cases

[G.R. No. 123553.July 13, 1998]NORA A. BITONG vs. COURT OF APPEALS BELLOSILLO,J.:These twin cases originated from a derivative suit[1]filed by petitioner Nora A. Bitong before theSecurities and Exchange Commission(SEChereafter) allegedly for the benefit of private respondentMr. & Ms. Publishing Co., Inc. (Mr. & Ms.hereafter),among others, to hold respondent spouses Eugenia D. Apostol andJose A. Apostol[2]liable for fraud, misrepresentation, disloyalty, evident bad faith, conflict of interest and mismanagement in directing the affairs ofMr. & Ms.to the damage and prejudice ofMr. & Ms.and its stockholders, including petitioner.Alleging before theSECthat she had been the Treasurer and a Member of the Board of Directors ofMr. & Ms.from the time it was incorporated on 29 October 1976 to 11 April 1989, and was the registered owner of 1,000 shares of stock out of the 4,088 total outstanding shares, petitioner complained of irregularities committed from 1983 to 1987 by Eugenia D. Apostol, President and Chairperson of the Board of Directors.Petitioner claimed that except for the sale of the namePhilippine InquirertoPhilippine Daily Inquirer(PDIhereafter) all other transactions and agreements entered into byMr. & Ms.withPDIwere not supported by any bond and/or stockholders resolution.And, upon instructions of Eugenia D. Apostol,Mr. & Ms.made several cash advances toPDIon various occasions amounting to P3.276 million.On some of these borrowingsPDIpaid no interest whatsoever.Despite the fact that the advances made byMr. & Ms.toPDIwere booked as advances to an affiliate, there existed no board or stockholders resolution, contract nor any other document which could legally authorize the creation of and support to an affiliate.Petitioner further alleged that respondents Eugenia and Jose Apostol were stockholders, directors and officers in bothMr. & Ms.andPDI.In fact on 2 May 1986 respondents Eugenia D. Apostol, Leticia J. Magsanoc and Adoracion G. Nuyda subscribed toPDIshares of stock at P50,000.00 each or a total of P150,000.00.The stock subscriptions were paid for byMr. & Ms.and initially treated as receivables from officers and employees.But, no payments were ever received from respondents, Magsanoc and Nuyda.The petition principally sought to (a) enjoin respondents Eugenia D. Apostol and Jose A. Apostol from further acting as president-director and director, respectively, ofMr. & Ms.and disbursing any money or funds except for the payment of salaries and similar expensesin the ordinary course of business, and from disposing of theirMr. & Ms.shares; (b) enjoin respondents Apostol spouses, Magsanoc and Nuyda from disposing of thePDIshares of stock registered in their names; (c) compel respondents Eugenia and Jose Apostol to account for and reconvey all profits and benefits accruing to them as a result of their improper and fraudulent acts; (d) compel respondents Magsanoc and Nuyda to account for and reconvey toMr. & Ms.all shares of stock paid from cash advances from it and all accessions or fruits thereof; (e) hold respondents Eugenia and Jose Apostol liable for damages suffered byMr. & Ms.and the other stockholders, including petitioner, by reason of their improper and fraudulent acts; (f) appoint a management committeeforMr. & Ms.during the pendency of thesuittopreventfurther dissipation and loss of its assets and funds as well as paralyzation of business operations; and, (g) direct the management committee forMr. & Ms.to file the necessary action to enforce its rights againstPDIand other third parties.Private respondents Apostol spouses, Magsanoc, Nuyda, andMr. & Ms., on the other hand, refuted the allegations of petitioner by starting with a narration of the beginnings ofMr. & Ms.They recounted that on 9 March 1976Ex Libris Publishing Co., Inc.(Ex Librishereafter) was incorporated for the purpose of publishing a weekly magazine.Its original principal stockholders were spouses Senator Juan Ponce Enrile (then Minister of National Defense) and Cristina Ponce Enrile throughJaka Investments Corporation(JAKAhereafter), and respondents Eugenia and Jose Apostol.WhenEx Librissuffered financial difficulties,JAKAand the Apostols, together with new investors Luis Villafuerte and Ramon Siy, restructured ExLibris by organizing a new corporation known asMr. & Ms.The original stockholders ofMr. & Ms.,i.e.,JAKA, Luis Villafuerte, Ramon Siy, the Apostols andEx Libriscontinued to be virtually the same up to 1989.Thereafter it was agreed among them that, they being close friends,Mr. & Ms.would be operated as a partnership or a close corporation; respondent Eugenia D. Apostol would manage the affairs ofMr. & Ms.; and, no shares of stock would be sold to third parties without first offering the shares to the other stockholders so that transfers would be limited to and only among the original stockholders.Private respondents also asserted that respondent Eugenia D. Apostol had been informing her business partners of her actions as manager, and obtaining their advice and consent.Consequently the other stockholders consented, either expressly or impliedly, to her management.They offered no objections.As a result, the business prospered.Thus, as shown in a statement prepared by the accounting firmPunongbayanandAraullo, there were increases from 1976 to 1988 in the total assets ofMr. & Ms.from P457,569.00 to P10,143,046.00; in the total stockholders equity from P203,378.00 to P2,324,954.00; and, in the net sales, from P301,489.00 to P16,325,610.00.Likewise, cash dividends were distributed and received by the stockholders.Private respondents further contended that petitioner, being merely a holder-in-trust ofJAKAshares, only represented and continued to representJAKAin the board.In the beginning, petitioner cooperated with and assisted the management until mid-1986 when relations between her and her principals on one hand, and respondent Eugenia D. Apostol on the other, became strained due to political differences.Hence from mid-1986 to mid-1988 petitioner refused to speak with respondent Eugenia D. Apostol, and in 1988 the former became openly critical of the management of the latter.Nevertheless, respondent Eugenia D. Apostol always made available to petitioner and her representatives all the books of the corporation.Private respondents averred that all thePDIshares owned by respondents Eugenia and Jose Apostol were acquired through their own private funds and that the loan of P750,000.00 byPDIfromMr. & Ms.had been fully paid with 20% interest per annum.And, it wasPDI, notMr. & Ms., which loaned off P250,000.00 each to respondents Magsanoc and Nuyda.Private respondents further argued that petitioner was not the true party to this case, the real party beingJAKAwhich continued to be the true stockholder ofMr. & Ms.;hence,petitioner did not have the personality to initiate and prosecute the derivative suit which, consequently, must be dismissed.On 6 December 1990, the SEC Hearing Panel[3]issued a writ of preliminary injunction enjoining private respondents from disbursing any money except for the payment of salaries and other similar expenses in the regular course of business.The Hearing Panel also enjoined respondent Apostol spouses, Nuyda and Magsanoc from disposing of theirPDIshares, and further ruled -x x x respondents contention that petitioner is not entitled to the provisional reliefs prayed for because she is not the real party in interest x x x x is bereft of any merit.No less than respondents Amended Answer, specifically paragraph V, No. 8 on Affirmative Allegations/Defenses states that `The petitioner being herself a minor stockholder and holder-in-trust ofJAKAshares represented and continues to representJAKAin the Board.This statement refers to petitioner sitting in the board of directors ofMr. & Ms.in two capacities, one as a minor stockholder and the other as the holder in trust of the shares ofJAKAinMr. & Ms.Such reference alluded to by the respondents indicates an admission on respondents part of the petitioners legal personality to file a derivative suit for the benefit of the respondentMr. & Ms.Publishing Co., Inc.The Hearing Panel however denied petitioners prayer for the constitution of a management committee.On 25 March 1991 private respondents filed aMotion to Amend Pleadings to Conform to Evidencealleging that the issue of whether petitioner is the real party-in-interest had been tried by express or implied consent of the parties through the admission of documentary exhibits presented by private respondents proving that the real party-in-interest wasJAKA, not petitioner Bitong.As such, No. 8, par. V (Affirmative Allegations/Defenses),Answer to the Amended Petition, was stipulated due to inadvertenceandexcusable mistake and should be amended.On 10 October 1991 the Hearing Panel denied the motion for amendment.Petitioner testified at the trial that she became the registered and beneficial owner of 997 shares of stock ofMr. & Ms.out of the 4,088 total outstanding shares after she acquired them fromJAKAthrough a deed of sale executed on 25 July 1983 and recorded in the Stock and Transfer Book ofMr. & Ms.under Certificate of Shares of Stock No. 008.She pointed out that Senator Enrile decided thatJAKAshould completely divest itself of its holdings inMr. & Ms.and this resulted in the sale to her ofJAKAs interest and holdings in that publishing firm.Private respondents refuted the statement of petitioner that she was a stockholder ofMr. & Ms.since 25 July 1983 as respondent Eugenia D. Apostol signed Certificate of Stock No. 008 only on 17 March 1989, and not on 25 July 1983.Respondent Eugenia D. Apostol explained that she stopped using her long signature (Eugenia D. Apostol) in 1987 and changed it to E.D. Apostol, the signature which appeared on the face of Certificate of Stock No. 008 bearing the date 25 July 1983.And, since the Stock and Transfer Book which petitioner presented in evidence was not registered with the SEC, the entries therein includingCertificate of StockNo. 008 were fraudulent.Respondent Eugenia D. Apostol claimed that she had not seen the Stock and Transfer Book at any time until 21 March 1989 when it was delivered by petitioner herself to the office ofMr. & Ms., and that petitioner repeatedly referred to Senator Enrile as "my principal" during theMr. & Ms.board meeting of 22 September 1988, seven (7) times no less.On 3 August 1993, after trial on the merits, the SEC Hearing Panel dismissed the derivative suit filed by petitioner and dissolved the writ of preliminary injunction barring private respondents from disposing of theirPDIshares and any ofMr. & Ms.assets.The Hearing Panel ruled that there was no serious mismanagement ofMr. & Ms.which would warrant drastic corrective measures.It gave credence to the assertion of respondent Eugenia D. Apostol thatMr. & Ms.was operated like a close corporation where important matters were discussed and approved through informal consultations at breakfast conferences.The Hearing Panel also concluded that while the evidence presented tended to show that the real party-in-interest indeed wasJAKAand/or Senator Enrile, it viewed the real issue to be the alleged mismanagement, fraud and conflict of interest on the part of respondent Eugenia D. Apostol, and allowed petitioner to prosecute the derivative suit if only to resolve the real issues.Hence, for this purpose, the Hearing Panel considered petitioner to be the real party-in-interest.On 19 August 1993 respondent Apostol spouses sold thePDIshares registered in the name of their holding company, JAED Management Corporation, to Edgardo B. Espiritu.On 25 August 1993 petitioner Bitong appealed to theSEC En Banc.On 24 January 1994 theSEC En Banc[4]reversed the decision of the Hearing Panel and, among others, ordered private respondents to account for, return and deliver toMr. & Ms.any and all funds and assets that they disbursed from the coffers of the corporation including shares of stock, profits, dividends and/or fruits that they might have received as a result of their investment inPDI, including those arising from the P150,000.00 advanced to respondents Eugenia D. Apostol, Leticia J. Magsanoc and Adoracion G. Nuyda; account for and return any profits and fruits of all amounts irregularly or unlawfully advanced toPDIand other third persons; and, cease and desist from managing the affairs ofMr. & Ms.for reasons of fraud, mismanagement, disloyalty and conflict of interest.TheSEC En Bancalso declared the 19 August 1993 sale of thePDIshares ofJAED Management Corporationto Edgardo B. Espiritu to be tainted with fraud, hence, null and void, and consideredMr. & Ms.as the true and lawful owner of all thePDIshares acquired by respondents Eugenia D. Apostol, Magsanoc and Nuyda.It also declared all subsequent transferees of such shares as trustees for the benefit ofMr. & Ms.and ordered them to forthwith deliver said shares toMr. & Ms.Consequently, respondent Apostol spouses, Magsanoc, Nuyda, andMr. & Ms.filed a petition for review before respondent Court of Appeals, docketed as CA-GR No. SP 33291, while respondentEdgardo B. Espiritu filed a petition forcertiorariand prohibition also before respondent Court of Appeals, docketed as CA-GR No. SP 33873.On 8 December 1994 the two (2) petitions were consolidated.On 31 August 1995 respondent appellate court rendered a decision reversing theSEC En Bancand held that from the evidence on record petitioner was not the owner of any share of stock inMr. & Ms.and therefore not the real party-in-interest to prosecute the complaint she had instituted against private respondents.Accordingly, petitioner alone and by herselfas an agent could not file a derivative suit in behalf of her principal.For not being the real party-in-interest, petitioners complaint did not state a cause of action, a defense which was never waived; hence, her petition should have been dismissed.Respondent appellate court ruled that the assailed orders of the SEC were issued in excess of jurisdiction, or want of it, and thus were null and void.[5]On 18 January 1996, petitioner's motion for reconsideration was denied for lack of merit.Before this Court, petitioner submits that in paragraph 1under the caption"I.The Parties"of herAmended Petitionbefore the SEC, she stated that she was a stockholder and director ofMr. & Ms.In par. 1 under the caption"II. The Facts"she declared that she "is the registered owner of 1,000 shares of stock of Mr. &Ms. out of the latters4,088 total outstanding shares" and that she was a member of the Board of Directors ofMr. & Ms.and treasurer from its inception until 11 April 1989.Petitioner contends that private respondents did not deny the above allegations in their answer and therefore they are conclusively bound by this judicial admission.Consequently, private respondents admission that petitioner has 1,000 shares ofstock registered in her name in the books ofMr. & Ms.forecloses any question on her status and right to bring a derivative suit on behalf ofMr. & Ms.Not necessarily.A party whose pleading is admitted as an admission against interest is entitled to overcome by evidence the apparent inconsistency, and it is competent for the party against whom the pleading is offered to show that the statements were inadvertently made or were made under a mistake of fact.In addition, a party against whom a single clause or paragraph of a pleading is offered may have the right to introduce other paragraphs which tend to destroy the admission in the paragraph offered by the adversary.[6]TheAmended Petitionbefore theSECalleges -I.THE PARTIES1.Petitioner is a stockholder and director ofMr. & Ms.x x x xII.THE FACTS1.Petitioner is the registered owner of1,000 shares of stock ofMr. & Ms.out of the latters 4,088 total outstanding shares.Petitioner, at all times material to this petition, is a member of the Board of Directors ofMr. & Ms.and from the inception ofMr. & Ms.until 11 April 1989 was its treasurer x x x xOn the other hand, theAmended Answerto theAmended Petitionstates -I.PARTIES1.Respondents admit the allegations contained in Caption I, pars. 1 to 4of the Petition referring to the personality, addresses and capacity of the parties to the petition except x x x x but qualify said admission insofar as they are limited, qualified and/or expanded by allegations in the Affirmative Allegations/Defenses x x x xII.THE FACTS1.Respondents admit paragraph 1 of the Petition, but qualify said admission as to the beneficial ownership of the shares of stock registered in the name of the petitioner, the truth being as stated in the Affirmative Allegations/Defenses of this Answer x x x xV.AFFIRMATIVE ALLEGATIONS/DEFENSESRespondents respectfully allege by way of Affirmative Allegations/Defenses, thatx x x x3.Fortunately, respondent Apostol was able to convince Mr. Luis Villafuerte to take interest in the business and he, together with the original investors, restructured theEx LibrisPublishing Company by organizinga new corporation known asMr. & Ms.Publishing Co., Inc.x x x xMr. Luis Villafuerte contributed his own P100,000.00.JAKAand respondent Jose Z. Apostol, original investors ofEx Libriscontributed P100,000.00 each;Ex LibrisPublishing Company was paid 800 shares for the name ofMr. & Ms.magazine and goodwill.Thus, the original stockholders of respondent Mr. &Ms. were:Cert./No./DateName of StockholderNo. of Shares%001-9-15-76JAKAInvestments Corp.1,00021%002-9-15-76Luis Villafuerte1,00021%003-9-15-76Ramon L. Siy1,00021%004-9-15-76Jose Z. Apostol1,00021%005-9-15-76Ex LibrisPublishing Co.80016%4,80096%4.The above-named original stockholders of respondentMr. & Ms.continue to be virtually the same stockholders up to this date x x x x8.The petitioner being herself a minor stockholder and holder-in-trust ofJAKAshares, represented and continues to representJAKAin the Board x x x x21.Petitioner Nora A. Bitong is not the true party to this case, the true party beingJAKA Investments Corporationwhich continues to be the true stockholder of respondentMr. & Ms.Publishing Co., Inc., consequently, she does not have the personality to initiate and prosecute this derivativesuit, and should therefore be dismissed x x x xThe answer of private respondents shows that there was no judicial admission that petitioner was a stockholder ofMr. & Ms.to entitle her to file a derivative suit on behalf of the corporation.Where the statements of the private respondents were qualified with phrases such as, "insofar as they are limited, qualified and/or expanded by," "the truth being as stated in theAffirmative Allegations/Defenses of this Answer" they cannot be considered definite and certain enough, cannot be construed as judicial admissions.[7]More so, the affirmative defenses of private respondents directly refute the representation of petitioner that she is a true and genuine stockholder ofMr. & Ms.by stating unequivocally that petitioner is not the true party to the case butJAKAwhich continues to be the true stockholder ofMr. & Ms.In fact, one of the reliefs which private respondents prayed for was the dismissal ofthe petition on the ground that petitioner did not have the legal interest to initiate and prosecute the same.When taken in its totality, theAmended Answer to the Amended Petition, or even theAnswer to the Amended Petitionalone, clearly raises an issue as to the legal personality of petitioner to file the complaint.Every alleged admission is taken as an entirety of the fact which makes for the one side with the qualifications which limit, modify or destroy its effect on the other side.The reason for this is, where part of a statement of a party is used against him as an admission, the court should weigh any other portion connected with the statement, which tends to neutralize or explain the portion which is against interest.In other words, while the admission is admissible in evidence, its probative value is to be determined from the whole statement and others intimately related or connected therewith as an integrated unit.Although acts or facts admitted do not require proof and cannot be contradicted, however, evidencealiundecan be presented to show that the admission was made through palpable mistake.[8]The rule is always in favor of liberality in construction of pleadings so that the real matter in dispute may be submitted to the judgment of the court.[9]Petitioner also argues that since private respondents failed to appeal the 6 December 1990 Order and the 3 August 1993 Decision of the SEC Hearing Panel declaring that she was the real party-in-interest and had legal personality to sue, they are now estopped from questioning her personality.Not quite.The 6 December 1990 Order is clearly an interlocutory order which cannot be considered as having finally resolved on the merits the issue of legal capacity of petitioner.The SEC Hearing Panel discussed the issue of legal capacity solely for the purpose of ruling on the application for writ of preliminary injunction as an incident to the main issues raised in the complaint.Being a mere interlocutory order, it is not appealable.For, an interlocutory order refers to something between the commencement and end of the suit which decides some point or matter but it is not the final decision of the whole controversy.[10]Thus, even though the 6 December 1990 Order was adverse to private respondents, they had the legal right and option not to elevate the same to theSECEn Bancbut rather to await the decision which resolves all the issues raised by the parties and to appeal therefrom by assigning all errors that might have been committed by the Hearing Panel.On the other hand, the 3 August 1993 Decision of the Hearing Panel dismissing the derivative suit for failure to prove the charges of mismanagement, fraud, disloyalty and conflict of interest anddissolving the writ of preliminary injunction, was favorable to private respondents.Hence, they were not expected to appeal therefrom.In fact, in the 3 August 1993 Decision, the Hearing Panel categorically stated that the evidence presented showed that the real party-in-interest was not petitioner Bitong butJAKAand/or Senator Enrile.Petitioner was merely allowed to prosecute her complaint so as not to sidetrack"the real issue to be resolved (which) was the allegation of mismanagement, fraud and conflict of interest allegedly committed by respondent Eugenia D. Apostol."It was only for this reason that petitioner was considered to be capacitated and competent to file the petition.Accordingly, with the dismissal of the complaint of petitioner against private respondents, there was no compelling reason for the latter to appeal to theSEC En Banc.It was in fact petitioners turn as the aggrieved party to exercise her right to appeal from the decision.It is worthy to note that even during the appeal of petitioner before theSEC En Bancprivate respondents maintained their vigorous objection to the appeal and reiterated petitioners lack of legal capacity to sue before the SEC.Petitioner then contends that she was a holder of the proper certificates of shares of stock and that the transfer was recorded in the Stock and Transfer Book ofMr. & Ms.She invokes Sec. 63 ofThe Corporation Codewhich provides that no transfer shall be valid except as between the parties until the transfer is recorded in the books of the corporation, and upon its recording the corporation is bound by it and is estopped to deny the fact of transfer of said shares.Petitioner alleges that even in the absence of a stock certificate, a stockholder solely on the strength of the recording in the stock and transfer book can exercise all the rights as stockholder, including the right to file a derivative suit in the name of the corporation.And, she need not present a separate deed of sale or transfer in her favor to prove ownership of stock.Section 63 ofThe Corporation Codeexpressly provides -Sec. 63.Certificate of stock and transfer of shares. -The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice president, countersignedby the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws.Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer.No transfer however shall be valid except as between the parties until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred x x x xThis provision above quoted envisions a formal certificate of stock which can be issued only upon compliance with certain requisites.First, the certificates must be signed by the president or vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation.A mere typewritten statement advising a stockholder of the extent of his ownership in a corporation without qualification and/or authentication cannot be considered as a formal certificate of stock.[11]Second, delivery of the certificate is an essential element of its issuance.Hence, there is no issuance of a stock certificate where it is never detached from the stock books although blanks therein are properly filled up if the person whose name is inserted therein has no control over the books of the company.[12]Third, the par value, as to par value shares, or the full subscription as to no par value shares, must first be fully paid.Fourth, the original certificate must be surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder.The certificate of stock itself once issued is a continuing affirmation or representation that the stock described therein is valid and genuine and is at leastprima facieevidence that it was legally issued in the absence of evidence to the contrary.However, this presumption may be rebutted.[13]Similarly, books and records of a corporation which include even the stock and transfer book are generally admissible in evidence in favor of or against the corporation and its members to prove the corporate acts, its financial status and other matters including ones status as a stockholder.They are ordinarily the best evidence of corporate acts and proceedings.However, the books and records of a corporation are not conclusive even against the corporation but areprima facieevidence only.Parol evidence may be admitted to supply omissions in the records, explain ambiguities, or show whattranspired where no records were kept, or in some cases where such records were contradicted.[14]The effect of entries in the books of the corporation which purport to be regular records of the proceedings of its board of directors or stockholders can be destroyed by testimony of a more conclusive character than mere suspicion that there was an irregularity in the manner in which the books were kept.[15]The foregoing considerations are founded on the basic principle that stock issued without authority and in violation of law is void and confers no rights on the person to whom it is issued and subjects him to no liabilities.[16]Where there is an inherent lack of power in the corporation to issue the stock, neither the corporation nor the person to whom the stock is issued is estopped to question its validity since an estoppel cannot operate to create stock which under the law cannot have existence.[17]As found by the Hearing Panel and affirmed by respondent Court of Appeals, there is overwhelming evidence that despite what appears on the certificate of stock and stock and transfer book, petitioner was not abona fidestockholder ofMr. & Ms.before March 1989 or at the time the complained acts were committed to qualify her to institute a stockholders derivative suit against private respondents.Aside from petitioners own admissions, several corporate documents disclose that the true party-in-interest is not petitioner butJAKA.Thus, while petitioner asserts in her petition that Certificate of Stock No. 008 dated 25 July 1983 was issued in her name, private respondents argue that this certificate was signed by respondent Eugenia D. Apostol as President only in 1989 and was fraudulently antedated by petitioner who had possession of the Certificate Book and the Stock and Transfer Book.Private respondents stress that petitioners counsel entered into a stipulation on record before the Hearing Panel that the certificate was indeed signed by respondent Apostol only in 1989 and not in 1983.In her reply, petitioner admits that while respondentEugenia D. Apostol signed the Certificate of Stock No. 008 in petitioners name only in 1989, it was issued by the corporate secretary in 1983 and that the other certificates covering shares inMr. & Ms.had not yet been signed by respondent Eugenia D. Apostol at the time of the filing of the complaint with the SECalthough they were issued years before.Based on the foregoing admission of petitioner, there is no truth to the statement written in Certificate of Stock No. 008 that the same was issued and signed on 25 July 1983 by its duly authorized officers specifically the President and Corporate Secretary because the actual date of signing thereof was 17 March 1989.Verily, a formal certificate of stock could not be considered issued in contemplation of law unless signed by the president or vice-president and countersigned by the secretary or assistant secretary.In this case, contrary to petitioners submission, the Certificate of Stock No. 008 was only legally issued on 17 March 1989 when it was actually signed by the President of the corporation, and not before that date.While a certificate of stock is not necessary to make one a stockholder, e.g., where he is an incorporator and listed as stockholder in the articles of incorporation although no certificate of stock has yet been issued, it is supposed to serve as paper representative of the stock itself and of the owners interest therein.Hence, when Certificate of Stock No. 008 was admittedly signed and issued only on 17 March 1989 and not on 25 July 1983, even as it indicates that petitioner owns 997 shares of stock ofMr. & Ms., the certificate has no evidentiary value for the purpose of proving that petitioner was a stockholder since 1983 up to 1989.And even the factual antecedents of the alleged ownership by petitioner in 1983 of shares of stock ofMr. & Ms.are indistinctive if not enshrouded in inconsistencies.In her testimony before the Hearing Panel, petitioner said that early in 1983, to relieveMr. & Ms.from political pressure, Senator Enrile decided to divest the family holdings inMr. & Ms.as he was then part of the government andMr. & Ms.was evolving to be an opposition newspaper.TheJAKAshares numbering 1,000 covered by Certificate of Stock No. 001 were thus transferred to respondent Eugenia D. Apostol in trust or in blank.[18]Petitioner now claims that a few days afterJAKAs shares were transferred to respondent Eugenia D. Apostol, Senator Enrile sold to petitioner 997 shares ofJAKA.For this purpose, a deed of sale was executed and antedated to 10 May 1983.[19]This submission of petitioner is however contradicted by the records which show that a deed of sale was executed byJAKAtransferring 1,000 shares ofMr. & Ms.to respondent Apostol on 10 May 1983 and not to petitioner.[20]Then Senator Enrile testified that in May or June 1983 he was asked at a media interview ifhis family owned shares of stock inMr. & Ms.Although he and his family were stockholders at that time he denied it so as not to embarrass the magazine.He called up petitioner andinstructed her to work out the documentation of the transfer of shares fromJAKAto respondent Apostol to be covered by a declaration of trust.His instruction was to transfer the shares ofJAKAinMr. & Ms.andEx Libristo respondent Apostol as a nominal holder.He then finally decided to transfer the shareholdings to petitioner.[21]When asked if there was any document or any written evidence of that divestment in favor of petitioner, Senator Enrile answered that there was an endorsement of the shares of stock.He said that there was no other document evidencing the assignment to petitioner because the stocks were personal property that could be transferred even orally.[22]Contrary to Senator Enriles testimony, however, petitioner maintains that Senator Enrile executed a deed of sale in her favor.A careful perusal of the records shows that neither the alleged endorsement of Certificate of Stock No. 001 in the name ofJAKAnor the alleged deed of sale executed by Senator Enriledirectly in favor ofpetitioner could have legally transferred or assigned on 25 July 1983 the shares of stock in favor of petitioner because as of 10 May 1983 Certificate of Stock No. 001 in the name ofJAKAwas already cancelled and a new one, Certificate ofStock No. 007, issued in favor of respondent Apostol by virtue of a Declaration of Trust and Deed of Sale.[23]It should be emphasized that on 10 May 1983JAKAexecuted a deed of sale over 1,000Mr. & Ms.shares in favor of respondent Eugenio D. Apostol.On the same day, respondent Apostol signed a declaration of trust stating that she was the registered owner of 1,000Mr. & Ms.shares covered by Certificate of Stock No. 007.The declaration of trust further showed that although respondent Apostol was the registered owner, she held the shares of stock and dividends which might be paid in connection therewith solely in trust for the benefit ofJAKA, her principal.It was also stated therein that being a trustee, respondent Apostol agreed, on written request of the principal, to assign and transfer the shares of stock and any and all such distributions or dividends unto the principal or such other person as the principal would nominate or appoint.Petitioner was well aware of this trust, being the person in charge of this documentation and being one of the witnesses to the execution of this document.[24]Hence, the mere alleged endorsement of Certificate of Stock No.001 by Senator Enrile or by a duly authorized officer ofJAKAto effect the transfer of shares ofJAKAto petitioner could not have been legally feasible because Certificate of Stock No. 001 was already canceled by virtue of the deed of sale to respondent Apostol.And, there is nothing in the records which shows thatJAKAhad revoked the trust it reposed on respondent Eugenia D. Apostol.Neither was there any evidence that the principal had requested her to assign and transfer the shares of stock to petitioner.If it was true that the shares of stock covered by Certificate of Stock No. 007 had been transferred to petitioner, the person who could legally endorse the certificate was private respondent Eugenia D. Apostol, she being the registered owner and trustee of the shares of stock covered by Certificate of Stock No. 007.It is a settled rule that the trustee should endorse the stock certificate to validate the cancellation of her share and to have the transfer recorded in the books of the corporation.[25]In fine, the records are unclear on how petitioner allegedly acquired the shares of stock ofJAKA.Petitioner being the chief executive officer ofJAKAand the sole person in charge of all business and financial transactions and affairs ofJAKA[26]was supposed to be in the best position to show convincing evidence on the alleged transfer of shares to her, if indeed there was a transfer.Considering thatpetitioners status is being questioned and several factual circumstances have been presentedby private respondents disproving petitioners claim, it was incumbent upon her to submit rebuttal evidence on the manner by which she allegedly became a stockholder.Her failure to do so taken in the light of severalsubstantial inconsistencies in her evidence is fatal to her case.The rule is that the endorsement of the certificate of stock by the owner or his attorney-in-fact or any other person legally authorized to make the transfer shall be sufficient to effect the transfer of shares only if the same is coupled with delivery.The delivery of the stock certificate duly endorsed by the owner is the operative act of transfer of shares from the lawful owner to the new transferee.Thus, for a valid transfer of stocks, the requirements are as follows: (a) There must be delivery of the stock certificate; (b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the transfer; and, (c) to be valid against third parties, the transfer must be recorded in the books of the corporation.[27]At most, in the instant case, petitioner has satisfied only the third requirement.Compliance with the first two requisites has not been clearly and sufficiently shown.Considering that the requirements provided under Sec. 63 ofThe Corporation Codeshould be mandatorily complied with, the rule on presumption of regularity cannot apply.The regularity and validity of the transfer must be proved.As it is, even the credibility of the stock and transfer book and the entries thereon relied upon bypetitioner to show compliance with the third requisite to prove that she was a stockholder since 1983 is highly doubtful.The records show that the original stock and transfer book and the stock certificate book ofMr. & Ms.were in the possession of petitioner before their custody was transferred to the Corporate Secretary, Atty. Augusto San Pedro.[28]On 25 May 1988, Assistant Corporate Secretary Renato Jose Unson wroteMr. & Ms.about the lost stock and transfer book which was also noted by the corporations external auditors,PunongbayanandAraullo, in their audit.Atty. Unson even informed respondent Eugenia D. Apostol as President ofMr. & Ms.that steps would be undertaken to prepare and register a new Stock and Transfer Book with the SEC.Incidentally, perhaps strangely, upon verification with theSEC, it was discovered that the general file of the corporation with theSECwas missing.Hence, it was even possible that the original Stock and Transfer Book might not have been registered at all.On 20 October 1988 respondent Eugenia D. Apostol wrote Atty. Augusto San Pedro noting the changes he had made in the Stock and Transfer Book without prior notice to the corporate officers.[29]In the 27 October 1988 directors' meeting, respondent Eugenia D. Apostol asked about the documentation to support the changes in the Stock and Transfer Book with regard to theJAKAshares.Petitioner answered that Atty. San Pedro made the changes upon her instructions conformably with established practice.[30]This simply shows that as of 1988 there still existed certain issues affecting the ownership of theJAKAshares, thus raising doubts whether the alleged transactions recorded in the Stock and Transfer Book were proper, regular and authorized.Then, as if to magnify and compound the uncertainties in the ownership of the shares of stock in question, when the corporate secretary resigned, the Stock and Transfer Book was delivered not to the corporate office where the book should be kept but to petitioner.[31]ThatJAKAretained its ownership of itsMr. & Ms.shares was clearly shown by its receipt of the dividends issued in December 1986.[32]This only means, very obviously, thatMr. & Ms.shares in question still belonged toJAKAand not to petitioner.For, dividends are distributed to stockholders pursuant to their right to share in corporate profits.When a dividend is declared, it belongs to the person who is the substantial and beneficial owner of the stock at the time regardless of when the distribution profit was earned.[33]Finally, this Court takes notice of the glaring and open admissions of petitioner made, not just seven (7) but nine (9) times, during the 22 September 1988 meeting of the board of directors that the Enriles were her principals or shareholders, as shown by the minutes thereof which she duly signed[34]-5.Mrs. E. Apostol explained to the Directors that through her efforts, the asset baseof the Company has improved and profits were realized.It is for this reason that the Company has declared a 100% cash dividend in 1986.She said that it is up for the Board to decide based on this performance whether she should continue to act as Board Chairman or not.In this regard, Ms. N.A. Bitong expressed her recollection of how Ex-Libris/Mr. & Ms.were organized and her participation for and on behalf of her principals, as follows:She recalled that her principals were invited by Mrs. E. Apostol to invest in Ex-Libris and eventuallyMr. & Ms.The relationship between her principals and Mrs. E. Apostol made it possible for the latter to have access to several information concerning certain political events and issues.In many instances,her principalssupplied first hand and newsworthy information that madeMr. & Ms.a popular paper x x x x6.According to Ms. Bitong, her principals were instrumental in helpingMr. & Ms.survive during those years that it was cash strappedx x x xMs. N.A. Bitong pointed out that the practice of using the former Ministers influence and stature in the government is one thing whichher principalsthemselves are strongly against x x x x7.x x x xAt this point, Ms. N. Bitong again expressed her recollection of the subject matter as follows: (a)Mrs. E. Apostol, she remembers, brought up the concept of a cooperative-ran newspaper company in one of her breakfast session withher principalssometime during the end of 1985.Her principalswhen asked for anopinion,said that they recognized the concept as something very noble and visiblex x x xThen Ms. Bitong asked a very specific question - "When you conceptualized Ex-Libris andMr. & Ms., did you not think ofmy shareholders the Ponce Enrilesas liabilities?How come you associated yourself with them then and not now?What is the difference?"Mrs. Apostol did not answer the question.The admissions of a party against his interest inscribed upon the record books of a corporation are competent and persuasive evidence against him.[35]These admissions render nugatory any argument that petitioner is abona fidestockholder ofMr. & Ms.at any time before 1988 or at the time the acts complained of were committed.There is no doubt that petitioner was an employee ofJAKAas its managing officer, as testified to by Senator Enrile himself.[36]However, in the absence of a special authority from the board of directors ofJAKAto institute a derivative suit for and in its behalf, petitioner is disqualified by law to sue in her own name.The power to sue and be sued in any court by a corporation even as a stockholder is lodged in the board of directors that exercises its corporate powers and not in the president or officer thereof.[37]It is well settled in this jurisdiction that where corporate directors are guilty of a breach of trust, not of mere error of judgment or abuse of discretion, and intracorporate remedy is futile or useless, a stockholder may institute a suit in behalf of himself and other stockholders and for the benefit of the corporation, to bring about a redress of the wrong inflicted directly upon the corporation and indirectly upon the stockholders.[38]The stockholders right to institute a derivative suit is not based on any express provision ofThe Corporation Codebut is impliedly recognized when the law makes corporate directors or officers liable for damages suffered by the corporation and its stockholders for violation of their fiduciary duties.Hence, a stockholder may sue for mismanagement, waste or dissipation of corporate assets because of a special injury to him for which he is otherwise without redress.[39]In effect, the suit is an action for specific performance of an obligation owed by the corporation to the stockholders to assist its rights of action when the corporation has been put in default by the wrongful refusal of the directors or management to make suitable measures for its protection.[40]The basis of a stockholders suit is always one in equity.However, it cannot prosper without first complying with the legal requisites for its institution.The most important of these is thebona fideownership by a stockholder of a stock in his own right at the time of the transaction complained of which invests him with standing to institute a derivative action for the benefit of the corporation.[41]WHEREFORE, the petition is DENIED.The 31 August 1995 Decision of the Court of Appeals dismissing the complaint of petitioner Nora A. Bitong in CA-G.R. No. SP 33291, and granting the petition forcertiorariand prohibition filed by respondent Edgardo B. Espiritu as well as annulling the 5 November 1993, 24 January 1994 and 18 February 1994 Orders of theSEC En Bancin CA-G.R. No. SP 33873, is AFFIRMED.Costs against petitioner.SO ORDERED.

G.R. No. L-15568 November 8, 1919W. G. PHILPOTTS, vs. PHILIPPINE MANUFACTURING COMPANY STREET,J.:The petitioner, W. G. Philpotts, a stockholder in the Philippine Manufacturing Company, one of the respondents herein, seeks by this proceeding to obtain a writ ofmandamusto compel the respondents to permit the plaintiff, in person or by some authorized agent or attorney, to inspect and examine the records of the business transacted by said company since January 1, 1918. The petition is filed originally in this court under the authority of section 515 of the Code of Civil Procedure, which gives to this tribunal concurrent jurisdiction with the Court of First Instance in cases, among others, where any corporation or person unlawfully excludes the plaintiff from the use and enjoyment of some right to which he is entitled. The respondents interposed a demurrer, and the controversy is now before us for the determination of the questions thus presented.The first point made has reference to a supposed defect of parties, and it is said that the action can not be maintained jointly against the corporation and its secretary without the addition of the allegation that the latter is the custodian of the business records of the respondent company.By the plain language of sections 515 and 222 of our Code of Civil Procedure, the right of action in such a proceeding as this is given against the corporation; and the respondent corporation in this case was the only absolutely necessary party. In the Ohio case of Cincinnati Volksblatt Co.vs.Hoffmister (61 Ohio St., 432; 48 L. R. A., 735), only the corporation was named as defendant, while the complaint, in language almost identical with that in the case at bar, alleged a demand upon and refusal by the corporation.Nevertheless the propriety of naming the secretary of the corporation as a codefendant cannot be questioned, since such official is customarily charged with the custody of all documents, correspondence, and records of a corporation, and he is presumably the person against whom the personal orders of the court would be made effective in case the relief sought should be granted. Certainly there is nothing in the complaint to indicate that the secretary is an improper person to be joined. The petitioner might have named the president of the corporation as a respondent also; and this official might be brought in later, even after judgment rendered, if necessary to the effectuation of the order of the court.Section 222 of our Code of Civil Procedure is taken from the California Code, and a decision of the California Supreme Court Barbervs.Mulford (117 Cal., 356) is quite clear upon the point that both the corporation and its officers may be joined as defendants.The real controversy which has brought these litigants into court is upon the question argued in connection with the second ground of demurrer, namely, whether the right which the law concedes to a stockholder to inspect the records can be exercised by a proper agent or attorney of the stockholder as well as by the stockholder in person. There is no pretense that the respondent corporation or any of its officials has refused to allow the petitioner himself to examine anything relating to the affairs of the company, and the petition prays for a peremptory order commanding the respondents to place the records of all business transactions of the company, during a specified period, at the disposal of the plaintiff or his duly authorized agent or attorney, it being evident that the petitioner desires to exercise said right through an agent or attorney. In the argument in support of the demurrer it is conceded by counsel for the respondents that there is a right of examination in the stockholder granted under section 51 of the Corporation Law, but it is insisted that this right must be exercised in person.The pertinent provision of our law is found in the second paragraph of section 51 of Act No. 1459, which reads as follows: "The record of all business transactions of the corporation and the minutes of any meeting shall be open to the inspection of any director, member or stockholder of the corporation at reasonable hours."This provision is to be read of course in connecting with the related provisions of sections 51 and 52, defining the duty of the corporation in respect to the keeping of its records.Now it is our opinion, and we accordingly hold, that the right of inspection given to a stockholder in the provision above quoted can be exercised either by himself or by any proper representative or attorney in fact, and either with or without the attendance of the stockholder. This is in conformity with the general rule that what a man may do in person he may do through another; and we find nothing in the statute that would justify us in qualifying the right in the manner suggested by the respondents.This conclusion is supported by the undoubted weight of authority in the United States, where it is generally held that the provisions of law conceding the right of inspection to stockholders of corporations are to be liberally construed and that said right may be exercised through any other properly authorized person. As was said in Fostervs.White (86 Ala., 467), "The right may be regarded as personal, in the sense that only a stockholder may enjoy it; but the inspection and examination may be made by another. Otherwise it would be unavailing in many instances." An observation to the same effect is contained in Martinvs.Bienville Oil Works Co. (28 La., 204), where it is said: "The possession of the right in question would be futile if the possessor of it, through lack of knowledge necessary to exercise it, were debarred the right of procuring in his behalf the services of one who could exercise it." In Deadreckvs.Wilson (8 Baxt. [Tenn.], 108), the court said: "That stockholders have the right to inspect the books of the corporation, taking minutes from the same, at all reasonable times, and may be aided in this by experts and counsel, so as to make the inspection valuable to them, is a principle too well settled to need discussion." Authorities on this point could be accumulated in great abundance, but as they may be found cited in any legal encyclopedia or treaties devoted to the subject of corporations, it is unnecessary here to refer to other cases announcing the same rule.In order that the rule above stated may not be taken in too sweeping a sense, we deem it advisable to say that there are some things which a corporation may undoubtedly keep secret, notwithstanding the right of inspection given by law to the stockholder; as for instance, where a corporation, engaged in the business of manufacture, has acquired a formula or process, not generally known, which has proved of utility to it in the manufacture of its products. It is not our intention to declare that the authorities of the corporation, and more particularly the Board of Directors, might not adopt measures for the protection of such process form publicity. There is, however, nothing in the petition which would indicate that the petitioner in this case is seeking to discover anything which the corporation is entitled to keep secret; and if anything of the sort is involved in the case it may be brought out at a more advanced stage of the proceedings.lawphil.netThe demurrer is overruled; and it is ordered that the writ ofmandamusshall issue as prayed, unless within 5 days from notification hereof the respondents answer to the merits. So ordered.

G.R. No. 164301 October 19, 2011BANK OF THE PHILIPPINE ISLANDS, vs.BPI EMPLOYEES UNION-DAVAO CHAPTER-FEDERATION OF UNIONS IN BPI UNIBANK,Respondent.R E S O L U T I O NLEONARDO-DE CASTRO,J.:In thepresent incident, petitioner Bank of the Philippine Islands (BPI) moves for reconsideration1of our Decision dated August 10, 2010, holding that former employees of the Far East Bank and Trust Company (FEBTC) "absorbed" by BPI pursuant to the two banks merger in 2000 were covered by the Union Shop Clause in the then existing collective bargaining agreement (CBA)2of BPI with respondent BPI Employees Union-Davao Chapter-Federation of Unions in BPI Unibank (the Union).To recall, the Union Shop Clause involved in this long standing controversy provided, thus:ARTICLE IIx x x xSection 2. Union Shop - New employees falling within the bargaining unit as defined in Article I of this Agreement, who may hereafter be regularly employed by the Bank shall, within thirty (30) days after they become regular employees, join the Union as a condition of their continued employment. It is understood that membership in good standing in the Union is a condition of their continued employment with the Bank.3(Emphases supplied.)The bone of contention between the parties was whether or not the "absorbed" FEBTC employees fell within the definition of "new employees" under the Union Shop Clause, such that they may be required to join respondent union and if they fail to do so, the Union may request BPI to terminate their employment, as the Union in fact did in the present case. Needless to state, BPI refused to accede to the Unions request. Although BPI won the initial battle at the Voluntary Arbitrator level, BPIs position was rejected by the Court of Appeals which ruled that the Voluntary Arbitrators interpretation of the Union Shop Clause was at war with the spirit and rationale why the Labor Code allows the existence of such provision. On review with this Court, we upheld the appellate courts ruling and disposed of the case as follows:WHEREFORE, the petition is hereby DENIED, and the Decision dated September 30, 2003 of the Court of Appeals is AFFIRMED, subject to the thirty (30) day notice requirement imposed herein. Former FEBTC employees who opt not to become union members but who qualify for retirement shall receive their retirement benefits in accordance with law, the applicable retirement plan, or the CBA, as the case may be.4Notwithstanding our affirmation of the applicability of the Union Shop Clause to former FEBTC employees, for reasons already extensively discussed in the August 10, 2010 Decision, even now BPI continues to protest the inclusion of said employees in the Union Shop Clause.In seeking the reversal of our August 10, 2010 Decision, petitioner insists that the parties to the CBA clearly intended to limit the application of the Union Shop Clause only to new employees who were hired as non-regular employees but later attained regular status at some point after hiring. FEBTC employees cannot be considered new employees as BPI merely stepped into the shoes of FEBTC as an employer purely as a consequence of the merger.5Petitioner likewise relies heavily on the dissenting opinions of our respected colleagues, Associate Justices Antonio T. Carpio and Arturo D. Brion. From both dissenting opinions, petitioner derives its contention that "the situation of absorbed employees can be likened to old employees of BPI, insofar as their full tenure with FEBTC was recognized by BPI and their salaries were maintained and safeguarded from diminution" but such absorbed employees "cannot and should not be treated in exactly the same way as old BPI employees for there are substantial differences between them."6Although petitioner admits that there are similarities between absorbed and new employees, they insist there are marked differences between them as well. Thus, adopting Justice Brions stance, petitioner contends that the absorbed FEBTC employees should be considered "a sui generis group of employees whose classification will not be duplicated until BPI has another merger where it would be the surviving corporation."7Apparently borrowing from Justice Carpio, petitioner propounds that the Union Shop Clause should be strictly construed since it purportedly curtails the right of the absorbed employees to abstain from joining labor organizations.8Pursuant to our directive, the Union filed its Comment9on the Motion for Reconsideration. In opposition to petitioners arguments, the Union, in turn, adverts to our discussion in the August 10, 2010 Decision regarding the voluntary nature of the merger between BPI and FEBTC, the lack of an express stipulation in the Articles of Merger regarding the transfer of employment contracts to the surviving corporation, and the consensual nature of employment contracts as valid bases for the conclusion that former FEBTC employees should be deemed new employees.10The Union argues that the creation of employment relations between former FEBTC employees and BPI (i.e., BPIs selection and engagement of former FEBTC employees, its payment of their wages, power of dismissal and of control over the employees conduct) occurred after the merger, or to be more precise, after the Securities and Exchange Commissions (SEC) approval of the merger.11The Union likewise points out that BPI failed to offer any counterargument to the Courts reasoning that:The rationale for upholding the validity of union shop clauses in a CBA, even if they impinge upon the individual employee's right or freedom of association, is not to protect the union for the union's sake. Laws and jurisprudence promote unionism and afford certain protections to the certified bargaining agent in a unionized company because a strong and effective union presumably benefits all employees in the bargaining unit since such a union would be in a better position to demand improved benefits and conditions of work from the employer. x x x.x x x Nonetheless, settled jurisprudence has already swung the balance in favor of unionism, in recognition that ultimately the individual employee will be benefited by that policy. In the hierarchy of constitutional values, this Court has repeatedly held that the right to abstain from joining a labor organization is subordinate to the policy of encouraging unionism as an instrument of social justice.12While most of the arguments offered by BPI have already been thoroughly addressed in the August 10, 2010 Decision, we find that a qualification of our ruling is in order only with respect to the interpretation of the provisions of the Articles of Merger and its implications on the former FEBTC employees security of tenure.Taking a second look on this point, we have come to agree with Justice Brions view that it is more in keeping with the dictates of social justice and the State policy of according full protection to labor to deem employment contracts as automatically assumed by the surviving corporation in a merger, even in the absence of an express stipulation in the articles of merger or the merger plan. In his dissenting opinion, Justice Brion reasoned that:To my mind, due consideration of Section 80 of the Corporation Code, the constitutionally declared policies on work, labor and employment, and the specific FEBTC-BPI situation i.e., a merger with complete "body and soul" transfer of all that FEBTC embodied and possessed and where both participating banks were willing (albeit by deed, not by their written agreement) to provide for the affected human resources by recognizing continuity of employment should point this Court to a declaration that in a complete merger situation where there is total takeover by one corporation over another and there is silence in the merger agreement on what the fate of the human resource complement shall be, the latter should not be left in legal limbo and should be properly provided for, by compelling the surviving entity to absorb these employees. This is what Section 80 of the Corporation Code commands, as the surviving corporation has the legal obligation to assume all the obligations and liabilities of the merged constituent corporation.Not to be forgotten is that the affected employees managed, operated and worked on the transferred assets and properties as their means of livelihood; they constituted a basic component of their corporation during its existence. In a merger and consolidation situation, they cannot be treated without consideration of the applicable constitutional declarations and directives, or, worse, be simply disregarded. If they are so treated, it is up to this Court to read and interpret the law so that they are treated in accordance with the legal requirements of mergers and consolidation, read in light of the social justice, economic and social provisions of our Constitution. Hence, there is a need for the surviving corporation to take responsibility for the affected employees and to absorb them into its workforce where no appropriate provision for the merged corporation's human resources component is made in the Merger Plan.13By upholding the automatic assumption of the non-surviving corporations existing employment contracts by the surviving corporation in a merger, the Court strengthens judicial protection of the right to security of tenure of employees affected by a merger and avoids confusion regarding the status of their various benefits which were among the chief objections of our dissenting colleagues. However, nothing in this Resolution shall impair the right of an employer to terminate the employment of the absorbed employees for a lawful or authorized cause or the right of such an employee to resign, retire or otherwise sever his employment, whether before or after the merger, subject to existing contractual obligations. In this manner, Justice Brions theory of automatic assumption may be reconciled with the majoritys concerns with the successor employers prerogative to choose its employees and the prohibition against involuntary servitude.1avvphi1Notwithstanding this concession, we find no reason to reverse our previous pronouncement that the absorbed FEBTC employees are covered by the Union Shop Clause.Even in our August 10, 2010 Decision, we already observed that the legal fiction in the law on mergers (that the surviving corporation continues the corporate existence of the non-surviving corporation) is mainly a tool to adjudicate the rights and obligations between and among the merged corporations and the persons that deal with them.14Such a legal fiction cannot be unduly extended to an interpretation of a Union Shop Clause so as to defeat its purpose under labor law. Hence, we stated in the Decision that:In any event, it is of no moment that the former FEBTC employees retained the regular status that they possessed while working for their former employer upon their absorption by petitioner. This fact would not remove them from the scope of the phrase "new employees" as contemplated in the Union Shop Clause of the CBA, contrary to petitioner's insistence that the term "new employees" only refers to those who are initially hired as non-regular employees for possible regular employment.The Union Shop Clause in the CBA simply states that "new employees" who during the effectivity of the CBA "may be regularly employed" by the Bank must join the union within thirty (30) days from their regularization. There is nothing in the said clause that limits its application to only new employees who possess non-regular status, meaning probationary status, at the start of their employment. Petitioner likewise failed to point to any provision in the CBA expressly excluding from the Union Shop Clause new employees who are "absorbed" as regular employees from the beginning of their employment. What is indubitable from the Union Shop Clause is that upon the effectivity of the CBA, petitioner's new regular employees (regardless of the manner by which they became employees of BPI) are required to join the Union as a condition of their continued employment.15Although by virtue of the merger BPI steps into the shoes of FEBTC as a successor employer as if the former had been the employer of the latters employees from the beginning it must be emphasized that, in reality, the legal consequences of the merger only occur at a specific date, i.e., upon its effectivity which is the date of approval of the merger by the SEC. Thus, we observed in the Decision that BPI and FEBTC stipulated in the Articles of Merger that they will both continue their respective business operations until the SEC issues the certificate of merger and in the event no such certificate is issued, they shall hold each other blameless for the non-consummation of the merger.16We likewise previously noted that BPI made its assignments of the former FEBTC employees effective on April 10, 2000, or after the SEC approved the merger.17In other words, the obligation of BPI to pay the salaries and benefits of the former FEBTC employees and its right of discipline and control over them only arose with the effectivity of the merger. Concomitantly, the obligation of former FEBTC employees to render service to BPI and their right to receive benefits from the latter also arose upon the effectivity of the merger. What is material is that all of these legal consequences of the merger took place during the life of an existing and valid CBA between BPI and the Union wherein they have mutually consented to include a Union Shop Clause.From the plain, ordinary meaning of the terms of the Union Shop Clause, it covers employees who (a) enter the employ of BPI during the term of the CBA; (b) are part of the bargaining unit (defined in the CBA as comprised of BPIs rank and file employees); and (c) become regular employees without distinguishing as to the manner they acquire their regular status. Consequently, the number of such employees may adversely affect the majority status of the Union and even its existence itself, as already amply explained in the Decision.Indeed, there are differences between (a) new employees who are hired as probationary or temporary but later regularized, and (b) new employees who, by virtue of a merger, are absorbed from another company as regular and permanent from the beginning of their employment with the surviving corporation. It bears reiterating here that these differences are too insubstantial to warrant the exclusion of the absorbed employees from the application of the Union Shop Clause. In the Decision, we noted that:Verily, we agree with the Court of Appeals that there are no substantial differences between a newly hired non-regular employee who was regularized weeks or months after his hiring and a new employee who was absorbed from another bank as a regular employee pursuant to a merger, for purposes of applying the Union Shop Clause. Both employees were hired/employed only after the CBA was signed. At the time they are being required to join the Union, they are both already regular rank and file employees of BPI. They belong to the same bargaining unit being represented by the Union. They both enjoy benefits that the Union was able to secure for them under the CBA. When they both entered the employ of BPI, the CBA and the Union Shop Clause therein were already in effect and neither of them had the opportunity to express their preference for unionism or not. We see no cogent reason why the Union Shop Clause should not be applied equally to these two types of new employees, for they are undeniably similarly situated.18Again, it is worthwhile to highlight that a contrary interpretation of the Union Shop Clause would dilute its efficacy and put the certified union that is supposedly being protected thereby at the mercy of management. For if the former FEBTC employees had no say in the merger of its former employer with another bank, as petitioner BPI repeatedly decries on their behalf, the Union likewise could not prevent BPI from proceeding with the merger which undisputedly affected the number of employees in the bargaining unit that the Union represents and may negatively impact on the Unions majority status. In this instance, we should be guided by the principle that courts must place a practical and realistic construction upon a CBA, giving due consideration to the context in which it is negotiated and purpose which it is intended to serve.19We now come to the question: Does our affirmance of our ruling that former FEBTC employees absorbed by BPI are covered by the Union Shop Clause violate their right to security of tenure which we expressly upheld in this Resolution? We answer in the negative.In Rance v. National Labor Relations Commission,20we held that:It is the policy of the state to assure the right of workers to "security of tenure" (Article XIII, Sec. 3 of the New Constitution, Section 9, Article II of the 1973 Constitution). The guarantee is an act of social justice. When a person has no property, his job may possibly be his only possession or means of livelihood. Therefore, he should be protected against any arbitrary deprivation of his job. Article 280 of the Labor Code has construedsecurity of tenure as meaning that "the employer shall not terminate the services of an employee except for a just cause or when authorized by" the Code. x x x (Emphasis supplied.)We have also previously held that the fundamental guarantee of security of tenure and due process dictates that no worker shall be dismissed except for a just and authorized cause provided by law and after due process is observed.21Even as we now recognize the right to continuous, unbroken employment of workers who are absorbed into a new company pursuant to a merger, it is but logical that their employment may be terminated for any causes provided for under the law or in jurisprudence without violating their right to security of tenure. As Justice Carpio discussed in his dissenting opinion, it is well-settled that termination of employment by virtue of a union security clause embodied in a CBA is recognized in our jurisdiction.22In Del Monte Philippines, Inc. v. Saldivar,23we explained the rationale for this policy in this wise:Article 279 of the Labor Code ordains that "in cases of regular employment, the employer shall not terminate the services of an employee except for a just cause or when authorized by [Title I, Book Six of the Labor Code]."Admittedly, the enforcement of a closed-shop or union security provision in the CBA as a ground for termination finds no extension within any of the provisions under Title I, Book Six of the Labor Code. Yet jurisprudence has consistently recognized, thus: "It isState policy to promote unionismto enable workers to negotiate with management on an even playing field and with more persuasiveness than if they were to individually and separately bargain with the employer. For this reason, the law has allowed stipulations for 'union shop' and 'closed shop' as means of encouraging workers to join and support the union of their choice in the protection of their rights and interests vis-a-vis the employer."24(Emphasis supplied.)Although it is accepted that non-compliance with a union security clause is a valid ground for an employees dismissal, jurisprudence dictates that such a dismissal must still be done in accordance with due process. This much we decreed in General Milling Corporation v. Casio,25to wit:The Court reiterated in Malayang Samahan ng mga Manggagawa sa M. Greenfield v. Ramos that:While respondent company may validly dismiss the employees expelled by the union for disloyalty under the union security clause of the collective bargaining agreement upon the recommendation by the union, this dismissal should not be done hastily and summarily thereby eroding the employees' right to due process, self-organization and security of tenure. The enforcement of union security clauses is authorized by law provided such enforcement is not characterized by arbitrariness, and always with due process. Even on the assumption that the federation had valid grounds to expel the union officers, due process requires that these union officers be accorded a separate hearing by respondent company.The twin requirements of notice and hearing constitute the essential elements of procedural due process. The law requires the employer to furnish the employee sought to be dismissed with two written notices before termination of employment can be legally effected: (1) a written notice apprising the employee of the particular acts or omissions for which his dismissal is sought in order to afford him an opportunity to be heard and to defend himself with the assistance of counsel, if he desires, and (2) a subsequent notice informing the employee of the employer's decision to dismiss him. This procedure is mandatory and its absence taints the dismissal with illegality.Irrefragably, GMC cannot dispense with the requirements of notice and hearing before dismissing Casio, et al. even when said dismissal is pursuant to the closed shop provision in the CBA. The rights of an employee to be informed of the charges against him and to reasonable opportunity to present his side in a controversy with either the company or his own union are not wiped away by a union security clause or a union shop clause in a collective bargaining agreement. x x x26(Emphases supplied.)In light of the foregoing, we find it appropriate to state that, apart from the fresh thirty (30)-day period from notice of finality of the Decision given to the affected FEBTC employees to join the Union before the latter can request petitioner to terminate the formers employment, petitioner must still accord said employees the twin requirements of notice and hearing on the possibility that they may have other justifications for not joining the Union. Similar to our August 10, 2010 Decision, we reiterate that our ruling presupposes there has been no material change in the situation of the parties in the interim.WHEREFORE, the Motion for Reconsideration is DENIED. The Decision dated August 10, 2010 is AFFIRMED, subject to the qualifications that:(a) Petitioner is deemed to have assumed the employment contracts of the Far East Bank and Trust Company (FEBTC) employees upon effectivity of the merger without break in the continuity of their employment, even without express stipulation in the Articles of Merger; and(b) Aside from the thirty (30) days, counted from notice of finality of the August 10, 2010 Decision, given to former FEBTC employees to join the respondent, said employees shall be accorded full procedural due process before their employment may be terminated.SO ORDERED.

[G.R. No. 123793.June 29, 1998]ASSOCIATED BANK, vs.COURT OF APPEALS

PANGANIBAN,J.:In a merger, does the surviving corporation have a right to enforce a contract entered into by the absorbed companysubsequentto the date of the merger agreement, but prior to the issuance of a certificate of merger by the Securities and Exchange Commission?The CaseThis is a petition for review under Rule 45 of the Rules of Court seeking to set aside the Decision[1]of the Court of Appeals[2]in CA-GR CV No. 26465 promulgated on January 30, 1996, which answered the above question in the negative.The challenged Decision reversed and set aside the October 17, 1986 Decision[3]in Civil Case No. 85-32243, promulgated by the Regional Trial Court of Manila, Branch 48, which disposed of the controversy in favor of herein petitioner as follows:[4]WHEREFORE, judgment is hereby rendered in favor of the plaintiff Associated Bank.The defendant Lorenzo Sarmiento, Jr. is ordered to pay plaintiff:1.The amount ofP4,689,413.63 with interest thereon at 14% per annum until fully paid;2.The amount ofP200,000.00 as and for attorneys fees; and3.The costs of suit.On the other hand, the Court of Appeals resolved the case in this wise:[5]WHEREFORE, premises considered, the decision appealed from, dated October 17, 1986 is REVERSED and SET ASIDE and another judgment rendered DISMISSING plaintiff-appellees complaint, docketed as Civil Case No. 85-32243.There is no pronouncement as to costs.The FactsThe undisputed factual antecedents, as narrated by the trial court and adopted by public respondent, are as follows:[6]x x x[O]n or about September 16, 1975 Associated Banking Corporation and Citizens Bank and Trust Company merged to form just one banking corporation known as Associated Citizens Bank, the surviving bank.On or about March 10, 1981, the Associated Citizens Bank changed its corporate name to Associated Bank by virtue of the Amended Articles of Incorporation.On September 7, 1977, the defendant executed in favor of Associated Bank a promissory note whereby the former undertook to pay the latter the sum ofP2,500,000.00 payable on or before March 6, 1978.As per said promissory note, the defendant agreed to pay interest at 14% per annum, 3% per annum in the form of liquidated damages, compounded interests, and attorneys fees, in case of litigation equivalent to 10% of the amount due.The defendant, to date, still owes plaintiff bank the amount ofP2,250,000.00 exclusive of interest and other charges.Despite repeated demands the defendant failed to pay the amount due.xxxxxxxxxx x x[T]he defendant denied all the pertinent allegations in the complaint and alleged as affirmative and[/]or special defenses that the complaint states no valid cause of action; that the plaintiff is not the proper party in interest because the promissory note was executed in favor of Citizens Bank and Trust Company; that the promissory note does not accurately reflect the true intention and agreement of the parties; that terms and conditions of the promissory note are onerous and must be construed against the creditor-payee bank; that several partial payments made in the promissory note are not properly applied; that the present action is premature; that as compulsory counterclaim the defendant prays for attorneys fees, moral damages and expenses of litigation.On May 22, 1986, the defendant was declared as if in default for failure to appear at the Pre-Trial Conference despite due notice.A Motion to Lift Order of Default and/or Reconsideration of Order dated May 22, 1986 was filed by defendants counsel which was denied by the Court in [an] order dated September 16, 1986 and the plaintiff was allowed to present its evidence before the Court ex-parte on October 16, 1986.At the hearing before the Court ex-parte, Esteban C. Ocampo testified thatx x xhe is an accountant of the Loans and Discount Department of the plaintiff bank; that as such, he supervises the accounting section of the bank, he counterchecks all the transactions that transpired during the day and is responsible for all the accounts and records and other things that may[ ]be assigned to the Loans and Discount Department; that he knows the [D]efendant Lorenzo Sarmiento, Jr. because he has an outstanding loan with them as per their records; that Lorenzo Sarmiento, Jr. executed a promissory note No. TL-2649-77 dated September 7, 1977 in the amount ofP2,500,000.00 (Exhibit A); that Associated Banking Corporation and the Citizens Bank and Trust Company merged to form one banking corporation known as the Associated Citizens Bank and is now known as Associated Bank by virtue of its Amended Articles of Incorporation; that there were partial payments made but not full; that the defendant has not paid his obligation as evidenced by the latest statement of account (Exh. B); that as per statement of account the outstanding obligation of the defendant isP5,689,413.63 lessP1,000,000.00 orP4,689,413.63 (Exh. B, B-1); that a demand letter dated June 6, 1985 was sent by the bank thru its counsel (Exh. C) which was received by the defendant on November 12, 1985 (Exh. C, C-1, C-2, C-3); that the defendant paid onlyP1,000,000.00 which is reflected in the Exhibit C.Based on the evidence presented by petitioner, the trial court ordered Respondent Sarmiento to pay the bank his remaining balance plus interests and attorneys fees.In his appeal, Sarmiento assigned to the trial court several errors, namely:[7]IThe [trial court] erred in denying appellants motion to dismiss appellee banks complaint on the ground of lack of cause of action and for being barred by prescription and laches.IIThe same lower court erred in admitting plaintiff-appellee banks amended complaint while defendant-appellants motion to dismiss appellee banks original complaint and using/availing [itself of] the new additional allegations as bases in denial of said appellants motion and in the interpretation and application of the agreement of merger and Section 80 of BP Blg. 68, Corporation Code of the Philippines.IIIThe [trial court] erred and gravely abuse[d] its discretion in rendering the two as if in default orders dated May 22, 1986 and September 16, 1986 and in not reconsidering the same upon technical grounds which in effect subvert the best primordial interest of substantial justice and equity.IVThe courta quoerred in issuing the orders dated May 22, 1986 and September 16, 1986 declaring appellant as if in default due to non-appearance of appellants attending counsel who had resigned from the law firm and while the parties [were] negotiating for settlement of the case and after a one million peso payment had in fact been paid to appellee bank for appellants account at the start of such negotiation on February 18, 1986 as act of earnest desire to settle the obligation in good faith by the interested parties.VThe lower court erred in according credence to appellee banks Exhibit B statement of account which had been merely requested by its counsel during the trial and bearing date of September 30, 1986.VIThe lower court erred in accepting and giving credence to appellee banks 27-year-old witness Esteban C. Ocampo as of the date he testified on October 16, 1986, and therefore, he was merely an eighteen-year-old minor when appellant supposedly incurred the foisted obligation under the subject PN No. TL-2649-77 dated September 7, 1977, Exhibit A of appellee bank.VIIThe [trial court] erred in adopting appellee banks Exhibit B dated September 30, 1986 in its decision given in open court on October 17, 1986 which exacted eighteen percent (18%) per annum on the foisted principal amount ofP2.5 million when the subject PN, Exhibit A, stipulated only fourteen percent (14%) per annum and which was actually prayed for in appellee banks original and amended complaints.VIIIThe appealed decision of the lower court erred in not considering at all appellants affirmative defenses that (1) the subject PN No. TL-2649-77 forP2.5 million dated September 7, 1977, is merely an accommodationpour autruibereft of any actual consideration to appellant himself and (2) the subject PN is a contract of adhesion, hence, [it] needs [to] be strictly construed against appellee bank -- assuming for granted that it has the right to enforce and seek collection thereof.IXThe lower court should have at least allowed appellant the opportunity to present countervailing evidence considering the huge amounts claimed by appellee bank (principal sum ofP2.5 million which including accrued interests, penalties and cost of litigation totaledP4,689,413.63) and appellants affirmative defenses -- pursuant to substantial justice and equity.The appellate court, however, found no need to tackle all the assigned errors and limited itself to the question of whether [herein petitioner had] established or proven a cause of action against [herein private respondent].Accordingly, Respondent Court held that the Associated Bank had no cause of action against Lorenzo Sarmiento Jr., since said bank was not privy to the promissory note executed by Sarmiento in favor of Citizens Bank and Trust Company (CBTC).The court ruled that the earlier merger between the two banks could not have vested Associated Bank with any interest arising from the promissory note executed in favor of CBTCaftersuch merger.Thus, as earlier stated, Respondent Court set aside the decision of the trial court and dismissed the complaint.Petitioner now comes to us for a reversal of this ruling.[8]IssuesIn its petition, petitioner cites the following reasons:[9]IThe Court of Appeals erred in reversing the decision of the trial court and in declaring that petitioner has no cause of action against respondent over the promissory note.IIThe Court of Appeals also erred in declaring that, since the promissory note was executed in favor of Citizens Bank and Trust Company two years after the merger between Associated Banking Corporation and Citizens Bank and Trust Company, respondent is not liable to petitioner because there is no privity of contract between respondent and Associated Bank.IIIThe Court of Appeals erred when it ruled that petitioner, despite the merger between petitioner and Citizens Bank and Trust Company, is not a real party in interest insofar as the promissory note executed in favor of the merger.In a nutshell, the main issue is whether Associated Bank, the surviving corporation, may enforce the promissory note made by private respondent in favor of CBTC, the absorbed company, after the merger agreement had been signed.The Courts RulingThe petition is impressed with merit.The Main Issue:Associated Bank AssumedAll Rights of CBTCOrdinarily, in the merger of two or more existing corporations, one of the combining corporations survives and continues the combined business, while the rest are dissolved and all their rights, properties and liabilities are acquired by the surviving corporation.[10]Although there is a dissolution of the absorbed corporations, there is no winding up of their affairs or liquidation of their assets, because the surviving corporation automatically acquires all their rights, privileges and powers, as well as their liabilities.[11]The merger, however, does not become effective upon the mere agreement of the constituent corporations.The procedure to be followed is prescribed under the Corporation Code.[12]Section 79 of said Code requires the approval by the Securities and Exchange Commission (SEC) of the articles of merger which, in turn, must have been duly approved by a majority of the respective stockholders oftheconstituentcorporations.The same provision further states that the merger shall be effective only upon the issuance by the SEC of a certificate of merger.The effectivity date of the merger is crucial for determining when the merged or absorbed corporation ceases to exist; and when its rights, privileges, properties as well as liabilities pass on to the surviving corporation.Consistent with the aforementioned Section 79, the September 16, 1975 Agreement of Merger,[13]which Associated Banking Corporation (ABC) and Citizens Bank and Trust Company (CBTC) entered into, provided that its effectivity shall, for all intents and purposes, be the date when the necessary papers to carry out this [m]erger shall have been approved by the Securities and Exchange Commission.[14]As to the transfer of the properties of CBTC to ABC, the agreement provides:10.Upon effective date of the Merger, all rights, privileges, powers, immunities, franchises, assets and property of [CBTC], whether real, personal or mixed, and including [CBTCs] goodwill and tradename, and all debts due to [CBTC] on whatever act, and all other things in action belonging to [CBTC] as of the effective date of the [m]erger shall be vested in [ABC], the SURVIVING BANK, without need of further act or deed, unless by express requirements of law or of a government agency, any separate or specific deed of conveyance to legally effect the transfer or assignment of any kind of property [or] asset is required, in which case such document or deed shall be executed accordingly; and all property, rights, privileges, powers, immunities, franchises and all appointments, designations and nominations, and all other rights and interests of [CBTC] as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, trustee of estates of persons mentally ill and in every other fiduciary capacity, and all and every other interest of [CBTC] shall thereafter be effectually the property of [ABC] as they were of [CBTC], and title to any real estate, whether by deed or otherwise, vested in [CBTC] shall not revert or be in any way impaired by reason thereof; provided, however, that all rights of creditors and all liens upon any property of [CBTC] shall be preserved and unimpaired and all debts, liabilities, obligations, duties and undertakings of [CBTC], whether contractual or otherwise, expressed or implied, actual or contingent, shall henceforth attach to [ABC] which shall be responsible therefor and may be enforced against [ABC] to the same extent as if the same debts, liabilities, obligations, duties and undertakings have been originally incurred or contracted by [ABC], subje