside of its jurisdiction, the same not being an intra-corporate dispute.

The resolution of the question as to whether or not the SEC had jurisdiction to declare the subject sale null and void is rendered moot and academic by the inherent nullity of the highly dubious sale due to lack of consent of the IDP, owner of the subject property. No end of substantial justice will be served if we reverse the SEC‘s conclusion on the matter, and remand the case to the regular courts for further litigation over an issue which is already determinable based on what we have in the records.

It is unfortunate that private respondent INC opposed the motion for intervention filed by the 1971 Board of Trustees in Civil Case No. Q-90-6937, a case for Specific Performance with Damages between INC and the Carpizo Group on the subject Deed of Absolute Sale. The legitimate IDP Board could have been granted ample opportunity before the regional trial court to shed light on the true status of the Carpizo Board and settled the matter as to the validity of the sale then and there. But INC, wanting to acquire the property at all costs and threatened by the participation of the legitimate IDP Board in the civil suit, argued for the denial of the motion averring, inter alia, that the issue sought to be litigated by the movant is intra-corporate in nature and outside the jurisdiction of the regional trial court.

[40] As a result, the

motion for intervention was denied. When the Decision in SEC Case No. 4012, came out nullifying the sale, INC came forward, this time, quibbling over the issue that it is the regional trial court, and not the SEC, which has jurisdiction to rule on the validity of the sale. INC is here trifling with the courts. We cannot put a premium on this clever legal maneuverings of private respondent which, if countenanced, would result in a failure of justice.

Furthermore, the Court observed that the INC bought the questioned property from the Carpizo Group without even seeing the owner‘s duplicate copy of the titles covering the property. This is very strange considering that the subject lot is a large piece of real property in Quezon City worth millions, and that under the Torrens System of Registration, the minimum requirement for one to be a good faith buyer for value is that the vendee at least sees the owner‘s duplicate copy of the title and relies upon the same.

[41] The private respondent presumably knowledgeable on the aforesaid working of the Torrens

System, did not take heed of this and nevertheless went through with the sale with undue haste. The

unexplained eagerness of INC to buy this valuable piece of land in Quezon City without even being presented with the owner‘s copy of the titles casts very serious doubt on the rightfulness of its position as vendee in the transaction.

WHEREFORE, the petition is GRANTED. The Decision of the public respondent Court of Appeals dated October 28, 1994 in CA-G.R. SP No. 33295 is SET ASIDE. The Decision of the Securities and Exchange Commission dated July 5, 1993 in SEC Case No. 4012 is REINSTATED. The Register of Deeds of Quezon City is hereby ordered to cancel the registration of the Deed of Absolute Sale in the name of respondent Iglesia Ni Cristo, if one has already been made. If new titles have been issued in the name of Iglesia Ni Cristo, the register of Deeds is hereby ordered to cancel the same, and issue new ones in the name of petitioner Islamic Directorate of the Philippines. Petitioner corporation is ordered to return to private respondent whatever amount has been initially paid by INC as consideration for the property with legal interest, if the same was actually received by IDP. Otherwise, INC may run after Engineer Farouk Carpizo and his group for the amount of money paid.

SO ORDERED.

Islamic Directorate of the Philippines vs. CA Case Digest Islamic Directorate of the Philippines vs. Court of Appeals [GR 117897, 14 May 1997] Facts: Sometime in 1971, Islamic leaders of all Muslim major tribal groups in the Philippines headed by Dean Cesar Adib Majul organized and incorporated the ISLAMIC DIRECTORATE OF THE PHILIPPINES (IDP), the primary purpose of which is to establish an Islamic Center in Quezon City for, the construction of a "Mosque (prayer place, Madrasah (Arabic School), and other religious infrastructures" so as to facilitate the effective practice of Islamic faith in the area. Towards this end, that is, in the same year, the Libyan government donated money to the IDP to purchase land at Culiat, Tandang Sora, Quezon City, to be used as a Center for the Islamic populace. The land, with an area of 49,652 square meters, we covered by two titles: TCTs RT-26520 (176616) and RT-26521 (170567), both registered in the name of IDP. In 1971, the Board of Trustees of the IDP was composed of Senator Mamintal Tamano, Congressman Ali Dimaporo, Congressman Salipada Pendatun, Dean Cesar Adib Majul, Sultan Harun Al-Rashid Lucman, Delegate Ahmad Alonto, Commissioner Datu Mama Sinsuat and Mayor Aminkadra Abubakar. In 1972, after the purchase of the land by the Libyan government in the name of IDP, Martial Law was declared by the late President Ferdinand Marcos. Most of the members of the 1971 Board of Trustees like Senators Mamintal Tamano, Salipada Pendatun, Ahmad Alonto, and Congressman Al-Rashid Lucman flew to the Middle East to escape political persecution. Thereafter, two Muslim groups sprung, the Carpizo Group, headed by Engineer Farouk Carpizo, and the Abbas Group, led by Mrs. Zorayda Tamano and Atty. Firdaussi Abbas. Both groups claimed to be the legitimate IDP. Significantly, on 3 October 1986, the SEC, in a suit between these two contending groups, came out with a Decision in SEC Case 2687 declaring the election of both the Carpizo Group and the Abbas Group as IDP board members to be null and void. Neither group, however, took the necessary steps prescribed by the SEC in its 3 October 1986 Decision, and no valid election of the members of the Board of Trustees of IDP was ever called. Although the Carpizo Group attempted to submit a set of by-laws, the SEC found that, aside from that Engineer Farouk Carpizo and Atty. Musib Buat, those who prepared and adopted the by-laws were not bona fide members of the IDP, thus rendering the adoption of the by-laws likewise null and void. On 20 April 1989, without having been properly elected as new members of the Board of Trustees of IDP, the Carpizo Group caused to be signed an alleged Board Resolution of the IDP, authorizing the sale of the subject two parcels of land to the Iglesia ni Cristo (INC) for a consideration of P22,343,400.00, which sale was evidenced by a Deed of Absolute Sale 12 dated 20 April 1989. On 30 May 1991, the 1971 IDP Board of Trustees headed by former Senator Mamintal Tamano, or the Tamano Group, filed a petition before the SEC (SEC Case 4012) seeking to declare null and void the Deed of Absolute Sale signed by the Carpizo Group and the INC since the group of Engineer Carpizo was not the legitimate Board of Trustees of the IDP. Meanwhile, INC, pursuant to the Deed of Absolute Sale executed in its favor, filed an action for Specific Performance with Damages against the vendor, Carpizo Group, before Branch 81 of the Regional Trial

Court of Quezon City (Civil Case Q-90-6937) to compel said group to clear the property of squatters and deliver complete and full physical possession thereof to INC. Likewise, INC filed a motion in the same case to compel one Mrs. Leticia P. Ligon to produce and surrender to the Register of Deeds of Quezon City the owner's duplicate copy of TCTs RT-26521 and RT-26520 covering the two parcels of land, so that the sale in INC's favor may be registered and new titles issued in the name of INC. Mrs. Ligon was alleged to be the mortgagee of the two parcels of land executed in her favor by certain Abdulrahman R.T. Linzag and Rowaida Busran-Sampaco claimed to be in behalf of the Carpizo Group. Judge Celia Lipana-Reyes of Branch 81, Regional Trial Court of Quezon City, denied IDP's motion to intervene on the ground of lack of juridical personality of the IDP-Tamano Group and that the issues being raised by way of intervention are intra-corporate in nature, jurisdiction thereto properly pertaining to the SEC. Apprised of the pendency of SEC Case 4012 involving the controverted status of the IDP-Carpizo Group but without waiting for the outcome of said case, Judge Reyes, on 12 September 1991, rendered Partial Judgment in Civil Case Q-90-6937 ordering the IDP-Carpizo Group to comply with its obligation under the Deed of Sale of clearing the subject lots of squatters and of delivering the actual possession thereof to INC. Thereupon Judge Reyes in another Order, dated 2 March 1992, pertaining also to Civil Case Q-90-6937, treated INC as the rightful owner of the real properties and disposed. On 6 April 1992, the Order was amended by Judge Reyes directing Ligon "to deliver the owner's duplicate copies of TCT Nos. RT-26521 (170567) and RT-26520 (176616) to the Register of Deeds of Quezon City for the purposes stated in the Order of March 2, 1992." Mortgagee Ligon went to the Court of Appeals, thru a petition for certiorari (CA-GR SP-27973), assailing the Orders of Judge Reyes. The appellate court dismissed her petition on 28 October 1992. Undaunted, Ligon filed a petition for review before the Supreme Court (GR 107751). In the meantime, the SEC, on 5 July 1993, finally came out with a Decision in SEC Case 4012, Declaring the by-laws submitted by the IDP-Caprizo group as unauthorized, and hence, null and void; declaring the sale of the two (2) parcels of land in Quezon City covered by the Deed of Absolute Sale entered into by Iglesia ni Kristo and the Islamic Directorate of the Philippines, Inc. null and void; declaring the election of the Board of Directors 23 of the corporation from 1986 to 1991 as null and void; and Declaring the acceptance of the respondents, except Farouk Carpizo and Musnib Buat, as members of the IDP null and void. The INC filed a Motion for Intervention, dated 7 September 1993, in SEC Case 4012, but the same was denied on account of the fact that the decision of the case had become final and executory, no appeal having been taken therefrom. INC elevated SEC Case 4012 to the Court of Appeals by way of a special civil action for certiorari (CA-GR SP 33295). On 28 October 1994, the appeallate court promulgated a Decision granting INC's petition. The portion of the SEC Decision in SEC Case 4012 which declared the sale of the two (2) lots in question to INC as void was ordered set aside by the Court of Appeals. Thus, the IDP-Tamano Group brought the petition for review, dated 21 December 1994, to the Supreme Court. While the petition was pending, however, the Supreme Court rendered judgment in GR 107751 on the petition filed by Mrs. Leticia P. Ligon. The Decision, dated 1 June 1995, denied the Ligon petition and affirmed the 28 October 1992 Decision of the Court of Appeals in CA-GR SP-27973 which sustained the Order of Judge Reyes compelling mortgagee Ligon to surrender the owner's duplicate copies of TCTs RT-26521 (170567) and RT-26520 (176616) to the Register of Deeds of Quezon City so that the Deed of Absolute Sale in INC's favor may be properly registered. Issue: Whether the Tandang Sora property was legitimately sold to the INC. Held: As far back as 3 October 1986, the SEC, in Case 2687, in a suit between the Carpizo Group and the Abbas Group, already declared the election of the Carpizo Group (as well as the Abbas Group) to the IDP Board as null and void for being violative of the Articles of Incorporation. Nothing thus becomes more settled than that the IDP-Carpizo Group with whom INC contracted is a fake Board. Premises considered, all acts carried out by the Carpizo Board, particularly the sale of the Tandang Sora property, allegedly in the name of the IDP, have to be struck down for having been done without the consent of the IDP thru a legitimate Board of Trustees. Article 1318 of the New Civil Code lays down the essential requisites of contracts, and where all these elements must be present to constitute a valid contract. For, where even one is absent, the contract is void. Specifically, consent is essential for the existence of a contract, and where it is wanting, the contract is non-existent. Herein, the IDP, owner of the subject parcels of land, never gave its consent, thru a legitimate Board of Trustees, to the disputed Deed of Absolute Sale executed in favor of INC. This is, therefore, a case not only of vitiated consent, but one where consent on

the part of one of the supposed contracting parties is totally wanting. Ineluctably, the subject sale is void and produces no effect whatsoever. The Carpizo Group-INC sale is further deemed null and void ab initio because of the Carpizo Group's failure to comply with Section 40 of the Corporation Code pertaining to the disposition of all or substantially all assets of the corporation. The Tandang Sora property, it appears from the records, constitutes the only property of the IDP. Hence, its sale to a third-party is a sale or disposition of all the corporate property and assets of IDP falling squarely within the contemplation of the foregoing section. For the sale to be valid, the majority vote of the legitimate Board of Trustees, concurred in by the vote of at least 2/3 of the bona fide members of the corporation should have been obtained. These twin requirements were no met as the Carpizo Group which voted to sell the Tandang Sora property was a fake Board of Trustees, and those whose names and signatures were affixed by the Carpizo Group together with the sham Board Resolution authorizing the negotiation for the sale were, from all indications, not bona fide members of the IDP as they were made to appear to be. Apparently, there are only 15 official members of the IDP including the 8 members of the Board of Trustees. All told, the disputed Deed of Absolute Sale executed by the fake Carpizo Board and INC was intrinsically void ab initio.