DIVISION

[ GR No. 58028, Apr 18, 1989 ]

CHIANG KAI SHEK SCHOOL v. CA +
DECISION

254 Phil. 394

CRUZ, J.:
An unpleasant surprise awaited Fausta F. Oh when she reported for work at the Chiang Kai Shek School in Sorsogon on
the first week of July, 1968. She was told she had no assignment for the next semester. Oh was shocked. She had been
teaching in the school since 1932 for a continuous period of almost 33 years. And now, out of the blue, and for no
apparent or given reason, this abrupt dismissal.
Oh sued. She demanded separation pay, social security benefits, salary differentials, maternity benefits and moral and
exemplary damages.[1] The original defendant was the Chiang Kai Shek School but when it filed a motion to dismiss on the
ground that it could not be sued, the complaint was amended.[2] Certain officials of the school were also impleaded to
make them solidarily liable with the school.
The Court of First Instance of Sorsogon dismissed the complaint.[3] On appeal, its decision was set aside by the respondent
court, which held the school suable and liable while absolving the other defendants.[4] The motion for reconsideration
having been denied,[5] the school then came to this Court in this petition for review on certiorari.
The issues raised in the petition are:
1. Whether or not a school that has not been incorporated may be sued by reason alone of its long continued existence and
recognition by the government.
2. Whether or not a complaint filed against persons associated under a common name will justify a judgment against the
association itself and not its individual members.
3. Whether or not the collection of tuition fees and book rentals will make a school profit-making and not charitable.
4. Whether or not the Termination Pay Law then in force was available to the private respondent who was employed on a
year-to-year basis.
5. Whether or not the awards made by the respondent court were warranted.
We hold against the petitioner on the first question. It is true that Rule 3, Section 1, of the Rules of Court clearly provides
that "only natural or juridical persons may be parties in a civil action." It is also not denied that the school has not been
incorporated. However, this omission should not prejudice the private respondent in the assertion of her claims against
the school.
As a school, the petitioner was governed by Act No. 2706 as amended by C.A. No. 180, which provided as follows:
Unless exempted for special reasons by the Secretary of Public Instruction, any private school or college recognized by the
government shall be incorporated under the provisions of Act No. 1459 known as the Corporation Law, within 90 days
after the date of recognition, and shall file with the Secretary of Public Instruction a copy of its incorporation papers and
by-laws.
Having been recognized by the government, it was under obligation to incorporate under the Corporation Law within 90
days from such recognition. It appears that it had not done so at the time the complaint was filed notwithstanding that it
had been in existence even earlier than 1932. The petitioner cannot now invoke its own non-compliance with the law to
immunize it from the private respondent's complaint.
There should also be no question that having contracted with the private respondent every year for thirty two years and
thus represented itself as possessed of juridical personality to do so, the petitioner is now estopped from denying such
personality to defeat her claim against it. According to Article 1431 of the Civil Code, "through estoppel an admission or
representation is rendered conclusive upon the person making it and cannot be denied or disproved as against the person
relying on it."
As the school itself may be sued in its own name, there is no need to apply Rule 3, Section 15, under which the persons
joined in an association without any juridical personality may be sued with such association. Besides, it has been shown
that the individual members of the board of trustees are not liable, having been appointed only after the private
respondent's dismissal.[6]
It is clear now that a charitable institution is covered by the labor laws [7] although the question was still unsettled when
this case arose in 1968. At any rate, there was no law even then exempting such institutions from the operation of the
labor laws (although they were exempted by the Constitution from ad valorem taxes). Hence, even assuming that the
petitioner was a charitable institution as it claims, the private respondent was nonetheless still entitled to the protection of
the Termination Pay Law, which was then in force.
While it may be that the petitioner was engaged in charitable works, it would not necessarily follow that those in its
employ were as generously motivated. Obviously, most of them would not have the means for such charity. The private
respondent herself was only a humble school teacher receiving a meager salary of P180.00 per month.
At that, it has not been established that the petitioner is a charitable institution, considering especially that it charges
tuition fees and collects book rentals from its students. [9] While this alone may not indicate that it is profit-making, it does
weaken its claim that it is a non-profit entity.
The petitioner says the private respondent had not been illegally dismissed because her teaching contract was on a yearly
basis and the school was not required to rehire her in 1968. The argument is that her services were terminable at the end
of each year at the discretion of the school. Significantly, no explanation was given by the petitioner, and no advance
notice either, of her relief. After teaching year in and year out for all of thirty-two years, the private respondent was simply
told she could not teach any more.
The Court holds, after considering the particular circumstance of Oh's employment, that she had become a permanent
employee of the school and entitled to security of tenure at the time of her dismissal. Since no cause was shown and
established at an appropriate hearing, and the notice then required by law had not been given, such dismissal was invalid.
The private respondent's position is no different from that of the rank-and-file employees involved in
Gregorio Araneta University Foundation v. NLRC,[10] of whom the Court had the following to say:
Undoubtedly, the private respondents' positions as deans and department heads of the petitioner university are necessary
in its usual business. Moreover, all the private respondents have been serving the university from 18 to 28 years. All of
them rose from the ranks starting as instructors until they became deans and department heads of the university. A
person who has served the University for 28 years and who occupies a high administrative position in addition to teaching
duties could not possibly be a temporary employee or a casual.
The applicable law is the Termination Pay Law, which provided:
SECTION 1. In cases of employment, without a definite period, in a commercial, industrial, or agricultural establishment
or enterprise, the employer or the employee may terminate at any time the employment with just cause; or without just
cause in the case of an employee by serving written notice on the employer at least one month in advance, or in the case of
an employer, by serving such notice to the employee at least one month in advance or one-half month for every year of
service of the employee, whichever is longer, a fraction of at least six months being considered as one whole year.
The employer, upon whom no such notice was served in case of termination of employment without just cause may hold
the employee liable for damages.
The employee, upon whom no such notice was served in case of termination of employment without just cause shall be
entitled to compensation from the date of termination of his employment in an amount equivalent to his salaries or wages
corresponding to the required period of notice. x x x.
The respondent court erred, however, in awarding her one month pay instead of only one-half month salary for every year
of service. The law is quite clear on this matter. Accordingly, the separation pay should be computed at P90.00 times 32
months, for a total of P2,880.00.
Parenthetically, R.A. No. 4670, otherwise known as the Magna Carta for Public School Teachers, confers security of tenure
on the teacher upon appointment as long as he possesses the required qualification. [11] And under the present policy of the
Department of Education, Culture and Sports, a teacher becomes permanent and automatically acquires security of tenure
upon completion of three years in the service.[12]
While admittedly not applicable to the case at bar, these rules nevertheless reflect the attitude of the government on the
protection of the worker's security of tenure, which is now guaranteed by no less than the Constitution itself. [13]
We find that the private respondent was arbitrarily treated by the petitioner, which has shown no cause for her removal
nor had it given her the notice required by the Termination Pay Law. As the respondent court said, the contention that
she did not report one week before the start of classes is a flimsy justification for replacing her. [14] She had been in its
employ for all of thirty-two years. Her record was apparently unblemished. There is no showing of any previous strained
relations between her and the petitioner. Oh had every reason to assume, as she had done in previous years, that she
would continue teaching as usual.
It is easy to imagine the astonishment and hurt she felt when she was flatly and without warning told she was
dismissed. There was not even the amenity of a formal notice of her replacement, with perhaps a graceful expression of
thanks for her past services. She was simply informed she was no longer in the teaching staff. To put it bluntly, she was
fired.
For the wrongful act of the petitioner, the private respondent is entitled to moral damages. [15] As a proximate result of her
illegal dismissal, she suffered mental anguish, serious anxiety, wounded feelings and even besmirched reputation as an
experienced teacher for more than three decades. We also find that the respondent court did not err in awarding her
exemplary damages because the petitioner acted in a wanton and oppressive manner when it dismissed her.[16]
The Court takes this opportunity to pay a sincere tribute to the grade school teachers, who are always at the forefront in
the battle against illiteracy and ignorance. If only because it is they who open the minds of their pupils to an unexplored
world awash with the magic of letters and numbers, which is an extraordinary feat indeed, these humble mentors deserve
all our respect and appreciation.
WHEREFORE, the petition is DENIED. The appealed decision is AFFIRMED except for the award of separation pay,
which is reduced to P2,880.00. All the other awards are approved. Costs against the petitioner.
This decision is immediately executory.
SO ORDERED.

Narvasa, (Chairman), Gancayco, Griño-Aquino, and Medialdea, JJ., concur.

 SECOND DIVISION
[G.R. NO. 152356 : August 16, 2005]
SAN MIGUEL CORPORATION (MANDAUE PACKAGING PRODUCTS PLANTS), Petitioners, v. MANDAUE PACKING PRODUCTS
PLANTS-SAN PACKAGING PRODUCTS - SAN MIGUEL CORPORATION MONTHLIES RANK-AND-FILE UNION - FFW (MPPP-
SMPP-SMAMRFU-FFW), Respondent.

DECISION

TINGA, J.:

The central question in this Petition for Review is on what date did respondent Mandaue Packing Products Plants-San Miguel
Packaging Products'San Miguel Corporation Monthlies Rank-And-File Union FFW acquire legal personality in accordance with the
Implementing Rules of the Labor Code. The matter is crucial since respondent filed a petition for certification election at a date when,
it is argued, it had yet to acquire the requisite legal personality. The Department of Labor and Employment (DOLE) and the Court of
Appeals both ruled that respondent had acquired legal personality on the same day it filed the petition for certification election. The
procedure employed by the respondent did not strictly conform with the relevant provisions of law. But rather than insist on an
overly literal reading of the law that senselessly suffocates the constitutionally guaranteed right to self-organization, we uphold the
assailed decisions and the liberal spirit that animates them.

Antecedent Facts

The present petition assailed the Decision dated 7 June 2001 rendered by the Court of Appeals Eighth Division1 which in turn
affirmed a Decision dated 22 Feburary 1999 by the DOLE Undersecretary for Labor Relations, Rosalinda Dimapilis-Baldoz, ordering
the immediate conduct of a certification election among the petitioner's rank-and-file employees, as prayed for by respondent. The
following facts are culled from the records.

On 15 June 1998, respondent, identifying itself as an affiliate of Federation of Free Workers (FFW), filed a petition for certification
election with the DOLE Regional Office No. VII. In the petition, respondent stated that it sought to be certified and to represent the
permanent rank-and-file monthly paid employees of the petitioner.2 The following documents were attached to the petition: (1) a
Charter Certificate issued by FFW on 5 June 1998 certifying that respondent as of that date was duly certified as a local or chapter of
FFW; (2) a copy of the constitution of respondent prepared by its Secretary, Noel T. Bathan and attested by its President, Wilfred V.
Sagun; (3) a list of respondent's officers and their respective addresses, again prepared by Bathan and attested by Sagun; (4) a
certification signifying that respondent had just been organized and no amount had yet been collected from its members, signed by
respondent's treasurer Chita D. Rodriguez and attested by Sagun; and (5) a list of all the rank-and-file monthly paid employees of
the Mandaue Packaging Products Plants and Mandaue Glass Plant prepared by Bathan and attested by Sagun.3

The petition was assigned to Mediator-Arbiter Achilles V. Manit of the DOLE Regional Office No. VII, and docketed as Case No.
R0700-9806-RU-013.4

On 27 July 1998, petitioner filed a motion to dismiss the petition for certification election on the sole ground that herein respondent
is not listed or included in the roster of legitimate labor organizations based on the certification issued by the Officer-In-Charge,
Regional Director of the DOLE Regional Office No. VII, Atty. Jesus B. Gabor, on 24 July 1998.

On 29 July 1998, respondent submitted to the Bureau of Labor Relations the same documents earlier attached to its petition for
certification. The accompanying letter, signed by respondent's president Sagun, stated that such documents were submitted in
compliance with the requirements for the creation of a local/chapter pursuant to the Labor Code and its Implementing Rules; and it
was hoped that the submissions would facilitate the listing of respondent under the roster of legitimate labor organizations. 5 On 3
August 1998, the Chief of Labor Relations Division of DOLE Regional Office No. VII issued a Certificate of Creation of Local/Chapter
No. ITD. I-ARFBT-058/98, certifying that from 30 July 1998, respondent has acquired legal personality as a labor
organization/worker's association, it having submitted all the required documents.6

Opting not to file a comment on the Motion to Dismiss,7 respondent instead filed a Position Paper wherein it asserted that it had
complied with all the necessary requirements for the conduct of a certification election, and that the ground relied upon in the Motion
to Dismiss was a mere technicality.8

In turn, petitioner filed a Comment, wherein it reiterated that respondent was not a legitimate labor organization at the time of the
filing of the petition. Petitioner also propounded that contrary to respondent's objectives of establishing an organization representing
rank-and-file employees, two of respondent's officers, namely Vice-President Emannuel L. Rosell and Secretary Bathan, were actually
supervisory employees. In support of this allegation, petitioner attached various documents evidencing the designation of these two
officers in supervisory roles, as well as their exercise of various supervisory functions. 9 Petitioner cited Article 245 of the Labor Code,
which provides that supervisory employees shall not be eligible for membership in a labor organization of the rank-and-file
employees.10

On 20 August 1998, petitioner filed a petition to cancel the union registration of respondent. However, this petition was denied, and
such denial was subsequently affirmed by the Court of Appeals in a decision that has since become final. 11

In the meantime, on 15 September 1998, Med-Arbiter Manit issued an Order dismissing respondent's petition for certification
election. The sole ground relied upon for the dismissal was the Med-Arbiter's Opinion that as of the date of filing of the petition on 15
June 1998, respondent did not have the legal personality to file the said petition for certification election. 12 No discussion was
adduced on petitioner's claims that some of respondent's officers were actually supervisory employees.

Respondent promptly appealed the 15 September 1998 Order to the DOLE. On 22 February 1999, DOLE Undersecretary Rosalinda
Dimapilis-Baldoz rendered a Decision reversing the Order. Undersecretary Baldoz concluded that respondent acquired legal
personality as early as 15 June 1998, the date it submitted the required documents, citing Section 3, Rule VI of the New Rules
Implementing the Labor Code (Implementing Rules) which deems that a local/chapter acquires legal personality from the date of
filing of the complete documentary requirements as mandated in the Implementing Rules. The DOLE also ruled that the contention
that two of respondent's officers were actually supervisors can be threshed out in the pre-election conferences where the list of
qualified voters is to be determined. The dispositive portion of the DOLE Decision stated:

WHEREFORE, the appeal is GRANTED. The order dated 15 September 1999 of the Med-Arbiter is REVERSED and SET ASIDE.
Accordingly, let the records of the case be remanded to the office of origin for the immediate conduct of certification election, subject
to the usual pre-election conference, among the monthly-paid rank-and-file employees of the Mandaue Packaging Products Plant San
Miguel Corporation, with the following choices:

1. MANDAUE PACKAGING PRODUCT PLANT SAN MIGUEL PACKAGING PRODUCTS SAN MIGUEL CORPORATION MONTHLIES RANK
AND FILE UNION FFW (MPPP-SMPP-SMCMRFUFFW),

2. NO UNION.

Pursuant to Rule XI, Section 11.1 of the New Implementing Rules, the company is hereby directed to submit to the office of origin
the certified list of current employees in the bargaining unit, along with the payrolls covering the members of the bargaining unit for
the last three months prior to the issuance of this decision.

SO DECIDED.13

These two conclusions of the DOLE were affirmed in the assailed Decision of the Court of Appeals. It is now our task to review
whether these conclusions are warranted under law and jurisprudence. First, we shall discuss the aspect of respondent's legal
personality in filing the petition for certification election.

First Issue: On the Acquisition of

Legal Personality by Respondent

Statutory Provisions for Registration Of

Local/Chapter of Federation or National Union

Before we proceed to evaluate the particular facts of this case, it would be useful to review the statutory paradigm that governs the
establishment and acquisition of legal personality by a local/chapter of a labor organization. The applicable rules have undergone
significant amendments in the last decade, thus a recapitulation of the framework is in order.

The Labor Code defines a labor organization as any union or association of employees which exists in whole or in part for the purpose
of collective bargaining or of dealing with employers concerning terms and conditions of employment,14 and a "legitimate labor
organization" as any labor organization duly registered with the DOLE, including any branch or local thereof.15 Only legitimate labor
organizations may file a petition for certification election.16

Article 234 of the Labor Code enumerates the requirements for registration of an applicant labor organization, association, or group
of unions or workers in order that such entity could acquire legal personality and entitlement to the rights and privileges granted by
law to legitimate labor organizations. These include a registration fee of fifty pesos (P50.00); a list of the names of the members and
officers, and copies of the constitution and by-laws of the applicant union.17

However, the Labor Code itself does not lay down the procedure for the registration of a local or chapter of a labor organization.
Such has been traditionally provided instead in the Implementing Rules, particularly in Book V thereof. However, in the last decade
or so, significant amendments have been introduced to Book V, first by Department Order No. 9 which took effect on 21 June 1997,
and again by Department Order No. 40 dated 17 February 2003. The differences in the procedures laid down in these various
versions are significant. However, since the instant petition for certification was filed in 1998, the Implementing Rules, as amended
by Department Order No. 9, should govern the resolution of this petition.18

Preliminarily, we should note that a less stringent procedure obtains in the registration of a local or chapter than that of a labor
organization. Undoubtedly, the intent of the law in imposing lesser requirements in the case of a branch or local of a registered
federation or national union is to encourage the affiliation of a local union with a federation or national union in order to increase the
local union's bargaining powers respecting terms and conditions of labor.19 This policy has remained consistent despite the
succeeding amendments to Book V of the Omnibus Implementing Rules, as contained in Department Orders Nos. 9 and 40.

The case of Progressive Development Corp. v. Secretary of Labor,20 applying Section 3, Rule II, Book V of the Implementing Rules, in
force before 1997, ruled that "a local or chapter therefore becomes a legitimate labor organization only upon submission of the
following to the BLR: (1) a charter certificate, within thirty (30) days from its issuance by the labor federation or national union; and
(2) The constitution and by-laws, a statement of the set of officers, and the books of accounts all of which are certified under oath by
the secretary or treasurer, as the case may be, of such local or chapter, and attested to by its president." 21 The submission by the
local/chapter of duly certified books of accounts as a prerequisite for registration of the local/chapter was dropped in Department
Order No. 9,22 a development noted by the Court in Pagpalain Haulers v. Hon. Trajano,23 wherein it was held that the previous
doctrines requiring the submission of books of accounts as a prerequisite for the registration of a local/chapter "are already passé
and therefore, no longer applicable."24

Department Order No. 40, now in effect, has eased the requirements by which a local/chapter may acquire legal personality.
Interestingly, Department Order No. 40 no longer uses the term "local/chapter," utilizing instead "chartered local," which is defined
as a "labor organization in the private sector operating at the enterprise level that acquired legal personality through the issuance of
a charter certificate by a duly registered federation or national union, and reported to the Regional Office."25 Clearly under the
present rules, the first step to be undertaken in the creation of a chartered local is the issuance of a charter certificate by the duly
registered federation or national union. Said federation or national union is then obligated to report to the Regional Office the
creation of such chartered local, attaching thereto the charter certificate it had earlier issued.26

But as stated earlier, it is Department Order No. 9 that governs in this case. Section 1, Rule VI thereof prescribes the documentary
requirements for the creation of a local/chapter. It states:

Section 1. Chartering and creation of a local chapter - A duly registered federation or national union may directly create a
local/chapter by submitting to the Regional Office or to the Bureau two (2) copies of the following:

a) A charter certificate issued by the federation or national union indicating the creation or establishment of the local/chapter;

(b) The names of the local/chapter's officers, their addresses, and the principal office of the local/chapter;
(c) The local/chapter's constitution and by-laws; provided that where the local/chapter's constitution and by-laws is the same as that
of the federation or national union, this fact shall be indicated accordingly.

All the foregoing supporting requirements shall be certified under oath by the Secretary or Treasurer of the local/chapter and
attested by its President.

In contrast, an independent union seeking registration is further required under Dept. Order No. 90 to submit the number and names
of the members, and annual financial reports.27

Section 3, Rule VI of Department Order No. 9 provides when the local/chapter acquires legal personality.

Section 3. Acquisition of legal personality by local chapter. 'A local/chapter constituted in accordance with Section 1 of this Rule shall
acquire legal personality from the date of filing of the complete documents enumerated therein. Upon compliance with all the
documentary requirements, the Regional Office or Bureau shall issue in favor of the local/chapter a certificate indicating that it is
included in the roster of legitimate labor organizations.

It is evident based on this rule that the local/chapter acquires legal personality from the date of the filing of the complete
documentary requirements, and not from the issuance of a certification to such effect by the Regional Office or Bureau. On the other
hand, a labor organization is deemed to have acquired legal personality only on the date of issuance of its certificate of
registration,28 which takes place only after the Bureau of Labor Relations or its Regional Offices has undertaken an evaluation process
lasting up until thirty (30) days, within which period it approves or denies the application.29 In contrast, no such period of evaluation
is provided in Department Order No. 9 for the application of a local/chapter, and more importantly, under it such local/chapter is
deemed to acquire legal personality "from the date of filing" of the documents enumerated under Section 1, Rule VI, Book V.

Apart from promoting a policy of affiliation of local unions with national unions, 30 there is a practical reason for sanctioning a less
onerous procedure for the registration of a local/chapter, as compared to the national union. The local/chapter relies in part on the
legal personality of the federation or national union, which in turn, had already undergone evaluation and approval from the Bureau
of Legal Relations or Regional Office. In fact, a federation or national union is required, upon registration, to establish proof of
affiliation of at least ten (10) locals or chapters which are duly recognized as the collective bargaining agent in the establishment or
industry in which they operate; and the names and addresses of the companies where the locals or chapters operate and the list of
all the members in each of the companies.31 Once the national union or federation acquires legal personality upon the issuance of its
certificate or registration,32 its legal personality cannot be subject to collateral attack.33

The fact that the local/chapter acquires legal personality from the moment the complete documentary requirements are submitted
seems to imply that the duty of the Bureau or Regional Office to register the local/chapter is merely ministerial. However,
in Progressive Development Corporation v. Laguesma,34 the Court, in ruling against a petition for certification filed by a chapter, held
that the mere submission of the documentary requirements does not render ministerial the function of the Bureau of Labor Relations
in according due recognition to the labor organization.35 Still, that case was decided before the enactment of Department Order No.
9, including the aforestated Section 3. Should we consider the said 1997 amendments as having obviated our characterization
in Progressive of the Bureau's duty as non-ministerial?chanroblesvirtualawlibrary

Notwithstanding the amendments, it still is good policy to maintain that per Department Order No. 9, the duty of the Bureau of Labor
Relations to recognize the local/chapter upon the submission of the documentary requirements is not ministerial, insofar as the
Bureau is obliged to adjudge the authenticity of the documents required to be submitted. For example, the Bureau is not mandated
to accept just any purported charter certificate matter how spurious it is in appearance. It is empowered to ascertain whether the
submitted charter certificate is genuine, and if finding that said certificate is fake, deny recognition to the local/chapter.

However, in ascertaining whether or not to recognize and register the local/chapter, the Bureau or Regional Office should not look
beyond the authenticity and due execution of the documentary requirements for the creation of the local/chapter as enumerated
under Section 1, Rule VI, Book V of Department Order No. 9. Since the proper submission of these documentary requirements is all
that is necessary to recognize a local/chapter, it is beyond the province of the Bureau or Regional Offices to resort to other grounds
as basis for denying legal recognition of the local/chapter. For example, Department Order No. 9 does not require the local/chapter
to submit the names of its members as a condition precedent to its registration.36 It therefore would be improper to deny legal
recognition to a local/chapter owing to questions pertaining to its individual members since the local/chapter is not even obliged to
submit the names of its individual members prior to registration.

Certainly, when a local/chapter applies for registration, matters raised against the personality of the federation or national union
itself should not be acted upon by the Bureau or Regional Office, owing to the preclusion of collateral attack. Instead, the proper
matter for evaluation by the Bureau or Regional Office should be limited to whether the local/chapter is indeed a duly created affiliate
of the national union or federation.

Parenthetically, under the present Implementing Rules as amended by Department Order No. 40, it appears that the local/chapter
(or now, "chartered local") acquires legal personality upon the issuance of the charter certificate by the duly registered federation or
national union.37 This might signify that the creation of the chartered local is within the sole discretion of the federation or national
union and thus beyond the review or interference of the Bureau of Labor Relations or its Regional Offices. However, Department
Order No. 40 also requires that the federation or national union report the creation of the chartered local to the Regional Office.

Acquisition by Respondent of Legal Personality

We now proceed to determine if and when the respondent acquired legal personality under the procedure laid down by the rules then
in effect, Department Order No. 9, that is.

At the onset, the arguments raised by petitioner on this point are plainly erroneous. Petitioner cites the case of Toyota Motor
Philippines v. Toyota Motor Philippines Corporation Labor Union,38 and the purported holding therein that "[if] it is true that at the
time of the filing of the petition, the said registration certificate has not been approved yet, then, petitioner lacks the legal
personality to file the petition."39 However, an examination of the case actually reveals that the cited portion was lifted from one of
the antecedent rulings of the Med-Arbiter in that case which had not even been affirmed or reinstated by the Court on
review.40 Moreover, such pronouncement made prior to the enactment of Department Order No. 9 squarely contradicts Section 3,
Rule VI thereof, which provides that legal personality of the local/chapter is vested upon the submission of the complete
documentary requirements.
It is also worth noting that petitioner union in Toyota was an independent labor union, and not a local/chapter, and under
Department Order No. 9, independent labor unions, unlike local/chapters, acquire legal personality only upon issuance of the
certificate of registration by the Bureau or Regional Office. Still, petitioner cites in its favor Section 5, Rule V of Dept. Order No. 9,
which states that "the labor organization or workers' association shall be deemed registered and vested with legal personality on the
date of issuance of its certificate of registration." Again, the citation is obviously misplaced, as respondent herein is a local/chapter,
the acquisition of its legal personality being governed instead by Section 3, Rule VI.

It is thus very clear that the issuance of the certificate of registration by the Bureau or Regional Office is not the operative act that
vests legal personality upon a local/chapter under Department Order No. 9. Such legal personality is acquired from the filing of the
complete documentary requirements enumerated in Section 1, Rule VI. Admittedly, the manner by which respondent was deemed to
have acquired legal personality by the DOLE and the Court of Appeals was not in strict conformity with the provisions of Department
Order No. 9. Nonetheless, are the deviations significant enough for the Court to achieve a different conclusion from that made by the
DOLE and the Court of Appeals?chanroblesvirtualawlibrary

In regular order, it is the federation or national union, already in possession of legal personality, which initiates the creation of the
local/chapter. It issues a charter certificate indicating the creation or establishment of the local/chapter. It then submits this charter
certificate, along with the names of the local/chapter's officers, constitution and by-laws to the Regional Office or Bureau. It is the
submission of these documents, certified under oath by the Secretary or Treasurer of the local/chapter and attested by the
President, which vests legal personality in the local/chapter, which is then free to file on its own a petition for certification election.

In this case, the federation in question, the FFW, did not submit any of these documentary requirements to the Regional Office or
Bureau. It did however issue a charter certificate to the putative local/chapter (herein respondent). Respondent then submitted the
charter certificate along with the other documentary requirements to the Regional Office, but not for the specific purpose of creating
the local/chapter, but for filing the petition for certification election.

It could be properly said that at the exact moment respondent was filing the petition for certification, it did not yet possess any legal
personality, since the requisites for acquisition of legal personality under Section 3, Rule VI of Department Order No. 9 had not yet
been complied with. It could also be discerned that the intention of the Labor Code and its Implementing Rules that only those labor
organizations that have acquired legal personality are capacitated to file petitions for certification elections. Such is the general rule.

Yet there are peculiar circumstances in this case that allow the Court to rule that respondent acquired the requisite legal personality
at the same time it filed the petition for certification election. In doing so, the Court acknowledges that the strict letter of the
procedural rule was not complied with. However, labor laws are generally construed liberally in favor of labor, especially if doing so
affirms the constitutionally guaranteed right to self-organization.

True enough, there was no attempt made by the national federation, or the local/chapter for that matter, to submit the enumerated
documentary requirements to the Regional Office or Bureau for the specific purpose of creating the local/chapter. However, these
same documents were submitted by the local/chapter to the Regional Office as attachments to its petition for certification election.
Under Section 3, Rule VI of Department Order No. 9, it is the submission of these same documents to the Regional Office or Bureau
that operates to vest legal personality on the local/chapter.

Thus, in order to ascertain when respondent acquired legal personality, we only need to determine on what date the Regional Office
or Bureau received the complete documentary requirements enumerated under Section 1, Rule VI of Department Order No. 9. There
is no doubt that on 15 June 1998, or the date respondent filed its petition for certification election, attached thereto were
respondent's constitution, the names and addresses of its officers, and the charter certificate issued by the national union FFW. The
first two of these documents were duly certified under oath by respondent's secretary Bathan and attested to by president Sagun.41

It may be noted though that respondent never submitted a separate by-laws, nor does it appear that respondent ever intended to
prepare a set thereof. Section 1(c), Rule VI, Book V of Department Order No. 9 provides that the submission of both a constitution
and a set of by-laws is required, or at least an indication that the local/chapter is adopting the constitution and by-laws of the
federation or national union. A literal reading of the provision might indicate that the failure to submit a specific set of by-laws is fatal
to the recognition of the local/chapter. A more critical analysis of this requirement though is in order, especially as it should apply to
this petition.

By-laws has traditionally been defined as regulations, ordinances, rules or laws adopted by an association or corporation or the like
for its internal governance, including rules for routine matters such as calling meetings and the like.42 The importance of by-laws to a
labor organization cannot be gainsaid. Without such provisions governing the internal governance of the organization, such as rules
on meetings and quorum requirements, there would be no apparent basis on how the union could operate. Without a set of by-laws
which provides how the local/chapter arrives at its decisions or otherwise wields its attributes of legal personality, then every action
of the local/chapter may be put into legal controversy.

However, if those key by-law provisions on matters such as quorum requirements, meetings, or on the internal governance of the
local/chapter are themselves already provided for in the constitution, then it would be feasible to overlook the requirement for by-
laws. Indeed in such an event, to insist on the submission of a separate document denominated as "By-Laws" would be an undue
technicality, as well as a redundancy.

An examination of respondent's constitution reveals it sufficiently comprehensive in establishing the necessary rules for its operation.
Article IV establishes the requisites for membership in the local/chapter. Articles V and VI name the various officers and what their
respective functions are. The procedure for election of these officers, including the necessary vote requirements, is provided for in
Article IX, while Article XV delineates the procedure for the impeachment of these officers. Article VII establishes the standing
committees of the local/chapter and how their members are appointed. Article VIII lays down the rules for meetings of the union,
including the notice and quorum requirements thereof. Article X enumerates with particularity the rules for union dues, special
assessments, fines, and other payments. Article XII provides the general rule for quorum in meetings of the Board of Directors and
of the members of the local/chapter, and cites the applicability of the Robert's Rules of Order43 in its meetings. And finally, Article
XVI governs and institutes the requisites for the amendment of the constitution.

Indeed, it is difficult to see in this case what a set of by-laws separate from the constitution for respondent could provide that is not
already provided for by the Constitution. These premises considered, there is clearly no need for a separate set of by-laws to be
submitted by respondent.

The Court likewise sees no impediment in deeming respondent as having acquired legal personality as of 15 June 1998, the fact that
it was the local/chapter itself, and not the FFW, which submitted the documents required under Section 1, Rule VI of Department
Order No. 9. The evident rationale why the rule states that it is the federation or national union that submits said documents to the
Bureau or Regional Office is that the creation of the local/chapter is the sole prerogative of the federation or national union, and not
of any other entity. Certainly, a putative local/chapter cannot, without the imprimatur of the federation or national union, claim
affiliation with the larger unit or source its legal personality therefrom.

In the ordinary course, it should have been FFW, and not respondent, which should have submitted the subject documents to the
Regional Office. Nonetheless, there is no good reason to deny legal personality or defer its conferral to the local/chapter if it is
evident at the onset that the federation or national union itself has already through its own means established the local/chapter. In
this case, such is evidenced by the Charter Certificate dated 9 June 1998, issued by FFW, and attached to the petition for
certification election. The Charter Certificate expressly states that respondent has been issued the said certificate "to operate as a
local or chapter of the [FFW]". The Charter Certificate expressly acknowledges FFW's intent to establish respondent as of 9 June
1998.44 This being the case, we consider it permissible for respondent to have submitted the required documents itself to the
Regional Office, and proper that respondent's legal personality be deemed existent as of 15 June 1998, the date the complete
documents were submitted.

Second Issue: On the Alleged Presence

Of Supervisory Employees as

Officers of the Respondent

The second issue hinges on a point of some controversy and frequent discussion in recent years. Petitioner claims error in the
common pronouncement in the assailed decisions that the matter concerning the two officers who are allegedly supervisory
employees may be threshed out during pre-election conferences. Petitioner cites the cases of Toyota Motors and Progressive
Development Corporation-Pizza Hut v. Ledesma45 wherein the Court ruled that the question of prohibited membership of both
supervisory and rank-and-file employees in the same union must be inquired into anterior to the granting of an order allowing a
certification election; and that a union composed of both of these kinds of employees does not possess the requisite personality to
file for recognition as a legitimate labor organization. It should be noted though that in the more recent case of Tagaytay Highlands
International Golf Club v. Tagaytay Highlands Employees Union,46 the Court, notwithstanding Toyota and Progressive, ruled that after
a certificate of registration is issued to a union, its legal personality cannot be subject to collateral attack, but questioned only in an
independent petition for cancellation.47

There is no need to apply any of the above cases at present because the question raised by petitioner on this point is already settled
law, as a result of the denial of the independent petition for cancellation filed by petitioner against respondent on 20 August 1998.
The ground relied upon therein was the alleged fraud, misrepresentation and false statement in describing itself as a union of rank
and file employees when in fact, two of its officers, Emmanuel Rosell and Noel Bathan, were occupying supervisory positions. 48 Said
petition was denied by the Regional Director, this action was affirmed by the DOLE, the Court of Appeals, and the Supreme
Court.49 The denial made by the Court of Appeals and the Supreme Court may have been based on procedural grounds,50 but the
prior decisions of the Regional Director and the DOLE ruled squarely on the same issue now raised by the petitioner. We quote from
the Resolution of the DOLE dated 29 December 1998:

. . . . [The] substantive issue that is now before us is whether or not the inclusion of the two alleged supervisory employees in
appellee union's membership amounts to fraud, misrepresentation, or false statement within the meaning of Article 239(a) and (c) of
the Labor Code.

We rule in the negative.

Under the law, a managerial employee is "one who is vested with powers or prerogatives to lay down and execute management
policies and/or to hire, transfer, suspend, layoff, recall, discharge, assign or discipline employees." A supervisory employee is "one
who, in the interest of the employer, effectively recommends managerial actions if the exercise of such recommendatory authority is
not merely routinary or clerical in nature but requires the use of independent judgment. '" Finally, "all employees not falling within
the definition of managerial or supervisory employee are considered rank-and-file employees". It is also well-settled that the actual
functions of an employee, not merely his job title, are determinative in classifying such employee as managerial, supervisory or rank
and file.

In the case of Emmanuel Rossell, appellant's evidence shows that he undertakes the filling out of evaluation reports on the
performance of mechanics, which in turn are used as basis for reclassification. Given a ready and standard form to accomplish,
coupled with the nature of the evaluation, it would appear that his functions are more routinary than recommendatory and hardly
leave room for independent judgment. In the case of Noel Bathan, appellant's evidence does not show his job title although it shows
that his recommendations on disciplinary actions appear to have carried some weight on higher management. On this limited point,
he may qualify as a supervisory employee within the meaning of the law. This may, however, be outweighed by his other functions
which are not specified in the evidence.

Assuming that Bathan is a supervisory employee, this does not prove the existence of fraud, false statement or misrepresentation.
Because good faith is presumed in all representations, an essential element of fraud, false statement and misrepresentation in order
for these to be actionable is intent to mislead by the party making the representation. In this case, there is no proof to show that
Bathan, or appellee union for that matter, intended to mislead anyone. If this was appellee union's intention, it would have refrained
from using a more precise description of the organization instead of declaring that the organization is composed of 'rank and file
monthlies'. Hence, the charge of fraud, false statement or misrepresentation cannot be sustained.

Appellant's reliance on the Toyota case must be tempered by the peculiar circumstances of the case. Even assuming that Bathan, or
Rossel for that matter, are supervisory employees, the Toyota case cannot certainly be given an interpretation that emasculates the
right to self-organization and the promotion of free trade unionism. We take administrative notice of the realities in union organizing,
during which the organizers must take their chances, oftentimes unaware of the fine distinctions between managerial, supervisory
and rank and file employees. The grounds for cancellation of union registration are not meant to be applied automatically, but indeed
with utmost discretion. Where a remedy short of cancellation is available, that remedy should be preferred. In this case, no party will
be prejudiced if Bathan were to be excluded from membership in the union. The vacancy he will thus create can then be easily filled
up through the succession provision of appellee union's constitution and by-laws. What is important is that there is an unmistakeable
intent of the members of appellee union to exercise their right to organize. We cannot impose rigorous restraints on such right if we
are to give meaning to the protection to labor and social justice clauses of the Constitution.51

The above-cited pronouncement by Bureau of Labor Relations Director Benedicto Ernesto R. Bitonio, Jr. in BLR-A-C-41-11-11-98 was
affirmed by the Court of Appeals and the Supreme Court. Hence, its pronouncement affirming, notwithstanding the questions on the
employment status of Rossell and Bathan, the legitimacy of the respondent, stands as a final ruling beyond the ambit of review, thus
warranting the Court's respect. There may be a difference between this case, which involves a petition for certification election, and
the other case, which concerns a petition for cancellation. However, petitioner opposes the petition for certification election on the
ground of the illegitimacy of respondent, owing to the alleged supervisory nature of the duties of Rossell and Bathan. That matter
has already been settled in the final disposition of the petition for cancellation, and thus cannot be unsettled by reason of this
present petition.

Effect of Respondent's Manifestation

Of Subsequent Developments

A final note. In its Memorandum, petitioner alleges that the bargaining unit that respondent sought to represent is no longer the
same because of the dynamic nature of petitioner's business, a lot of changes having occurred in the work environment, and that
four of respondent's officers are no longer connected with petitioner.52 Assuming that these manifestations are true, they have no
effect on the Court's ruling that a certification election should be immediately conducted with respondent as one of the available
choices. Petitioner's bare manifestations adduce no reason why the certification election should not be conducted forthwith. If there
are matters that have arisen since the filing of the petition that serve to delay or cancel the election, these can be threshed out
during the pre-election conferences. Neither is the fact that some of respondent's officers have since resigned from petitioner of any
moment. The local/chapter retains a separate legal personality from that of its officers or members that remains viable
notwithstanding any turnover in its officers or members.

WHEREFORE, the Petition is DENIED. Costs against petitioner.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

 FIRST DIVISION

[G.R. No. 80039. April 18, 1989.]

ERNESTO M. APODACA, Petitioner, v. NATIONAL LABOR RELATIONS COMMISSION, JOSE M. MIRASOL, AND
INTRANS PHILS., INC., Respondents.

Diego O. Untalan for Petitioner.

The Solicitor General for public Respondent.

Barcelona, Perlas, Joven & Academia Law Offices for Private Respondents.

SYLLABUS

1. LABOR LAW; NATIONAL LABOR RELATIONS COMMISSION; HAS NO JURISDICTION OVER INTRA-CORPORATE DISPUTE
BETWEEN STOCKHOLDER AND THE CORPORATION. — The NLRC has no jurisdiction to determine such intra-corporate
dispute between the stockholder and the corporation as in the matter of unpaid subscriptions. This controversy is within the
exclusive jurisdiction of the Securities and Exchange Commission.

2. COMMERCIAL LAW; CORPORATION; UNPAID SUBSCRIPTION; NOT DUE AND DEMANDABLE UNTIL A CALL FOR PAYMENT
IS MADE BY THE CORPORATION. — The unpaid subscriptions are not due and payable until a call is made by the corporation
for payment. Private respondents have not presented a resolution of the board of directors of respondent corporation calling
for the payment of the unpaid subscriptions. It does not even appear that a notice of such call has been sent to petitioner by
the respondent corporation.

3. LABOR LAW; WAGE DEDUCTION; INSTANCES WHEN ALLOWED. — The NLRC cannot validly set it off against the wages
and other benefits due petitioner. Article 113 of the Labor Code allows such a deduction from the wages of the employees by
the employer, only in three instances, to wit: "ART. 113. Wage Deduction. — No employer, in his own behalf or in behalf of
any person, shall make any deduction from the wages of his employees, except: (a) In cases where the worker is insured
with his consent by the employer, and the deduction is to recompense the employer for the amount paid by him as premium
on the insurance. (b) For union dues, in cases where the right of the worker or his union to checkoff has been recognized by
the employer or authorized in writing by the individual worker concerned; and (c) In cases where the employer is authorized
by law or regulations issued by the Secretary of Labor."

DECISION

GANCAYCO, J.:

Does the National Labor Relations Commission (NLRC) have jurisdiction to resolve a claim for non-payment of stock
subscriptions to a corporation? Assuming that it has, can an obligation arising therefrom be offset against a money claim of
an employee against the employer? These are the issues brought to this court through this petition for review of a decision of
the NLRC dated September 18, 1987.

The only remedy provided for by law from such a decision is a special civil action for certiorari under Rule 65 of the Rules of
Court based on jurisdictional grounds or on alleged grave abuse of discretion amounting to lack or excess of jurisdiction, not
by way of an appeal by certiorari. Nevertheless, in the interest of justice, this petition is treated as a special civil action
for certiorari.

Petitioner was employed in respondent corporation. On August 28, 1985, respondent Jose M. Mirasol persuaded petitioner to
subscribe to P1,500 shares of respondent corporation it P100.00 per share or a total of P150,000.00. He made an initial
payment of P37,500.00. On September 1, 1975, petitioner was appointed President and General Manager of the respondent
corporation. However, on January 2, 1986, he resigned.

On December 19, 1986, petitioner instituted with the NLRC a complaint against private respondents for the payment of his
unpaid wages, his cost of living allowance, the balance of his gasoline and representation expenses and his bonus
compensation for 1986. Petitioner and private respondents submitted their position papers to the labor arbiter. Private
respondents admitted that there is due to petitioner the amount of P17,060.07 but this was applied to the unpaid balance of
his subscript in the amount of P95,439.93. Petitioner questioned the set-off alleging that there was no call or notice for the
payment of unpaid subscription and that, accordingly, the alleged obligation is not enforceable.

In a decision dated April 28, 1987, the labor arbiter sustained the claim of petitioner for P17,060.07 on the ground that the
employer has no right to withhold payment of wages already earned under Article 103 of the Labor Code. Upon the appeal of
the private respondents to public respondent NLRC, the decision of the labor arbiter was reversed in a decision dated
September 18, 1987. The NLRC held that a stockholder who fails to pay his unpaid subscription on call becomes a debtor of
the corporation and that the set off of said obligation against the wages and others due to petitioner is not contrary to law,
morals and public policy.cha nrob les vi rtua lawlib rary c han robles. com:cha nrob les.co m.ph

Hence, the instant petition.

The petition is impressed with merit.

Firstly, the NLRC has no jurisdiction to determine such intra-corporate dispute between the stockholder and the corporation
as in the matter of unpaid subscriptions. This controversy is within the exclusive jurisdiction of the Securities and Exchange
Commission. 1

Secondly, assuming arguendo that the NLRC may exercise jurisdiction over the said subject matter under the circumstances
of this case, the unpaid subscriptions are not due and payable until a call is made by the corporation for payment. 2 Private
respondents have not presented a resolution of the board of directors of respondent corporation calling for the payment of
the unpaid subscriptions. It does not even appear that a notice of such call has been sent to petitioner by the respondent
corporation.

What the records show is that the respondent corporation deducted the amount due to petitioner from the amount receivable
from him for the unpaid subscriptions. 3 No doubt such set-off was without lawful basis, if not premature. As there was no
notice or call for the payment of unpaid subscriptions, the same is not yet due and payable.

Lastly, assuming further that there was a call for payment of the unpaid subscription, the NLRC cannot validly set it off
against the wages and other benefits due petitioner. Article 113 of the Labor Code allows such a deduction from the wages of
the employees by the employer, only in three instances, to wit: jgc:chan roble s.com.p h

"ART. 113. Wage Deduction. — No employer, in his own behalf or in behalf of any person, shall make any deduction from the
wages of his employees, except: chan rob1e s virtual 1aw lib rary

(a) In cases where the worker is insured with his consent by the employer, and the deduction is to recompense the employer
for the amount paid by him as premium on the insurance;

(b) For union dues, in cases where the right of the worker or his union to checkoff has been recognized by the employer or
authorized in writing by the individual worker concerned; and

(c) In cases where the employer is authorized by law or regulations issued by the Secretary of Labor." 4

WHEREFORE, the petition is GRANTED and the questioned decision of the NLRC dated September 18, 1987 is hereby set
aside and another judgment is hereby rendered ordering private respondents to pay petitioner the amount P17,060.07 plus
legal interest computed from the time of the filing of the complaint on December 19, 1986, with costs against private
respondents.

SO ORDERED.

Narvasa, Cruz, Griño-Aquino and Medialdea, JJ., concur.

 FIRST DIVISION

[G.R. No. 120138. September 5, 1997]

MANUEL A. TORRES, JR., (Deceased), GRACIANO J. TOBIAS, RODOLFO L. JOCSON, JR., MELVIN S.
JURISPRUDENCIA, AUGUSTUS CESAR AZURA and EDGARDO D. PABALAN, Petitioners, v. COURT OF APPEALS,
SECURITIES AND EXCHANGE COMMISSION, TORMIL REALTY & DEVELOPMENT CORPORATION, ANTONIO P.
TORRES, JR., MA. CRISTINA T. CARLOS, MA. LUISA T. MORALES, and DANTE D. MORALES, Respondents.

DECISION

KAPUNAN, J.:

In this petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioners seek to annul the decision of
the Court of Appeals in CA-G.R. SP. No. 31748 dated 23 May 1994 and its subsequent resolution dated 10 May 1995 denying
petitioners motion for reconsideration.

The present case involves two separate but interrelated conflicts. The facts leading to the first controversy are as follows:

The late Manuel A. Torres, Jr. (Judge Torres for brevity) was the majority stockholder of Tormil Realty & Development
Corporation while private respondents who are the children of Judge Torres deceased brother Antonio A. Torres, constituted
the minority stockholders. In particular, their respective shareholdings and positions in the corporation were as follows:

Name of Stockholder Number of Percentage Position(s)

Shares

Manuel A. Torres, Jr. 100,120 57.21 Dir./Pres./Chair

Milagros P. Torres 33,430 19.10 Dir./Treasurer
Josefina P. Torres 8,290 4.73 Dir./Ass. Cor-Sec.
Ma. Cristina T. Carlos 8,290 4.73 Dir./Cor-Sec.
Antonio P. Torres, Jr. 8,290 4.73 Director
Ma. Jacinta P. Torres 8,290 4.73 Director
Ma. Luisa T. Morales 7,790 4.45 Director
Dante D. Morales 500.28 Director 1chanroblesvirtuallawlibrary

In 1984, Judge Torres, in order to make substantial savings in taxes, adopted an estate planning scheme under which he
assigned to Tormil Realty & Development Corporation (Tormil for brevity) various real properties he owned and his shares of
stock in other corporations in exchange for 225,972 Tormil Realty shares. Hence, on various dates in July and August of
1984, ten (10) deeds of assignment were executed by the late Judge Torres:

ASSIGNMENT DATE PROPERTY ASSIGNED LOCATION SHARES TO

BE ISSUED

1. July 13, 1984 TCT 81834 Quezon City 13,252

TCT 144240 Quezon City

2. July 13, 1984 TCT 77008 Manila

TCT 65689 Manila 78,493

TCT 109200 Manila

3. July 13, 1984 TCT 374079 Makati 8,307

4. July 24, 1984 TCT 41527 Pasay

TCT 41528 Pasay 9,855

TCT 41529 Pasay

5. Aug. 06, 1984 El Hogar Filipino Stocks 2,000

6, Aug. 06, 1984 Manila Jockey Club Stocks 48,737

7. Aug. 07, 1984 San Miguel Corp. Stocks 50,283

8. Aug. 07, 1984 China Banking Corp. Stocks 6,300

9. Aug. 20, 1984 Ayala Corp. Stocks 7,468

10. Aug. 29, 1984 Ayala Fund Stocks 1,322

225,972 2chanroblesvirtuallawlibrary
Consequently, the aforelisted properties were duly recorded in the inventory of assets of Tormil Realty and the revenues
generated by the said properties were correspondingly entered in the corporations books of account and financial records.

Likewise, all the assigned parcels of land were duly registered with the respective Register of Deeds in the name of Tormil
Realty, except for the ones located in Makati and Pasay City.

At the time of the assignments and exchange, however, only 225,000 Tormil Realty shares remained unsubscribed, all of
which were duly issued to and received by Judge Torres (as evidenced by stock certificates Nos. 17, 18, 19, 20, 21, 22, 23,
24 & 25).3chanroblesvirtuallawlibrary

Due to the insufficient number of shares of stock issued to Judge Torres and the alleged refusal of private respondents to
approve the needed increase in the corporations authorized capital stock (to cover the shortage of 972 shares due to Judge
Torres under the estate planning scheme), on 11 September 1986, Judge Torres revoked the two (2) deeds of assignment
covering the properties in Makati and Pasay City.4chanroblesvirtuallawlibrary

Noting the disappearance of the Makati and Pasay City properties from the corporations inventory of assets and financial
records private respondents, on 31 March 1987, were constrained to file a complaint with the Securities and Exchange
Commission (SEC) docketed as SEC Case No. 3153 to compel Judge Torres to deliver to Tormil Corporation the two (2) deeds
of assignment covering the aforementioned Makati and Pasay City properties which he had unilaterally revoked and to cause
the registration of the corresponding titles in the name of Tormil. Private respondents alleged that following the
disappearance of the properties from the corporations inventory of assets, they found that on October 24, 1986, Judge
Torres, together with Edgardo Pabalan and Graciano Tobias, then General Manager and legal counsel, respectively, of Tormil,
formed and organized a corporation named Torres-Pabalan Realty and Development Corporation and that as part of Judge
Torres contribution to the new corporation, he executed in its favor a Deed of Assignment conveying the same Makati and
Pasay City properties he had earlier transferred to Tormil.

The second controversy--involving the same parties--concerned the election of the 1987 corporate board of directors.

The 1987 annual stockholders meeting and election of directors of Tormil corporation was scheduled on 25 March 1987 in
compliance with the provisions of its by-laws.

Pursuant thereto, Judge Torres assigned from his own shares, one (1) share each to petitioners Tobias, Jocson,
Jurisprudencia, Azura and Pabalan. These assigned shares were in the nature of qualifying shares, for the sole purpose of
meeting the legal requirement to be able to elect them (Tobias and company) to the Board of Directors as Torres nominees.

The assigned shares were covered by corresponding Tormil Stock Certificates Nos. 030, 029, 028, 027, 026 and at the back
of each certificate the following inscription is found:

The present certificate and/or the one share it represents, conformably to the purpose and intention of the Deed of
Assignment dated March 6, 1987, is not held by me under any claim of ownership and I acknowledge that I hold the same
merely as trustee of Judge Manuel A. Torres, Jr. and for the sole purpose of qualifying me as Director;

(Signature of Assignee) 5chanroblesvirtuallawlibrary

The reason behind the aforestated action was to remedy the inequitable lopsided set-up obtaining in the corporation, where,
notwithstanding his controlling interest in the corporation, the late Judge held only a single seat in the nine-member Board of
Directors and was, therefore, at the mercy of the minority, a combination of any two (2) of whom would suffice to overrule
the majority stockholder in the Boards decision making functions. 6chanroblesvirtuallawlibrary

On 25 March 1987, the annual stockholders meeting was held as scheduled. What transpired therein was ably narrated by
Attys. Benito Cataran and Bayani De los Reyes, the official representatives dispatched by the SEC to observe the proceedings
(upon request of the late Judge Torres) in their report dated 27 March 1987:

xxx.

The undersigned arrived at 1:55 p.m. in the place of the meeting, a residential bungalow in Urdaneta Village, Makati, Metro
Manila. Upon arrival, Josefina Torres introduced us to the stockholders namely: Milagros Torres, Antonio Torres, Jr., Ma.
Luisa Morales, Ma. Cristina Carlos and Ma. Jacinta Torres. Antonio Torres, Jr. questioned our authority and personality to
appear in the meeting claiming subject corporation is a family and private firm. We explained that our appearance there was
merely in response to the request of Manuel Torres, Jr. and that SEC has jurisdiction over all registered corporations. Manuel
Torres, Jr., a septuagenarian, argued that as holder of the major and controlling shares, he approved of our attendance in
the meeting.

At about 2:30 p.m., a group composed of Edgardo Pabalan, Atty. Graciano Tobias, Atty. Rodolfo Jocson, Jr., Atty. Melvin
Jurisprudencia, and Atty. Augustus Cesar Azura arrived. Atty. Azura told the body that they came as counsels of Manuel
Torres, Jr. and as stockholders having assigned qualifying shares by Manuel Torres, Jr.

The stockholders meeting started at 2:45 p.m. with Mr. Pabalan presiding after verbally authorized by Manuel Torres, Jr., the
President and Chairman of the Board. The secretary when asked about the quorum, said that there was more than a quorum.
Mr. Pabalan distributed copies of the presidents report and the financial statements. Antonio Torres, Jr. requested time to
study the said reports and brought out the question of auditing the finances of the corporation which he claimed was
approved previously by the board. Heated arguments ensued which also touched on family matters. Antonio Torres, Jr.
moved for the suspension of the meeting but Manuel Torres, Jr. voted for the continuation of the proceedings.

Mr. Pabalan suggested that the opinion of the SEC representatives be asked on the propriety of suspending the meeting but
Antonio Torres, Jr. objected reasoning out that we were just observers.
When the Chairman called for the election of directors, the Secretary refused to write down the names of nominees
prompting Atty. Azura to initiate the appointment of Atty. Jocson, Jr. as Acting Secretary.

Antonio Torres, Jr. nominated the present members of the Board. At this juncture, Milagros Torres cried out and told the
group of Manuel Torres, Jr. to leave the house.

Manuel Torres, Jr., together with his lawyers-stockholders went to the residence of Ma. Jacinta Torres in San Miguel Village,
Makati, Metro Manila. The undersigned joined them since the group with Manuel Torres, Jr. the one who requested for S.E.C.
observers, represented the majority of the outstanding capital stock and still constituted a quorum.

At the resumption of the meeting, the following were nominated and elected as directors for the year 1987-1988:

1. Manuel Torres, Jr.

2. Ma. Jacinta Torres
3. Edgardo Pabalan
4. Graciano Tobias
5. Rodolfo Jocson, Jr.
6. Melvin Jurisprudencia
7. Augustus Cesar Azura
8. Josefina Torres
9. Dante Morales

After the election, it was resolved that after the meeting, the new board of directors shall convene for the election of officers.

xxx. 7chanroblesvirtuallawlibrary

Consequently, on 10 April 1987, private respondents instituted a complaint with the SEC (SEC Case No. 3161) praying in the
main, that the election of petitioners to the Board of Directors be annulled.

Private respondents alleged that the petitioners-nominees were not legitimate stockholders of Tormil because the assignment
of shares to them violated the minority stockholders right of pre-emption as provided in the corporations articles and by-
laws.

Upon motion of petitioners, SEC Cases Nos. 3153 and 3161 were consolidated for joint hearing and adjudication.

On 6 March 1991, the Panel of Hearing Officers of the SEC rendered a decision in favor of private respondents. The
dispositive portion thereof states, thus:

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

1. Ordering and directing the respondents, particularly respondent Manuel A. Torres, Jr., to turn over and deliver to TORMIL
through its Corporate Secretary, Ma. Cristina T. Carlos: (a) the originals of the Deeds of Assignment dated July 13 and 24,
1984 together with the owners duplicates of Transfer Certificates of Title Nos. 374079 of the Registry of Deeds for Makati,
and 41527, 41528 and 41529 of the Registry of Deeds for Pasay City and/or to cause the formal registration and transfer of
title in and over such real properties in favor of TORMIL with the proper government agency; (b) all corporate books of
account, records and papers as may be necessary for the conduct of a comprehensive audit examination, and to allow the
examination and inspection of such accounting books, papers and records by any or all of the corporate directors, officers
and stockholders and/or their duly authorized representatives or auditors;

2. Declaring as permanent and final the writ of preliminary injunction issued by the Hearing Panel on February 13, 1989;

3. Declaring as null and void the election and appointment of respondents to the Board of Directors and executive positions
of TORMIL held on March 25, 1987, and all their acts and resolutions made for and in behalf of TORMIL by authority of and
pursuant to such invalid appointment & election held on March 25, 1987;

4. Ordering the respondents jointly and severally, to pay the complainants the sum of ONE HUNDRED THOUSAND PESOS
(P100,000.00) and by way of attorneys fees. 8chanroblesvirtuallawlibrary

Petitioners promptly appealed to the SEC en banc (docketed as SEC-AC No. 339). Thereafter, on 3 April 1991, during the
pendency of said appeal, petitioner Manuel A. Torres, Jr. died. However, notice thereof was brought to the attention of the
SEC not by petitioners counsel but by private respondents in a Manifestation dated 24 April 1991.9chanroblesvirtuallawlibrary

On 8 June 1993, petitioners filed a Motion to Suspend Proceedings on grounds that no administrator or legal representative
of the late Judge Torres estate has yet been appointed by the Regional Trial Court of Makati where Sp. Proc. No. M-1768 (In
Matter of the Issuance of the Last Will and Testament of Manuel A. Torres, Jr.) was pending. Two similar motions for
suspension were filed by petitioners on 28 June 1993 and 9 July 1993.

On 19 July 1993, the SEC en banc issued an Order denying petitioners aforecited motions on the following ground:

Before the filing of these motions, the Commission en banc had already completed all proceedings and had likewise ruled on
the merits of the appealed cases. Viewed in this light, we thus feel that there is nothing left to be done except to deny these
motions to suspend proceedings. 10chanroblesvirtuallawlibrary

On the same date, the SEC en banc rendered a decision, the dispositive portion of which reads, thus:
WHEREFORE, premises considered, the appealed decision of the hearing panel is hereby affirmed and all motions pending
before us incident to this appealed case are necessarily DISMISSED.

SO ORDERED. 11
chanroblesvirtuallawlibrary

Undaunted, on 10 August 1993, petitioners proceeded to plead its cause to the Court of Appeals by way of a petition for
review (docketed as CA-G.R. SP No. 31748).

On 23 May 1994, the Court of Appeals rendered a decision, the dispositive portion of which states:

WHEREFORE, the petition for review is DISMISSED and the appealed decision is accordingly affirmed.

SO ORDERED. 12
chanroblesvirtuallawlibrary

From the said decision, petitioners filed a motion for reconsideration which was denied in a resolution issued by the Court of
Appeals dated 10 May 1995. 13chanroblesvirtuallawlibrary

Insisting on their cause, petitioners filed the present petition for review alleging that the Court of Appeals committed the
following errors in its decision:

(1)

WHEN IT RENDERED THE MAY 23, 1994 DECISION, WHICH IS A FULL LENGTH DECISION, WITHOUT THE EVIDENCE AND
THE ORIGINAL RECORD OF S.E.C. - AC NO. 339 BEING PROPERLY BROUGHT BEFORE IT FOR REVIEW AND RE-
EXAMINATION, AN OMISSION RESULTING IN A CLEAR TRANSGRESSION OR CURTAILMENT OF THE RIGHTS OF THE HEREIN
PETITIONERS TO PROCEDURAL DUE PROCESS;

(2)

WHEN IT SANCTIONED THE JULY 19, 1993 DECISION OF THE RESPONDENT S.E.C., WHICH IS VOID FOR HAVING BEEN
RENDERED WITHOUT THE PROPER SUBSTITUTION OF THE DECEASED PRINCIPAL PARTY-RESPONDENT IN S.E.C.-AC NO.
339 AND CONSEQUENTLY, FOR WANT OF JURISDICTION OVER THE SAID DECEASEDS TESTATE ESTATE, AND MOREOVER,
WHEN IT SOUGHT TO JUSTIFY THE NON-SUBSTITUTION BY ITS APPLICATION OF THE CIVIL LAW CONCEPT OF NEGOTIORUM
GESTIO;

(3)

WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THE ORIGINAL RECORD OF S.E.C. -AC NO. 339 NOT
HAVING ACTUALLY BEEN RE-EXAMINED, THAT S.E.C. CASE NO. 3153 INVOLVED A SITUATION WHERE PERFORMANCE WAS
IMPOSSIBLE (AS CONTEMPLATED UNDER ARTICLE 1191 OF THE CIVIL CODE) AND WAS NOT A MERE CASE OF LESION OR
INADEQUACY OF CAUSE (UNDER ARTICLE 1355 OF THE CIVIL CODE) AS SO ERRONEOUSLY CHARACTERIZED BY THE
RESPONDENT S.E.C.; and,

(4)

WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THE ORIGINAL RECORD OF S.E.C.-AC NO. 339 NOT
HAVING ACTUALLY BEEN EXAMINED, THAT THE RECORDING BY THE LATE JUDGE MANUEL A. TORRES, JR. OF THE
QUESTIONED ASSIGNMENT OF QUALIFYING SHARES TO HIS NOMINEES, WAS AFFIRMED IN THE STOCK AND TRANSFER
BOOK BY AN ACTING CORPORATE SECRETARY AND MOREOVER, THAT ACTUAL NOTICE OF SAID ASSIGNMENT WAS TIMELY
MADE TO THE OTHER STOCKHOLDERS. 14chanroblesvirtuallawlibrary

We shall resolve the issues in seriatim.

Petitioners insist that the failure to transmit the original records to the Court of Appeals deprived them of procedural due
process. Without the evidence and the original records of the proceedings before the SEC, the Court of Appeals, petitioners
adamantly state, could not have possibly made a proper appreciation and correct determination of the issues, particularly the
factual issues they had raised on appeal. Petitioners also assert that since the Court of Appeals allegedly gave due course to
their petition, the original records should have been forwarded to said court.

Petitioners anchor their argument on Secs. 8 and 11 of SC Circular 1-91 (dated 27 February 1991) which provides that:

8. WHEN PETITION GIVEN DUE COURSE.-The Court of Appeals shall give due course to the petition only when it shows
prima facie that the court, commission, board, office or agency concerned has committed errors of fact or law that would
warrant reversal or modification of the order, ruling or decision sought to be reviewed. The findings of fact of the court
commission, board, office or agency concerned when supported by substantial evidence shall be final.

xxx.

11. TRANSMITTAL OF RECORD.-Within fifteen (15) days from notice that the petition has been given due course, the
court, commission, board, office or agency concerned shall transmit to the Court of Appeals the original or a certified copy of
the entire record of the proceeding under review. The record to be transmitted may be abridged by agreement of all parties
to the proceeding. The Court of Appeals may require or permit subsequent correction or addition to the record.
Petitioners contend that the Court of Appeals had given due course to their petition as allegedly indicated by the following
acts:

a) it granted the restraining order applied for by the herein petitioners, and after hearing, also the writ of preliminary
injunction sought by them; under the original SC Circular No. 1-91, a petition for review may be given due course at the
onset (paragraph 8) upon a mere prima facie finding of errors of fact or law having been committed, and such prima
facie finding is but consistent with the grant of the extra-ordinary writ of preliminary injunction;

b) it required the parties to submit simultaneous memoranda in its resolution dated October 15, 1993 (this is in addition to
the comment required to be filed by the respondents) and furthermore declared in the same resolution that the petition will
be decided on the merits, instead of outrightly dismissing the same;

c) it rendered a full length decision, wherein: (aa) it expressly declared the respondent S.E.C. as having erred in denying the
pertinent motions to suspend proceedings; (bb) it declared the supposed error as having become a non-issue when the
respondent C.A. proceeded to hear (the) appeal; (cc) it formulated and applied its own theory of negotiorum gestio in
justifying the non-substitution of the deceased principal party in S.E C. -AC No. 339 and moreover, its theory of di minimis
non curat lex (this, without first determining the true extent of and the correct legal characterization of the so-called
shortage of Tormil shares; and, (dd) it expressly affirmed the assailed decision of respondent
S.E.C.15chanroblesvirtuallawlibrary

Petitioners contention is unmeritorious.

There is nothing on record to show that the Court of Appeals gave due course to the petition. The fact alone that the Court of
Appeals issued a restraining order and a writ of preliminary injunction and required the parties to submit their respective
memoranda does not indicate that the petition was given due course. The office of an injunction is merely to preserve the
status quo pending the disposition of the case. The court can require the submission of memoranda in support of the
respective claims and positions of the parties without necessarily giving due course to the petition. The matter of whether or
not to give due course to a petition lies in the discretion of the court.

It is worthy to mention that SC Circular No. 1-91 has been replaced by Revised Administrative Circular No. 1-95 (which took
effect on 1 June 1995) wherein the procedure for appeals from quasi-judicial agencies to the Court of Appeals was clarified
thus:

10. Due course.-- If upon the filing of the comment or such other pleadings or documents as may be required or allowed by
the Court of Appeals or upon the expiration of the period for the filing thereof, and on the bases of the petition or the record
the Court of Appeals finds prima facie that the court or agency concerned has committed errors of fact or law that would
warrant reversal or modification of the award, judgment, final order or resolution sought to be reviewed, it may give due
course to the petition; otherwise, it shall dismiss the same. The findings of fact of the court or agency concerned, when
supported by substantial evidence, shall be binding on the Court of Appeals.

11. Transmittal of record.-- Within fifteen (15) days from notice that the petition has been given due course, the Court of
Appeals may require the court or agency concerned to transmit the original or a legible certified true copy of the entire
record of the proceeding under review. The record to be transmitted may be abridged by agreement of all parties to the
proceeding. The Court of Appeals may require or permit subsequent correction of or addition to the record. (Underscoring
ours.)

The aforecited circular now formalizes the correct practice and clearly states that in resolving appeals from quasi judicial
agencies, it is within the discretion of the Court of Appeals to have the original records of the proceedings under review be
transmitted to it. In this connection, petitioners claim that the Court of Appeals could not have decided the case on the
merits without the records being brought before it is patently lame. Indubitably, the Court of Appeals decided the case on the
basis of the uncontroverted facts and admissions contained in the pleadings, that is, the petition, comment, reply, rejoinder,
memoranda, etc. filed by the parties.

II

Petitioners contend that the decisions of the SEC and the Court of Appeals are null and void for being rendered without the
necessary substitution of parties (for the deceased petitioner Manuel A. Torres, Jr.) as mandated by Sec. 17, Rule 3 of the
Revised Rules of Court, which provides as follows:

SEC. 17. Death of party.--After a party dies and the claim is not thereby extinguished, the court shall order, upon proper
notice, the legal representative of the deceased to appear and to be substituted for the deceased, within a period of thirty
(30) days, or within such time as may be granted. If the legal representative fails to appear within said time, the court may
order the opposing party to procure the appointment of a legal representative of the deceased within a time to be specified
by the court, and the representative shall immediately appear for and on behalf of the interest of the deceased. The court
charges involved in procuring such appointment, if defrayed by the opposing party, may be recovered as costs. The heirs of
the deceased may be allowed to be substituted for the deceased, without requiring the appointment of an executor or
administrator and the court may appoint guardian ad litem for the minor heirs.

Petitioners insist that the SEC en banc should have granted the motions to suspend they filed based as they were on the
ground that the Regional Trial Court of Makati, where the probate of the late Judge Torres will was pending, had yet to
appoint an administrator or legal representative of his estate.

We are not unaware of the principle underlying the aforequoted provision:

It has been held that when a party dies in an action that survives, and no order is issued by the Court for the appearance of
the legal representative or of the heirs of the deceased to be substituted for the deceased, and as a matter of fact no such
substitution has ever been effected, the trial held by the court without such legal representative or heirs, and the judgment
rendered after such trial, are null and void because the court acquired no jurisdiction over the persons of the legal
representative or of the heirs upon whom the trial and the judgment are not binding. 16chanroblesvirtuallawlibrary

As early as 8 April 1988, Judge Torres instituted Special Proceedings No. M-1768 before the Regional Trial Court of Makati for
the ante-mortem probate of his holographic will which he had executed on 31 October 1986. Testifying in the said
proceedings, Judge Torres confirmed his appointment of petitioner Edgardo D. Pabalan as the sole executor of his will and
administrator of his estate. The proceedings, however, were opposed by the same parties, herein private respondents
Antonio P. Torres, Jr., Ma. Luisa T. Morales and Ma. Cristina T. Carlos, 17 who are nephew and nieces of Judge Torres, being
the children of his late brother Antonio A. Torres.

It can readily be observed therefore that the parties involved in the present controversy are virtually the same parties
fighting over the representation of the late Judge Torres estate. It should be recalled that the purpose behind the rule on
substitution of parties is the protection of the right of every party to due process. It is to ensure that the deceased party
would continue to be properly represented in the suit through the duly appointed legal representative of his estate. In the
present case, this purpose has been substantially fulfilled (despite the lack of formal substitution) in view of the peculiar fact
that both proceedings involve practically the same parties. Both parties have been fiercely fighting in the probate
proceedings of Judge Torres holographic will for appointment as legal representative of his estate. Since both parties claim
interests over the estate, the rights of the estate were expected to be fully protected in the proceedings before the SEC en
banc and the Court of Appeals. In either case, whoever shall be appointed legal representative of Judge Torres estate
(petitioner Pabalan or private respondents) would no longer be a stranger to the present case, the said parties having
voluntarily submitted to the jurisdiction of the SEC and the Court of Appeals and having thoroughly participated in the
proceedings.

The foregoing rationale finds support in the recent case of Vda. de Salazar v. CA, 18
wherein the Court expounded thus:

The need for substitution of heirs is based on the right to due process accruing to every party in any proceeding. The
rationale underlying this requirement in case a party dies during the pendency of proceedings of a nature not extinguished by
such death, is that xxx the exercise of judicial power to hear and determine a cause implicitly presupposes in the trial court,
amongst other essentials, jurisdiction over the persons of the parties. That jurisdiction was inevitably impaired upon the
death of the protestee pending the proceedings below such that unless and until a legal representative is for him duly named
and within the jurisdiction of the trial court, no adjudication in the cause could have been accorded any validity or binding
effect upon any party, in representation of the deceased, without trenching upon the fundamental right to a day in court
which is the very essence of the constitutionally enshrined guarantee of due process.

We are not unaware of several cases where we have ruled that a party having died in an action that survives, the trial held
by the court without appearance of the deceaseds legal representative or substitution of heirs and the judgment rendered
after such trial, are null and void because the court acquired no jurisdiction over the persons of the legal representatives or
of the heirs upon whom the trial and the judgment would be binding. This general rule notwithstanding, in denying
petitioners motion for reconsideration, the Court of Appeals correctly ruled that formal substitution of heirs is not necessary
when the heirs themselves voluntarily appeared, participated in the case and presented evidence in defense of deceased
defendant. Attending the case at bench, after all, are these particular circumstances which negate petitioners belated and
seemingly ostensible claim of violation of her rights to due process. We should not lose sight of the principle underlying the
general rule that formal substitution of heirs must be effectuated for them to be bound by a subsequent judgment. Such had
been the general rule established not because the rule on substitution of heirs and that on appointment of a legal
representative are jurisdictional requirements per se but because non-compliance therewith results in the undeniable
violation of the right to due process of those who, though not duly notified of the proceedings, are substantially affected by
the decision rendered therein. xxx.

It is appropriate to mention here that when Judge Torres died on April 3, 1991, the SEC en banc had already fully heard the
parties and what remained was the evaluation of the evidence and rendition of the judgment.

Further, petitioners filed their motions to suspend proceedings only after more than two (2) years from the death of Judge
Torres. Petitioners counsel was even remiss in his duty under Sec. 16, Rule 3 of the Revised Rules of Court.19 Instead, it was
private respondents who informed the SEC of Judge Torres death through a manifestation dated 24 April 1991.

For the SEC en banc to have suspended the proceedings to await the appointment of the legal representatives by the estate
was impractical and would have caused undue delay in the proceedings and a denial of justice. There is no telling when the
probate court will decide the issue, which may still be appealed to the higher courts.

In any case, there has been no final disposition of the properties of the late Judge Torres before the SEC. On the contrary,
the decision of the SEC en banc as affirmed by the Court of Appeals served to protect and preserve his estate. Consequently,
the rule that when a party dies, he should be substituted by his legal representative to protect the interest of his estate in
observance of due process was not violated in this case in view of its peculiar situation where the estate was fully protected
by the presence of the parties who claim interest thereto either as directors, stockholders or heirs.

Finally, we agree with petitioners contention that the principle of negotiorum gestio 20
does not apply in the present case.
Said principle explicitly covers abandoned or neglected property or business.

III

Petitioners find legal basis for Judge Torres act of revoking the assignment of his properties in Makati and Pasay City to
Tormil corporation by relying on Art. 1191 of the Civil Code which provides that:

ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with
what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with
articles 1385 and 1388 and the Mortgage Law.

Petitioners contentions cannot be sustained. We see no justifiable reason to disturb the findings of SEC, as affirmed by the
Court of Appeals:

We sustain the ruling of respondent SEC in the decision appealed from (Rollo, pp. 45-46) that -

x x x the shortage of 972 shares would not be valid ground for respondent Torres to unilaterally revoke the deeds of
assignment he had executed on July 13, 1984 and July 24, 1984 wherein he voluntarily assigned to TORMIL real properties
covered by TCT No. 374079 (Makati) and TCT No. 41527, 41528 and 41529 (Pasay) respectively.

A comparison of the number of shares that respondent Torres received from TORMIL by virtue of the deeds of assignment
and the stock certificates issued by the latter to the former readily shows that TORMIL had substantially performed what was
expected of it. In fact, the first two issuances were in satisfaction to the properties being revoked by respondent Torres.
Hence, the shortage of 972 shares would never be a valid ground for the revocation of the deeds covering Pasay and Quezon
City properties.

In Universal Food Corp. vs. CA, the Supreme Court held:

The general rule is that rescission of a contract will not be permitted for a slight or carnal breach, but only for such
substantial and fundamental breach as would defeat the very object of the parties in making the agreement.

The shortage of 972 shares definitely is not substantial and fundamental breach as would defeat the very object of the
parties in entering into contract. Art. 1355 of the Civil Code also provides: Except in cases specified by law, lesion or
inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influences. There being no
fraud, mistake or undue influence exerted on respondent Torres by TORMIL and the latter having already issued to the
former of its 225,000 unissued shares, the most logical course of action is to declare as null and void the deed of revocation
executed by respondent Torres. (Rollo, pp. 45-46.) 21chanroblesvirtuallawlibrary

The aforequoted Civil Code provision does not apply in this particular situation for the obvious reason that a specific number
of shares of stock (as evidenced by stock certificates) had already been issued to the late Judge Torres in exchange for his
Makati and Pasay City properties. The records thus disclose:

DATE OF PROPERTY LOCATION NO. OF SHARES ORDER OF

ASSIGNMENT ASSIGNED TO BE ISSUED COMPLIANCE

1. July 13, 1984 TCT 81834 Quezon City) 13,252 3rd

TCT 144240 Quezon City)

2. July 13, 1984 TCT 77008 Manila)

TCT 65689 Manila) 78,493 2nd

TCT 102200 Manila)

3. July 13, 1984 TCT 374079 Makati 8,307 1st

4. July 24, 1984 TCT 41527 Pasay)

TCT 41528 Pasay) 9,855 4th

TCT 41529 Pasay)

5. August 6, 1984 El Hogar Filipino Stocks 2,000 7th

6. August 6, 1984 Manila Jockey Club Stocks 48,737 5th

7. August 7, 1984 San Miguel Corp. Stocks 50,238 8th

8. August 7, 1984 China Banking Corp. Stocks 6,300 6th

9. August 20, 1984 Ayala Corp. Stocks 7,468.2) 9th

10. August 29, 1984 Ayala Fund Stocks 1,322.1)

TOTAL 225,972.3

* Order of stock certificate issuances by TORMIL to respondent Torres relative to the Deeds of Assignment he executed
sometime in July and August, 1984. 22 (Emphasis ours.)
Moreover, we agree with the contention of the Solicitor General that the shortage of shares should not have affected the
assignment of the Makati and Pasay City properties which were executed in 13 and 24 July 1984 and the consideration for
which have been duly paid or fulfilled but should have been applied logically to the last assignment of property -- Judge
Torres Ayala Fund shares--which was executed on 29 August 1984.23chanroblesvirtuallawlibrary

IV

Petitioners insist that the assignment of qualifying shares to the nominees of the late Judge Torres (herein petitioners) does
not partake of the real nature of a transfer or conveyance of shares of stock as would call for the imposition of stringent
requirements (with respect to the) recording of the transfer of said shares. Anyway, petitioners add, there was substantial
compliance with the above-stated requirement since said assignments were entered by the late Judge Torres himself in the
corporations stock and transfer book on 6 March 1987, prior to the 25 March 1987 annual stockholders meeting and which
entries were confirmed on 8 March 1987 by petitioner Azura who was appointed Assistant Corporate Secretary by Judge
Torres.

Petitioners further argue that:

10.10. Certainly, there is no legal or just basis for the respondent S.E.C. to penalize the late Judge Torres by invalidating the
questioned entries in the stock and transfer book, simply because he initially made those entries (they were later affirmed by
an acting corporate secretary) and because the stock and transfer book was in his possession instead of the elected
corporate secretary, if the background facts herein-before narrated and the serious animosities that then reigned between
the deceased Judge and his relatives are to be taken into account;

xxx.

10.12. Indeed it was a practice in the corporate respondent, a family corporation with only a measly number of stockholders,
for the late judge to have personal custody of corporate records; as president, chairman and majority stockholder, he had
the prerogative of designating an acting corporate secretary or to himself make the needed entries, in instances where the
regular secretary, who is a mere subordinate, is unavailable or intentionally defaults, which was the situation that obtained
immediately prior to the 1987 annual stockholders meeting of Tormil, as the late Judge Torres had so indicated in the stock
and transfer book in the form of the entries now in question;

10.13. Surely, it would have been futile nay foolish for him to have insisted under those circumstances, for the regular
secretary, who was then part of a group ranged against him, to make the entries of the assignments in favor of his
nominees; 24chanroblesvirtuallawlibrary

Petitioners contentions lack merit.

It is precisely the brewing family discord between Judge Torres and private respondents--his nephew and nieces that should
have placed Judge Torres on his guard. He should have been more careful in ensuring that his actions (particularly the
assignment of qualifying shares to his nominees) comply with the requirements of the law. Petitioners cannot use the flimsy
excuse that it would have been a vain attempt to force the incumbent corporate secretary to register the aforestated
assignments in the stock and transfer book because the latter belonged to the opposite faction. It is the corporate secretarys
duty and obligation to register valid transfers of stocks and if said corporate officer refuses to comply, the transferor-
stockholder may rightfully bring suit to compel performance.25 In other words, there are remedies within the law that
petitioners could have availed of, instead of taking the law in their own hands, as the cliche goes.

Thus, we agree with the ruling of the SEC en banc as affirmed by the Court of Appeals:

We likewise sustain respondent SEC when it ruled, interpreting Section 74 of the Corporation Code, as follows (Rollo, p. 45):

In the absence of (any) provision to the contrary, the corporate secretary is the custodian of corporate records. Corollarily,
he keeps the stock and transfer book and makes proper and necessary entries therein.

Contrary to the generally accepted corporate practice, the stock and transfer book of TORMIL was not kept by Ms. Maria
Cristina T. Carlos, the corporate secretary but by respondent Torres, the President and Chairman of the Board of Directors of
TORMIL. In contravention to the above cited provision, the stock and transfer book was not kept at the principal office of the
corporation either but at the place of respondent Torres.

These being the obtaining circumstances, any entries made in the stock and transfer book on March 8, 1987 by respondent
Torres of an alleged transfer of nominal shares to Pabalan and Co. cannot therefore be given any valid effect. Where the
entries made are not valid, Pabalan and Co. cannot therefore be considered stockholders of record of TORMIL. Because they
are not stockholders, they cannot therefore be elected as directors of TORMIL. To rule otherwise would not only encourage
violation of clear mandate of Sec. 74 of the Corporation Code that stock and transfer book shall be kept in the principal office
of the corporation but would likewise open the flood gates of confusion in the corporation as to who has the proper custody
of the stock and transfer book and who are the real stockholders of records of a certain corporation as any holder of the
stock and transfer book, though not the corporate secretary, at pleasure would make entries therein.

The fact that respondent Torres holds 81.28% of the outstanding capital stock of TORMIL is of no moment and is not a
license for him to arrogate unto himself a duty lodged to (sic) the corporate secretary. 26chanroblesvirtuallawlibrary

All corporations, big or small, must abide by the provisions of the Corporation Code. Being a simple family corporation is not
an exemption. Such corporations cannot have rules and practices other than those established by law.

WHEREFORE, premises considered, the petition for review on certiorari is hereby DENIED. SO ORDERED.
 [ GR No. 42135, Jun 17, 1935 ]
TORIBIA USON v. VICENTE DIOSOMITO ET AL. +
DECISION

61 Phil. 535

BUTTE, J.:

This is an appeal from a decision of the Court of First Instance of Cavite involving the ownership of seventy-five shares of stock in the
North Electric Company, Inc. The plaintiff-appellee claims to be the owner of these sjiares by virtue of a purchase at a sheriff's sale for
the sum of F2,617.18. )

It appears that Toribia Uson had filed a civil action for debt in the Court of First Instance of Cavite, No. 2525, against Vicente Diosomito
and that upon institution of said action an attachment was duly issued and levied upon the property of the defendant Diosomito,
including seventy-five shares of the North Electric Co., Inc., which stood in his name on the books of the company when the attachment
was levied on January 18, 1932. Subsequently, on June 23, 1932, in said civil case No. 2525, Toribia Uson obtained judgment against
the defendant Diosomito for the sum of P2,300 with interest and costs. To satisfy said judgment, the sheriff sold said shares at public
auction in accordance with law on March 20, 1933. The plaintiff Toribia Uson was the highest bidder and said shares were adjudicated
to 'her. (See Exhibit K.) In the present action, H. P. L. Jollye claims to be the owner-of said 75 shares of the North Electric Co., Inc., and
presents a certificate of, stock issued to him by the company on February 13, 1933.

There is no dispute that the defendant Vicente Diosomito was the original owner of said shares of stock, having a par value of P7,500,
and that on February 3, 1931, he sold said shares,to Emeterio Barcelon and delivered to the latter the corresponding certificates Nos. 2
and 19. But Barcelon did not present these certificates to the corporation for registration until the 16th of September, 1932, when they
were cancelled and a new certificate, No. 29, was issued in favor of Barcelon, who transferred the same to the defendant H. P. L. Jollye
to whom a new certificate No. 25 was issued on February 13, 1933.

It will be seen, therefore, that the transfer of said shares by Vicente Diosomito, the judgment debtor in suit No. 2525, to Barcelon was
not registered and noted on the books of the corporation until September 16, 1932, which was some nine months after the attachment
had been levied on said shares in civil case No. 2525 as above stated.

Thus arises in this case one of the most vexing questions in the law of corporations, namely, whether a bona, fide transfer of the shares
of a corporation, not registered or noted on the books of the corporation, is valid as against a subsequent lawful attachment of said
shares, regardless of whether the attaching creditor had actual notice of said transfer or not. This is the first case in which this question
has been squarely presented to us for decision. The case of Uy Piaoco vs. McMicking (10 Phil., 286), decided in 1908, arose before the
Philippine Corporation Law, Act No. 1459, took effect (April 1, 1906). The cases of Fua Cun vs. Summers and China Banking
Corporation, 44 Phil., 705 £1923] and Fleischer vs. Botica Nolasco Co., 47 Phil., 583 [1925] are not in point.

Section 35 of the Corporation Law is as follows:

"Sec. 35. The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or the vice-
president, countersigned by the secretary or clerk and sealed with the seal of the corporation, shall be issued in accordance with the
by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate indorsed by the owner or
his attorney in fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the
parties, until the transfer is entered and noted upon the books of the corporation so as to show the names of the parties to the
transaction, the date of the transfer, the number of the certificate, and the number of shares transferred.

"No shares of stock against which the corporation holds any unpaid claim shall be transferable on the books of the corporation."

The sentence of the foregoing section immediately applicable in the present case is as follows:

"No transfer,.however, shall be valid, except as between the parties, until the transfer is entered and noted upon the books of the
corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate, and the
number of shares transferred."

The appellants cite decisions from a number of states of the American Union which hold that an unregistered transfer is valid as against
the lien of a subsequent attachment sued out by a creditor of the assignor, whether such creditor has notice of the transfer or not.
These decisions are founded upon the theory that the attachment reaches only such title or interest as the defendant may have in the
property at the time of the levy; and if all title and interest had previously passed by assignment from the debtor to a third person, the
attaching creditor obtains nothing: by the levy; that the owner of shares of stock has the common law right to dispose of the same as
personal property. But, with the exception of California, to which reference will be made later, none of the decisions cited by the
appellants construed statutes identical with ours. Much of the confusion which is to be found in the decisions has arisen because the
courts have failed to note the differences in the various statutes of the American Union on the question considered here. For an
illuminating discussion of this confusion the following authorities may be consulted:

Fletcher, Cyclopedia of the Law of Private Corporations (1932), vol. 12, pages 358-389.
American and English Annotated Cases, vol. 21, pages 1391-1407.
American Law Review, vol. 35, pages 238-251. 55 Cent. L. J., 243-251.

The statutes on this point may be put roughly in three groups: First, those that provide, in substance, that no transfer of shares is valid
for any purpose unless registered on the books of the corporation. This rule apparently once prevailed in Colorado and the District of
Columbia both of which have since amended it by statute. Second, that group which, like our own Act No. 1459, holds to the rule that
no transfer shall be valid except a3 between the parties until the transfer is duly registered. This group, according to the best
information available here, includes or has included the States of Arizona, California, the Territory of Hawaii, Idaho, Iowa, Nevada, New
Mexico, North Dakota, Oklahoma, South Dakota, Washington, Wisconsin. The third group which includes the remaining jurisdictions
follows the rule and the doctrine invoked by the appellants in this case, which, by amendment of the statutes, is becoming the prevailing
rule in the United States.

The decision of the Supreme Court of California in the ease of National Bank of the Pacific vs. Western Pacific Railway Company (157
Cal., 573 [1910] ; 108 Pac, 676), sitting in division of three, construed section 324 of the Civil Code of California which is identical with
section 35, supra, of the Philippine Corporation Law. The court stressed the provision that the shares of stock in a corporation are
personal property and may be-transferred by endorsement and delivery of the certificate. The opinion also endeavors to distinguish the
prior decisions of Weston vs. Bear River and Auburn Water and Mining Co. (5 Cal., 186); Strout vs. Natoma Water and Mining
Company (9 Cal., 78), and Naglee vs. Pacific Wharf Company (20 Cal., 529), which are frequently cited in other jurisdictions as
sustaining the theory of the superiority of the attachment lien over the unregistered stock transfer. (See Lyndonville National Bank vs.
Folsom, 7 N. M., 611 [1894]; 38 Pac, 253.) The California decision leaves us unconvinced that the statutes which fall in the second
group above mentioned should be given the same effect as the statutes in the third group without any necessity for legislative
amendment.

We prefer to adopt the line followed by the Supreme Courts of Massachusetts and of Wisconsin. (See Clews vs. Friedman, 182 Mass.,
555^ 66 N. E., 201, and In re Murphy, 51 Wis., 519; 8 N. W., 419.)

In the latter case the court had under consideration a statute identical with our own section 35, supra, and the court said:

"We think the true meaning of the language is, and the obvious intention of the legislature in using it was, that all transfers of shares
should be entered, as here required, on the books of the corporation. And it is equally clear to us that all transfers of shares not so
entered are invalid as to attaching or execution creditors of the assignors, as well as to the corporation and to subsequent purchasers in
good faith, and, indeed, as to all persons interested, except the parties to such transfers. All transfers not so entered on the books of
the corporation are absolutely void; not because they are without notice or fraudulent in law or fact. but because they are made so void
by statute."

Some of the states, including Wisconsin, which had heW to the rather strict but judicial interpretation of the statutory language here in
question have amended the statute so as to fall in line with the more liberal and rational doctrine of the third group referred to above.
This court still adheres to the principle that its function is jus dicere non jus dare. To us the language of the legislature is plain to the
effect that the right of the owner of the shares of stock of a Philippine corporation to transfer the same by delivery of the certificate,
whether it be regarded as statutory or common law right, is limited and restricted by the express provision that "no transfer, however,
shall be valid, except as between the parties, until the transfer is entered and noted upon the books of the corporation." Therefore, the
transfer of the 75 shares in the North Electric Company, Inc., made by the defendant Diosomito to the defendant Barcelon was not valid
as to the plaintiff-appellee, Toribia Uson, on January 18, 1932, the date on which she obtained her attachment lien on said shares of
stock which still stood in the name of Diosomito on the books of the corporation.

We have considered the remaining assignments of error of the appellants and finding no merit in them it results that the judgment must
be affirmed with costs against the appellants.

Malcolm and Diaz, JJ., concur.