Case Digest: Grace Christian High School v.

CA
GRACE CHRISTIAN HIGH SCHOOL, petitioner,vs. THE COURT OF APPEALS, GRACE
VILLAGE ASSOCIATION, INC., ALEJANDRO G. BELTRAN, and ERNESTO L. GO,
respondents.
G.R. No. 108905 October 23, 1997
MENDOZA, J.:
Petitioner Grace Christian High School is an educational institution located at the Grace Village
in Quezon City, while Private respondent Grace Village Association, Inc. ["Association'] is an
organization of lot and/or building owners, lessees and residents at Grace Village.
The original 1968 by-laws provide that the Board of Directors, composed of eleven (11)
members, shall serve for one (1) year until their successors are duly elected and have qualified.
On 20 December 1975, a committee of the board of directors prepared a draft of an amendment
to the
by-laws which provides that "GRACE CHRISTIAN HIGH SCHOOL representative is a
permanent
Director of the ASSOCIATION."
However, this draft was never presented to the general membership for approval. Nevertheless,
from 1975 to 1990, petitioner was given a permanent seat in the board of directors of the
association.
On 13 February 1990, the association's committee on election sought to change the by-laws
and informed the Petitioner's school principal "the proposal to make the Grace Christian High
School representative as a permanent director of the association, although previously tolerated
in the past elections should be reexamined."
Following this advice, notices were sent to the members of the association that the provision on
election of directors of the 1968 by-laws of the association would be observed. Petitioner
requested the chairman of the election committee to change the notice to honor the 1975 bylaws provision, but was denied.
The school then brought suit for mandamus in the Home Insurance and Guaranty Corporation
(HIGC) to compel the board of directors to recognize its right to a permanent seat in the board.
Meanwhile, the opinion of the SEC was sought by the association, and SEC rendered an
opinion to the effect that the practice of allowing unelected members in the board was contrary
to the existing by-laws of the association and to 92 of the Corporation Code (B.P. Blg. 68). This
was adopted by the association in its Answer in the mandamus filed with the HIGC.

The HIGC hearing officer ruled in favor of the association, which decision was affirmed by the
HIGC Appeals Board and the Court of Appeals.
Issue: W/N the 1975 provision giving the petitioner a permanent board seat was valid.
Ruling: No.
Section 23 of the Corporation Code (and its predecessor Section 28 and 29 of the Corporation
Law) leaves no room for doubt that the Board of Directors of a Corporation must be elected from
among the stockholders or members.
There may be corporations in which there are unelected members in the board but it is clear
that in these instances, the unelected members sit as ex officio members, i.e., by virtue of and
for as long as they hold a particular office (e.g. whoever is the Archbishop of Manila is
considered a member of the board of Cardinal Santos Memorial Hospital, Inc.)
But in the case of petitioner, there is no reason at all for its representative to be given a seat in
the board. Nor does petitioner claim a right to such seat by virtue of an office held. In fact it was
not given such seat in the beginning. It was only in 1975 that a proposed amendment to the bylaws sought to give it one.
Since the provision in question is contrary to law, the fact that it has gone unchallenged for
fifteen years cannot forestall a later challenge to its validity. Neither can it attain validity through
acquiescence because, if it is contrary to law, it is beyond the power of the members of the
association to waive its invalidity.
It is more accurate to say that the members merely tolerated petitioner's representative and
tolerance cannot be considered ratification.
Nor can petitioner claim a vested right to sit in the board on the basis of "practice." Practice, no
matter how long continued, cannot give rise to any vested right if it is contrary to law.
2.Gokongwei vs. SEC Case Digest
Gokongwei vs. Securities and Exchange Commission
[GR L-45911, 11 April 1979]
Facts: [SEC Case 1375] On 22 October 1976, John Gokongwei Jr., as stockholder of San
Miguel Corporation, filed with the Securities and Exchange Commission (SEC) a petition for
"declaration of nullity of amended by-laws, cancellation of certificate of filing of amended bylaws, injunction and damages with prayer for a preliminary injunction" against the majority of the
members of the Board of Directors and San Miguel Corporation as an unwilling petitioner. As a
first cause of action, Gokongwei alleged that on 18 September 1976, Andres Soriano, Jr., Jose
M. Soriano, Enrique Zobel, Antonio Roxas, Emeterio Buao, Walthrode B. Conde, Miguel
Ortigas, and Antonio Prieto amended by bylaws of the corporation, basing their authority to do

so on a resolution of the stockholders adopted on 13 March 1961, when the outstanding capital
stock of the corporation was only P70,139.740.00, divided into 5,513,974 common shares at
P10.00 per share and 150,000 preferred shares at P100.00 per share. At the time of the
amendment, the outstanding and paid up shares totalled 30,127,043, with a total par value of
P301,270,430.00.
It was contended that according to section 22 of the Corporation Law and Article VIII of the bylaws of the corporation, the power to amend, modify, repeal or adopt new by-laws may be
delegated to the Board of Directors only by the affirmative vote of stockholders representing not
less than 2/3 of the subscribed and paid up capital stock of the corporation, which 2/3 should
have been computed on the basis of the capitalization at the time of the amendment. Since the
amendment was based on the 1961 authorization, Gokongwei contended that the Board acted
without authority and in usurpation of the power of the stockholders. As a second cause of
action, it was alleged that the authority granted in 1961 had already been exercised in 1962 and
1963, after which the authority of the Board ceased to exist. As a third cause of action,
Gokongwei averred that the membership of the Board of Directors had changed since the
authority was given in 1961, there being 6 new directors. As a fourth cause of action, it was
claimed that prior to the questioned amendment, Gokogwei had all the qualifications to be a
director of the corporation, being a substantial stockholder thereof; that as a stockholder,
Gokongwei had acquired rights inherent in stock ownership, such as the rights to vote and to be
voted upon in the election of directors; and that in amending the by-laws, Soriano, et. al.
purposely provided for Gokongwei's disqualification and deprived him of his vested right as
afore-mentioned, hence the amended by-laws are null and void. As additional causes of action,
it was alleged that corporations have no inherent power to disqualify a stockholder from being
elected as a director and, therefore, the questioned act is ultra vires and void; that Andres M.
Soriano, Jr. and/or Jose M. Soriano, while representing other corporations, entered into
contracts (specifically a management contract) with the corporation, which was avowed
because the questioned amendment gave the Board itself the prerogative of determining
whether they or other persons are engaged in competitive or antagonistic business; that the
portion of the amended by-laws which states that in determining whether or not a person is
engaged in competitive business, the Board may consider such factors as business and family
relationship, is unreasonable and oppressive and, therefore, void; and that the portion of the
amended by-laws which requires that "all nominations for election of directors shall be submitted
in writing to the Board of Directors at least five (5) working days before the date of the Annual
Meeting" is likewise unreasonable and oppressive. It was, therefore, prayed that the amended
by-laws be declared null and void and the certificate of filing thereof be cancelled, and that
Soriano, et. al. be made to pay damages, in specified amounts, to Gokongwei. On 28 October
1976, in connection with the same case, Gokongwei filed with the Securities and Exchange
Commission an "Urgent Motion for Production and Inspection of Documents", alleging that the
Secretary of the corporation refused to allow him to inspect its records despite request made by
Gokongwei for production of certain documents enumerated in the request, and that the
corporation had been attempting to suppress information from its stockholders despite a
negative reply by the SEC to its query regarding their authority to do so.

The motion was opposed by Soriano, et. al. The Corporation, Soriano, et. al. filed their answer,
and their opposition to the petition, respectively. Meanwhile, on 10 December 1976, while the
petition was yet to be heard, the corporation issued a notice of special stockholders' meeting for
the purpose of "ratification and confirmation of the amendment to the By-laws", setting such
meeting for 10 February 1977. This prompted Gokongwei to ask the SEC for a summary
judgment insofar as the first cause of action is concerned, for the alleged reason that by calling
a special stockholders' meeting for the aforesaid purpose, Soriano, et. al. admitted the invalidity
of the amendments of 18 September 1976. The motion for summary judgment was opposed by
Soriano, et. al. Pending action on the motion, Gokongwei filed an "Urgent Motion for the
Issuance of a Temporary Restraining Order", praying that pending the determination of
Gokongwei's application for the issuance of a preliminary injunction and or Gokongwei's motion
for summary judgment, a temporary restraining order be issued, restraining Soriano, et. al. from
holding the special stockholders' meeting as scheduled. This motion was duly opposed by
Soriano, et. al. On 10 February 1977, Cremation issued an order denying the motion for
issuance of temporary restraining order. After receipt of the order of denial, Soriano, et. al.
conducted the special stockholders' meeting wherein the amendments to the by-laws were
ratified. On 14 February 1977, Gokongwei filed a consolidated motion for contempt and for
nullification of the special stockholders' meeting. A motion for reconsideration of the order
denying Gokongwei's motion for summary judgment was filed by Gokongwei before the SEC on
10 March 1977.
[SEC Case 1423] Gokongwei alleged that, having discovered that the corporation has been
investing corporate funds in other corporations and businesses outside of the primary purpose
clause of the corporation, in violation of section 17-1/2 of the Corporation Law, he filed with
SEC, on 20 January 1977, a petition seeking to have Andres M. Soriano, Jr. and Jose M.
Soriano, as well as the corporation declared guilty of such violation, and ordered to account for
such investments and to answer for damages. On 4 February 1977, motions to dismiss were
filed by Soriano, et. al., to which a consolidated motion to strike and to declare Soriano, et. al. in
default and an opposition ad abundantiorem cautelam were filed by Gokongwei. Despite the fact
that said motions were filed as early as 4 February 1977, the Commission acted thereon only on
25 April 1977, when it denied Soriano, et. al.'s motions to dismiss and gave them two (2) days
within which to file their answer, and set the case for hearing on April 29 and May 3, 1977.
Soriano, et. al. issued notices of the annual stockholders' meeting, including in the Agenda
thereof, the "reaffirmation of the authorization to the Board of Directors by the stockholders at
the meeting on 20 March 1972 to invest corporate funds in other companies or businesses or
for purposes other than the main purpose for which the Corporation has been organized, and
ratification of the investments thereafter made pursuant thereto." By reason of the foregoing, on
28 April 1977, Gokongwei filed with the SEC an urgent motion for the issuance of a writ of
preliminary injunction to restrain Soriano, et. al. from taking up Item 6 of the Agenda at the
annual stockholders' meeting, requesting that the same be set for hearing on 3 May 1977, the
date set for the second hearing of the case on the merits. The SEC, however, cancelled the
dates of hearing originally scheduled and reset the same to May 16 and 17, 1977, or after the
scheduled annual stockholders' meeting. For the purpose of urging the Commission to act,

Gokongwei filed an urgent manifestation on 3 May 1977, but this notwithstanding, no action has
been taken up to the date of the filing of the instant petition.
Gokongwei filed a petition for petition for certiorari, mandamus and injunction, with prayer for
issuance of writ of preliminary injunction, with the Supreme Court, alleging that there appears a
deliberate and concerted inability on the part of the SEC to act.
Issue:
Whether the corporation has the power to provide for the (additional) qualifications of its
directors.
Whether the disqualification of a competitor from being elected to the Board of Directors is a
reasonable exercise of corporate authority.
Whether the SEC gravely abused its discretion in denying Gokongwei's request for an
examination of the records of San Miguel International, Inc., a fully owned subsidiary of San
Miguel Corporation.
Whether the SEC gravely abused its discretion in allowing the stockholders of San Miguel
Corporation to ratify the investment of corporate funds in a foreign corporation.
Held:
1. It is recognized by all authorities that "every corporation has the inherent power to adopt bylaws 'for its internal government, and to regulate the conduct and prescribe the rights and duties
of its members towards itself and among themselves in reference to the management of its
affairs.'" In this jurisdiction under section 21 of the Corporation Law, a corporation may prescribe
in its by-laws "the qualifications, duties and compensation of directors, officers and employees."
This must necessarily refer to a qualification in addition to that specified by section 30 of the
Corporation Law, which provides that "every director must own in his right at least one share of
the capital stock of the stock corporation of which he is a director." Any person "who buys stock
in a corporation does so with the knowledge that its affairs are dominated by a majority of the
stockholders and that he impliedly contracts that the will of the majority shall govern in all
matters within the limits of the act of incorporation and lawfully enacted by-laws and not
forbidden by law." To this extent, therefore, the stockholder may be considered to have "parted
with his personal right or privilege to regulate the disposition of his property which he has
invested in the capital stock of the corporation, and surrendered it to the will of the majority of
his fellow incorporators. It can not therefore be justly said that the contract, express or implied,
between the corporation and the stockholders is infringed by any act of the former which is
authorized by a majority." Pursuant to section 18 of the Corporation Law, any corporation may
amend its articles of incorporation by a vote or written assent of the stockholders representing at
least two-thirds of the subscribed capital stock of the corporation. If the amendment changes,
diminishes or restricts the rights of the existing shareholders, then the dissenting minority has
only one right, viz.: "to object thereto in writing and demand payment for his share." Under
section 22 of the same law, the owners of the majority of the subscribed capital stock may
amend or repeal any by-law or adopt new by-laws. It cannot be said, therefore, that Gokongwei
has a vested right to be elected director, in the face of the fact that the law at the time such right

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

from such arrangement, it would be inconsistent with Gokongwei's primary motive in running for
board membership which is to protect his investments in San Miguel Corporation. More
important, such a proposed norm of conduct would be against all accepted principles underlying
a director's duty of fidelity to the corporation, for the policy of the law is to encourage and
enforce responsible corporate management.
3. Pursuant to the second paragraph of section 51 of the Corporation Law, "(t)he record of all
business transactions of the corporation and minutes of any meeting shall be open to the
inspection of any director, member or stockholder of the corporation at reasonable hours." The
stockholder's right of inspection of the corporation's books and records is based upon their
ownership of the assets and property of the corporation. It is, therefore, an incident of ownership
of the corporate property, whether this ownership or interest be termed an equitable ownership,
a beneficial ownership, or a quasi-ownership. This right is predicated upon the necessity of selfprotection. It is generally held by majority of the courts that where the right is granted by statute
to the stockholder, it is given to him as such and must be exercised by him with respect to his
interest as a stockholder and for some purpose germane thereto or in the interest of the
corporation. In other words, the inspection has to be germane to the petitioner's interest as a
stockholder, and has to be proper and lawful in character and not inimical to the interest of the
corporation. The "general rule that stockholders are entitled to full information as to the
management of the corporation and the manner of expenditure of its funds, and to inspection to
obtain such information, especially where it appears that the company is being mismanaged or
that it is being managed for the personal benefit of officers or directors or certain of the
stockholders to the exclusion of others." While the right of a stockholder to examine the books
and records of a corporation for a lawful purpose is a matter of law, the right of such stockholder
to examine the books and records of a wholly-owned subsidiary of the corporation in which he is
a stockholder is a different thing. Stockholders are entitled to inspect the books and records of a
corporation in order to investigate the conduct of the management, determine the financial
condition of the corporation, and generally take an account of the stewardship of the officers
and directors. herein, considering that the foreign subsidiary is wholly owned by San Miguel
Corporation and, therefore, under Its control, it would be more in accord with equity, good faith
and fair dealing to construe the statutory right of petitioner as stockholder to inspect the books
and records of the corporation as extending to books and records of such wholly owned
subsidiary which are in the corporation's possession and control.
4. Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds in any other
corporation or business or for any purpose other than the main purpose for which it was
organized" provided that its Board of Directors has been so authorized by the affirmative vote of
stockholders holding shares entitling them to exercise at least two-thirds of the voting power. If
the investment is made in pursuance of the corporate purpose, it does not need the approval of
the stockholders. It is only when the purchase of shares is done solely for investment and not to
accomplish the purpose of its incorporation that the vote of approval of the stockholders holding
shares entitling them to exercise at least two-thirds of the voting power is necessary. As stated
by the corporation, the purchase of beer manufacturing facilities by SMC was an investment in
the same business stated as its main purpose in its Articles of Incorporation, which is to

manufacture and market beer. It appears that the original investment was made in 1947-1948,
when SMC, then San Miguel Brewery, Inc., purchased a beer brewery in Hongkong (Hongkong
Brewery & Distillery, Ltd.) for the manufacture and marketing of San Miguel beer thereat.
Restructuring of the investment was made in 1970-1971 thru the organization of SMI in
Bermuda as a tax free reorganization. Assuming arguendo that the Board of Directors of SMC
had no authority to make the assailed investment, there is no question that a corporation, like an
individual, may ratify and thereby render binding upon it the originally unauthorized acts of its
officers or other agents. This is true because the questioned investment is neither contrary to
law, morals, public order or public policy. It is a corporate transaction or contract which is within
the corporate powers, but which is defective from a purported failure to observe in its execution
the requirement of the law that the investment must be authorized by the affirmative vote of the
stockholders holding two-thirds of the voting power. This requirement is for the benefit of the
stockholders. The stockholders for whose benefit the requirement was enacted may, therefore,
ratify the investment and its ratification by said stockholders obliterates any defect which it may
have had at the outset. Besides, the investment was for the purchase of beer manufacturing
and marketing facilities which is apparently relevant to the corporate purpose. The mere fact
that the corporation submitted the assailed investment to the stockholders for ratification at the
annual meeting of 10 May 1977 cannot be construed as an admission that the corporation had
committed an ultra vires act, considering the common practice of corporations of periodically
submitting for the ratification of their stockholders the acts of their directors, officers and
managers.
3.People's Aircargo and Warehousing Co. Inc. vs. Court of Appeals [GR 117847, 7 October
1998]
First Division, Panganiban (J): 4 concur
Facts: People's Aircargo and Warehousing Co. Inc. (PAWCI) is a domestic corporation, which
was organized
in the middle of 1986 to operate a customs bonded warehouse at the old Manila International
Airport in Pasay
City. To obtain a license for the corporation from the Bureau of Customs, Antonio Punsalan Jr.,
the
corporation president, solicited a proposal from Stefani Sao for the preparation of a feasibility
study. Sao
submitted a letter-proposal dated 17 October 1986 ("First Contract") to Punsalan, for the project
feasibility
study (market, technical, and financial feasibility) and preparation of pertinent documentation
requirements
for the application, worth P350,000. Initially, Cheng Yong, the majority stockholder of PAWCI,
objected to
Sao's offer, as another company priced a similar proposal at only P15,000. However, Punsalan
preferred
Sao's services because of the latter's membership in the task force, which was supervising the
transition of

the Bureau of Customs from the Marcos government to the Aquino Administration. On 17
October 1986,
PAWCI, through Punsalan, sent Sao a letter confirming their agreement. Accordingly, Sao
prepared a
feasibility study for PAWCI which eventually paid him the balance of the contract price, although
not
according to the schedule agreed upon. On 4 December 1986, upon Punsalan's request, Sao
sent PAWCI
another letter-proposal ("Second Contract") formalizing its proposal for consultancy services in
the amount of
P400,000. On 10 January 1987, Andy Villaceren, vice president of PAWCI, received the
operations manual
prepared by Sao. PAWCI submitted said operations manual to the Bureau of Customs in
connection with the
former's application to operate a bonded warehouse; thereafter, in May 1987, the Bureau issued
to it a license
to operate, enabling it to become one of the three public customs bonded warehouses at the
international
airport. Sao also conducted, in the third week of January 1987 in the warehouse of PAWCI, a
three-day
training seminar for the latter's employees. On 25 March 1987, Sao joined the Bureau of
Customs as special
assistant to then Commissioner Alex Padilla, a position he held until he became technical
assistant to then
Commissioner Miriam Defensor-Santiago on 7 March 1988. Meanwhile, Punsalan sold his
shares in PAWCI
and resigned as its president in 1987. On 9 February 1988, Sao filed a collection suit against
PAWCI. He
alleged that he had prepared an operations manual for PAWCI, conducted a seminar-workshop
for its
employees and delivered to it a computer program; but that, despite demand, PAWCI refused to
pay him for
his services. PAWCI, in its answer, denied that Sao had prepared an operations manual and a
computer
program or conducted a seminar-workshop for its employees. It further alleged that the letteragreement was
signed by Punsalan without authority, in collusion with Sao in order to unlawfully get some
money from
PAWCI, and despite his knowledge that a group of employees of the company had been
commissioned by the
board of directors to prepare an operations manual. The Regional Trial Court (RTC) of Pasay
City, Branch
110, rendered a Decision dated 26 October 1990 declared the Second Contract unenforceable
or simulated.

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

vice president, treasurer and major stockholder of PAWCI. The First Contract was
consummated,
implemented and paid without a hitch. Hence, Sano should not be faulted for believing that
Punsalan's
conformity to the contract in dispute was also binding on petitioner. It is familiar doctrine that if a
corporation
knowingly permits one of its officers, or any other agent, to act within the scope of an apparent
authority, it
holds him out to the public as possessing the power to do those acts; and thus, the corporation
will, as against
anyone who has in good faith dealt with it through such agent, be estopped from denying the
agent's authority.
Furthermore, Sao prepared an operations manual and conducted a seminar for the employees
of PAWCI in
accordance with their contract. PAWCI accepted the operations manual, submitted it to the
Bureau of
Customs and allowed the seminar for its employees. As a result of its aforementioned actions,
PAWCI was
given by the Bureau of Customs a license to operate a bonded warehouse. Granting arguendo
then that the
Second Contract was outside the usual powers of the president, PAWCI's ratification of said
contract and
acceptance of benefits have made it binding, nonetheless. The enforceability of contracts under
Article
1403(2) is ratified "by the acceptance of benefits under them" under Article 1405.

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

asevidenced by an Affidavit of Non-Operation due to poor sales collection aggravated by

theinefficient management of its affairs. Alfredo was informed of the cessation of its
businessoperations and the termination of his services as General Manager. He filed action
forreinstatement and money claim against petitioners.Issue:
Whether or not Marc II Marketing Inc.s Board of Director
s could create a position forcorporate officers through an enabling clause found in its corporate
by-laws?Decision:The Court held that in the context of PD 902-A, corporate officers are those
officers of acorporation who are given that character either
by the Corporation Code or by the corporations by
-laws.
Section 25 of the Corporation Code specifically enumerated who are these corporateofficers,
namely: president, secretary, treasurer and such other officers as may be provided for inthe bylaws.A
careful examination of Marc II Marketing Inc.s by
-laws, particularly paragraph 1, Section 1of Article IV explicitly revealed that its corporate
officers are composed only of chairman, president,one/more vice president, treasurer and
secretary. The position of general manager was not among
those enumerated. Meanwhile, paragraph 2, Section 1 of Article IV of the corporations by
-lawsempowered its Board of Directors to appoint such officers as it may determine necessary
or proper,making this an enabling provision for approving a resolution to make the position of
generalmanager a corporate officer. All of these acts were done without first amending its bylaws so as toinclude the General Manager in its roster of corporate officers.Though the Board of
Directors may create appointive positions other than the positions of corporate officers, the
persons occupying such positions cannot be viewed as corporate officersunder Section 25 of
the Corporation Code. The said provision of the Corporation Code safeguardsthe
constitutionally enshrined right of every employee to security of tenure and prevents thecreation
of a corporate officer position by a simple inclusion in the corporate by-laws of an
enablingclause empowering the Board of Directors
5. SPOUSES ROBERTO & EVELYN DAVID and COORDINATED GROUP, INC., petitioners,
vs. CONSTRUCTION INDUSTRY AND ARBITRATION COMMISSION and SPS. NARCISO &
AIDA QUIAMBAO, respondents.
DECISION
PUNO, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court, assailing
the Decision and Resolution of the Court of Appeals, dated June 30, 2003 and August 27, 2003,
respectively, in CA-G.R. SP No. 72736.
Petitioner COORDINATED GROUP, INC. (CGI) is a corporation engaged in the construction
business, with petitioner-spouses ROBERTO and EVELYN DAVID as its President and
Treasurer, respectively.

The records reveal that on October 7, 1997, respondent-spouses NARCISO and AIDA
QUIAMBAO engaged the services of petitioner CGI to design and construct a five-storey
concrete office/residential building on their land in Tondo, Manila. The Design/Build Contract of
the parties provided that: (a) petitioner CGI shall prepare the working drawings for the
construction project; (b) respondents shall pay petitioner CGI the sum of Seven Million Three
Hundred Nine Thousand Eight Hundred Twenty-One and 51/100 Pesos (P7,309,821.51) for the
construction of the building, including the costs of labor, materials and equipment, and Two
Hundred Thousand Pesos (P200,000.00) for the cost of the design; and (c) the construction of
the building shall be completed within nine (9) months after securing the building permit.
The completion of the construction was initially scheduled on or before July 16, 1998 but was
extended to November 15, 1998 upon agreement of the parties. It appears, however, that
petitioners failed to follow the specifications and plans as previously agreed upon. Respondents
demanded the correction of the errors but petitioners failed to act on their complaint.
Consequently, respondents rescinded the contract on October 31, 1998, after paying 74.84% of
the cost of construction.
Respondents then engaged the services of another contractor, RRA and Associates, to inspect
the project and assess the actual accomplishment of petitioners in the construction of the
building. It was found that petitioners revised and deviated from the structural plan of the
building without notice to or approval by the respondents.[1]
Respondents filed a case for breach of contract against petitioners before the Regional Trial
Court (RTC) of Manila. At the pre-trial conference, the parties agreed to submit the case for
arbitration to the CONSTRUCTION INDUSTRY ARBITRATION COMMISSION (CIAC).
Respondents filed a request[2] for arbitration with the CIAC and nominated Atty. Custodio O.
Parlade as arbitrator. Atty. Parlade was appointed by the CIAC as sole arbitrator to resolve the
dispute. With the agreement of the parties, Atty. Parlade designated Engr. Loreto C. Aquino to
assist him in assessing the technical aspect of the case. The RTC of Manila then dismissed the
case and transmitted its records to the CIAC.[3]
After conducting hearings and two (2) ocular inspections of the construction site, the arbitrator
rendered judgment against petitioners, thus:
AWARD
In summary, award is hereby made in favor of the Quiambaos against the Respondents, jointly
and severally, as follows:
Lost Rentals
Cost to Complete, Rectification, etc.
Damages due to erroneous staking
Professional fees for geodetic
surveys, etc.

P1,680,000.00
2,281,028.71
117,000.00

72,500.00

Misc. expenses/ professional

fees of engineers
Bills for water and electricity, PLDT
Attorneys Fees
Moral Damages
Exemplary Damages
----------------TOTAL

118,642.50
15,247.68
100,000.00
250,000.00
250,000.00

P4,884,418.89

There is likewise an award in favor of the Respondents (petitioners herein) and against the
Claimants (respondents herein) for the value of the materials and equipment left at (the) site (in)
the amount of P238,372.75. Respondent CGI is likewise credited with an 80% accomplishment
having a total value of P5,847,857.20.
All other claims and counterclaims are hereby dismissed for lack of merit.
To recapitulate:
Payments already
made to CGI
- P5,275,041.00
Amount awarded
above to Claimants - 4,864,418.89
--------------------Total
10,159,459.89
Payments due CGI for 80%
work accomplishment
- P5,847,857.20
Cost of materials and
equipment
238,372.75
-------------------Total :
P6,086,299.95
Deducting this amount of P6,086,229.95 from P10,159,459.89, the result is a net award in favor
the Claimants of (sic) the amount of P4,073,229.94.
WHEREFORE, the Respondents are hereby ordered to pay, jointly and severally, the Claimants
the amount of P4,073,229.94 with interest at 6% per annum from the date of the promulgation of
this Award, and 12% per annum of the net award, including accrued interest, from the time it
becomes final and executory until it is fully paid.
Each party is hereby directed to pay to the Commission P15,000.00 as such partys share in the
experts fees paid to Engr. Loreto C. Aquino.
SO ORDERED.[4]
Petitioners appealed to the Court of Appeals which affirmed the arbitrators Decision but deleted
the award for lost rentals.[5]

Unsatisfied, petitioners filed this petition for review on certiorari, raising the following issues:
I. THERE WAS NO BASIS, IN FACT AND IN LAW, TO ALLOW RESPONDENTS TO
UNILATERALLY RESCIND THE DESIGN/BUILT CONTRACT, AFTER PETITIONERS HAVE
(SIC) SUBSTANTIALLY PERFORMED THEIR OBLIGATION UNDER THE SAID CONTRACT.
II. THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONERS JOINTLY
AND SEVERALLY LIABLE WITH CO-PETITIONER COORDINATED (GROUP, INC.), IN
CLEAR VIOLATION OF THE DOCTRINE OF SEPARATE JURIDICAL PERSONALITY.
We find no merit in the petition.
Executive Order No. 1008 entitled, Construction Industry Arbitration Law provided for an
arbitration mechanism for the speedy resolution of construction disputes other than by court
litigation. It recognized the role of the construction industry in the countrys economic progress
as it utilizes a large segment of the labor force and contributes substantially to the gross
national product of the country.[6] Thus, E.O. No. 1008 vests on the Construction Industry
Arbitration Commission (CIAC) original and exclusive jurisdiction over disputes arising from or
connected with construction contracts entered into by parties who have agreed to submit their
case to voluntary arbitration. Section 19 of E.O. No. 1008 provides that its arbitral award shall
be appealable to the Supreme Court only on questions of law.[7]
There is a question of law when the doubt or difference in a given case arises as to what the law
is on a certain set of facts, and there is a question of fact when the doubt arises as to the truth
or falsity of the alleged facts.[8] Thus, for a question to be one of law, it must not involve an
examination of the probative value of the evidence presented by the parties and there must be
no doubt as to the veracity or falsehood of the facts alleged.[9]
In the case at bar, it is readily apparent that petitioners are raising questions of fact. In their first
assigned error, petitioners claim that at the time of rescission, they had completed 80% of the
construction work and still have 15 days to finish the project. They likewise insist that they
constructed the building in accordance with the contract and any modification on the plan was
with the consent of the respondents.
These claims of petitioners are refuted by the evidence on record. In holding that respondents
were justified in rescinding the contract, the Court of Appeals upheld the factual findings of the
sole arbitrator, thus:
x x x
(A)s the Building was taking shape, they noticed deviations from the approved plans and
specifications for the Building. Most noticeable were two (2) concrete columns in the middle of
the basement which effectively and permanently obstructed the basement for the parking of

vehicles x x x. In addition, three (3) additional concrete columns were constructed from the
ground floor to the roof deck x x x which affected the overall dimension of the building such as
altering the specified beam depths, passageways and windows. In addition, Mrs. Quiambao
provided a virtual litany of alleged defects, to wit: (a) the Building was not vertically plumbed
xxx; (b) provisions for many architectural members were not provided for, such as, (i) the
recesses for window plant boxes are lacking xxx, (ii) provisions for precast molding are lacking
xxx, (iii) canopies are also lacking x x x; (c) misaligned walls, ugly discrepancies and gaps; (d)
skewed walls to floors/landings; (e) low head clearances and truncated beams x x x; (f) narrow
and disproportionate stairs xxx one (1) instead of two (2) windows at the fire exit x x x, (g)
absence of water-proofing along the basement wall x x x and at the roof deck which caused
leaks that damages the mezzanine floor x x x; (h) the use of smaller diagonal steel trusses at
the penthouse. x x x There were others which were shown during the site inspection such as:
(1) L-shaped kitchen counters instead of the required U-shaped counters x x x; (2) failure to
provide marble tops for the kitchen counters; (3) installation of single-tub sinks where the plans
called for double-type stainless kitchen sinks x x x; (4) installation of much smaller windows than
those required; (5) misaligned window easements to wall, (6) floors were damaged by roof
leaks, (6) poor floor finish, misaligned tiles, floors with kapak and disproportionate drawers and
cabinets. A more comprehensive list of alleged defects, deviations and complaints of the
Quiambaos is found in a report marked Exhibit C-144. Many of these defects were seen during
the site inspection and the only defense and comment of CGI was that these were punch-list
items which could have been corrected prior to completion and turn-over of the Building had the
Contract not been terminated by the Claimants (respondents here). x x x Thus, x x x
(petitioner) CGI argued that: In any construction work, before a contractor turns-over the project
to the owner, punchlisting of defects is done so as to ensure compliance and satisfaction of both
the contractor and the owner. Punch listing means that the contractor will list all major and
minor defects and rectifies them before the turnover of the project to the owner. After all defects
had been arranged, the project is now turned over to the owner. For this particular project, no
turn over was made by the contractor to the owner yet. Actually, we were already pinpointing
these defects for punch listing before we were terminated illegally. As alleged by the owner, the
deficiencies mentioned are stubouts of water closets at toilets, roofing and framing, doors,
cabinets, ceiling and stairs and other were not yet completed and rectified by us. In fact we
were counting on our project engineer in charge x x x to do this in as much as this is one of his
duties to do for the company. x x x Confirmatory of this assertion of CGI that it was willing to
undertake the appropriate corrective works (whether or not the items are punch-list items) is
Exhibit C-88 which is a letter prepared by CGIs Windell F. Vizconde, checked by CGIs Gary M.
Garcia and noted by CGIs Benjie Lipardo, addressed to the Quiambaos which stated that:
As per our discussion during the last meeting dated Sept. 28, 1998 the following items was
(sic) confirmed and clarified. These are described as follows:
1. All ceiling cornices shall be installed as per plan specification which is 1 x 4 in size.
2. All baseboards shall be installed as per plan specification which is wood 1 x 4 in size.

3. Electrical Meter center and main panel breaker should be retained to its present location.
4. Elevation of office, dining and stair lobby of ground floor shall be 4 higher than the elevation
of parking area (subject for verification).
5. All door jambs at C.R. has (sic) to be replaced with concrete framing jambs.
6. All ceilings mailers should be 2 x 2 in size.
7. All plywood ceiling that was damaged by rain water shall be replaced.
8. Provide a pipe chase for the enclosure of soil stack pipe and water line pipe at the ground
floor level between grid line 3-4 along the light well area.
9. Front side elevation view shall be follow (sic) as per plan specialy (sic) at 4th flr.
10. One column at basement floor along grid line 2# B has to be verified by the structural
designer if ever it is safe to removed (sic) the column and what will be their (sic)
recommendation to support the load.
11. Existing doors D-2 and D-3 shall be replaced a (sic) new one.
While Mrs. Quiambao appeared not to have given her conformity, this document from CGI is an
admission by CGI of the deficiencies in the construction of the Building which needed to be
corrected.
It appears that concrete samples taken from the basement, ground floor, mezzanine and 2nd
floor of the Building were subjected to a concrete core test by Geotesting International, Inc.,
geotechnical and materials testing engineers. A report dated January 20, 1999 x x x showed x
x x that (5) samples x x x failed the test. Sample S2 while it showed a comprehensive strength
of 3147 psi, the corrective strength in psi was below the specified comprehensive strength of
3000 psi. CGI failed to produce evidence of similar tests during the construction of the Building
although it is normal construction practice for the contractor to provide samples for concrete
core tests.
Deformed reinforcing steel bar specimens from the building were subjected to physical tests.
These tests were conducted at the Materials Testing Laboratory of the Department of Civil
Engineering, College of Engineering, University of the Philippines. x x x There were 18 samples
and x x x 8 failed the test although all of them passed the cold bend test. x x x CGI submitted
Quality Test Certificates issued by Steel Asia certifying to the mechanical test results and
chemical composition of the steel materials tested x x x. However, the samples were provided
by the manufacturer, not by CGI, to Steel Asia, and there is no showing that the materials
supplied by the manufacturer to CGI for the Building formed part of the steel materials, part of
which was tested.

x x x
Regarding the additional columns at the basement and at the first floor to the roof deck of the
Building, which effectively restricted the use of the basement as a parking area, and likewise
reduced the area which could be used by the Quiambaos in the different floors of the Building,
Engr. Roberto J. David admitted that these represented a design change which was made and
implemented by CGI without the conformnity of the Claimants. The Contract specifically
provided in Article II that the CONTRACTOR shall submit to the OWNER all designs for the
OWNERS approval. This implies necessarily that all changes in the approved design shall
likewise be submitted to the OWNER for approval. This change, in my view, is the single most
serious breach of the Contract committed by CGI which justified the decision of the Claimants to
terminate the Contract. x x x (T)here is no evidence to show that the Quiambaos approved the
revision of the structural plans to provide for the construction of the additional columns. x x x
x x x Engr. Villasenor defended his structural design as adequate. He admitted that the
revision of the plans which resulted in the construction of additional columns was in pursuance
of the request of Engr. David to revise the structural plans to provide for a significant reduction
of the cost of construction. When Engr. David was asked for the justification for the revision for
the plans, he confirmed that he wanted to reduce the cost of construction. In any case, whether
the cause of revision of the plans was the under-design of the foundation or for reasons of
economy, it is CGI which is at fault. CGI prepared the structural plans and quoted the price for
constructing the Building. The Quiambaos accepted both the plans and the price. If CGI made
a mistake in designing the foundation or in estimating the cost of construction, it was at fault. It
cannot correct that mistake by revising the plans and implementing the revisions without
informing the Quiambaos and obtaining their unequivocal approval of such changes.
In addition, CGI admitted that no relocation survey was made by it prior to the construction of
the Building. Consequently, a one-meter portion of the Building was constructed beyond the
property line. In justification, Engr. Barba V. Santos declared that CGI made the layout of the
proposed structure based on the existing fence. x x x (I)t is understood that a contractor, in
constructing a building, must first conduct a relocation survey before construction precisely to
avoid the situation which developed here, that the Building was not properly constructed within
the owners property line. x x x This resulted in the under-utilization of the property, small as it
is, and the exposure of the Quiambaos to substantial damages to the owner of the adjoining
property encroached upon.
A third major contested issue concerned the construction of the cistern. x x x A cistern is an
underground tank used to collect water for drinking purposes. The contentious points regarding
the construction of the cistern are: first, that the cistern was designed to accumulate up to
10,000 gallons of water; as constructed, its capacity was less than the design capacity.
Second, there is no internal partition separating the cistern from the sump pit. x x x

Considering that the cistern is a receptacle for the collection of drinking water, it is
incomprehensible why the Respondents (herein petitioners), in the design and construction of
the cistern, has (sic) not taken the necessary measures to make certain that the water in the
cistern will be free from contamination. x x x
Thus, granting the arguments of the Respondents (herein petitioners) that the observed defects
in the Building could be corrected before turn-over and acceptance of the Building if CGI had
been allowed to complete its construction, the construction of additional columns, the
construction of the Building such that part of it is outside the property line established a
sufficient legal and factual basis for the decision of the Quiambaos to terminate the Contract.
The fact that five (5) of nine (9) the (sic) concrete samples subjected to a core test, and eight (8)
of eighteen (18) deformed reinforcing steel bar specifics subjected to physical tests failed the
tests and the under-design of the cistern was established after the Contract was terminated also
served to confirm the justified suspicion of the Quiambaos that the Building was defective or
was not constructed according to approved plans and specifications.[10] (emphases supplied)
These are technical findings of fact made by expert witnesses and affirmed by the arbitrator.
They were also affirmed by the Court of Appeals. We find no reason to revise them.
The second assigned error likewise involves a question of fact. It is contended that petitionerspouses David cannot be held jointly and severally liable with petitioner CGI in the payment of
the arbitral award as they are merely its corporate officers.
At first glance, the issue may appear to be a question of law as it would call for application of the
law on the separate liability of a corporation. However, the law can be applied only after
establishing a factual basis, i.e., whether petitioner-spouses as corporate officers were grossly
negligent in ordering the revisions on the construction plan without the knowledge and consent
of the respondent-spouses. On this issue, the Court of Appeals again affirmed the factual
findings of the arbitrator, thus:

As a general rule, the officers of a corporation are not personally liable for their official acts
unless it is shown that they have exceeded their authority. However, the personal liability of a
corporate director, trustee or officer, along with corporation, may so validly attach when he
assents to a patently unlawful act of the corporation or for bad faith or gross negligence in
directing its affairs.
The following findings of public respondent (CIAC) would support its ruling in holding petitioners
severally and jointly liable with the Corporation:
x x x When asked whether the Building was underdesigned considering the poor quality of the
soil, Engr. Villasenor defended his structural design as adequate. He admitted that the revision
of the plans which resulted in the construction of additional columns was in pursuance of the
request of Engr. David to revise the structural plans to provide for a significant reduction of the

cost of construction. When Engr. David was asked for the justification for the revision of the
plans, he confirmed that he wanted to reduce the cost of construction. x x x (emphases
supplied)[11]
Clearly, the case at bar does not raise any genuine issue of law. We reiterate the rule that
factual findings of construction arbitrators are final and conclusive and not reviewable by this
Court on appeal, except when the petitioner proves affirmatively that: (1) the award was
procured by corruption, fraud or other undue means; (2) there was evident partiality or
corruption of the arbitrators or of any of them; (3) the arbitrators were guilty of misconduct in
refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence
pertinent and material to the controversy; (4) one or more of the arbitrators were disqualified to
act as such under section nine of Republic Act No. 876 and willfully refrained from disclosing
such disqualifications or of any other misbehavior by which the rights of any party have been
materially prejudiced; or (5) the arbitrators exceeded their powers, or so imperfectly executed
them, that a mutual, final and definite award upon the subject matter submitted to them was not
made.[12] Petitioners failed to show that any of these exceptions applies to the case at bar.
Finally, it bears to remind petitioners of this Courts ruling in the 1993 case of Hi-Precision Steel
Center, Inc. vs. Lim Kim Steel Builders, Inc.[13] which emphasized the rationale for limiting
appeal to legal questions in construction cases resolved through arbitration, thus:
x x x Consideration of the animating purpose of voluntary arbitration in general, and arbitration
under the aegis of the CIAC in particular, requires us to apply rigorously the above principle
embodied in Section 19 that the Arbitral Tribunals findings of fact shall be final and
inappealable (sic).
Voluntary arbitration involves the reference of a dispute to an impartial body, the members of
which are chosen by the parties themselves, which parties freely consent in advance to abide
by the arbitral award issued after proceedings where both parties had the opportunity to be
heard. The basic objective is to provide a speedy and inexpensive method of settling disputes
by allowing the parties to avoid the formalities, delay, expense and aggravation which
commonly accompany ordinary litigation, especially litigation which goes through the entire
hierarchy of courts. Executive Order No. 1008 created an arbitration facility to which the
construction industry in the Philippines can have recourse. The Executive Order was enacted to
encourage the early and expeditious settlement of disputes in the construction industry, a public
policy the implementation of which is necessary and important for the realization of the national
development goals.
Aware of the objective of voluntary arbitration in the labor field, in the construction industry, and
in other area for that matter, the Court will not assist one or the other or even both parties in any
effort to subvert or defeat that objective for their private purposes. The Court will not review the
factual findings of an arbitral tribunal upon the artful allegation that such body had
misapprehended facts and will not pass upon issues which are, at bottom, issues of fact, no
matter how cleverly disguised they might be as legal questions. The parties here had recourse

to arbitration and chose the arbitrators themselves; they must have had confidence in such
arbitrators. The Court will not, therefore, permit the parties to relitigate before it the issues of
facts previously presented and argued before the Arbitral Tribunal, save only where a clear
showing is made that, in reaching its factual conclusions, the Arbitral Tribunal committed an
error so egregious and hurtful to one party as to constitute a grave abuse of discretion resulting
in lack or loss of jurisdiction. Prototypical examples would be factual conclusions of the Tribunal
which resulted in deprivation of one or the other party of a fair opportunity to present its position
before the Arbitral Tribunal, and an award obtained through fraud or the corruption of arbitrators.
Any other more relaxed rule would result in setting at naught the basic objective of a voluntary
arbitration and would reduce arbitration to a largely inutile institution. (emphases supplied)
IN VIEW WHEREOF, the petition is DISMISSED for lack of merit. Costs against petitioners.
SO ORDERED.
Austria-Martinez, Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.
6. Inter-Asia Investments Industries vs. CA Case Digest
Inter-Asia Investments Industries vs. Court of Appeals
[GR 125778, 10 June 2003]
Facts: On 1 September 1978, Inter-Asia Industries, Inc. (Inter-Asia), by a Stock Purchase
Agreement (the Agreement), sold to Asia Industries, Inc. (Asia Industries) for and in
consideration of the sum of P19,500,000.00 all its right, title and interest in and to all the
outstanding shares of stock of FARMACOR, INC. (FARMACOR). The Agreement was signed
by Leonides P. Gonzales and Jesus J. Vergara, presidents of Inter-Asia and Asia Industries,
respectively. Under paragraph 7 of the Agreement, Inter-Asia as seller made warranties and
representations. The Agreement was later amended with respect to the "Closing Date,"
originally set up at 10:00 a.m. of 30 September 1978, which was moved to 31 October 1978,
and to the mode of payment of the purchase price. The Agreement, as amended, provided that
pending submission by SGV of FARMACOR's audited financial statements as of 31 October
1978, Asia Industries may retain the sum of P7,500,000.00 out of the stipulated purchase price
of P19,500,000.00; that from this retained amount of P7,500,000.00, Asia Industries may deduct
any shortfall on the Minimum Guaranteed Net Worth of P12,000,000.00; and that if the amount
retained is not sufficient to make up for the deficiency in the Minimum Guaranteed Net Worth,
Inter-Asia shall pay the difference within 5 days from date of receipt of the audited financial
statements.
Asia Industries paid Inter-Asia a total amount of P12,000,000.00: P5,000,000.00 upon the
signing of the Agreement, and P7,000,000.00 on 2 November 1978. From the STATEMENT OF
INCOME AND DEFICIT attached to the financial report dated 28 November 1978 submitted by
SGV, it appears that FARMACOR had, for the 10 months ended 31 October 1978, a deficit of
P11,244,225.00. Since the stockholder's equity amounted to P10,000,000.00, FARMACOR had
a net worth deficiency of P1,244,225.00. The guaranteed net worth shortfall thus amounted to

P13,244,225.00 after adding the net worth deficiency of P1,244,225.00 to the Minimum
Guaranteed Net Worth of P12,000,000.00. The adjusted contract price, therefore, amounted to
P6,225,775.00 which is the difference between the contract price of P19,500,000.00 and the
shortfall in the guaranteed net worth of P13,224,225.00. Asia Industries having already paid
Inter-Asia P12,000,000.00, it was entitled to a refund of P5,744,225.00. Inter-Asia thereafter
proposed, by letter of 24 January 1980, signed by its president, that Asia Industries's claim for
refund be reduced to P4,093,993.00, it promising to pay the cost of the Northern Cotabato
Industries, Inc. (NOCOSII) superstructures in the amount of P759,570.00. To the proposal
respondent agreed. Inter-Asia, however, welched on its promise.
Inter-Asia's total liability thus stood at P4,853,503.00 (P4,093,993.00 plus P759,570.00)
exclusive of interest. On 5 April 1983, Asia Industries filed a complaint against Inter-Asia with
the Regional Trial Court of Makati, one of two causes of action of which was for the recovery of
above-said amount of P4,853,503.00 17 plus interest. Denying Asia Industries's claim, InterAsia countered that Asia Industries failed to pay the balance of the purchase price and
accordingly set up a counterclaim. Finding for Asia Industries, the trial court rendered on 27
November 1991 a Decision, ordering Inter-Asia to pay Asia Industries the sum of P4,853,503.00
plus interest thereon at the legal rate from the filing of the complaint until fully paid, the sum of
P30,000.00 as attorney's fees and the costs of suit; and (b) dismissing the counterclaim. On
appeal to the Court of Appeals, and by Decision of 25 January 1996, the Court of Appeals
affirmed the trial court's decision. Inter-Asia's motion for reconsideration of the decision having
been denied by the Court of Appeals by Resolution of 11 July 1996, Inter-Asia filed the petition
for review on certiorari.
Issue: Whether the 24 January 1980 letter signed by Inter-Asias president is valid and binding.
Held: The 24 January 1980 letter signed by Inter-Asia's president is valid and binding. As held in
the case of People's Aircargo and Warehousing Co., Inc. v. Court of Appeals, the general rule is
that, in the absence of authority from the board of directors, no person, not even its officers, can
validly bind a corporation. A corporation is a juridical person, separate and distinct from its
stockholders and members, "having . . . powers, attributes and properties expressly authorized
by law or incident to its existence." Being a juridical entity, a corporation may act through its
board of directors, which exercises almost all corporate powers, lays down all corporate
business policies and is responsible for the efficiency of management, as provided in Section 23
of the Corporation Code of the Philippines. Under this provision, the power and responsibility to
decide whether the corporation should enter into a contract that will bind the corporation is
lodged in the board, subject to the articles of incorporation, bylaws, or relevant provisions of law.
However, just as a natural person may authorize another to do certain acts for and on his
behalf, the board of directors may validly delegate some of its functions and powers to officers,
committees or agents. The authority of such individuals to bind the corporation is generally
derived from law, corporate bylaws or authorization from the board, either expressly or impliedly
by habit, custom or acquiescence in the general course of business, viz: "A corporate officer or
agent may represent and bind the corporation in transactions with third persons to the extent
that [the] authority to do so has been conferred upon him, and this includes powers as, in the

usual course of the particular business, are incidental to, or may be implied from, the powers
intentionally conferred, powers added by custom and usage, as usually pertaining to the
particular officer or agent, and such apparent powers as the corporation has caused person
dealing with the officer or agent to believe that it has conferred.... [A]pparent authority is derived
not merely from practice. Its existence may be ascertained through (1) the general manner in
which the corporation holds out an officer or agent as having the power to act or, in other words
the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his
acts of a particular nature, with actual or constructive knowledge thereof, within or beyond the
scope of his ordinary powers. It requires presentation of evidence of similar acts executed either
in its favor or in favor of other parties. It is not the quantity of similar acts which establishes
apparent authority, but the vesting of a corporate officer with the power to bind the corporation."
Hence, an officer of a corporation who is authorized to purchase the stock of another
corporation has the implied power to perform all other obligations arising therefrom, such as
payment of the shares of stock. By allowing its president to sign the Agreement on its behalf,
Inter-Asia clothed him with apparent capacity to perform all acts which are expressly, impliedly
and inherently stated therein.
7. Lapu-lapu Foundation Inc., vs. Tan, [G.R. No. 126006. January 29, 2004]
Post under case digests, Commercial Law at Friday, February 03, 2012 Posted by
Schizophrenic Mind
Facts: Elias Q. Tan, then President Lapulapu Foundation, Inc., obtained four loans from Allied
Banking Corporation covered by four promissory notes in the amounts of P100, 000 each.
When the entire obligation became due, it was not paid despite demands by the bank. The Bank
filed with the RTC a complaint seeking payment by Lapulapu Foundation and Elias Tan, jointly
and solidarily, of the sum representing their loan obligation, exclusive of interests, penalty
charges, attorneys fees and costs.
The Foundation denied incurring indebtedness from the Bank alleging that Tan obtained the
loans in his personal capacity, for his own use and benefit and on the strength of the personal
information he furnished the Bank. The Foundation maintained that it never authorized petitioner
Tan to co-sign in his capacity as its President any promissory note and that the Bank fully knew
that the loans contracted were made in Tans personal capacity and for his own use and that the
Foundation never benefited, directly or indirectly, there from.
For his part, Tan admitted that he contracted the loans from the Bank in his personal capacity.
The parties, however, agreed that the loans were to be paid from the proceeds of Tans shares
of common stocks in the Lapulapu Industries Corporation, a real estate firm. The loans were
covered by promissory notes which were automatically renewable (rolled-over) every year at
an amount including unpaid interests, until such time as petitioner Tan was able to pay the
same from the proceeds of his aforesaid shares.
Issue: May the Foundation correctly raise as a defense that it did not authorize Tan to obtain the
loans involved and therefore it may not be held solidarily liable for them?

Held: NO. The Court agrees with the CA that the petitioners cannot hide behind the corporate
veil under the following circumstances:
The evidence shows that Tan has been representing himself as the President of Lapulapu
Foundation, Inc. He opened a savings account and a current account in the names of the
corporation, and signed the application form as well as the necessary specimen signature cards
twice, for himself and for the foundation. He submitted a notarized Secretarys Certificate from
the corporation, attesting that he has been authorized, inter alia, to sign for and in behalf of the
Lapulapu Foundation any and all checks, drafts or other orders with respect to the bank; to
transact business with the Bank, negotiate loans, agreements, obligations, promissory notes
and other commercial documents; and to initially obtain a loan for P100, 000.00 from any bank.
Under these circumstances, the Foundation is liable for the transactions entered into by Tan on
its behalf.
Per its Secretarys Certificate, the Foundation had given Tan ostensible and apparent authority
to inter alia deal with the Bank. Accordingly, the petitioner Foundation is estopped from
questioning Tans authority to obtain the subject loans from the Bank. It is a familiar doctrine
that if a corporation knowingly permits one of its officers, or any other agent, to act within the
scope of an apparent authority, it holds him out to the public as possessing the power to do
those acts; and thus, the corporation will, as against anyone who has in good faith dealt with it
through such agent, be estopped from denying the agents authority.
8.
JOHN F. MCLEOD vs. NATIONAL LABOR RELATIONS COMMISSION (FIRST DIVISION),
FILIPINAS SYNTHETIC FIBER CORPORATION (FILSYN), FAR EASTERN TEXTILE MILLS,
INC., STA. ROSA TEXTILES, INC., (PEGGY MILLS, INC.), PATRICIO L. LIM, AND ERIC HU
G.R. NO. 146667 January 23, 2007 Ponente: CARPIO,
J.
FACTS:
On February 2, 1995, John F. McLeod filed a complaint for: 1. retirement benefits 2. vacation
and sick leave benefits 3. non-payment of unused airline tickets 4. holiday pay 5. underpayment
of salary 6. 13th month pay 7. moral and exemplary damages 8.
attorneys fees plus interest,
against Filipinas Synthetic Corporation (FILSYN), Far Eastern Textile Mills, Inc., Sta. Rosa
Textiles, Inc. (SRTI), Patricio Lim (President of PMI) and Eric Hu. Complainant was the Vice
President and Plant Manager of the plant of Peggy Mills, Inc. (PMI) at Sta. Rosa, Laguna. Filsyn
sold Peggy Mills, Inc. to Far Eastern Textile Mills, Inc. and this was renamed as Sta. Rosa
Textile (SRTI) with Patricio Lim as Chairman and President. The owners of Far Eastern Textiles
decided for cessation of operations of Sta. Rosa Textiles. On two occasions, complainant wrote
letters to Patricio Lim requesting for his retirement and other benefits. In the last quarter of 1994
respondents offered complainant compromise settlement of only P300,000.00 which
complainant rejected.
The Labor Arbiter held all respondents as jointly and solidarily liable for complainants money

claims. The NLRC reversed and set aside the ruling of the Labor Arbiter and a new one was
entered ordering only respondent Peggy Mills, Inc. (PMI) to pay the money claims. All other
claims were dismissed for lack of merit. The Court of Appeals affirmed the decision of the NLRC
with modification. It held Patricio Lim as jointly and solidarily liable with Peggy Mills, Inc. (PMI)
to pay the money claims to McLeod.
ISSUE:
Whether or not Patricio Lim, as President of PMI, could be held jointly and solidarily liable with
PMI.

HELD:
No, Patricio Lim is absolved from personal liability. A corporation is a juridical entity with legal
personality separate and distinct from those acting for and in its behalf and, in general, from the
people comprising it. The rule is that obligations incurred by the corporation, acting through its
directors, officers, and employees, are its sole liabilities. Personal liability of corporate directors,
trustees or officers attaches only when: (1) they assent to a patently unlawful act of the
corporation, or when they are guilty of bad faith or gross negligence in directing its affairs, or
when there is a conflict of interest resulting in damages to the corporation, its stockholders or
other persons; (2) they consent to the issuance of watered down stocks or when, having
knowledge of such issuance, do not forthwith file with the corporate secretary their written
objection; (3) they agree to hold themselves personally and solidarily liable with the corporation;
or (4) they are made by specific provision of law personally answerable for their corporate
action. Considering that McLeod failed to prove any of the foregoing exceptions in the present
case, McLeod cannot hold Patricio solidarily liable with PMI. The records are bereft of any
evidence that Patricio acted with malice or bad faith. Bad faith is a question of fact and is
evidentiary. Bad faith does not connote bad judgment or negligence. It imports a dishonest
purpose or some moral obliquity and conscious wrongdoing. It means breach of a known duty
through some ill motive or interest. It partakes of the nature of fraud. In the present case, there
is nothing substantial on record to show that Patricio acted in bad
faith in terminating McLeods services to warrant Patricios personal liability. PMI had no other
choice but to stop plant operations. The work stoppage therefore was by necessity. The
company could no longer continue with its plant operations because of the serious business
losses that it had suffered. The mere fact that Patricio was president and director of PMI is not a
ground to conclude that
he should be held solidarily liable with PMI for McLeods money claims.
9.
ANTONIO CARAG vs. NLRCG.R. No. 147590 April 2, 2007FACTS:
National Federation of Labor Unions and Mariveles Apparel Corporation Labor Union
(collectively, complainants), on behalf of all of Mariveles Apparel Corporations rank and file

-hilippine
Labor Code" Atty" %osh!a -astores, as co!nsel for respondents, s!bmitted a position paper dated
beca!se MAC is act!ally o*ned by a c

#n the same
standard la*s or *hen the company had already ceased operations and there is no *ay by *hich

ts of the appeal" 1n Febr!ary &$, &''6,

petition for revie* on certiorari"

ISSUE:
dismissed employees"
RULING:
votes for or assents to patently !nla*f!l acts of the corporation" 8ection $& also makes a director

voted for or assented to any patently !nla*f!l act of MAC" Complainants did not present any

7o hold a director personally liable for debts of the corporation, and th!s pierce the veil of

!rpose" 9ad faith means breach of a kno*n d!ty

faith arise a!tomatically +!st beca!se a corporation fails to comply *ith the notice re.!irement of
labor la*s o
violation of proced!ral d!e process b!t does not amo!nt to an !nla*f!l or criminal act" 8!ch

approved or assented to by the director m!st be a patently !nla*f!l act" Mere fail!re to comply *ith
the notice re.!irement of labor la*s on company clos!re or dismissal of employees does not
amo!nt to a patently !nla*f!l act" -atently !nla*f!l acts are those declared !nla*f!l by la* *hich

clos!re of a company, does not state that non<compliance *ith the notice is an !nla*f!l act
p!nishable !nder the Code" 7here is no provision in any other Article of the Labor Code

assented to any patently !nla*f!l act to *hich the la* attaches a penalty for its commission" 1n this

10. SECOND DIVISION

[G.R. No. 170352, June 01 : 2011]
MEGAN SUGAR CORPORATION, PETITIONER, VS. REGIONAL TRIAL COURT OF ILOILO,
BRANCH 68, DUMANGAS, ILOILO; NEW FRONTIER SUGAR CORPORATION AND
EQUITABLE PCI BANK, RESPONDENTS.
DECISION
PERALTA, J.:
Before this Court is a petition for review on certiorari,[1] under Rule 45 of the Rules of Court,
seeking to set aside the August 23, 2004 Decision[2] and October 12, 2005 Resolution[3] of the
Court of Appeals (CA), in CA-G.R. SP No. 75789.
The facts of the case are as follows:
On July 23, 1993, respondent New Frontier Sugar Corporation (NFSC) obtained a loan from
respondent Equitable PCI Bank (EPCIB). Said loan was secured by a real estate mortgage
over NFSC's land consisting of ninety-two (92) hectares located in Passi City, Iloilo, and a
chattel mortgage over NFSC's sugar mill.

On November 17, 2000, because of liquidity problems and continued indebtedness to EPCIB,
NFSC entered into a Memorandum of Agreement[4] (MOA) with Central Iloilo Milling
Corporation (CIMICO), whereby the latter agreed to take-over the operation and management of
the NFSC raw sugar factory and facilities for the period covering crop years 2000 to 2003.
On April 19, 2002, NFSC filed a compliant for specific performance and collection[5] against
CIMICO for the latter's failure to pay its obligations under the MOA.
In response, CIMICO filed with the Regional Trial Court (RTC) of Dumangas, Iloilo, Branch 68, a
case against NFSC for sum of money and/or breach of contract.[6] The case was docketed as
Civil Case No. 02-243.
On May 10, 2002, because of NFSC's failure to pay its debt, EPCIB instituted extra-judicial
foreclosure proceedings over NFSC's land and sugar mill. During public auction, EPCIB was the
sole bidder and was thus able to buy the entire property and consolidate the titles in its name.
EPCIB then employed the services of Philippine Industrial Security Agency (PISA) to help it in
its effort to secure the land and the sugar mill.
On September 16, 2002, CIMICO filed with the RTC an Amended Complaint[7] where it
impleaded PISA and EPCIB. As a result, on September 25, 2002, upon the motion of CIMICO,
the RTC issued a restraining order, directing EPCIB and PISA to desist from taking possession
over the property in dispute. Hence, CIMICO was able to continue its possession over the
property.
On October 3, 2002, CIMICO and petitioner Megan Sugar Corporation (MEGAN) entered into a
MOA[8] whereby MEGAN assumed CIMICO's rights, interests and obligations over the property.
As a result of the foregoing undertaking, MEGAN started operating the sugar mill on November
18, 2002.
On November 22, 2002, Passi Iloilo Sugar Central, Inc. (Passi Sugar) filed with the RTC a
Motion for Intervention claiming to be the vendee of EPCIB. Passi Sugar claimed that it had
entered into a Contract to Sell[9] with EPCIB after the latter foreclosed NFSC's land and sugar
mill.
On November 29, 2002, during the hearing on the motion for intervention, Atty. Reuben Mikhail
Sabig (Atty. Sabig) appeared before the RTC and entered his appearance as counsel for
MEGAN. Several counsels objected to Atty. Sabig's appearance since MEGAN was not a party
to the proceedings; however, Atty. Sabig explained to the court that MEGAN had purchased the
interest of CIMICO and manifested that his statements would bind MEGAN.
On December 10, 2002, EPCIB filed a Motion for Delivery/Deposit of Mill Shares/Rentals.[10]
On December 11, 2002, Passi Sugar filed a Motion to Order Deposit of Mill Share Production of
"MEGAN" and/or CIMICO.[11] On the same day, NFSC filed a Motion to Order Deposit of

Miller's Share (37%) or the Lease Consideration under the MOA between NFSC and
CIMICO.[12]
On December 27, 2002, NFSC filed another Motion to Hold in Escrow Sugar Quedans or
Proceeds of Sugar Sales Equivalent to Miller's Shares.[13]
On January 16, 2003, the RTC issued an Order[14] granting EPCIB's motion for the placement
of millers' share in escrow. The dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the motions to place the mill's share in escrow to the
court is hereby GRANTED.
Megan Sugar Corporation or its director-officer, Mr. Joey Concha, who is General Manager of
Megan, is ordered to deposit in escrow within five (5) days upon receipt of this order, the sugar
quedans representing the miller's share to the Court starting from December 19, 2002 and
thereafter, in every Friday of the week pursuant to the Memorandum of Agreement executed by
plaintiff CIMICO and defendant NFSC.
SO ORDERED. [15]
On January 29, 2003, Atty. Sabig filed an Omnibus Motion for Reconsideration and
Clarification.[16] On February 19, 2003, the RTC issued an Order[17] denying said motion.
On February 27, 2003, EPCIB filed an Urgent Ex-Parte Motion for Execution,[18] which was
granted by the RTC in an Order[19] dated February 28, 2003.
Aggrieved by the orders issued by the RTC, MEGAN filed before the CA a petition for
certiorari,[20] dated March 5, 2003. In said petition, MEGAN argued mainly on two points; first,
that the RTC erred when it determined that MEGAN was subrogated to the obligations of
CIMICO and; second, that the RTC had no jurisdiction over MEGAN.
On August 23, 2004, the CA issued a Decision dismissing MEGAN's petition, the dispositive
portion of which reads:
WHEREFORE, premises considered, the Petition for Certiorari is hereby DENIED and forthwith
DISMISSED for lack of merit. Cost against petitioner.
SO ORDERED.[21]
In denying MEGAN's petition, the CA ruled that since Atty. Sabig had actively participated
before the RTC, MEGAN was already estopped from assailing the RTC's jurisdiction.
Aggrieved, MEGAN then filed a Motion for Reconsideration,[22] which was, however, denied by
the CA in Resolution dated October 12, 2005.

Hence, herein petition, with MEGAN raising the following issues for this Court's consideration, to
wit:
I.
WHETHER OR NOT THE PETITIONER IS ESTOPPED FROM QUESTIONING THE
ASSAILED ORDERS BECAUSE OF THE ACTS OF ATTY. REUBEN MIKHAIL SABIG.
II.
WHETHER OR NOT THE REGIONAL TRIAL COURT HAD JURISDICTION TO ISSUE THE
ORDERS DATED JANUARY 16, 2003, FEBRUARY 19, 2003 AND FEBRUARY 28, 2003.[23]
The petition is not meritorious.
MEGAN points out that its board of directors did not issue a resolution authorizing Atty. Sabig to
represent the corporation before the RTC. It contends that Atty. Sabig was an unauthorized
agent and as such his actions should not bind the corporation. In addition, MEGAN argues that
the counsels of the different parties were aware of Atty. Sabig's lack of authority because he
declared in court that he was still in the process of taking over the case and that his voluntary
appearance was just for the hearing of the motion for intervention of Passi Sugar.
Both EPCIB and NFSC, however, claim that MEGAN is already estopped from assailing the
authority of Atty. Sabig. They contend that Atty. Sabig had actively participated in the
proceedings before the RTC and had even filed a number of motions asking for affirmative
relief. They also point out that Jose Concha (Concha), who was a member of the Board of
Directors of MEGAN, accompanied Atty. Sabig during the hearing. Lastly, EPCIB and NFSC
contend that all the motions, pleadings and court orders were sent to the office of MEGAN; yet,
despite the same, MEGAN never repudiated the authority of Atty. Sabig.
After a judicial examination of the records pertinent to the case at bar, this Court agrees with the
finding of the CA that MEGAN is already estopped from assailing the jurisdiction of the RTC.
Relevant to the discussion herein is the transcript surrounding the events of the November 29,
2002 hearing of Passi Sugar's motion for intervention, to wit:
ATTY. ARNOLD LEBRILLA:
Appearing as counsel for defendant PCI Equitable Bank, your Honor.
ATTY. CORNELIO PANES:
Also appearing as counsel for defendant New Frontier Sugar Corporation.

ATTY. ANTONIO SINGSON:

I am appearing, your Honor, as counsel for Passisugar.
ATTY. REUBEN MIKHAIL SABIG:
Appearing your Honor, for Megan Sugar, Inc.
ATTY. LEBRILLA: Your Honor, the counsel for the plaintiff CIMICO has not yet arrived.
ATTY. SABIG: Your Honor, we have been furnished of a copy of the motion. I've talked to Atty.
[Leonardo] Jiz and he informed me that he cannot attend this hearing because we are in the
process of taking over this case. However, the Passisugar had intervened and we have to
appear because we have been copy furnished of the motion, and also, your Honor, since the
motion will directly affect Megan and we are appearing in this hearing despite the fact that we
had not officially received the copy of the motion. Anyway, your Honor, since we are in the
process of taking over this case, Atty. Jiz told me that he cannot appear today.
COURT: Here is the representative from CIMICO.
ATTY. PANES: Yes, your Honor, Atty. Gonzales is here.
ATTY. NELIA JESUSA GONZALES:
I am appearing in behalf of the plaintiff CIMICO, your Honor.
xxxx
COURT: Shall we tackle first your motion for intervention?
ATTY. SINGSON: Yes, your Honor.
ATTY. PANES: Yes, your Honor, and I would like to make a manifestation in relation to the
appearance made by Atty. Sabig. Megan is not, in anyway, a party [to] this case and if he must
join, he can file a motion for intervention. We would like to reiterate our stand that he cannot
participate in any proceeding before this Court particularly in this case.
COURT: Yes, that is right.
ATTY. SINGSON: Yes, your Honor, unless there is a substitution of the plaintiff.
ATTY. SABIG: I understand, your Honor, that we have been served a copy of this motion.

ATTY. PANES: A service copy of the motion is only a notice and it is not, in anyway, [a] right for
him to appear as a party.
COURT: Just a moment, Atty. Panes. Shall we allow Atty. Sabig to finish first?
ATTY. SABIG: This motion directly affects us and that's why we're voluntarily appearing, just for
this hearing on the motion and not for the case itself, specifically for the hearing [on] this motion.
That's our appearance for today because we have been served and we have to protect our
interest. We are not saying that we are taking over the case but there is a hearing for the
motion in intervention and we have been served a copy, that's why we appear voluntarily.
ATTY. LEBRILLA: Your Honor, please, for the defendant, we do not object to the appearance of
the counsel for Megan provided that the counsel could assure us that whatever he says [all
through] in this proceeding will [bind] his client, your Honor, as he is duly authorized by the
corporation, under oath, your Honor, that whatever he says here is binding upon the
corporation.
ATTY. SABIG: Yes, your Honor.
COURT: But I thought all the while that your motion for intervention will implead Megan.
ATTY. SINGSON: We will not yet implead them, your Honor.
COURT: Why will you not implead them because they are now in possession of the mill?
ATTY. SINGSON: That's why we want to be clarified. In what capacity is Megan entering into
the picture? That's the point now that we would like to ask them. So, whatever statement you'll
be making here will bind Megan?
ATTY. SABIG: Yes, your Honor. Specifically for the hearing because apparently, we have to
voluntarily appear since they furnished us a copy that would directly affect our rights.
xxxx
COURT: Are you saying that you are appearing now in behalf of Megan?
ATTY. SABIG: Yes, your Honor.
COURT: And whatever statement you made here will bind Megan?
ATTY. SABIG: Yes, your Honor.
xxxx

COURT: That's why you're being asked now what interest [does] Megan have here?
ATTY. SABIG: We are already in possession of the mill, your Honor.
ATTY. SINGSON: You are in possession of the mill. [On] what authority are you in possession,
this Megan group?
ATTY. SABIG: We have a Memorandum of Agreement which we entered, your Honor, and they
transferred their [referring to CIMICO] rights to us.[24]
The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and
justice, and its purpose is to forbid one to speak against his own act, representations, or
commitments to the injury of one to whom they were directed and who reasonably relied
thereon. The doctrine of estoppel springs from equitable principles and the equities in the case.
It is designed to aid the law in the administration of justice where without its aid injustice might
result. It has been applied by this Court wherever and whenever special circumstances of a
case so demand.[25]
Based on the events and circumstances surrounding the issuance of the assailed orders, this
Court rules that MEGAN is estopped from assailing both the authority of Atty. Sabig and the
jurisdiction of the RTC. While it is true, as claimed by MEGAN, that Atty. Sabig said in court that
he was only appearing for the hearing of Passi Sugar's motion for intervention and not for the
case itself, his subsequent acts, coupled with MEGAN's inaction and negligence to repudiate his
authority, effectively bars MEGAN from assailing the validity of the RTC proceedings under the
principle of estoppel.
In the first place, Atty. Sabig is not a complete stranger to MEGAN. As a matter of fact, as
manifested by EPCIB, Atty. Sabig and his law firm SABIG SABIG & VINGCO Law Office has
represented MEGAN in other cases[26] where the opposing parties involved were also CIMICO
and EPCIB. As such, contrary to MEGAN's claim, such manifestation is neither immaterial nor
irrelevant,[27] because at the very least, such fact shows that MEGAN knew Atty. Sabig.
MEGAN can no longer deny the authority of Atty. Sabig as they have already clothed him with
apparent authority to act in their behalf. It must be remembered that when Atty. Sabig entered
his appearance, he was accompanied by Concha, MEGAN's director and general manager.
Concha himself attended several court hearings, and on December 17, 2002, even sent a
letter[28] to the RTC asking for the status of the case. A corporation may be held in estoppel
from denying as against innocent third persons the authority of its officers or agents who have
been clothed by it with ostensible or apparent authority.[29]Atty. Sabig may not have been
armed with a board resolution, but the appearance of Concha made the parties assume that
MEGAN had knowledge of Atty. Sabig's actions and, thus, clothed Atty. Sabig with apparent
authority such that the parties were made to believe that the proper person and entity to
address was Atty. Sabig. Apparent authority, or what is sometimes referred to as the "holding
out" theory, or doctrine of ostensible agency, imposes liability, not as the result of the reality of a

contractual relationship, but rather because of the actions of a principal or an employer in

somehow misleading the public into believing that the relationship or the authority exists.[30]
Like the CA, this Court notes that MEGAN never repudiated the authority of Atty. Sabig when all
the motions, pleadings and court orders were sent not to the office of Atty. Sabig but to the
office of MEGAN, who in turn, would forward all of the same to Atty. Sabig, to wit:
x x x All the motions, pleadings and other notices in the civil case were mailed to Atty. Reuben
Mikhail P. Sabig, Counsel for Megan Sugar, NFSC Compound, Barangay Man-it, Passi, Iloilo
City which is the address of the Sugar Central being operated by Megan Sugar. The said
address is not the real office address of Atty. Sabig. As pointed out by private respondent
Equitable PCI Bank, the office address of Atty. Sabig is in Bacolod City. All orders, pleadings or
motions filed in Civil Case 02-243 were received in the sugar central being operated by Megan
Central and later forwarded by Megan Sugar to Atty. Sabig who is based in Bacolod City. We
find it incredible that, granting that there was no authority given to said counsel, the record
shows that it was received in the sugar mill operated by Megan and passed on to Atty. Sabig. At
any stage, petitioner could have repudiated Atty. Sabig when it received the court pleadings
addressed to Atty. Sabig as their counsel.[31]
One of the instances of estoppel is when the principal has clothed the agent with indicia of
authority as to lead a reasonably prudent person to believe that the agent actually has such
authority.[32] With the case of MEGAN, it had all the opportunity to repudiate the authority of
Atty. Sabig since all motions, pleadings and court orders were sent to MEGAN's office.
However, MEGAN never questioned the acts of Atty. Sabig and even took time and effort to
forward all the court documents to him.
To this Court's mind, MEGAN cannot feign knowledge of the acts of Atty. Sabig, as MEGAN
was aware from the very beginning that CIMICO was involved in an on-going litigation. Such
fact is clearly spelled out in MEGAN's MOA with CIMICO, to wit:
WHEREAS, CIMICO had filed a 2nd Amended Complaint for Sum of Money, Breach of Contract
and Damages with Preliminary Injunction with a Prayer for a Writ of Temporary Restraining
Order against the NEW FRONTIER SUGAR CORPORATION, pending before Branch 68 of the
Regional Trial Court, based in Dumangas, Iloilo, Philippines, entitled CENTRAL ILOILO
MILLING CORPORATION (CIMICO) versus NEW FRONTIER SUGAR CORPORATION
(NFSC), EQUITABLE PCI BANK and PHILIPPINE INDUSTRIAL SECURITY AGENCY
docketed as CIVIL CASE NO. 02-243;[33]
Considering that MEGAN's rights stemmed from CIMICO and that MEGAN was only to assume
the last crop period of 2002-2003 under CIMICO's contract with NFSC,[34] it becomes
improbable that MEGAN would just wait idly by for the final resolution of the case and not send
a lawyer to protect its interest.

In addition, it bears to point out that MEGAN was negligent when it did not assail the authority of
Atty. Sabig within a reasonable time from the moment when the first adverse order was issued.
To restate, the January 16, 2003 RTC Order directed MEGAN to deposit a sizable number of
sugar quedans. With such an order that directly affects the disposition of MEGAN's assets and
one that involves a substantial amount, it is inconceivable for Atty. Sabig or for Concha not to
inform MEGAN's board of such an order or for one of the directors not to hear of such order thru
other sources. As manifested by NFSC, MEGAN is a family corporation and Concha is the sonin-law of Eduardo Jose Q. Miranda (Eduardo), the President of MEGAN. Elizabeth Miranda, one
of the directors, is the daughter of Eduardo. MEGAN's treasurer, Ramon Ortiz is a cousin of the
Mirandas.[35] Thus, given the nature and structure of MEGAN's board, it is unimaginable that
not a single director was aware of the January 16, 2003 RTC Order. However, far from
repudiating the authority of Atty. Sabig, Atty. Sabig even filed a Manifestation[36] that MEGAN
will deposit the quedans, as directed by the RTC, every "Friday of the week."
MEGAN had all the opportunity to assail the jurisdiction of the RTC and yet far from doing so, it
even complied with the RTC Order. With the amount of money involved, it is beyond belief for
MEGAN to claim that it had no knowledge of the events that transpired. Moreover, it bears to
stress that Atty. Sabig even filed subsequent motions asking for affirmative relief, more
important of which is his March 27, 2003 Urgent Ex-Parte Motion[37] asking the RTC to direct
the Sugar Regulatory Administration (SRA) to release certain quedans in favor of MEGAN on
the premise that the same were not covered by the RTC Orders. Atty. Sabig manifested that
30% of the value of the quedans will be deposited in court as payment for accrued rentals.
Noteworthy is the fact that Atty. Sabig's motion was favorably acted upon by the RTC. Like the
CA, this Court finds that estoppel has already set in. It is not right for a party who has affirmed
and invoked the jurisdiction of a court in a particular matter to secure an affirmative relief to
afterwards deny that same jurisdiction to escape a penalty.[38] The party is barred from such
conduct not because the judgment or order of the court is valid but because such a practice
cannot be tolerated for reasons of public policy.[39]
Lastly, this Court also notes that on April 2, 2003, Atty. Sabig again filed an Urgent Ex-Parte
Motion[40] asking the RTC to direct the SRA to release certain quedans not covered by the
RTC Orders. The same was granted by the RTC in an Order[41] dated April 2, 2003. Curiously,
however, Rene Imperial, the Plant Manager of MEGAN, also signed the April 2, 2003 RTC
Order and agreed to the terms embodied therein. If Atty. Sabig was not authorized to act in
behalf of MEGAN, then why would MEGAN's plant manager sign an official document assuring
the RTC that he would deliver 30% of the value of the quedans earlier released to MEGAN
pursuant to the March 27, 2003 Order?
The rule is that the active participation of the party against whom the action was brought,
coupled with his failure to object to the jurisdiction of the court or administrative body where the
action is pending, is tantamount to an invocation of that jurisdiction and a willingness to abide by
the resolution of the case and will bar said party from later on impugning the court or body's
jurisdiction.[42] Based on the preceding discussion, this Court holds that MEGAN's challenge to
Atty. Sabig's authority and the RTC's jurisdiction was a mere afterthought after having received

an unfavorable decision from the RTC. Certainly, it would be unjust and inequitable to the other
parties if this Court were to grant such a belated jurisdictional challenge.
WHEREFORE, premises considered, the petition is DENIED. The August 23, 2004 Decision
and October 12, 2005 Resolution of the Court of Appeals, in CA-G.R. SP No. 75789, are
AFFIRMED.
SO ORDERED.
Carpio, (Chairperson), Nachura, Peralta, Abad, and Mendoza, JJ.
Agency; agency by estoppel. The doctrine of estoppel is based upon the grounds of public
policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against his
own act, representations, or commitments to the injury of one to whom they were directed and
who reasonably relied thereon. The doctrine of estoppel springs from equitable principles and
the equities in the case. It is designed to aid the law in the administration of justice where
without its aid injustice might result. It has been applied by this Court wherever and whenever
special circumstances of a case so demand.
Based on the events and circumstances surrounding the issuance of the assailed orders, this
Court rules that MEGAN is estopped from assailing both the authority of Atty. Sabig and the
jurisdiction of the RTC. While it is true, as claimed by MEGAN, that Atty. Sabig said in court that
he was only appearing for the hearing of Passi Sugars motion for intervention and not for the
case itself, his subsequent acts, coupled with MEGANs inaction and negligence to repudiate his
authority, effectively bars MEGAN from assailing the validity of the RTC proceedings under the
principle of estoppel. Megan Sugar Corporation v. Regional Trial Court of Iloilo, Br. 68,
Dumangas, Iloilo; New Frontier Sugar Corp., et al., G.R. No. 170352. June 1, 2011