G.R. No.

L-12719

May 31, 1962

THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs. THE CLUB FILIPINO, INC. DE CEBU, respondent. Office of the Solicitor General for petitioner. V. Jaime and L. E. Petilla for respondent. PAREDES, J.: This is a petition to review the decision of the Court of Tax Appeals, reversing the decision of the Collector of Internal Revenue, assessing against and demanding from the "Club Filipino, Inc. de Cebu", the sum of P12,068.84 as fixed and percentage taxes, surcharge and compromise penalty, allegedly due from it as a keeper of bar and restaurant. As found by the Court of Tax Appeals, the "Club Filipino, Inc. de Cebu," (Club, for short), is a civic corporation organized under the laws of the Philippines with an original authorized capital stock of P22,000.00, which was subsequently increased to P200,000.00, among others, to it "proporcionar, operar, y mantener un campo de golf, tenis, gimnesio (gymnasiums), juego de bolos (bowling alleys), mesas de billar y pool, y toda clase de juegos no prohibidos por leyes generales y ordenanzas generales; y desarollar y cultivar deportes de toda clase y denominacion cualquiera para el recreo y entrenamiento saludable de sus miembros y accionistas" (sec. 2, Escritura de Incorporacion del Club Filipino, Inc. Exh. A). Neither in the articles or by-laws is there a provision relative to dividends and their distribution, although it is covenanted that upon its dissolution, the Club's remaining assets, after paying debts, shall be donated to a charitable Philippine Institution in Cebu (Art. 27, Estatutos del Club, Exh. A-a.). The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from the government), and a bar-restaurant where it sells wines and liquors, soft drinks, meals and short orders to its members and their guests. The bar-restaurant was a necessary incident to the operation of the club and its golf-course. The club is operated mainly with funds derived from membership fees and dues. Whatever profits it had, were used to defray its overhead expenses and to improve its golf-course. In 1951. as a result of a capital surplus, arising from the re-valuation of its real properties, the value or price of which increased, the Club declared stock dividends; but no actual cash dividends were distributed to the stockholders. In 1952, a BIR agent discovered that the Club has never paid percentage tax on the gross receipts of its bar and restaurant, although it secured B-4, B-9(a) and B-7 licenses. In a letter dated December 22, 1852, the Collector of Internal Revenue assessed against and demanded from the Club, the following sums: As percentage tax on its gross receipts during the tax years 1946 to 1951 Surcharge therein As fixed tax for the years 1946 to 1952 Compromise penalty

P9,599.07 2,399.77 70.00 500.00

The Club wrote the Collector, requesting for the cancellation of the assessment. The request having been denied, the Club filed the instant petition for review.

The dominant issues involved in this case are twofold: 1. Whether the respondent Club is liable for the payment of the sum of 12,068.84, as fixed and percentage taxes and surcharges prescribed in sections 182, 183 and 191 of the Tax Code, under which the assessment was made, in connection with the operation of its bar and restaurant, during the periods mentioned above; and 2. Whether it is liable for the payment of the sum of P500.00 as compromise penalty. Section 182, of the Tax Code states, "Unless otherwise provided, every person engaging in a business on which the percentage tax is imposed shall pay in full a fixed annual tax of ten pesos for each calendar year or fraction thereof in which such person shall engage in said business." Section 183 provides in general that "the percentage taxes on business shall be payable at the end of each calendar quarter in the amount lawfully due on the business transacted during each quarter; etc." And section 191, same Tax Code, provides "Percentage tax . . . Keepers of restaurants, refreshment parlors and other eating places shall pay a tax three per centum, and keepers of bar and cafes where wines or liquors are served five per centum of their gross receipts . . .". It has been held that the liability for fixed and percentage taxes, as provided by these sections, does not ipso facto attach by mere reason of the operation of a bar and restaurant. For the liability to attach, the operator thereof must be engaged in the business as a barkeeper and restaurateur. The plain and ordinary meaning of business is restricted to activities or affairs where profit is the purpose or livelihood is the motive, and the term business when used without qualification, should be construed in its plain and ordinary meaning, restricted to activities for profit or livelihood (The Coll. of Int. Rev. v. Manila Lodge No. 761 of the BPOE [Manila Elks Club] & Court of Tax Appeals, G.R. No. L-11176, June 29, 1959, giving full definitions of the word "business"; Coll. of Int. Rev. v. Sweeney, et al. [International Club of Iloilo, Inc.], G.R. No. L-12178, Aug. 21, 1959, the facts of which are similar to the ones at bar; Manila Polo Club v. B. L. Meer, etc., No. L-10854, Jan. 27, 1960). Having found as a fact that the Club was organized to develop and cultivate sports of all class and denomination, for the healthful recreation and entertainment of its stockholders and members; that upon its dissolution, its remaining assets, after paying debts, shall be donated to a charitable Philippine Institution in Cebu; that it is operated mainly with funds derived from membership fees and dues; that the Club's bar and restaurant catered only to its members and their guests; that there was in fact no cash dividend distribution to its stockholders and that whatever was derived on retail from its bar and restaurant was used to defray its overall overhead expenses and to improve its golfcourse (cost-plus-expenses-basis), it stands to reason that the Club is not engaged in the business of an operator of bar and restaurant (same authorities, cited above). It is conceded that the Club derived profit from the operation of its bar and restaurant, but such fact does not necessarily convert it into a profit-making enterprise. The bar and restaurant are necessary adjuncts of the Club to foster its purposes and the profits derived therefrom are necessarily incidental to the primary object of developing and cultivating sports for the healthful recreation and entertainment of the stockholders and members. That a Club makes some profit, does not make it a profit-making Club. As has been remarked a club should always strive, whenever possible, to have surplus (Jesus Sacred Heart College v. Collector of Int. Rev., G.R. No. L-6807, May 24, 1954; Collector of Int. Rev. v. Sinco Educational Corp., G.R. No. L-9276, Oct. 23, 1956).
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It is claimed that unlike the two cases just cited (supra), which are non-stock, the appellee Club is a stock corporation. This is unmeritorious. The facts that the capital stock of the respondent Club is divided into shares, does not detract from the finding of the trial court that it is not engaged in the business of operator of bar and restaurant. What is determinative of whether or not the Club is engaged in such business is its object or purpose, as stated in its articles and by-laws. It is a familiar

rule that the actual purpose is not controlled by the corporate form or by the commercial aspect of the business prosecuted, but may be shown by extrinsic evidence, including the by-laws and the method of operation. From the extrinsic evidence adduced, the Tax Court concluded that the Club is not engaged in the business as a barkeeper and restaurateur. Moreover, for a stock corporation to exist, two requisites must be complied with, to wit: (1) a capital stock divided into shares and (2) an authority to distribute to the holders of such shares, dividends or allotments of the surplus profits on the basis of the shares held (sec. 3, Act No. 1459). In the case at bar, nowhere in its articles of incorporation or by-laws could be found an authority for the distribution of its dividends or surplus profits. Strictly speaking, it cannot, therefore, be considered a stock corporation, within the contemplation of the corporation law. A tax is a burden, and, as such, it should not be deemed imposed upon fraternal, civic, non-profit, nonstock organizations, unless the intent to the contrary is manifest and patent" (Collector v. BPOE Elks Club, et al., supra), which is not the case in the present appeal. Having arrived at the conclusion that respondent Club is not engaged in the business as an operator of a bar and restaurant, and therefore, not liable for fixed and percentage taxes, it follows that it is not liable for any penalty, much less of a compromise penalty. WHEREFORE, the decision appealed from is affirmed without costs.

G.R. No. L-56025 November 25, 1982 REPUBLIC OF THE PHILIPPINES, petitioner, vs. THE HONORABLE ARSENIO M. GONONG and IGLESIA NI CRISTO, respondents. The Solicitor General for petitioner. Tapalla, Cruz, Peren & Associates for respondents.

MELENCIO-HERRERA, J.: The issue posed herein again revolves around the prohibition in Section 11, Article XIV of the 1973 Constitution that " no private corporation or association may hold alienable lands of the public domain except by lease not to exceed one thousand hectares in area. " On March 17, 1980, the Iglesia ni Kristo, represented by its Executive Minister Erano G. Manalo, a corporation sole (Iglesia, for Short), filed with the Court of First Instance of Ilocos Norte an

application, under Section 48(b) of the Public Land Law, for registration of a parcel of land with an area of 922 square meters, located in Bo. Binacag, Espiritu, Ilocos Norte. The land was acquired by the Iglesia on July 20, 1953 from Gregorio Gamet 1 who was allegedly in possession for more than thirty (30) years. The lot was declared for realty tax purposes in 1954 and taxes paid thereon since then. A chapel of the Iglesia stands on the land. The Republic of the Philippines, through the Director of Lands, filed an opposition on the grounds that the Iglesia, as a private corporation, is disqualified to hold alienable public lands and that the applicant and its predecessor-in-interest had not been in open, continuous, exclusive and notorious possession of the land since June 12, 1945 or prior thereto. In a Decision dated November 21, 1980, the Land Registration Court granted the Iglesia application. The dispositive portion of the Decision reads: WHEREFORE, in view of all the foregoing, the Court finds the evidence of applicant more than enough to prove its ownership and possession of the lot applied for. Let the land, therefore, described in PSU-1-005441 containing an area of NINE HUNDRED TWENTY TWO (922) SQUARE METERS, more or less, be brought under the operation of the Land Registration Act and to have its title thereto registered and confirmed under the name of IGLESIA NI CRISTO, with its Executive Minister Erano G. Manalo, as Corporation Sole, Corner Central and Don Mariano Marcos Avenue, Diliman, Quezon City, as its exclusive property. On the other hand, the opposition of the Government not having been substantiated is hereby DISMISSED.
Once the decision becomes final, let the corresponding decree be issued in favor of the applicant Iglesia ni Cristo. 2

Petitioner filed a Motion for Reconsideration on the sole ground that the applicant, as a private corporation, is disqualified to hold lands of the public domain. Respondent Judge denied reconsideration. Hence, this appeal by certiorari to which we gave due course. Petitioner stresses applicant's disqualification to hold lands of the public domain except by lease pursuant to Section I 1, Article XIV of the 1973 Constitution. On the other hand, the applicant argues that it does not suffer from any disqualification because a corporation sole is not the owner but a mere administrator of the property titled in its name for the benefit of its members; and that the constitutional ban is inapplicable to it because the property sought to be registered is not alienable public land but private property. We find for petitioner, following our Decision in Republic of the Philippines vs. Judge Candido P. Villanueva, 114 SCRA 875 (June 29, 1982), penned by Mr. Justice Ramon C. Aquino, and which is squarely on all fours with the Petition under consideration. In so far as the nature of the property involved is concerned, our categorical pronouncement therein is that the same is public land: The contention in the comments of the Iglesia Ni Cristo (its lawyer did not file any brief) that the two lots are private lands, following the rule laid down in Susi vs. Razon and Director of Lands, 48 Phil. 424, is not correct. What was considered private land in the Susi case was a parcel of land possessed by a Filipino citizen

since time immemorial as in Carino vs. Insular Government, 212 U.S. 449, 53 L. ed. 594, 41 Phil. 935 and 7 Phil. 132. The lots sought to be registered in this case do not fall within that category. They are still public lands. A land registration proceeding under section 48(b) 'presupposes that the land is public' (Mindanao vs. Director of Lands, L-19535, July 10, 1967, 20 SCRA 641, 644). As held in Oh Cho vs. Director of Lands, 75 Phil. 890, 'an lands that were not acquired from the Government, either by purchase or by grant, belong to the public domain. An exception to the rule would be any land that should have been in the possession of an occupant and of his predecessors-in-interest since time immemorial, for such possession would justify the presumption that the land had never been part of the public domain or that it had been a private property even before the Spanish conquest.' In Uy Un vs. Perez, 71 Phil. 508, it was noted that the right of an occupant of public agricultural land to obtain a confirmation of his title under section 48(b) of the Public Land Law is a 'derecho dominical incoativo' and that before the issuance of the certificate of title the occupant is not in the juridical sense the true owner of the land since it still pertains to the State. And in respect of the disqualification of the Iglesia as a private corporation, which overrules the view of the Trial Court that it is a natural person, we explicitly held: As correctly contended by the Solicitor General, the Iglesia Ni Cristo, as a corporation sole or a juridical person, is disqualified to acquire or hold alienable lands of the public domain, like the two lots in question, because of the constitutional prohibition already mentioned and because the said church is not entitled to avail itself of the benefits of section 48(b) which applies only to Filipino citizens or natural persons. A corporation sole (an 'unhappy freak of English law') has no nationality (Roman Catholic Apostolic Adm. of Davao, Inc. vs. Land Registration Commission, 102 Phil. 596. See Register of Deeds vs. Ung Siu Si Temple, 97 Phil. 58 and sec. 49 of the Public Land Law). WHEREFORE, respondent Judge's Decision, dated November 21, 1980, is hereby SET ASIDE and the application for registration of the Iglesia ni Cristo is hereby dismissed, No costs. SO ORDERED.

G.R. No. L-29755

December 14, 1928

INSOLVENCY OF THE LEYTE ASPHALT & MINERAL OIL CO., LTD., insolvent debtor. THE LEYTE ASPHALT & MINERAL OIL CO., LTD., appellee, vs. BLOCK, JOHNSTON & GREENBAUM, creditors-appellants. The appellants in their own behalf. D. G. McVean and Thos. G. Ingalls for appellee.

ROMUALDEZ, J.: On January 28, 1928, the attorneys who are now appelants, filed a motion in the Court of First Instance of Cebu praying for the dismissal of these insolvency proceedings, with costs against the attorney who instituted them, or against his client for contempt of the court having jurisdiction over the receivership, and for contempt of said court of Cebu for not having informed the latter of the existence of such case in which the receivership has been decreed, and that the order of January 23, 1928 be vacated. Said order of January 23 1928 was issued by the Court of First Instance of Cebu ordering the suspension of payments to the applicant, the Leyte Asphalt and Mineral Oil Co., Ltd., and enjoying the latter from transferring its property or any part thereof to any person, firm of corporation; and setting the 16th of February of 1928, at 10 a.m. at the office of the clerk of the Court of First Instance of Cebu as the time and place for the election of the proper assignee, and summoning the applicant's creditors to such election. Objection was made to said petition of the appellant attorneys by the Leyte Asphalt and Mineral Oil Co., Ltd., through its attorney. And after hearing the motion the Court of First Instance of Cebu denied it by an order of March 5, 1928. The attorneys appealing from said adverse order assign the following errors as committed by the lower court: 1. In holding itself with jurisdiction to proceed with this insolvency proceeding and in not dismissing it. 2. In not holding that the insolvent corporation is precluded from invoking the provisions of the Insolvency Law, Act No. 1956.
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3. In holding that section 52 of the Insolvency Law does not prohibit the discharge of an insolvent corporation of the type of the applicant herein, and in declaring such provisions to apply only to banking corporations and those as to which there are special provisions of law for their liquidation in case of insolvency. 4. In holding that said court, in taking cognizance of the insolvency case is a higher jurisdiction than any other court. 5. In denying the motion of January 28, 1928, by its orders of March 5, 1928, and March 24, 1928.

The fundamental question raised here is whether Judge Jose de la Rama, presiding over Branch II, had jurisdiction to take cognizance of the insolvency of the Leyte Asphalt and Mineral Oil Co., Ltd., under the Insolvency Law, Act No. 1956, there being pending before Judge Guillermo Pablo presiding over Branch III, a certain receivership proceeding, under section 176 of Act No. 190, to which the said Leyte Asphalt and Mineral Oil Co., Ltd., had agreed. Act No. 190 or the Law of Civil Procedure is general in character, while the Insolvency Law, Act No. 1956 is a special law and the rule is that on a specific matter the special law shall prevail over the general law, which shall be resorted to only to supply deficiencies in the former. (Art. 16, Civil Code.) Section 176 of the Code of Civil Procedure is not so conclusive and complete with respect to insolvency cases, as the provisions of the Insolvency Law, whose proceedings are final as to the disposition of the credits, which does not take place in receivership proceedings. Consequently, the court below did not err in assuming jurisdiction of the present proceeding and in not dismissing it. With respect to the acts of the Board of Directors of the Leyte Asphalt and Mineral Oil Co., Ltd., since this corporation is subject to the receivership proceeding, we do not think them illegal because the appointment of a receiver does not dissolve the corporation, nor bar the exercise of its corporate rights. (Teal Motor Co. and Teal vs. Court of First Instance of Manila, 51 Phil., 549.) The estoppel invoked by the appellants under section 333, paragraph 1, of the Code of Civil Procedure cannot be held applicable to the appellee corporation in this case. No absolute inconsistency or irreconcilable conflict exists between the consent given by said corporation to the appointment of a receiver and the application to have itself declared insolvent. The fact that under section 52 of the Insolvency Law the appellee corporation cannot obtain its discharge, is not a bar to this insolvency proceeding pursuing its course for the reasons stated. The error, if error it be, of the trial court in holding that the prohibition contained in section 52 of this Insolvent Law against discharging a corporation is applicable only to banking corporations and those as to which there are special provisions for their liquidation in case of insolvency, is not prejudicial to the appellants in our opinion. Whether a receiver proceeding is speedier and more economical than an insolvency proceeding is a point which we deem does not affect the fundamental solution of the question raised in this case. Furthermore, we find the insolvency proceeding in the present case more definite and hence more beneficial and hereby uphold it. The order appealed from is hereby affirmed with the costs of this instance against the appellants. So ordered.

G.R. No. 81123 February 28, 1989

CRISOSTOMO REBOLLIDO, FERNANDO VALENCIA and EDWIN REBOLLIDO, petitioners vs. HONORABLE COURT OF APPEALS and PEPSICO, INC., respondents. Erlinda S. Carolino for petitioners. Acaban, Corvera, Del Castillo for private respondents.

GUTIERREZ, JR., J.: The issues raised in this petition for review on certiorari in an action for damages arising from a vehicular accident are lack of jurisdiction over the defendant and absence of due process. On August 7, 1984, the petitioners filed Civil Case No. 8113 for damages against Pepsi Cola Bottling Company of the Philippines, Inc. (hereinafter referred to as Pepsi Cola) and Alberto Alva before the Regional Trial Court of Makati. The case arose out of a vehicular accident on March 1, 1984, involving a Mazda Minibus used as a schoolbus with Plate Number NWK-353 owned and driven by petitioners Crisostomo Rebollido and Fernando Valencia, respectively and a truck trailer with Plate Number NRH-522 owned at that time by Pepsi Cola and driven by Alberto Alva. (p. 37, Rollo) On September 21, 1984, the sheriff of the lower court served the summons addressed to the defendants. It was received by one Nanette Sison who represented herself to be the authorized person receiving court processes as she was the secretary of the legal department of Pepsi Cola. (pp. 33, 75, Rollo) Pepsi Cola failed to file an answer and was later declared in default. The lower court heard the case ex-parte and adjudged the defendants jointly and severally liable for damages in a decision rendered on June 24, 1985. 'The dispositive portion of the decision reads: WHEREFORE, judgment is rendered in favor of plaintiffs, ordering defendants Pepsi Cola Bottling Company of the Philippines, Inc., and its driver Fernando (should be Alberto) G. Alva to jointly and severally pay plaintiffs the following amounts: l) P 12,126.10,for the hospitalization and medical expenses of plaintiff Fernando Valencia; 2) P 326.35 as expenses for the medical treatment of plaintiff Edwin Rebollido; 3) P 9,922.00, for the repair of and cost of replacement parts of the Mazda Minibus belonging to plaintiff Crisostomo Rebollido; 4) P 16,200.00, for the expenses incurred by plaintiff Crisostomo Rebollido in hiring another vehicle to transport school pupils; 5) P 102,261.90, as unrealized monthly net income due plaintiff from June 1984 to March 30, 1985;

6) P 10,800.00, representing the unpaid salaries of plaintiff Fernando Valencia for the period from March to December 1984; '7) P 20,000.00, as moral damages due plaintiff Fernando Valencia; 8) P 20,000.00, as moral damages due plaintiff Crisostomo Rebollido; 9) A sum equivalent to ten (10%) per cent of the total amount due, as and for attorney's fees; and 10) The costs of suit. (pp. 38-39, Rollo) On August 5, 1985, when the default judgment became final and executory, the petitioners filed a motion for execution, a copy of which was received no longer by the defendant Pepsi Cola but by private respondent PEPSICO, Inc., on August 6, 1985. At that time, the private respondent was already occupying the place of business of Pepsi Cola at Ricogen Building, Aguirre Street, Legaspi Village, Makati, Metro Manila. Private respondent, a foreign corporation organized under the laws of the State of Delaware, USA, held offices here for the purpose, among others, of settling Pepsi Cola's debts, liabilities and obligations which it assumed in a written undertaking executed on June 11, 1983, preparatory to the expected dissolution of Pepsi Cola. The dissolution of Pepsi Cola as approved by the Securities and Exchange Commission materialized on March 2,1984, one day after the accident occurred. (p. 45, Rollo). Earlier or in June 1983, the Board of Directors and the stockholders of Pepsi Cola adopted its amended articles of incorporation to shorten its corporate term in accordance with Section 120 of the Corporation Code following the procedure laid down by Section 37 (power to extend or shorten the corporate term) and Section 16 (amendment of the articles of incorporation) of the same Code. Immediately after such amendment or on June 16, 23 and 30, 1983, Pepsi Cola cause the publication of a notice of dissolution and the assumption of liabilities by the private respondent in a newspaper of general circulation. (p. 77, Rollo) Realizing that the judgment of the lower court would eventually be executed against it, respondent PEPSICO, Inc., opposed the motion for execution and moved to vacate the judgment on the ground of lack of jurisdiction. The private respondent questioned the validity of the service of summons to a mere clerk. It invoked Section 13, Rule 14 of the Rules of Court on the manner of service upon a private domestic corporation and Section 14 of the same rule on service upon a private foreign corporation. (p. 82, Rollo) On August 14, 1985, the lower court denied the motion of the private respondent holding that despite the dissolution and the assumption of liabilities by the private respondent, there was proper service of summons upon defendant Pepsi Cola. The lower court said that under Section 122 of the Corporation Code, the defendant continued its corporate existence for three (3) years from the date of dissolution. (p. 87, Rollo) On August 27, 1985, the private respondent filed a special civil action for certiorari and prohibition with the respondent court to annul and set aside the judgment of the lower court and its order denying the motion to vacate the judgment, for having been issued without jurisdiction. On December 29, 1986, the Court of Appeals granted the petition on the ground of lack of jurisdiction ruling that there was no valid service of summons. The appellate court stated that any

judgment rendered against Pepsi Cola after its dissolution is a "liability" of the private respondent within the contemplation of the undertaking, but service of summons should be made upon the private respondent itself in accordance with Section 14, Rule 14 of the Rules of Court. It remanded the case to the lower court and ordered that the private respondent be summoned and be given its day in court. On November 27, 1987, a motion for reconsideration was denied. Hence, this petition. The issues raised are two-fold: (1) whether or not Pepsi Cola, the dissolved corporation, is the real party in interest to whom summons should be served in the civil case for damages; and (2) whether or not there was valid service of summons through Nanette Sison, allegedly the secretary of the legal department of Pepsi Cola. If there was valid service of summons upon Pepsi Cola, the issue arises as to whether or not such service validly vested jurisdiction on the lower court over the person of the respondent corporation. On the first issue, the petitioner maintain that it is Pepsi Cola which is the real party in the case before the trial court because when the accident happened on March 1, 1984 or one day before the date of legal dissolution, Pepsi Cola was still the registered owner of the truck involved. Being solidarily liable with its driver for damages under Articles 2176 and 2180 of the Civil Code, there appears to be no question that the complaint and summons were correctly filed and served on Pepsi Cola. Section 2, Rule 3 of the Revised Rules of Court mandates that: Parties in interest - Every action must be prosecuted and defended in the name of the real party in interest. ... . The Court has defined the real party-in-interest in the recent case of Samahan ng mga Nangungupahan sa Azcarraga Textile Market, Inc., et al. u. Court of Appeals (G.R. No. 68357, September 26, 1988), as follows: The real party-in-interest is the party who stands to be benefited or injured by the judgment or the party entitled to the avails of the suit. 'Interest' within the meaning of the rule means material interest, an interest in issue and to be affected by the decree, as distinguished from mere interest in the question involved, or a mere incidental interest. ... (Francisco, the Revised Rules of Court in the Phil., Vol. I, p. 126 cited in House International Building Tenants Association, Inc. v. Intermediate Appellate Court, 151 SCRA 705). Furthermore, the Court in Walter Ascona Lee, et al. v. Hon. Manuel Romillo, Jr., et al. (G.R. No. 60937, May 28, 1988) said: xxx xxx xxx ... A real party in interest-plaintiff is one who has a legal right while a real party in interest-defendantis one who has a correlative legal obligation whose act or omission violates the legal rights of the former. (Emphasis supplied).

For purposes of valid summons, the dissolved Pepsi Cola was the real party in interest-defendant in the civil case filed by the petitioners not only because it is the registered owner of the truck involved but also because, when the cause of action accrued, Pepsi Cola still existed as a corporation and was the party involved in the acts violative of the legal right of another. The petitioners had a valid cause of action for damages against Pepsi Cola, A cause of action is defined as "an act or omission of one party in violation of the legal right or rights of the other; and its essential elements are a legal right of the plaintiff, correlative obligation of the defendants and an act or omission of the defendant in violation of said legal right." (Santos v. Intermediate Appellate Court, 145 SCRA 248 [1986] citing Ma-ao Sugar Central Co. v. Barrios, et al., 79 Phil. 666 [1947]; See also Republic Planters Bank v. Intermediate Appellate Court, 131 SCRA 631 [1984]). The law provides that a corporation whose corporate term has ceased can still be made a party to a suit. Under paragraph 1, Section 122 of the Corporation Code, a dissolved corporation: xxx xxx xxx ...shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose of continuing the business for which it was established. In American jurisprudence, a similar provision in the Corporate Act of 1896 was construed with respect to the kinds of suits that can be prosecuted against dissolved corporations: xxx xxx xxx ... The words 'defending suits against them mean suits at law or in equity, in contract or tort, or of what nature soever, and whether begun before or after dissolution. (Hould v. John P. Squire and Co. [1911] 81 NJL 103, 79 A 282). The rationale for extending the period of existence of a dissolved corporation is explained in Castle's Administrator v. Acrogen Coal, Co. (145 Ky 591,140 SW 1034 [1911]) as follows: This continuance of its legal existence for the purpose of enabling it to close up its business is necessary to enable the corporation to collect the demands due it as well an to allow its creditors to assert the demands against it. If this were not so, then a corporation that became involved in liabilities might escape the payment of its just obligations by merely surrendering its charter, and thus defeat its creditors or greatly hinder and delay them in the collection of their demand. This course of conduct on the part of corporations the law in justice to persons dealing with them does not permit. The person who has a valid claim against a corporation, whether it arises in contract or tort should not be deprived of the right to prosecute an action for the enforcement of his demands by the action of the stockholders of the corporation in agreeing to its dissolution. The dissolution of a corporation does not extinguish obligations or liabilities due by or to it. (Emphasis supplied) In the case at bar, the right of action of the petitioners against Pepsi Cola and its driver arose not at the time when the complaint was filed but when the acts or omission constituting the cause of action accrued (Deter v. City of Delta 271 p. 67, 73 Colo 589, Keister v. Keister, 96 SE 315 123 Va 157,

ALR 439), i.e. on March 1, 1984 which is the date of the accident and when Pepsi Cola allegedly committed the wrong. On the second and main issue of whether or not the service of summons through Ms. Nanette C. Sison, upon Pepsi Cola operates to vest jurisdiction upon private respondent, it is important to know the circumstances surrounding the service. At the time of the issuance and receipt of the summons, Pepsi Cola was already dissolved. The Court is of the opinion that service is allowed in such a situation. In the American case of Crawford v. Refiners Cooperative Association, Incorporation (71 NM 1, 375 p 2d 212 [1962]), it was held that a "defendant corporation is subject to suit and service of process even though dissolved." Nowhere in the Corporation Code is there any special provision on how process shall be served upon a dissolved defendant corporation. The absence of any such provision, however, should not leave petitioners without any remedy, unable to pursue recovery for wrongs committed by the corporation before its dissolution. Since our law recognizes the liability of a dissolved corporation to an aggrieved creditor, it is but logical for the law to allow service of process upon a dissolved corporation. Otherwise, substantive rights would be lost by the mere lack of explicit technical rules. The Rules of Court on service of summons upon a private domestic corporation is also applicable to a corporation which is no longer a going concern. Section 13, Rule 14 mandates: Service upon private domestic corporation or partnership. - If the defendant is a corporation organized under the laws of the Philippines or a partnership duly registered, service may be made on the president, manager, secretary , cashier, agent or any of its directors. The case of Castle's Administrator v. Acrogen Coal Co. (supra), is illustrative of the manner by which service can nevertheless be made despite the death of the entity: [W]hen an action that might have been instituted against a foreign or domestic corporation while it was a going concern is instituted after its dissolution, process in the action may be served upon the same person upon whom the process could be served before the dissolution. (P. 1036) Therefore, service upon a dissolved corporation may be made through any of the persons enumerated in Section 13, Rule 14. To be sure, this Court has ruled that service on a mere employee or clerk of a corporation is not sufficient. (Delta Motor Sales Corp. v. Mangosing, 70 SCRA 598 [1976]; ATM Trucking, Inc. v. Buencamino, 124 SCRA 434 [1983]; Filoil Marketing Corp. v. Marine Development Corp. of the Phil., 117 SCRA 86 [1982]). The persons who should receive the summons should be those named in the statute; otherwise, those who have charge or control of the operations of the company or who may be relied upon to deliver the papers served upon them. (Villa Rey Transit, Inc. v. Far East Motor Corp., 81 SCRA 298 [1978]; and Summit Trading and Development Corp. v. Avendano, 135 SCRA 397 [1985]). A liberal interpretation of Section 13, Rule 14 has been adopted in the case of G & G Trading Corporation v. Court of Appeals (158 SCRA 466 [1988]):

Although it maybe true that the service of summons was made on a person not authorized to receive the same ..., nevertheless since it appears that the summons and complaint were in fact received by the corporation through its said clerk, the Court finds that there was substantial compliance, with the rule on service of summons. Indeed the purpose of said rule as above stated to assure service of summons on the corporation had thereby been attained. The need for :seedy justice must prevail over a technicality.' (at p. 469; Emphasis supplied). The rationale for the rule on service of summons upon a defendant corporation as explained in Delta Motors Sales v. Mangosing (supra), is as follows: The purpose is to render it reasonably certain that the corporation will receive prompt and proper notice in an action against it or to insure that the summons be served on a representative so integrated with the corporation that such person will know what to do with the legal papers served on him. In other words, 'to bring home to the corporation notice of the filing of the action'. (35A C.J.S. 288 citing Jenkins v. Lykes Bros. S.S. Co., 48 F. Supp. 848; MacCarthy v. Langston, D.C. Fla., 23 F.R.D. 249). (at p. 603) The fact that the summons was received through Miss Sison is not disputed by the parties. For which corporation was she actions. After the dissolution and during the pendency of the case below, private respondent PEPSICO held office at the same address of Pepsi Cola where Miss Sison was working. The petitioners argue that summons was served through the secretary of the legal department who acted as agent of Pepsi Cola. On the other hand, it is contended by private respondent PEPSICO that Miss Sison works for its legal department and not of Pepsi Cola. So the., private respondent avers, there was no valid service upon Pepsi Cola since buss Sison acted in PEPSICO's behalf. (p. 64, Rollo) Even assuming this contention to be true, the private respondent had the obligation to act upon the summons received and to defend Pepsi Cola pursuant to the undertaking it executed on June 11, 1983. Whomsoever Miss Sison was acting for in receiving the summons there is no question that the notice of the action was promptly delivered either to Pepsi Cola or PEPSICO with whom she is admittedly connected. We rule, as in G & G Trading Corporation v. Court of Appeals (supra), that there was substantial compliance with Section 13, Rule 14 because the purpose of notice was satisfied. Contrary to the decision of the Court of Appeals, we therefore, hold that there was proper service of summons to bind Pepsi Cola and that the decision of the lower court against Pepsi Cola rendered on June 24, 1985 is valid and enforceable against the private respondent. According to the undertaking executed in favor of Pepsi Cola, private respondent assumed: xxx xxx xxx ... [A]ll the debts, liabilities and obligations (collectively, the 'Liabilities') of PBC whether firm or contingent, contractual or otherwise, express or implied, wherever located, and of whatever nature and description (including, but without limiting the generality of the foregoing, liabilities for damages and taxes), hereby agrees and undertakes (i) to pay or cause to be paid or otherwise discharge or cause to be discharged all of the Liabilities of PBC which Liabilities may be enforced against the Corporation to the same extent as if the said Liabilities had been incurred or contracted originally by the Corporation ...and (iv) not to prejudice in any way the rights of creditors of PBC (p. 46, Rollo; Italics supplied)

It is clear that private respondent is aware that the liabilities of Pepsi Cola are enforceable against it upon the dissolution of Pepsi Cola. As correctly stated by the Court of Appeals, by virtue of the assumption of the debts, liabilities and obligations of Pepsi Cola, "any judgment rendered against Pepsi Cola after its dissolution is a 'liability' of PEPSICO, Inc., within the contemplation of the undertaking." Hence it was incumbent upon respondent PEPSICO, Inc., to have defended the civil suit against the corporation whose liabilities it had assumed. Failure to do so after it received the notice by way of summons amounts to gross negligence and bad faith. The private respondent cannot now invoke a technical defect involving improper service upon Pepsi Cola and alleged absence of service of summons upon it. There is the substantive right of the petitioners to be considered over and above the attempt of the private respondent to avoid the jurisdiction of the lower court. Even assuming that jurisdiction over the private respondent can be acquired only by way of service of summons in literal compliance with Section 14, Rule 14, the petitioners cannot be faulted for having brought the case naming Pepsi Cola as one of the defendants so that the summons was addressed only to the defendants named therein and not to the private respondent. At the time of the commencement of the suit below, the petitioners had no knowledge of the legal dissolution and the undertaking assumed by PEPSICO. The publication of the notice of dissolution and the assumption of liabilities, done in June 1983 or eight months before the vehicular accident, cannot serve as a notice to the petitioners who were not yet creditors having a claim upon a quasi-delict. In view of the above, the valid service of summons upon Pepsi Cola operated as a sufficient service of summons upon the private respondent. The lower court can enforce judgment against the private respondent. Therefore, we rule that the private respondent is bound to satisfy the judgment by default which has become final and executory. The lower court did not abuse its discretion in denying the motion of the private respondent to vacate judgment. WHEREFORE, the petition is hereby GRANTED. The decision of the Court of Appeals is REVERSED and SET ASIDE. The judgment of the lower court and its order denying the motion to vacate judgment are REINSTATED. SO ORDERED.

G.R. No. L-18216

October 30, 1962

STOCKHOLDERS OF F. GUANZON AND SONS, INC., petitioners-appellants, vs. REGISTER OF DEEDS OF MANILA, respondent-appellee.

Ramon C. Fernando for petitioners-appellants. Office of the Solicitor General for respondent-appellee. BAUTISTA ANGELO, J.: On September 19, 1960, the five stockholders of the F. Guanzon and Sons, Inc. executed a certificate of liquidation of the assets of the corporation reciting, among other things, that by virtue of a resolution of the stockholders adopted on September 17, 1960, dissolving the corporation, they have distributed among themselves in proportion to their shareholdings, as liquidating dividends, the assets of said corporation, including real properties located in Manila. The certificate of liquidation, when presented to the Register of Deeds of Manila, was denied registration on seven grounds, of which the following were disputed by the stockholders: 3. The number of parcels not certified to in the acknowledgment; 5. P430.50 Reg. fees need be paid; 6. P940.45 documentary stamps need be attached to the document; 7. The judgment of the Court approving the dissolution and directing the disposition of the assets of the corporation need be presented (Rules of Court, Rule 104, Sec. 3). Deciding the consulta elevated by the stockholders, the Commissioner of Land Registration overruled ground No. 7 and sustained requirements Nos. 3, 5 and 6. The stockholders interposed the present appeal. As correctly stated by the Commissioner of Land Registration, the propriety or impropriety of the three grounds on which the denial of the registration of the certificate of liquidation was predicated hinges on whether or not that certificate merely involves a distribution of the corporation's assets or should be considered a transfer or conveyance. Appellants contend that the certificate of liquidation is not a conveyance or transfer but merely a distribution of the assets of the corporation which has ceased to exist for having been dissolved. This is apparent in the minutes for dissolution attached to the document. Not being a conveyance the certificate need not contain a statement of the number of parcel of land involved in the distribution in the acknowledgment appearing therein. Hence the amount of documentary stamps to be affixed thereon should only be P0.30 and not P940.45, as required by the register of deeds. Neither is it correct to require appellants to pay the amount of P430.50 as registration fee. The Commissioner of Land Registration, however, entertained a different opinion. He concurred in the view expressed by the register of deed to the effect that the certificate of liquidation in question, though it involves a distribution of the corporation's assets, in the last analysis represents a transfer of said assets from the corporation to the stockholders. Hence, in substance it is a transfer or conveyance. We agree with the opinion of these two officials. A corporation is a juridical person distinct from the members composing it. Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. While shares of stock constitute personal property they do not represent property of the corporation. The corporation has property of its own which

consists chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75; Morrow v. Gould, 145 Iowa 1, 123 N.W. 743). A share of stock only typifies an aliquot part of the corporation's property, or the right to share in its proceeds to that extent when distributed according to law and equity (Hall & Faley v. Alabama Terminal, 173 Ala 398, 56 So., 235), but its holder is not the owner of any part of the capital of the corporation (Bradley v. Bauder 36 Ohio St., 28). Nor is he entitled to the possession of any definite portion of its property or assets (Gottfried v. Miller, 104 U.S., 521; Jones v. Davis, 35 Ohio St., 474). The stockholder is not a co-owner or tenant in common of the corporate property (Halton v. Hohnston, 166 Ala 317, 51 So 992). On the basis of the foregoing authorities, it is clear that the act of liquidation made by the stockholders of the F. Guanzon and Sons, Inc. of the latter's assets is not and cannot be considered a partition of community property, but rather a transfer or conveyance of the title of its assets to the individual stockholders. Indeed, since the purpose of the liquidation, as well as the distribution of the assets of the corporation, is to transfer their title from the corporation to the stockholders in proportion to their shareholdings, and this is in effect the purpose which they seek to obtain from the Register of Deeds of Manila, that transfer cannot be effected without the corresponding deed of conveyance from the corporation to the stockholders. It is, therefore, fair and logical to consider the certificate of liquidation as one in the nature of a transfer or conveyance. WHEREFORE, we affirm the resolution appealed from, with costs against appellants.

G.R. No. 107002 October 7, 1994 FINASIA INVESTMENTS and FINANCE CORPORATION, petitioner, vs. THE COURT OF APPEALS, HON. FERNANDO P. AGDAMAG, in his capacity as Presiding Judge of the Regional Trial Court of Makati, Branch 138, and ROSITO A. CASTRO. respondents. Quasha, Asperilla, Ancheta, Pea & Nolasco rehabilitation receiver for petitioner. Pacifico M. Monje for private respondent.

KAPUNAN, J.: Petitioner seeks the reversal of the decision of the Court of Appeals holding that private respondent Rosito A. Castro's "claim" against petitioner Finasia Investments and finance Corporation (FINASIA, for short) is not one within the contemplation of Section 6(c) of Presidential Decree 902-A, as amended, which provides for the suspension of all actions for claims against corporations,

partnerships or associations under management or receivership pending before any court, tribunal, board or body. The facts of the case are as follows: Sometime in 1982, FINASIA extended a loan to Felicisimo Francisco in the amount of One Hundred Sixty Two Thousand One Hundred Sixty Six and 43/100 (P162,166.43). As security for the loan, Francisco executed a Real Estate Mortgage dated 8 September 1982 over a parcel of land owned by private respondent Rosito A. Castro, under a Special Power of Attorney dated 6 September 1982 executed by Castro in favor of Francisco. Subsequently, FINASIA executed a Deed of Assignment dated 23 December 1983 and a Supplemental Deed of Assignment dated 27 March 1985 in favor of Pioneer Savings and Loan Bank (PSLB), ceding all its collectibles and collaterals to the latter, including the Promissory Note executed by Francisco, in consideration of the release by PSLB of all of FINASIA's obligations to it. On 27 January 1990, Castro instituted a complaint against FINASIA, PSLB and Francisco, praying for the declaration of nullity of the Special Power of Attorney, the Real Estate Mortgage, and the Deed of Assignment with preliminary injunction before the Regional Trial Court of Makati, presided by respondent Judge Fernando P. Agdamag. Castro alleged in the complaint that the power of attorney he supposedly executed in favor of Francisco was a forgery. Claiming that it had been placed under receivership by the Securities and Exchange Commission (SEC) which had appointed a Rehabilitation Receiver, on 21 June 1991, FINASIA filed with the Regional Trial Court a Motion to Suspend Proceedings under Section 6(c) of PD 902-A, as amended, which states: Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers: xxx xxx xxx c) To appoint one or more receivers of the property, real and personal, which is the subject of the action pending before the Commission in accordance with the pertinent provisions of the Rules of Court in such other cases whenever necessary in order to preserve the rights of the parties-litigants and/or protect the interest of the investing public and creditors: Provided, however, That the Commission may, in appropriate cases, appoint a rehabilitation receiver of corporations, partnerships or other associations not supervised or regulated by other government agencies who shall have, in addition to the powers of regular receiver under the provisions of the Rules of Court, such functions and powers as are provided for in the succeeding paragraph d) hereof: Provided, further, That the Commission may appoint a rehabilitation receiver of corporations, partnerships of other government agencies, such as banks and insurance companies, upon request of the government agency concerned: Provided, finally, that upon appointment of a management committee, rehabilitation receiver, board, or body, pursuant to this Decree, all actions for claims against corporations, partnerships or associations under management or receivership pending before any court, tribunal, board or body shall be suspended accordingly.

On 24 September 1991, the trial court issued an order denying FINASIA's motion on the ground that the subject of the action is not, strictly speaking, a claim against petitioner as contemplated by Sec. 6(c) of P.D. 902-A. A motion for reconsideration of said order was, likewise, denied by the trial court in its resolution of September 11, 1992; hence, FINASIA filed before respondent Court of Appeals, a special civil action for certiorari and prohibition under Rule 65 of the Rules of Court to set aside the order of the trial court dated April 7, 1992 and resolution dated September 11, 1992. In its decision promulgated on April 7, 1992 in CA-G.R. SP No. 27192, the Court of Appeals dismissed the petition, holding that: . . . . The word "claim" as used in statutes requiring the presentation of claims against someone must be construed to mean debts or demand of a pecuniary nature (Vide Gutierrez vs. Baretto-Datu, 115 Phil. 744). It is in this sense that Sec. 6(c) of P.D. 902-A should be construed, and from that construction arises the necessity of determining whether the "claim" against FINASIA in Civil Case No. 90-234 is a claim for a debt or a pecuniary liability so as to fall within purview of the decree. The principal cause of action in Civil Case No. 90-234 relates to the genuineness or nullity of the Special Power of Attorney reportedly conferred upon Francisco and by which he was able to execute the real estate mortgage over Castro's property, the principal defendant in that case being Francisco. The cause of action is, in the true meaning of the word "claim" not a demand for the payment of a debt or for the enforcement of a pecuniary liability. The substance of the decree is to prevent a creditor from obtaining an advantage or preference over another and since the principal purpose of a Civil Case No. 90-234 is to secure a judicial pronouncement on the question whether the Special Power of Attorney is a forgery or not, a possible affirmative ruling will not amount to a preference or advantage to Castro who has not been shown to be a creditor or FINASIA. Besides, to suspend Civil Case No. 90-234 is to deny Castro the opportunity to prove his thesis that the Special Power of Attorney supposedly conferred by him upon Francisco is a forgery. This situation will in turn open the possibility that Castro may lose his property without being able to do anything against it. This will be rank in justice, a situation which no law ever contemplates. xxx xxx xxx
WHEREFORE, the petition is DISMISSED. 1

On 30 April 1992, FINASIA filed a motion for reconsideration of the aforecited decision but the same was denied by public respondent in its Resolution dated 11 September 1992; 2 hence, the present recourse. We agree with the public respondent that the word "claim" as used in Sec. 6(c) of P.D. 902-A, as amended, refers to debts or demands of a pecuniary nature. It means "the assertion of a right to have money paid. It is used in special proceedings like those before administrative court, on insolvency."3 The word "claim" is also defined as: Right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or right to an equitable remedy for breach of

performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, unsecured.
In conflicts of law, a receiver may be appointed in any state which has jurisdiction over the defendant who owes a claim. 4

As used in statutes requiring the presentation of claims against a decedent's estate, "claim" is generally construed to mean debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple money judgments; and among these are those founded upon contract. 5 Consequently, the word "claim" which means "right to payment," should not be confused with the principal cause of action in Civil Case No. 90-239 which simply seeks the nullification of the Special Power of Attorney and other documents because the signature of Castro appearing therein is a forgery. The cause of action therein does not consist of demand for a payment of debt or enforcement of pecuniary liability. It has nothing to do with the purpose of Section 6(c) of P.D. 902-A, as amended, which is to prevent a creditor from obtaining an advantage or preference over another with respect to action against corporation, partnership, association under management or receivership and to protect and preserve the rights of party litigants as well as the interest of the investing public or creditors. Moreover, a final verdict on the question of whether the special power of attorney in question is a forgery or not will not amount to any preference or advantage to Castro who was not shown to be a creditor of FINASIA. WHEREFORE, the petition is hereby DENIED. SO ORDERED.

G.R. No. 114761

January 19, 2000

ALEMAR'S SIBAL & SONS, INC., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, NLM-KATIPUNAN (representing the group of CHARITO ALIMORONG), respondents. PARDO, J.: The petition before the Court is for certiorari1 to set aside the resolutions of the National Labor Relations Commission2 dismissing the appeal of petitioner and upholding the order of the Labor Arbiter to proceed with the execution of the decision rendered in favor of private respondent.

On January 30, 1984, private respondent NLM Katipunan, representing the group of Charito Alimurong, filed with the Department of Labor and Employment a notice of strike,3 raising charges of unfair labor practice (ULP) and illegal dismissal against petitioner. Thereafter, the charges were elevated to respondent National Labor Relations Commission (NLRC) for compulsory arbitration.4 On April 29, 1985, Labor Arbiter Emilio V. Pealosa rendered a decision5 ordering petitioner to pay private respondent separation pay equivalent to one-half (1/2) month pay for every year of service. On December 23, 1985, the Research and Information Unit of the NLRC submitted its computation of the separation pay due to private respondent, which amounted to a total of P207,365.33. On January 4, 1988, private respondent filed with the Labor Arbiter a motion for execution of the decision of the Labor Arbiter. Petitioner did not file any opposition thereto. At the hearing held on April 19, 1988, petitioner and private respondent agreed to the computation of the separation pay. The terms of settlement are as follows: As agreed upon by the parties, a downpayment of P20,736.53 will be paid in May 1988 which is equivalent to 10% of the total money judgment. In June 1988, P41,473.06 will be paid by respondent and the rest covering the initial forty four (44) will be paid July 1988. The balance of the P207,365.20 will be spread over a fifteen (15) months period. (Sgd) Counsel (Sgd) Counsel for Complainant for Respondent6 Thus, Labor Arbiter Jose de Vera directed petitioner to pay the agreed amount of P20,736.53 representing 10% of the total amount of the separation pay due the complainants on May 16, 1988. On June 10, 1988, the Rehabilitation Receiver of petitioner submitted a Manifestation with Motion,7 alleging that petitioner was not yet in a position to comply with the directive of Labor Arbiter de Vera for the reason that it was still under Rehabilitation Receivership by virtue of the order of the Securities and Exchange Commission (SEC) dated August 1, 1984. Thus, it sought deferment of such payment until the SEC will issue an order formally approving the rehabilitation of petitioner and allowing complainants to file their claims with the Rehabilitation Receiver. Due to the failure of petitioner to comply with its obligation to pay the first batch of complainants their separation pay, the Labor Arbiter granted the motion for execution of private respondent in an order dated July 18, 1988. On August 5, 1988, petitioner filed a motion for reconsideration of the order granting the motion for execution, contesting the amount computed by the Research Information Unit of the National Labor Relations Commission. On September 9, 1988, Labor Arbiter Jose De Vera denied the motion, stating as follows: . . .respondent failed to manifest any objection or to submit its comment on the computation made by the Research and Information Unit, this Branch. In fact, on March 17, 1988, it submitted a proposal as to how the complainants' claim for separation pay would be satisfied. Further, when the complainants agreed to accept payment of their separation pay on scheduled basis, the first payment of P20,736.53 scheduled in May 1988, which was agreed upon by the parties, said respondent failed to comply and instead, it filed a

Manifestation with Motion praying for the deferment of execution until the Securities and Exchange Commission issues an Order formally approving the rehabilitation of the respondent. Besides, the respondent Motion for Reconsideration is filed out of time considering that as per bailiffs return, respondent received the questioned Order on July 26, 1988 while its Motion was filed only on August 5, 1988, or more than ten (10) days from receipt of the Order.8 On September 26, 1988, petitioner filed with the Labor Arbiter a Motion to Suspend Execution,9 citing as reason therefor the order issued by the Securities and Exchange Commission which states: All actions for claims against the corporation before any court, tribunal or body are suspended accordingly.10 On October 27, 1988, petitioner appealed the Labor Arbiter's order11 for the issuance of a writ of execution to the NLRC. In a decision dated October 13, 1993, the NLRC dismissed the appeal. On February 2, 1994, the NLRC likewise denied the petitioner's motion for reconsideration. Hence, this petition.12 Petitioner contends that public respondent should have denied the order of the Labor Arbiter for the immediate payment of separation pay in favor of private respondent. Petitioner insists that a stay of execution of monetary award is justified in this case because of the order of the Securities and Exchange Commission suspending all claims against petitioner pending before any court, tribunal or body. The Solicitor General, in his Manifestation,13 recommends that the petition be given due course without prejudice to the subsequent receipt of separation pay by private respondent in accordance with the preference and concurrence of credits under the Civil Code, the Insolvency Law and Article110 of the Labor Code. Respondent National Labor Relations Commission, on the other hand, contends that petitioner is bound by its agreement with private respondent as to the computation of separation pay to be paid. The NLRC emphasizes that the order of execution made by the Labor Arbiter had reached finality and stresses that petitioner's succeeding motions had been filed out of time.14 We note that at the time this petition had been filed on May 4, 1994, petitioner had been placed under rehabilitation receivership. Jurisprudence has established that a stay of execution may be warranted by the fact that a petitioner corporation has been placed under rehabilitation receivership.15 However, it is undisputed that on March 5, 1997, the Securities and Exchange Commission issued an order approving the proposed rehabilitation plan of petitioner and placing it under liquidation pursuant to Presidential Decree 902-A . Subject to the control of the SEC, the liquidator, Ledesma, Saludo & Associates,16 was ordered to "wind up the affairs of the corporation, continue to manage the corporation for purposes of liquidation in order to protect the interest of its creditors and avoid dissipation, loss, wastage, or destruction of the remaining assets and other properties of the corporation and to ensure orderly payment of claims against such corporation in accordance with applicable laws."17 Thus, petitioner pointed out that the SEC's order suspending all claims against it pending before any other court, tribunal or body was pursuant to the rehabilitation receivership proceedings. Such order was necessary to enable the rehabilitation receiver to effectively exercise its powers free from any

judicial or extra-judicial interference that might unduly hinder the rescue of the distressed company.18 Since receivership proceedings have ceased and petitioner's rehabilitation receiver and liquidator, Ledesma Saludo & Associates, has been given the imprimatur to proceed with corporate liquidation, the cited order of the Securities and Exchange Commission has been renderedfunctus officio. Thus, there is no legal impediment for the execution of the decision of the Labor Arbiter for the payment of separation pay. Considering that petitioner's monetary obligation to private respondent is long overdue and that petitioner has signified its willingness to comply with such obligation by entering into an agreement with private respondent as to the amount and manner of payment, petitioner can not delay satisfaction of private respondent's claim. However, due to events subsequent to the filing of this petition, private respondent must present its claim with the rehabilitation receiver and liquidator of petitioner, subject to the rules on preference of credits. WHEREFORE, the Court hereby DISMISSES the petition and direct private respondent to file its claim with the rehabilitation receiver/liquidator of petitioner in SEC EB No. 81 entitled "In the Matter of the Liquidation of Alemar's Sibal & Sons" pending before the Securities and Exchange Commission.
1w phi 1.nt

No Costs. SO ORDERED.

G.R. No. L-18805

August 14, 1967

THE BOARD OF LIQUIDATORS1 representing THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES,plaintiff-appellant, vs. HEIRS OF MAXIMO M. KALAW,2 JUAN BOCAR, ESTATE OF THE DECEASED CASIMIRO GARCIA,3 and LEONOR MOLL, defendants-appellees. Simeon M. Gopengco and Solicitor General for plaintiff-appellant. L. H. Hernandez, Emma Quisumbing, Fernando and Quisumbing, Jr.; Ponce Enrile, Siguion Reyna, Montecillo and Belo for defendants-appellees. SANCHEZ, J.: The National Coconut Corporation (NACOCO, for short) was chartered as a non-profit governmental organization on May 7, 1940 by Commonwealth Act 518 avowedly for the protection, preservation and development of the coconut industry in the Philippines. On August 1, 1946, NACOCO's charter was amended [Republic Act 5] to grant that corporation the express power "to buy, sell, barter,

export, and in any other manner deal in, coconut, copra, and dessicated coconut, as well as their byproducts, and to act as agent, broker or commission merchant of the producers, dealers or merchants" thereof. The charter amendment was enacted to stabilize copra prices, to serve coconut producers by securing advantageous prices for them, to cut down to a minimum, if not altogether eliminate, the margin of middlemen, mostly aliens.4 General manager and board chairman was Maximo M. Kalaw; defendants Juan Bocar and Casimiro Garcia were members of the Board; defendant Leonor Moll became director only on December 22, 1947. NACOCO, after the passage of Republic Act 5, embarked on copra trading activities. Amongst the scores of contracts executed by general manager Kalaw are the disputed contracts, for the delivery of copra, viz: (a) July 30, 1947: Alexander Adamson & Co., for 2,000 long tons, $167.00: per ton, f. o. b., delivery: August and September, 1947. This contract was later assigned to Louis Dreyfus & Co. (Overseas) Ltd. (b) August 14, 1947: Alexander Adamson & Co., for 2,000 long tons $145.00 per long ton, f.o.b., Philippine ports, to be shipped: September-October, 1947. This contract was also assigned to Louis Dreyfus & Co. (Overseas) Ltd. (c) August 22, 1947: Pacific Vegetable Co., for 3,000 tons, $137.50 per ton, delivery: September, 1947. (d) September 5, 1947: Spencer Kellog & Sons, for 1,000 long tons, $160.00 per ton, c.i.f., Los Angeles, California, delivery: November, 1947. (e) September 9, 1947: Franklin Baker Division of General Foods Corporation, for 1,500 long tons, $164,00 per ton, c.i.f., New York, to be shipped in November, 1947. (f) September 12, 1947: Louis Dreyfus & Co. (Overseas) Ltd., for 3,000 long tons, $154.00 per ton, f.o.b., 3 Philippine ports, delivery: November, 1947. (g) September 13, 1947: Juan Cojuangco, for 2,000 tons, $175.00 per ton, delivery: November and December, 1947. This contract was assigned to Pacific Vegetable Co. (h) October 27, 1947: Fairwood & Co., for 1,000 tons, $210.00 per short ton, c.i.f., Pacific ports, delivery: December, 1947 and January, 1948. This contract was assigned to Pacific Vegetable Co. (i) October 28, 1947: Fairwood & Co., for 1,000 tons, $210.00 per short ton, c.i.f., Pacific ports, delivery: January, 1948. This contract was assigned to Pacific Vegetable Co. An unhappy chain of events conspired to deter NACOCO from fulfilling these contracts. Nature supervened. Four devastating typhoons visited the Philippines: the first in October, the second and third in November, and the fourth in December, 1947. Coconut trees throughout the country suffered extensive damage. Copra production decreased. Prices spiralled. Warehouses were destroyed. Cash requirements doubled. Deprivation of export facilities increased the time necessary to accumulate shiploads of copra. Quick turnovers became impossible, financing a problem.

When it became clear that the contracts would be unprofitable, Kalaw submitted them to the board for approval. It was not until December 22, 1947 when the membership was completed. Defendant Moll took her oath on that date. A meeting was then held. Kalaw made a full disclosure of the situation, apprised the board of the impending heavy losses. No action was taken on the contracts. Neither did the board vote thereon at the meeting of January 7, 1948 following. Then, on January 11, 1948, President Roxas made a statement that the NACOCO head did his best to avert the losses, emphasized that government concerns faced the same risks that confronted private companies, that NACOCO was recouping its losses, and that Kalaw was to remain in his post. Not long thereafter, that is, on January 30, 1948, the board met again with Kalaw, Bocar, Garcia and Moll in attendance. They unanimously approved the contracts hereinbefore enumerated. As was to be expected, NACOCO but partially performed the contracts, as follows: Buyers Pacific Vegetable Oil Spencer Kellog Franklin Baker Louis Dreyfus Louis Dreyfus (Adamson contract of July 30, 1947) Louis Dreyfus (Adamson Contract of August 14, 1947) TOTALS Tons Delivered Undelivered 2,386.45 None 1,000 800 1,150 1,755 7,091.45 4,613.55 1,000 500 2,200 850 245 9,408.55

The buyers threatened damage suits. Some of the claims were settled, viz: Pacific Vegetable Oil Co., in copra delivered by NACOCO, P539,000.00; Franklin Baker Corporation, P78,210.00; Spencer Kellog & Sons, P159,040.00. But one buyer, Louis Dreyfus & Go. (Overseas) Ltd., did in fact sue before the Court of First Instance of Manila, upon claims as follows: For the undelivered copra under the July 30 contract (Civil Case 4459); P287,028.00; for the balance on the August 14 contract (Civil Case 4398), P75,098.63; for that per the September 12 contract reduced to judgment (Civil Case 4322, appealed to this Court in L-2829), P447,908.40. These cases culminated in an out-of-court amicable settlement when the Kalaw management was already out. The corporation thereunder paid Dreyfus P567,024.52 representing 70% of the total claims. With particular reference to the Dreyfus claims, NACOCO put up the defenses that: (1) the contracts were void because Louis Dreyfus & Co. (Overseas) Ltd. did not have license to do business here; and (2) failure to deliver was due to force majeure, the typhoons. To project the utter unreasonableness of this compromise, we reproduce in haec verba this finding below: x x x However, in similar cases brought by the same claimant [Louis Dreyfus & Co. (Overseas) Ltd.] against Santiago Syjuco for non-delivery of copra also involving a claim of P345,654.68 wherein defendant set upsame defenses as above, plaintiff accepted a promise of P5,000.00 only (Exhs. 31 & 32 Heirs.) Following the same proportion, the claim of Dreyfus against NACOCO should have been compromised for only P10,000.00, if at all. Now, why should defendants be held liable for the large sum paid as compromise by the Board of Liquidators? This is just a sample to show how unjust it would be to hold

defendants liable for the readiness with which the Board of Liquidators disposed of the NACOCO funds, although there was much possibility of successfully resisting the claims, or at least settlement for nominal sums like what happened in the Syjuco case.5 All the settlements sum up to P1,343,274.52. In this suit started in February, 1949, NACOCO seeks to recover the above sum of P1,343,274.52 from general manager and board chairman Maximo M. Kalaw, and directors Juan Bocar, Casimiro Garcia and Leonor Moll. It charges Kalaw with negligence under Article 1902 of the old Civil Code (now Article 2176, new Civil Code); and defendant board members, including Kalaw, with bad faith and/or breach of trust for having approved the contracts. The fifth amended complaint, on which this case was tried, was filed on July 2, 1959. Defendants resisted the action upon defenses hereinafter in this opinion to be discussed. The lower court came out with a judgment dismissing the complaint without costs as well as defendants' counterclaims, except that plaintiff was ordered to pay the heirs of Maximo Kalaw the sum of P2,601.94 for unpaid salaries and cash deposit due the deceased Kalaw from NACOCO. Plaintiff appealed direct to this Court. Plaintiff's brief did not, question the judgment on Kalaw's counterclaim for the sum of P2,601.94. Right at the outset, two preliminary questions raised before, but adversely decided by, the court below, arrest our attention. On appeal, defendants renew their bid. And this, upon established jurisprudence that an appellate court may base its decision of affirmance of the judgment below on a point or points ignored by the trial court or in which said court was in error.6 1. First of the threshold questions is that advanced by defendants that plaintiff Board of Liquidators has lost its legal personality to continue with this suit. Accepted in this jurisdiction are three methods by which a corporation may wind up its affairs: (1) under Section 3, Rule 104, of the Rules of Court [which superseded Section 66 of the Corporation Law]7 whereby, upon voluntary dissolution of a corporation, the court may direct "such disposition of its assets as justice requires, and may appoint a receiver to collect such assets and pay the debts of the corporation;" (2) under Section 77 of the Corporation Law, whereby a corporation whose corporate existence is terminated, "shall nevertheless be continued as a body corporate for three years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and close its affairs, to dispose of and convey its property and to divide its capital stock, but not for the purpose of continuing the business for which it was established;" and (3) under Section 78 of the Corporation Law, by virtue of which the corporation, within the three year period just mentioned, "is authorized and empowered to convey all of its property to trustees for the benefit of members, stockholders, creditors, and others interested."8 It is defendants' pose that their case comes within the coverage of the second method. They reason out that suit was commenced in February, 1949; that by Executive Order 372, dated November 24, 1950, NACOCO, together with other government-owned corporations, was abolished, and the Board of Liquidators was entrusted with the function of settling and closing its affairs; and that, since the three year period has elapsed, the Board of Liquidators may not now continue with, and prosecute, the present case to its conclusion, because Executive Order 372 provides in Section 1 thereof that

Sec.1. The National Abaca and Other Fibers Corporation, the National Coconut Corporation, the National Tobacco Corporation, the National Food Producer Corporation and the former enemy-owned or controlled corporations or associations, . . . are hereby abolished. The said corporations shall be liquidated in accordance with law, the provisions of this Order, and/or in such manner as the President of the Philippines may direct; Provided, however, That each of the said corporations shall nevertheless be continued as a body corporate for a period of three (3) years from the effective date of this Executive Order for the purpose of prosecuting and defending suits by or against it and of enabling the Board of Liquidators gradually to settle and close its affairs, to dispose of and, convey its property in the manner hereinafter provided. Citing Mr. Justice Fisher, defendants proceed to argue that even where it may be found impossible within the 3 year period to reduce disputed claims to judgment, nonetheless, "suits by or against a corporation abate when it ceases to be an entity capable of suing or being sued" (Fisher, The Philippine Law of Stock Corporations, pp. 390-391). Corpus Juris Secundum likewise is authority for the statement that "[t]he dissolution of a corporation ends its existence so that there must be statutory authority for prolongation of its life even for purposes of pending litigation"9 and that suit "cannot be continued or revived; nor can a valid judgment be rendered therein, and a judgment, if rendered, is not only erroneous, but void and subject to collateral attack." 10 So it is, that abatement of pending actions follows as a matter of course upon the expiration of the legal period for liquidation, 11 unless the statute merely requires a commencement of suit within the added time. 12 For, the court cannot extend the time alloted by statute. 13 We, however, express the view that the executive order abolishing NACOCO and creating the Board of Liquidators should be examined in context. The proviso in Section 1 of Executive Order 372, whereby the corporate existence of NACOCO was continued for a period of three years from the effectivity of the order for "the purpose of prosecuting and defending suits by or against it and of enabling the Board of Liquidators gradually to settle and close its affairs, to dispose of and convey its property in the manner hereinafter provided", is to be read not as an isolated provision but in conjunction with the whole. So reading, it will be readily observed that no time limit has been tacked to the existence of the Board of Liquidators and its function of closing the affairs of the various government owned corporations, including NACOCO. By Section 2 of the executive order, while the boards of directors of the various corporations were abolished, their powers and functions and duties under existing laws were to be assumed and exercised by the Board of Liquidators. The President thought it best to do away with the boards of directors of the defunct corporations; at the same time, however, the President had chosen to see to it that the Board of Liquidators step into the vacuum. And nowhere in the executive order was there any mention of the lifespan of the Board of Liquidators. A glance at the other provisions of the executive order buttresses our conclusion. Thus, liquidation by the Board of Liquidators may, under section 1, proceed in accordance with law, the provisions of the executive order, "and/or in such manner as the President of the Philippines may direct." By Section 4, when any property, fund, or project is transferred to any governmental instrumentality "for administration or continuance of any project," the necessary funds therefor shall be taken from the corresponding special fund created in Section 5. Section 5, in turn, talks of special funds established from the "net proceeds of the liquidation" of the various corporations abolished. And by Section, 7, fifty per centum of the fees collected from the copra standardization and inspection service shall accrue "to the special fund created in section 5 hereof for the rehabilitation and development of the coconut industry." Implicit in all these, is that the term of life of the Board of Liquidators is without time limit. Contemporary history gives us the fact that the Board of Liquidators still exists as an office with officials and numerous employees continuing the job of liquidation and prosecution of several court actions.

Not that our views on the power of the Board of Liquidators to proceed to the final determination of the present case is without jurisprudential support. The first judicial test before this Court is National Abaca and Other Fibers Corporation vs. Pore, L-16779, August 16, 1961. In that case, the corporation, already dissolved, commenced suit within the three-year extended period for liquidation. That suit was for recovery of money advanced to defendant for the purchase of hemp in behalf of the corporation. She failed to account for that money. Defendant moved to dismiss, questioned the corporation's capacity to sue. The lower court ordered plaintiff to include as co-party plaintiff, The Board of Liquidators, to which the corporation's liquidation was entrusted by Executive Order 372. Plaintiff failed to effect inclusion. The lower court dismissed the suit. Plaintiff moved to reconsider. Ground: excusable negligence, in that its counsel prepared the amended complaint, as directed, and instructed the board's incoming and outgoing correspondence clerk, Mrs. Receda Vda. de Ocampo, to mail the original thereof to the court and a copy of the same to defendant's counsel. She mailed the copy to the latter but failed to send the original to the court. This motion was rejected below. Plaintiff came to this Court on appeal. We there said that "the rule appears to be well settled that, in the absence of statutory provision to the contrary, pending actions by or against a corporation are abated upon expiration of the period allowed by law for the liquidation of its affairs." We there said that "[o]ur Corporation Law contains no provision authorizing a corporation, after three (3) years from the expiration of its lifetime, to continue in its corporate name actions instituted by it within said period of three (3) years." 14 However, these precepts notwithstanding, we, in effect, held in that case that the Board of Liquidators escapes from the operation thereof for the reason that "[o]bviously, the complete loss of plaintiff's corporate existence after the expiration of the period of three (3) years for the settlement of its affairs is what impelled the President to create a Board of Liquidators, to continue the management of such matters as may then be pending."15 We accordingly directed the record of said case to be returned to the lower court, with instructions to admit plaintiff's amended complaint to include, as party plaintiff, the Board of Liquidators. Defendants' position is vulnerable to attack from another direction. By Executive Order 372, the government, the sole stockholder, abolished NACOCO, and placed its assets in the hands of the Board of Liquidators. The Board of Liquidators thus became the trustee on behalf of the government. It was an express trust. The legal interest became vested in the trustee the Board of Liquidators. The beneficial interest remained with the sole stockholder the government. At no time had the government withdrawn the property, or the authority to continue the present suit, from the Board of Liquidators. If for this reason alone, we cannot stay the hand of the Board of Liquidators from prosecuting this case to its final conclusion. 16 The provisions of Section 78 of the Corporation Law the third method of winding up corporate affairs find application. We, accordingly, rule that the Board of Liquidators has personality to proceed as: party-plaintiff in this case. 2. Defendants' second poser is that the action is unenforceable against the heirs of Kalaw. Appellee heirs of Kalaw raised in their motion to dismiss, 17 which was overruled, and in their nineteenth special defense, that plaintiff's action is personal to the deceased Maximo M. Kalaw, and may not be deemed to have survived after his death.18 They say that the controlling statute is Section 5, Rule 87, of the 1940 Rules of Court.19 which provides that "[a]ll claims for money against the decedent, arising from contract, express or implied", must be filed in the estate proceedings of the deceased. We disagree. The suit here revolves around the alleged negligent acts of Kalaw for having entered into the questioned contracts without prior approval of the board of directors, to the damage and prejudice of plaintiff; and is against Kalaw and the other directors for having subsequently approved the said

contracts in bad faith and/or breach of trust." Clearly then, the present case is not a mere action for the recovery of money nor a claim for money arising from contract. The suit involves alleged tortious acts. And the action is embraced in suits filed "to recover damages for an injury to person or property, real or personal", which survive. 20 The leading expositor of the law on this point is Aguas vs. Llemos, L-18107, August 30, 1962. There, plaintiffs sought to recover damages from defendant Llemos. The complaint averred that Llemos had served plaintiff by registered mail with a copy of a petition for a writ of possession in Civil Case 4824 of the Court of First Instance at Catbalogan, Samar, with notice that the same would be submitted to the Samar court on February 23, 1960 at 8:00 a.m.; that in view of the copy and notice served, plaintiffs proceeded to the said court of Samar from their residence in Manila accompanied by their lawyers, only to discover that no such petition had been filed; and that defendant Llemos maliciously failed to appear in court, so that plaintiffs' expenditure and trouble turned out to be in vain, causing them mental anguish and undue embarrassment. Defendant died before he could answer the complaint. Upon leave of court, plaintiffs amended their complaint to include the heirs of the deceased. The heirs moved to dismiss. The court dismissed the complaint on the ground that the legal representative, and not the heirs, should have been made the party defendant; and that, anyway, the action being for recovery of money, testate or intestate proceedings should be initiated and the claim filed therein. This Court, thru Mr. Justice Jose B. L. Reyes, there declared: Plaintiffs argue with considerable cogency that contrasting the correlated provisions of the Rules of Court, those concerning claims that are barred if not filed in the estate settlement proceedings (Rule 87, sec. 5) and those defining actions that survive and may be prosecuted against the executor or administrator (Rule 88, sec. 1), it is apparent that actions for damages caused by tortious conduct of a defendant (as in the case at bar) survive the death of the latter. Under Rule 87, section 5, the actions that are abated by death are: (1) claims for funeral expenses and those for the last sickness of the decedent; (2) judgments for money; and (3) "all claims for money against the decedent, arising from contract express or implied." None of these includes that of the plaintiffs-appellants; for it is not enough that the claim against the deceased party be for money, but it must arise from "contract express or implied", and these words (also used by the Rules in connection with attachments and derived from the common law) were construed in Leung Ben vs. O'Brien, 38 Phil. 182, 189194, "to include all purely personal obligations other than those which have their source in delict or tort." Upon the other hand, Rule 88, section 1, enumerates actions that survive against a decedent's executors or administrators, and they are: (1) actions to recover real and personal property from the estate; (2) actions to enforce a lien thereon; and (3) actions to recover damages for an injury to person or property. The present suit is one for damages under the last class, it having been held that "injury to property" is not limited to injuries to specific property, but extends to other wrongs by which personal estate is injured or diminished (Baker vs. Crandall, 47 Am. Rep. 126; also 171 A.L.R., 1395). To maliciously cause a party to incur unnecessary expenses, as charged in this case, is certainly injury to that party's property (Javier vs. Araneta, L-4369, Aug. 31, 1953). The ruling in the preceding case was hammered out of facts comparable to those of the present. No cogent reason exists why we should break away from the views just expressed. And, the conclusion remains: Action against the Kalaw heirs and, for the matter, against the Estate of Casimiro Garcia survives.

The preliminaries out of the way, we now go to the core of the controversy. 3. Plaintiff levelled a major attack on the lower court's holding that Kalaw justifiedly entered into the controverted contracts without the prior approval of the corporation's directorate. Plaintiff leans heavily on NACOCO's corporate by-laws. Article IV (b), Chapter III thereof, recites, as amongst the duties of the general manager, the obligation: "(b) To perform or execute on behalf of the Corporation upon prior approval of the Board, all contracts necessary and essential to the proper accomplishment for which the Corporation was organized." Not of de minimis importance in a proper approach to the problem at hand, is the nature of a general manager's position in the corporate structure. A rule that has gained acceptance through the years is that a corporate officer "intrusted with the general management and control of its business, has implied authority to make any contract or do any other act which is necessary or appropriate to the conduct of the ordinary business of the corporation. 21As such officer, "he may, without any special authority from the Board of Directors perform all acts of an ordinary nature, which by usage or necessity are incident to his office, and may bind the corporation by contracts in matters arising in the usual course of business. 22 The problem, therefore, is whether the case at bar is to be taken out of the general concept of the powers of a general manager, given the cited provision of the NACOCO by-laws requiring prior directorate approval of NACOCO contracts. The peculiar nature of copra trading, at this point, deserves express articulation. Ordinary in this enterprise are copra sales for future delivery. The movement of the market requires that sales agreements be entered into, even though the goods are not yet in the hands of the seller. Known in business parlance as forward sales, it is concededly the practice of the trade. A certain amount of speculation is inherent in the undertaking. NACOCO was much more conservative than the exporters with big capital. This short-selling was inevitable at the time in the light of other factors such as availability of vessels, the quantity required before being accepted for loading, the labor needed to prepare and sack the copra for market. To NACOCO, forward sales were a necessity. Copra could not stay long in its hands; it would lose weight, its value decrease. Above all, NACOCO's limited funds necessitated a quick turnover. Copra contracts then had to be executed on short notice at times within twenty-four hours. To be appreciated then is the difficulty of calling a formal meeting of the board. Such were the environmental circumstances when Kalaw went into copra trading. Long before the disputed contracts came into being, Kalaw contracted by himself alone as general manager for forward sales of copra. For the fiscal year ending June 30, 1947, Kalaw signed some 60 such contracts for the sale of copra to divers parties. During that period, from those copra sales, NACOCO reaped a gross profit of P3,631,181.48. So pleased was NACOCO's board of directors that, on December 5, 1946, in Kalaw's absence, it voted to grant him a special bonus "in recognition of the signal achievement rendered by him in putting the Corporation's business on a self-sufficient basis within a few months after assuming office, despite numerous handicaps and difficulties." These previous contract it should be stressed, were signed by Kalaw without prior authority from the board. Said contracts were known all along to the board members. Nothing was said by them. The aforesaid contracts stand to prove one thing: Obviously, NACOCO board met the difficulties attendant to forward sales by leaving the adoption of means to end, to the sound discretion of NACOCO's general manager Maximo M. Kalaw.

Liberally spread on the record are instances of contracts executed by NACOCO's general manager and submitted to the board after their consummation, not before. These agreements were not Kalaw's alone. One at least was executed by a predecessor way back in 1940, soon after NACOCO was chartered. It was a contract of lease executed on November 16, 1940 by the then general manager and board chairman, Maximo Rodriguez, and A. Soriano y Cia., for the lease of a space in Soriano Building On November 14, 1946, NACOCO, thru its general manager Kalaw, sold 3,000 tons of copra to the Food Ministry, London, thru Sebastian Palanca. On December 22, 1947, when the controversy over the present contract cropped up, the board voted to approve a lease contract previously executed between Kalaw and Fidel Isberto and Ulpiana Isberto covering a warehouse of the latter. On the same date, the board gave its nod to a contract for renewal of the services of Dr. Manuel L. Roxas. In fact, also on that date, the board requested Kalaw to report for action all copra contracts signed by him "at the meeting immediately following the signing of the contracts." This practice was observed in a later instance when, on January 7, 1948, the board approved two previous contracts for the sale of 1,000 tons of copra each to a certain "SCAP" and a certain "GNAPO". And more. On December 19, 1946, the board resolved to ratify the brokerage commission of 2% of Smith, Bell and Co., Ltd., in the sale of 4,300 long tons of copra to the French Government. Such ratification was necessary because, as stated by Kalaw in that same meeting, "under an existing resolution he is authorized to give a brokerage fee of only 1% on sales of copra made through brokers." On January 15, 1947, the brokerage fee agreements of 1-1/2% on three export contracts, and 2% on three others, for the sale of copra were approved by the board with a proviso authorizing the general manager to pay a commission up to the amount of 1-1/2% "without further action by the Board." On February 5, 1947, the brokerage fee of 2% of J. Cojuangco & Co. on the sale of 2,000 tons of copra was favorably acted upon by the board. On March 19, 1947, a 2% brokerage commission was similarly approved by the board for Pacific Trading Corporation on the sale of 2,000 tons of copra. It is to be noted in the foregoing cases that only the brokerage fee agreements were passed upon by the board,not the sales contracts themselves. And even those fee agreements were submitted only when the commission exceeded the ceiling fixed by the board. Knowledge by the board is also discernible from other recorded instances.
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When the board met on May 10, 1947, the directors discussed the copra situation: There was a slow downward trend but belief was entertained that the nadir might have already been reached and an improvement in prices was expected. In view thereof, Kalaw informed the board that "he intends to wait until he has signed contracts to sell before starting to buy copra."23 In the board meeting of July 29, 1947, Kalaw reported on the copra price conditions then current: The copra market appeared to have become fairly steady; it was not expected that copra prices would again rise very high as in the unprecedented boom during January-April, 1947; the prices seemed to oscillate between $140 to $150 per ton; a radical rise or decrease was not indicated by the trends. Kalaw continued to say that "the Corporation has been closing contracts for the sale of copra generally with a margin of P5.00 to P7.00 per hundred kilos." 24 We now lift the following excerpts from the minutes of that same board meeting of July 29, 1947: 521. In connection with the buying and selling of copra the Board inquired whether it is the practice of the management to close contracts of sale first before buying. The General Manager replied that this practice is generally followed but that it is not always possible to do so for two reasons:

(1) The role of the Nacoco to stabilize the prices of copra requires that it should not cease buying even when it does not have actual contracts of sale since the suspension of buying by the Nacoco will result in middlemen taking advantage of the temporary inactivity of the Corporation to lower the prices to the detriment of the producers. (2) The movement of the market is such that it may not be practical always to wait for the consummation of contracts of sale before beginning to buy copra. The General Manager explained that in this connection a certain amount of speculation is unavoidable. However, he said that the Nacoco is much more conservative than the other big exporters in this respect.25 Settled jurisprudence has it that where similar acts have been approved by the directors as a matter of general practice, custom, and policy, the general manager may bind the company without formal authorization of the board of directors. 26 In varying language, existence of such authority is established, by proof of the course of business, the usage and practices of the company and by the knowledge which the board of directors has, or must bepresumed to have, of acts and doings of its subordinates in and about the affairs of the corporation. 27 So also, x x x authority to act for and bind a corporation may be presumed from acts of recognition in other instances where the power was in fact exercised. 28 x x x Thus, when, in the usual course of business of a corporation, an officer has been allowed in his official capacity to manage its affairs, his authority to represent the corporation may be implied from the manner in which he has been permitted by the directors to manage its business.29 In the case at bar, the practice of the corporation has been to allow its general manager to negotiate and execute contracts in its copra trading activities for and in NACOCO's behalf without prior board approval. If the by-laws were to be literally followed, the board should give its stamp of prior approval on all corporate contracts. But that board itself, by its acts and through acquiescence, practically laid aside the by-law requirement of prior approval. Under the given circumstances, the Kalaw contracts are valid corporate acts. 4. But if more were required, we need but turn to the board's ratification of the contracts in dispute on January 30, 1948, though it is our (and the lower court's) belief that ratification here is nothing more than a mere formality. Authorities, great in number, are one in the idea that "ratification by a corporation of an unauthorized act or contract by its officers or others relates back to the time of the act or contract ratified, and is equivalent to original authority;" and that " [t]he corporation and the other party to the transaction are in precisely the same position as if the act or contract had been authorized at the time." 30 The language of one case is expressive: "The adoption or ratification of a contract by a corporation is nothing more or less than the making of an original contract. The theory of corporate ratification is predicated on the right of a corporation to contract, and any ratification or adoption is equivalent to a grant of prior authority." 31 Indeed, our law pronounces that "[r]atification cleanses the contract from all its defects from the moment it was constituted." 32 By corporate confirmation, the contracts executed by Kalaw are thus purged of whatever vice or defect they may have. 33

In sum, a case is here presented whereunder, even in the face of an express by-law requirement of prior approval, the law on corporations is not to be held so rigid and inflexible as to fail to recognize equitable considerations. And, the conclusion inevitably is that the embattled contracts remain valid. 5. It would be difficult, even with hostile eyes, to read the record in terms of "bad faith and/or breach of trust" in the board's ratification of the contracts without prior approval of the board. For, in reality, all that we have on the government's side of the scale is that the board knew that the contracts so confirmed would cause heavy losses. As we have earlier expressed, Kalaw had authority to execute the contracts without need of prior approval. Everybody, including Kalaw himself, thought so, and for a long time. Doubts were first thrown on the way only when the contracts turned out to be unprofitable for NACOCO. Rightfully had it been said that bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of a known duty thru some motive or interest or ill will; it partakes of the nature of fraud.34 Applying this precept to the given facts herein, we find that there was no "dishonest purpose," or "some moral obliquity," or "conscious doing of wrong," or "breach of a known duty," or "Some motive or interest or ill will" that "partakes of the nature of fraud." Nor was it even intimated here that the NACOCO directors acted for personal reasons, or to serve their own private interests, or to pocket money at the expense of the corporation. 35 We have had occasion to affirm that bad faith contemplates a "state of mind affirmatively operating with furtive design or with some motive of self-interest or ill will or for ulterior purposes." 36 Briggs vs. Spaulding, 141 U.S. 132, 148-149, 35 L. ed. 662, 669, quotes with approval from Judge Sharswood (in Spering's App., 71 Pa. 11), the following: "Upon a close examination of all the reported cases, although there are many dicta not easily reconcilable, yet I have found no judgment or decree which has held directors to account, except when they have themselves been personally guilty of some fraud on the corporation, or have known and connived at some fraud in others, or where such fraud might have been prevented had they given ordinary attention to their duties. . . ." Plaintiff did not even dare charge its defendant-directors with any of these malevolent acts. Obviously, the board thought that to jettison Kalaw's contracts would contravene basic dictates of fairness. They did not think of raising their voice in protest against past contracts which brought in enormous profits to the corporation. By the same token, fair dealing disagrees with the idea that similar contracts, when unprofitable, should not merit the same treatment. Profit or loss resulting from business ventures is no justification for turning one's back on contracts entered into. The truth, then, of the matter is that in the words of the trial court the ratification of the contracts was "an act of simple justice and fairness to the general manager and the best interest of the corporation whose prestige would have been seriously impaired by a rejection by the board of those contracts which proved disadvantageous." 37 The directors are not liable." 38 6. To what then may we trace the damage suffered by NACOCO. The facts yield the answer. Four typhoons wreaked havoc then on our copra-producing regions. Result: Copra production was impaired, prices spiralled, warehouses destroyed. Quick turnovers could not be expected. NACOCO was not alone in this misfortune. The record discloses that private traders, old, experienced, with bigger facilities, were not spared; also suffered tremendous losses. Roughly estimated, eleven principal trading concerns did run losses to about P10,300,000.00. Plaintiff's witness Sisenando Barretto, head of the copra marketing department of NACOCO,

observed that from late 1947 to early 1948 "there were many who lost money in the trade." 39 NACOCO was not immune from such usual business risk. The typhoons were known to plaintiff. In fact, NACOCO resisted the suits filed by Louis Dreyfus & Co. by pleading in its answers force majeure as an affirmative defense and there vehemently asserted that "as a result of the said typhoons, extensive damage was caused to the coconut trees in the copra producing regions of the Philippines and according to estimates of competent authorities, it will take about one year until the coconut producing regions will be able to produce their normal coconut yield and it will take some time until the price of copra will reach normal levels;" and that "it had never been the intention of the contracting parties in entering into the contract in question that, in the event of a sharp rise in the price of copra in the Philippine market produce by force majeureor by caused beyond defendant's control, the defendant should buy the copra contracted for at exorbitant prices far beyond the buying price of the plaintiff under the contract." 40 A high regard for formal judicial admissions made in court pleadings would suffice to deter us from permitting plaintiff to stray away therefrom, to charge now that the damage suffered was because of Kalaw's negligence, or for that matter, by reason of the board's ratification of the contracts. 41 Indeed, were it not for the typhoons, 42 NACOCO could have, with ease, met its contractual obligations. Stock accessibility was no problem. NACOCO had 90 buying agencies spread throughout the islands. It could purchase 2,000 tons of copra a day. The various contracts involved delivery of but 16,500 tons over a five-month period. Despite the typhoons, NACOCO was still able to deliver a little short of 50% of the tonnage required under the contracts. As the trial court correctly observed, this is a case of damnum absque injuria. Conjunction of damage and wrong is here absent. There cannot be an actionable wrong if either one or the other is wanting. 43 7. On top of all these, is that no assertion is made and no proof is presented which would link Kalaw's acts ratified by the board to a matrix for defraudation of the government. Kalaw is clear of the stigma of bad faith. Plaintiff's corporate counsel 44 concedes that Kalaw all along thought that he had authority to enter into the contracts, that he did so in the best interests of the corporation; that he entered into the contracts in pursuance of an overall policy to stabilize prices, to free the producers from the clutches of the middlemen. The prices for which NACOCO contracted in the disputed agreements, were at a level calculated to produce profits and higher than those prevailing in the local market. Plaintiff's witness, Barretto, categorically stated that "it would be foolish to think that one would sign (a) contract when you are going to lose money" and that no contract was executed "at a price unsafe for the Nacoco." 45 Really, on the basis of prices then prevailing, NACOCO envisioned a profit of around P752,440.00. 46 Kalaw's acts were not the result of haphazard decisions either. Kalaw invariably consulted with NACOCO's Chief Buyer, Sisenando Barretto, or the Assistant General Manager. The dailies and quotations from abroad were guideposts to him. Of course, Kalaw could not have been an insurer of profits. He could not be expected to predict the coming of unpredictable typhoons. And even as typhoons supervened Kalaw was not remissed in his duty. He exerted efforts to stave off losses. He asked the Philippine National Bank to implement its commitment to extend a P400,000.00 loan. The bank did not release the loan, not even the sum of P200,000.00, which, in October, 1947, was approved by the bank's board of directors. In frustration, on December 12, 1947, Kalaw turned to the President, complained about the bank's short-sighted policy. In the end, nothing came out of the negotiations with the bank. NACOCO eventually faltered in its contractual obligations.

That Kalaw cannot be tagged with crassa negligentia or as much as simple negligence, would seem to be supported by the fact that even as the contracts were being questioned in Congress and in the NACOCO board itself, President Roxas defended the actuations of Kalaw. On December 27, 1947, President Roxas expressed his desire "that the Board of Directors should reelect Hon. Maximo M. Kalaw as General Manager of the National Coconut Corporation." 47 And, on January 7, 1948, at a time when the contracts had already been openly disputed, the board, at its regular meeting, appointed Maximo M. Kalaw as acting general manager of the corporation. Well may we profit from the following passage from Montelibano vs. Bacolod-Murcia Milling Co., Inc., L-15092, May 18, 1962: "They (the directors) hold such office charged with the duty to act for the corporation according to their best judgment, and in so doing they cannot be controlled in the reasonable exercise and performance of such duty. Whether the business of a corporation should be operated at a loss during a business depression, or closed down at a smaller loss, is a purely business and economic problem to be determined by the directors of the corporation, and not by the court. It is a well known rule of law that questions of policy of management are left solely to the honest decision of officers and directors of a corporation, and the court is without authority to substitute its judgment for the judgment of the board of directors; the board is the business manager of the corporation, and solong as it acts in good faith its orders are not reviewable by the courts." (Fletcher on Corporations, Vol. 2, p. 390.)48 Kalaw's good faith, and that of the other directors, clinch the case for defendants. 49 Viewed in the light of the entire record, the judgment under review must be, as it is hereby, affirmed. Without costs. So ordered.