G.R. No. 113103 June 13, 1997NATIONAL POWER CORPORATION, THE
NATIONAL POWER CORPORATION BOARD OF DIRECTORS, CONRADO D. DEL
ROSARIO and MARCELINO ILAO, petitioners, vs.THE HON. COURT OF
APPEALS, HON. TOMAS V. TADEO, JR., in his capacity as Presiding
Judge, Regional Trial Court of Quezon City, Branch 105 and GROWTH
LINK, INC., respondents.
GROWTH LINK, INC., petitioner, vs. COURT OF APPEALS and NATIONAL
POWER CORPORATION, respondents.
Raising the sole issue of the illegality of the award of an
exorbitantand unconscionable amount as attorney's fees granted 1 by
the Regional Trial Court 2 in a Petition for Mandamus with
Preliminary Mandatory Injunction and Damages 3 and affirmed by the
Court of Appeals 4 in its Decisions 5 in CA-G.R. SP No. 26898,
entitled, "Growth Link, Inc. v. National Power Corporation, et
al.," therein respondents-appellants National Power Corporation
(NPC), the NPC Board of Directors, Conrado D. del Rosario and
Marcelino Ilao, petition this court to reverse said Decision
"insofar as the award of attorney's fees is concerned." 6Growth
Link, Inc. (hereafter, Growth Link), which is the
petitioner-appellee in CA-G.R. SP No. 26898, for its part, comes
before us with a separate Petition in challenge of the same
Decision which we are asked to completely reverse, Growth Link
praying 7 instead for the affirmance in toto of the trial court
decision. Growth Link's Petition is docketed as G.R. No. 116000.In
a Resolution 8 dated September 28, 1994, we granted the Motion for
Consolidation filed by Growth Link and forthwith ordered the
consolidation of G.R. Nos. 113103 and 116000.We proceed from the
following premises:
The facts of the case as summarized by the trial court are as
follows:
1. [Growth Link] is a duly registered domestic corporation while
. . . NPC is a duly organized government corporate entity while the
individual [petitioners] are officers and/or members of the NPC
Board of Directors, except that [petitioners] Conrado Del Rosario
and Crispin T. Ubaldo are no longer connected with . . . NPC;
(ON THE FIRST CAUSE OF ACTION):
2. That on October 23, 1984, [Growth Link] was duly awarded
Purchase Order (PO) No. 086653 to suply (sic) NPC, subject to
certain terms therein expressed, two (2) pieces Pielstick Piston
Skirt specified under Code No. 02.005.0171.00, Plate No.
6.02.005.04 at the total price of P230,000.00;
3. That subject Piston Skirts were actually delivered to and
received by the NPC Manila (RWSS) Warehouwe (sic) on January 16,
1985, subjected to actual visual inspection and were found
conforming to technical specifications per PO, hence were accepted
and approved for payment;
4. That said Piston Skirts were later shipped by NPC to the
end-user, the General Santos Diesel Plant (GSDP), which
acknowledged delivery thereof as of January 29, 1985;
5. That under date 24 May 1985, four (4) months from delivery,
the following findings/observations were allegedly reported found
in said Piston Skirts, namely: (a) damage[d]/used O-rings; (b)
scratches on mid-span; (c) scratches on top and bottom portion of
skirts; (d) carbon residue/deposit on top grove of piston
skirts;
6. That the amount of P16,879.50 was deducted by NPC from
[Growth Link's] other receivables thru PNB Check No. 102690 per NPC
Credit Memo No. 030910;
7. That under date 6 March 1986, [Growth Link] was in receipt of
a letter from the then NPC President, Hon. G. Y. Itchon, formally
demanding immediate replacements of the Piston Skirts, otherwise,
NPC will be contrained (sic) to demand the refund of P227,470 as
purchase costs of the items and P23,051 as cost of delivery . . .
plus applicable interest charges reckoned from date of receipt of
NPC payment, meanwhile said amounts are withheld from [Growth
Link's] outstanding receivables from NPC, pending replacements with
the warning that a repetition of similar delivery or any subsequent
infraction shall amount to immediate cancellation of [Growth
Link's] accreditation with the NPC and prosecution of appropriate
legal action;
8. That as direct consequence of the pressures aforecited and
despite the actual investigation findings on the rejected items by
the foreign principal's authorized representative . . . [Growth
Link] was eventually constrained to replace, as [it] actually did
replace the questioned piston skirts, and the rejected items
shipped back to Japan for evaluation/analysis;
ON THE SECOND CAUSE OF ACTION:
9. That under date 23 February 1984, [NPC] ordered thru [Growth
Link], under Indent Order (I.O.) No. 07600, Pielstick Engine Pistol
Rings for the Panay Diesel Power Plant (PDPP-Dingle) per Inquiry
No. F2C84-3/26-1053TR, PR No. 07381, worth FOB Y1.87 M;
10 That subject piston rings were shipped from Japan direct to
consignee, the NPC, and were accepted and received by the end-user,
PDPP-Dingle Panay, on May 30, 1985;
11. That under date 3 June 1986, almost a year later, Mr. Romeo
A. Perlado, NPC VP-Visayas Region, addressed a Memo to Ms. C.V.
Daplas, NPC Manager, Procurement Division, [that the Pielstick
Engine Piston Rings for PDPP-Dingle Panay under] Indent Order No.
N-07600 did not reach its normal expected life of 12,000 RH and
[that Ms. Daplas is] to . . . check and verify who was the supplier
of these materials and . . . request them to replace their
materials, if not . . . [to] put on record that . . . this supplier
[gave] a bad supply of materials;
12. That upon the intercession of [Growth Link], the foreign
supplier of said indented piston rings telexed NPC to send thru
[Growth Link] all damaged rings/circumstantial data for
manufacturer's analysis/evaluation with further info that other NPC
orders supplied by Fuji includes [sic] the same items per IO 7395,
7501 and 7694;
13. That acting upon the foreign supplier's telex message
aforecited, Ms. Cecilia V. Daplas, the NPC Manager, Procurement
Division, Diliman, Quezon City, in a Memorandum dated 11 July 1986,
to the NPC VP Visayas Region, requested [for] two sets of these
rings, one of which will be sent to the manufacturer and the other
for an analysis by an independent party in the Philippines with the
further request that the rings to be sent . . . should bear the
markings of the manufacturer in order to avoid any room for doubt
or denials that the damaged rings are their manufacture[d]
[products];
14. That in his report . . . dated April 6, 1987, Naciano T.
Caballero, Manager, CMTS Department, addressed to Mr. J.C.
Guaderrama, Manager, Materials Management Department, NPC, re:
PDPP-I Pielstick Piston Rings, stated:
1. Our inspections failed to produce the rejected pieces as
there are no available damaged piston rings at the plant to be
presented to Procurement per memo of Ms. Cecilia V. Daplas,
Manager, Procurement Division dated 11 July 1986 addressed to
VP-VRC . . . forwarded to this office for proper action;
2. Operating indicators and maintenance data fail to completely
show evidence that will substantiate earlier reports of premature
damage.
15. That six (6) months later herein petitioner was in receipt
of a letter dated October 16, 1987 from NPC VP-Administrator, Ms.
P. A. Segovia (Ms. Segovia was among those previously furnished the
Caballero Report dated April 6, 1987, to the effect that the 4
pieces of the damaged rings are now available for release with the
demand that all rejected piston ring[s] be now completely replaced
by genuine parts manufactured by S.E.M.T. licensed
manufacturer);
ON [THE] THIRD CAUSE OF ACTION:
16. That under date 14 June 1986, [Growth Link] was awarded
Purchase Order (PO) No. 095435 to deliver four (4) pieces of Right
Hand Exhaust Valve Body, Part No. 02.015.0226.00; Plate No.
02.015.11 and another four (4) pieces of Left Hand Exhaust Valve
Body, Part No. 02.015.0117.00; Plate No. 02.015.12 at the NPC Old
Bldg. Port Area, Manila;
17. That upon delivery at the NPC Old Warehouse, Port Area,
Manila on October 13, 1986 subject Valve Body were forthwith
immediately rejected by the Quality Assurance Group on ground that
they are manufactured by Fuji Diesel Co., Ltd., which is not a
licensee of S.E.M.T. Pielstick [and] that only Pielstick engine
spare parts coming from the manufacturer or its licensees shall be
accepted;
18. That the rejected exhaust valve body items still remain at
the NPC Warehouse, Port Area, Manila;
ON THE FOURTH CAUSE OF ACTION:
19. The existence of the memo of NPC's General Counsel . . . of
January 28, 1987 . . . is admitted;
ON THE FIFTH CAUSE OF ACTION:
20. Under date 12 October 1987 [Growth Link] was in receipt of a
leter (sic) dated 1 October 1987 from the . . . then NPC President
C. D. Del Rosario, that NPC is constrained to refrain transacting
business with [Growth Link and] further alleging [that] certain
subsequent deliveries by petitioner were either rejected or found
with missing items as additional infractions, thus:
a. the 72 pieces of Screws covered by IO No. M-08354-AA
allegedly did not conform with the dimensions of the original
part;
b. the shipment consisting of washer, nut and screw for
Pielstick Engine covered by IO No. M-07692 dated April 24, 1984
[had] four (4) missing items out of the eight (8) items
ordered;
c. BBC Turbocharger spares covered by PO No. 096345 dated
October 9, 1985 and PO No. 096626 dated November 10, 1985 [were]
rejected on March 10, 1987 by the Quality Assurance Dept. on
grounds that the items delivered were found to be manufactured by
IHI, Japan which although a BBC licensee, was not specified
manufacturer on [Growth Link's] bid offer;
d. Pielstick Engine spares covered by IO No. N-08186 dated July
20, 1985 shipped direct from Japan arrived at Aplaya, reported[ly]
short-shipped . . .
21. The existence of the Reply communication and [Growth Link's]
motion for reconsideration is admitted;
22. [Growth Link] was pre-qualified as an NPC supplier in
1982.
The following facts have also been shown:
1. Since 1982 when, as admitted, [Growth Link] was pre-qualified
as NPC supplier, up to the time in 1987 when . . . NPC refused to
do business with petitioner, the latter had numerous sales through
public biddings with a total value of over P60 million . . .
2. [Growth Link] was the lowest bidder and the most advantageous
bidder in several other biddings . . . but NPC did not issue the
awards.
3. As a matter [of ] procedure, NPC dealt only with accredited
suppliers and NPC recognized [Growth Link] as duly accredited. . .
.
4. At the start in 1982 [Growth Link] complied with the
accreditation requirements of NPC by submitting voluminous
documents like the articles of incorporation of GLI, corporate
profile, appointment of [Growth Link] as exclusive supplier and
distributor of spare parts by foreign manufacturers . . .,
suppliers' warranties . . . catalogues, company profile and other
information about foreign suppliers . . . And, more importantly, it
did not anymore undergo the same process ad (sic) subsequent
biddings [that Growth Link] participated in. So that the
accreditation was a continuing one and not on a per transaction
basis.
5. On February 13, 1987 NPC announced its decision to stop
transacting business with [Growth Link] . . . and was blacklisted
due to violation of the conditions of the contract. . . .
6. The grounds for the cancellation of [Growth Link's]
accreditation . . . are three, namely:
a). that [Growth Link] supplied second hand piston skirts;
b). that piston rings supplied by it did not reach the required
running hours;
c). that [Growth Link] supplied exhaust valve bodies
manufactured by Fuji Diesel Ltd. which was not licensed by
SEMT.
7. [Growth Link] refuted the charges in several letters . . .
and was asking for opportunity to be heard at a formal hearing on
[the] request for reconsideration but same was not acted upon by
NPC.
8. [NPC's] witness Alejandro admitted that he knew of instances
of switching cargoes in the Port Area of Manila (tsn, Oct. 16,
1990, p. 23).
9. On October 23, 1984, [Growth Link] was awarded by NPC
Purchase Order No. 088653 to supply NPC two (2) pieces of Pielstick
Skirt specified under Code No. 02.005.017.00, Plate No. 6.02.005.04
at the total price of P230,000.00 . . . These items were
manufactured in Japan by Fuji Diesel Ltd.
10. From Japan these were shipped to the Philippines on board
Everett Orient Line vessel . . . and Bureau of Customs tagged the
shipment as brand new. . . .
11. Subject piston skirts were actually delivered to and
received by NPC Manila (RWSS) Warehouse on January 16, 1985 and
subjected to actual visual inspection and were found conforming to
technical specifications per PO, hence, were accepted and approved
for payment. . . .
12. Having complied with all the terms and conditions in the PO,
[Growth Link was] paid by . . . NPC for said piston skirts.
13. The piston skirts were shipped by NPC to end-user, the
General Santos Diesel Plant (GSDP) and the latter rejected the
items in view of the findings made on May 24, 1985 of a)
damaged/used O-rings; b) scratches on mid-span; c) scratches on top
and bottom portion of skirts; d) carbon residue/deposit on top
grove of piston skirts . . . .
14. On June 18, 1985 [Growth Link] notified foreign supplier
(Fuji Diesel) of the findings of the end-user . . . Fuji sent to
the Philippines its own investigator to conduct
inspection/investigation and on August 6, 1985 said Fuji
investigator submitted his findings on the rejected piston skirts
as follows:
1. The rejected/inspected items were not the ones supplied by us
for [the] following reasons:
a) Identification marks engraved on the rejected items are
different from the standard markings of FUJI DIESEL LTD. the
company [that] manufactured the items . . . supplied against
[NPC's] subject order.
b) The items supplied by Fuji were part of a production batch
made up of 16 items. Each of the 16 items was engraved with the
assigned number within the series 65511 to 65526.
2. On the photographs taken of the rejected items, [the]
following were observed:
a) Reamer bolts that were part of the Fuji supplied items were
missing.
b) Fuji did not supply nuts that were part of the reject.
c) The presence of rust on the upper portion of the item
indicates that the item is not new. . . .
15. Azuma Kako Co., Ltd., a third party surveyor, after careful
analysis, found that the rejected items were second hand and not
manufactured in Japan. . . .
16. On May 14, 1986 Fuji Diesel Co., Ltd., issued a
certification that (a) the two (2) pieces of Pielstick Piston
Skirts covered by PO 086653 were brand new parts manufactured by
our company; but (b) the two (2) pieces of Piston Skirt recently
returned had been identified as products of other than [Fuji]
company.
17. NPC's witness Mangosing in his report . . . noted that the
defects he found on the piston skirts delivered by [Growth Link]
were slight dents and scratches. The items . . . received at Gen.
Santos had serious defects . . . and [were] obviously second hand.
. . . .
18. In his report . . . NPC's Agcaoili stated:
. . . Closer scrutiny on the piston skirt thru the uncovered and
wide spaces between the crating materials showed that there were no
signs of damages and/or unusual imperfections except for slight
dents on the periphery of the piston pin hole. This was considered
insignificant and will not in any way affect the soundness of the
item.
19. NPC's Mangosing confirmed Agcaoili's findings in a separate
report, thus:
. . . The two pieces of piston skirt inspected were packed in a
single Palo China crate. The description of the delivery was
written on a piece of plywood specifying the corresponding Code No.
and Plate No. which is similar to that in the P.O. The piston
skirts were covered with plastic material The bolts and nuts which
are included in the delivery were similarly wrapped with plastic
material and musking [sic] tape which is place (sic) in one of the
piston skirts.
. . . The piston skirt was provided with a wax protective
coating. A look through the open and uncovered spaces between the
piston skirt and the crating material show[s] that the wax
protective coating is thoroughly applied. However, scratches and
dents were noted on the pheriphery [sic] of the piston pin
holes.
20. [Growth Link's] foreign suppliers, Fuji and I & N
International, are highly respected and prominent companies . .
.
21. NPC's Osilla in his report dated September 10, 1985 . . .
stated: further verification revealed that the rejected items by
GSDP were not the one[s] supplied by the principal of Growth Link
Inc.
22. As to the Pielstick Piston Rings ordered by NPC from
petitioner on February 23, 1984 under I.O. 07600 for the Panay
Diesel Power Plant (PDPP), same were shipped from Japan direct to
consignee [sic], the NPC, and were accepted and received by the
end-user, PDPP, on May 30, 1985. On June 3, 1986, or almost a year
later, Romeo A. Perlado, NPC VP-Visayas Region, addressed a Memo to
Ms. C. V. Daplas, NPC Manager, Procurement Division, Diliman,
Quezon City, that the purchased piston rings covered by I.O. No.
N-07600 did not reach its normal expected life of 12,000 RH . . .
.
23. [Growth Link's] foreign supplier of the piston rings, upon
intercession of [Growth Link], telexed NPC to send thru [it] all
damaged rings/circumstantial data for manufacturer's
analysis/evaluation . . . .
24. Engr. Naciancino T. Caballero, NPC Manager, CMTS Dept.
Visayas Regional Office, in a communication dated April 6, 1987 to
Mr. Guadarrama, NPC Manager, Materials Management Dept. stated
that: our inspection failed to produce the rejected pieces as there
are no available damaged piston rings at the plant to be presented
to Procurement per Memo of Ms. Daplas and that operating indicators
and maintenance data fail to completely show evidence that will
substantiate reports of premature damage . . . .
25. The alleged piston rings remained with . . . NPC . . . for
reason that NPC refuses to issue the authorization to obtain
possession of subject item with complete
description/identification/marking for manufacturer['s]
purposes.
26. As to the exhaust valve bodies, which were delivered to NPC
Old Warehouse, Port Area, Manila, on October 13, 1986, these were
rejected by NPC Quality Assurance group on ground that they are
manufactured by Fuji Diesel Co., Ltd., which is not a licensee of
S.E.M.T. Pielstick [and] that only Pielstick engine spare parts
coming from the manufacturer or its licensees shall be accepted.
But [Growth Link] did not accept the return of the rejected items
for reason [that] there was nothing in the PO . . . which excluded
Fuji as manufacturer of the particular items. It only required a
certificate of compliance from [the] manufacturer upon delivery
which was complied with and for reason that the manufacturer was
not specified to be S.E.M.T. or any of its licensees.
27. Petitioner submitted to NPC prequalification documents of
its supplier Fuji . . . which included a statement of
capital-production-sales tie up with Niigata Engineering Co., Ltd.
which is a licensee of SEMT for PC type engines . . . These also
show that Fuji was a licensee of SEMT for PA type engines.
28. NPC, from 1982 to 1986, had already issued 24 orders to Fuji
valued at P28,000,000.00. . . .
[Growth Link] filed [a] petition for mandamus with preliminary
injunction and damages with the trial court on February 8, 1988. In
an order dated February 15, 1988, the trial court required the
[NPC] and other respondents [therein] to file their Comment and/or
Answer. . . .
At the hearing on February 24, 1988, the [NPC and other]
respondents [therein] and/or counsel failed to appear but upon
motion of . . . Growth Link's counsel, the latter was allowed to
present its evidence ex parte insofar as the issuance of the writ
is concerned. Thereafter, or on March 4, 1988, the court granted
the issuance of the writ, subject to the filing by petitioner of a
surety bond in the amount of P2,245,821.53 . . . However, said
order of March 4, 1988 was set aside in an order dated April 18,
1988 for the reason that [the] . . . one who received the summons .
. . [was] not authorized to receive summons for the corporation nor
the individual defendants [therein] . . . [T]he trial court
acquired jurisdiction over [them] only upon their voluntary
appearance in court on March 18, 1988. . . . When [Growth Link]
filed the bond . . . the same was approved by the Court and the
writ of preliminary mandatory injunction was issued:
. . . directing the . . . NPC or its duly authorized
representatives to honor, comply and/or abide with the said
Purchase Orders and/or Indent Orders mentioned in the petition as
well as to refrain, cease and desist from cancelling the standing
accreditation of [Growth Link] with [NPC] and allow the former to
participate in any bidding or award like any other accredited
suppliers . . .
The trial court resolved Growth Link's application for
preliminary mandatory injunction in an order dated June 3, 1988
declaring, among others, that:
[T]here is pending [a] motion for reconsideration dated October
20, 1987 filed by [Growth Link] with [NPC] . . . [which denied
Growth Link's] request for reconsideration without even
investigating . . . The [NPC] condemned [Growth Link] as a
blacklisted bidder and supplier without hearing and thus deprived
[it] of its rights without due process. . . .
and ordering that:
. . . [NPC], during the pendency of said motion for
reconsideration and while the same is unresolved finally by the
Court, to temporarily LIFT the suspension of petitioner as duly
accredited NPC supplier, CANCEL its name from [NPC's] blacklist,
and ALLOW [Growth Link] to participate and/or submit its bid
proposals at NPC biddings, upon the same bond of P2,245,821.53
previously filed by [Growth Link] . . . .
Napocor's motion for reconsideration of the aforecited order was
denied on September 27, 1988.
After trial on the merits, the court a quo rendered the decision
dated September 10, 1991 in favor of petitioner Growth Link, Inc.
9The trial court found the NPC guilty of gross evident bad faith in
its dealings with Growth Link as its duly accredited supplier.
Consequently, it ordered the NPC and its officers and members of
the Board of Directors, to jointly and severally pay Growth Link
the following amounts:
a) P230,000.00 representing the cost of the replaced piston
skirts under P.O. No. 086653 plus 12% interest thereto [sic] per
annum from April 9, 1986 until fully paid;
b) P16,870.00 [which was] the amount deducted by [NPC] from
[Growth Link]'s outstanding collectibles, plus 12% interest thereto
[sic] per annum from November 18, 1985 until fully paid;
c) P144,000.00 for payment of items delivered under P.O. No.
095435 plus 12% interest thereto [sic] per annum from November 13,
1986 until fully paid;
d) P27,650.00 for payment of items delivered under P.O. No.
096345 plus 12% interest thereto [sic] per annum from April 4, 1987
until fully paid;
e) P182,070.00 for payment of items delivered under P.O. No.
096626 plus 12% interest thereto [sic] per annum from April 4, 1987
until fully paid;
f) P176,356.00 representing unrealized commission on the
cancelled Indent Order No. 08114 dated May 24, 1985 plus 12%
interest thereto [sic] per annum from November, 1985 until fully
paid;
g) P1,249,745.00 representing unrealized commission on the
Foreign Inquiry Nos. F2c84-3/5-1027 and 1028Tr for Pielstick Engine
Spares, plus 12% interest thereto [sic] per annum from September,
1986 until fully paid;
h) P6,216,583.00 representing unrealized commissions on various
items bidded where [Growth Link] was the lowest bidder but which
was not awarded by NPC to it, plus 12% interest thereto [sic] per
annum from July, 1986 until fully paid;
i) P1,419,853.00 representing unpaid commission from the
disregarded lowest bid of [Growth Link's] principal on NPC Foreign
Inquiry Nos. FPS85-11/26-12AA, FPS85-11/26-121AA and
FPS85-11/6-005AA, plus 12% interest thereto [sic] per annum from
October, 1987 until fully paid;
j) P2,000,000.00 for compensatory damage[s] suffered by
petitioner due to loss of business relationship and standing here
and abroad;
k) P1,500,000.00 for moral and exemplary damages suffered by
[Growth Link];
l) P30,000.00 plus 30% of the principal amount recoverable, as
and for attorney's fees;
m) P40,000.00 as litigation expenses (premiums paid on the
injunction bond, etc.); and
n) Costs of suit. 10Refusing to concede its solidary liability
for the aforegoing amounts, the NPC, and its officers and members
of its Board of Directors appealed the trial court's decision to
the Court of Appeals and sought its reversal on the basis of the
following assignment of errors:
I THE LOWER COURT GRAVELY ERRED IN FINDING NAPOCOR GUILTY OF
GROSS EVIDENT BAD FAITH;
II THE LOWER COURT ERRED IN APPLYING ART. 1571 OF THE CIVIL
CODE;
III THE LOWER COURT ERRED IN FINDING THAT NAPOCOR BREACHED ITS
WRIT OF PRELIMINARY INJUNCTION;IV THE LOWER COURT ERRED IN AWARDING
THE ENTIRE AMOUNT OF DAMAGES, MORE OR LESS, PESOS P13.2 MILLION, AS
PRAYED FOR BY GROWTH LINK;
V THE LOWER COURT ERRED IN HOLDING NAPOCOR JOINTLY AND SEVERALLY
LIABLE WITH ITS OFFICERS. 11The respondent Court of Appeals
rejected the first three assigned errors and in effect affirmed the
trial court's findings of gross evident bad faith on the part of
NPC. The Court of Appeals reasoned:
. . . We find that the trial court based its conclusions of
gross evident bad faith in Napocor's dealings with [Growth Link] on
the following:
1. The writ of preliminary mandatory injunction dated September
28, 1988 which directed NPC, among other things, to refrain, cease
or desist from cancelling the standing accreditation of [Growth
Link] with the [NPC] and allow the former to participate in any
bidding or award like any other accredited suppliers, was honored
by NPC more in its breach than in its compliance. NPC continued to
disallow [Growth Link] to participate in any bidding.
2. The question of warranty for hidden defects or implied
warranty on the quality or fitness of the items delivered by
petitioner and received by NPC could have been avoided had NPC
complied with the requirement of law . . . .
NPC never filed any action against [Growth Link] within the six
months period from the delivery of the piston skirts, piston rings,
and others despite the fact that it was in possession, control, and
disposition of the items . . . and [Growth Link] could not do
anything to prevent switching, damaging, and/or pilferage as the
items are in the full possession and control of NPC. Thus [Growth
Link] was left at the mercy of NPC who [sic] arbitrarily withheld
payment or deducted payment from other items unless the items which
NPC concluded as defective be replaced by [Growth Link].
3. Due process was denied by NPC to [Growth Link]. NPC just
received with deaf ears and closed eyes, the several letters of
explanation of [Growth Link], and the latter's request for
reconsideration and/or investigation was simply wastebasketed. And
yet there was strong ground [for Growth Link's] request considering
that the items alleged to be defective were not the same items
delivered or shipped by [Growth Link's] foreign supplier direct to
NPC or NPC's end-user. But NPC condemned [Growth Link] as a
blacklisted bidder and supplier without hearing and deprived
[Growth Link) of its rights without due process.
Additionally, We find the action of Napocor in requiring [Growth
Link] to replace the two (2) pielstick piston skirts . . .
unjustified. . . . [T]he pielstick skirts when delivered on January
16, 1985 were inspected by the Quality Assurance Group of Napocor
itself composed of Engrs. A.C. Mangosing, Jr. and Roberto Agcaoili
whose report stated that said piston skirts were subjected to
"actual visual inspection and were found conforming to technical
specifications per P.O." On the basis of such findings, the piston
skirts were accepted and approved for payment and on February 25,
1985, Napocor paid Growth Link the net amount of P227,470.00 . . .
.
In the fact-finding report and verification of the delivery of
the pielstick piston skirts, We note with significance the findings
of R. E. Agcaoili, Chief Engineer, Inspection/Test of Napocor as
approved by L. F. Osilla, Manager of Napocor Assurance Group
Utility Operations, that the delivered items are definitely piston
skirts intended for Pielstick Diesel engine for Gen. Santos Plant;
both items (in one crate) appeared new; they were adequately
provided with protective wax coating and further preserved with
pellucid plastic sheet wrappers; closer scrutiny on the piston
skirt . . . showed that there were no signs of damages and/or
unusual imperfection except for slight dents on the pheriphery
[sic] of the piston pin hole which was considered insignificant and
will not in any way affect the soundness of the item. . . . When
these pielstick piston skirts arrived at the Gen. Santos Diesel
Plant and re-inspected . . . the inspection report of Mr. Padilla
stated that the delivered items were second hand and with damages,
hence, they were rejected by the end-user and reshipped to Manila .
. . .
During the negotiations with Napocor, Mr. Teodoro Miguel of
Growth Link committed to replace the rejected items . . .
otherwise, Growth Link would be required to refund the amount of
P227,470.00. On top of that, Napocor deducted the sum of P16,870.50
from [Growth Link's] outstanding collectibles as evidenced by PNB
Check No. 102690 per NPC Credit Memo No. 030910.
. . . [Growth Link] was [also] made to answer for an alleged
discrepancy in the Pielstick Engine Piston Rings for the Panay
Diesel Power Plant (PDPP-Dingle) which . . . was shipped from Japan
direct to Napocor and accepted and received by the end-user on May
30, 1985 but was questioned after a year later on June 3, 1986 by
Mr. Romeo Perlado, NPC VP-Visayas Region claiming that said piston
rings "did not reach its normal expected life of 12,000 RH" and
requested that they be replaced, otherwise, they will put on record
that its supplier has a bad supplyof materials. [Growth Link] was
treated similarly by Napocor with regard to . . . (4) pieces of
Right Hand Exhaust Valve Body which, upon delivery to NPC's old
warehouse at Port Area, Manila on October 13, 1986, were
immediately rejected by the Quality Assurance Group on the ground
that they were manufactured by Fuji Diesel Co., Ltd., which is not
a licensee of S.E.M.T.
The above instances are in addition to the grounds mentioned by
the trial court as constitutive of the pressure imposed by Napocor
upon [Growth Link]. Because of the admission of Napocor's witness,
A.C. Mangosing, Jr. that he knew of instances of switching cargoes
in the Port of Manila . . . We cannot fault [Growth Link] for
entertaining the idea that there was a switching of the brand new
pielsticks with old ones considering the lapse of time between the
delivery and the rejection . . . coupled with the fact that when
they were originally landed and inspected, the same were found by
Napocor's own engineers to be brand new . . . We, therefore, agree
and affirm the lower court's findings that Napocor's gross evident
bad faith was reflected in the aforecited actions taken against
[Growth Link].
Moreover, We find no merit in Napocor's contention that the
trial court erred in applying Art. 1571 of the Civil Code. . . . .
. . We cannot accept this argument especially considering that the
facts clearly show that the pielsticks piston skirts in question
when delivered to Napocor were inspected, accepted and certified to
by Napocor's representatives as brand new and in accordance with
its P.O. No. 086653. As a matter of fact, that shipment was
recommended for payment and was actually paid for by Napocor.
Moreover, the manufacturer's certificate of authenticity and
warranty cited by Napocor that allows a rejected item to be
returned for repair and replacement provides that the "claims (of
defect) must be reported within a reasonable period from the date
of delivery" precisely to prevent a substitution of the thing
delivered . . . .
On the question of the lower court's findings that the Napocor
breached its writ of preliminary injunction, another factor upon
which the lower court based its finding that Napocor committed
gross evident bad faith, We only have to cite by reference that
portion of the decision appealed from . . . . Additionally, on the
basis of the facts established, it can readily be seen that Napocor
virtually dragged its feet to thwart the effectivity of the writ of
preliminary mandatory injunction issued by the lower court.
But while the respondent appellate court affirmed the trial
court's finding of gross evident bad faith on the part of NPC, it
reversed the trial court insofar as it found NPC liable for amounts
claimed by Growth Link to be unrealized commissions properly
accruing to them had the NPC recognized them as the lowest and most
advantageous bidder under several foreign inquiries. The Court of
Appeals ruled:
An invitation to bid is not an offer which, if accepted, matures
into a contract. In the language of Article 1326 of the Civil Code,
"advertisements for bidders are simply invitations to make
proposals, and the advertiser is not bound to accept the highest or
lowest bidder, unless the contrary appears." The reservation in the
Invitation to Bid, of the advertiser's right "to reject any and all
bids" is one of the terms and conditions therein which the bidder
has accepted (Surigao Mineral Reservation Board vs. Cloribel, 24
SCRA 491) and such reservation does not make it obligatory for a
government agency to award its contract to the lowest bidder (C
& C Commercial Corp. vs. Menor, 120 SCRA 112).
Under the guidance of the aforecited authorities, We find no
justification for the award given by the trial court to [Growth
Link] in paragraphs "g", "h", and "i" of the decision appealed
from, which supposedly represent commissions unrealized by [Growth
Link] on the basis of mere Foreign Inquiries for the reason that
unlike Purchase or Indent Orders which are the result of approved
bids and, therefore, give the winning bidder a vested right to its
earnings and commissions arising therefrom, [Foreign Inquiries] as
mere invitations to make offers or proposals, do not, by itself,
produce a contract that would ensure earnings and/or commissions
for the bidder. Hence, the amounts awarded by the trial court
merely on the basis of [Growth Link's] various unapproved bids are
too speculative and uncertain to justify the awards. 12As to the
awards for compensatory, moral and exemplary damages, the
respondent Court of Appeals found valid basis therefor under the
circumstances of these consolidated cases, but respondent appellate
court was no less struck by the enormity of the amounts awarded by
the trial court as damages. Thus it reduced the same in this
wise:
. . . [W]hile we affirm the findings and conclusion of the trial
court as valid basis of the award for damages, We find the awards
of P2,000,000.00 and P1,500,000.00 for compensatory damages and for
moral and exemplary damages, respectively, to be too huge, under
the circumstances of this case that calls for this court's duty to
tone down petitioner's fantastic claims (Baluyot vs. Lopez, 51 O.G.
#2, p. 784). They are, therefore, hereby reduced to P1,000,000.00
for compensatory damages and to P500,000.00 for moral and exemplary
damages.
Likewise finding NPC's objection to the trial court's finding of
solidary liability to be justified, considering that the officers
and members of the Board of Directors of NPC were sued in their
official capacities, the respondent Court of Appeals held:
Finally, We find that the lower court erred in holding the
individual respondents "jointly and severally" liable with Napocor.
It is significant to point out that both the original Petition and
Amended Petition for Mandamus filed by [Growth Link], contain
identical allegations in identifying the individual respondents in
this case, thus:
2. Respondent, NATIONAL POWER CORPORATION . . . ;
Respondents-Members of the NPC Board of Directors; HON. EDGARDO B.
ESPIRITU . . . is being sued in his official capacity as Chairman
of the NPC Board of Directors; HON. ERNESTO M. ABOITIZ . . . is
being sued in his official capacity as the Vice-Chairman of the NPC
Board of Directors and President of the Respondent firm; HON.
JUANITO N. FERRER, HON. NESTOR M. NOGUERRA, HON. CRISPIN T. UBALDO
and HON. DOMINGO R. VIDANES . . . are being sued in their official
capacities as Members of the NPC Board of Directors . . . ;
Respondent, HON. CONRADO D. DEL ROSARIO . . . is being sued in his
former official capacities as Vice-Chairman of the NPC Board and
President of Respondent firm . . . ; and Respondent, MARCELINO ILAO
. . . is being sued in his official capacity as NPC
vice-President-General Counsel . . . .
While the Amended Petition added the words "or respondents" to
its prayer that the trial court order respondent corporation to pay
the amounts claimed therein, there is no allegation whatsoever that
would justify the imposition of a "joint and several" liability
with (Napocor) of the individual respondents who, as officers of
Napocor, were being sued in their respective official capacities.
Neither did petitioner show, much less claim, any circumstance
which would necessitate the piercing of Napocor's corporate veil so
as to make the individual respondents personally liable for
Napocor's obligations. 13From the Decision of the Court of Appeals,
both Growth Link and the NPC and its officers and members of the
Board of Directors invoke this court's review powers: Growth Link
prays for the restoration of the amounts awarded by the trial court
as unrealized commissions in bids where it was the lowest and most
advantageous bidder but which were disregarded in the face of NPC's
unilateral and arbitrary blacklisting of Growth Link, for the
upgrading of the amounts granted as compensatory, moral and
exemplary damages to their original amounts as awarded by the trial
court and for the reinstatement of the finding of solidary
liability among NPC and its officers and members of the Board of
Directors; while NPC prays only for the reduction of the amount
granted as and by way of attorney's fees, which prayer, we should
point out, is significantly premised on the acceptance of all the
other findings and conclusions of the Court of Appeals, including
its affirmance of the trial court's finding of gross evident bad
faith on the part of NPC.
We find the instant consolidated petitions to be both wanting in
merit.
I
G.R. No. 113103
A cursory review of the above errors raised by the NPC before
the Court of Appeals, shows that the NPC never assigned the issue
of the exorbitant amount awarded to Growth Link as and by way of
attorney's fees, as an error on appeal. Thus, insofar as the amount
of the attorney's fees granted by the trial court is concerned, the
same must be deemed no longer open to modification, much less,
reduction, the person supposedly aggrieved thereby having
resonantly been silent on this issue in its appeal before the
respondent court.
At any rate, this court, in at least two (2) occasions, has
allowed an award of 20% 14 to 25% 15 of the total indebtedness
involved in the litigation. In fact, the NPC cites these cases in
its Petition.In this case, Growth Link prayed for and was awarded
by the trial court, the amount of P30,000.00 and 30% of the amount
recoverable, as and by way of attorney's fees. While said amount
may itself be huge by ordinary standards, we believe that the same
is warranted when tested against the criteria that serve as
reglementary guide for the courts to determine the proper amount of
attorney's fees due the winning party.
Thus, we agree with Growth Link when it pleads that:
We take the citations as an implied admission by [the NPC] that
an award of 25% of the obligation, is not in itself gargantuan,
exorbitant and unconscionable. The matter of 5% differential will
not make it so, if we consider the complexities of the instant
case, the determination, now conclusive, that [the NPC] acted with
gross and evident bad faith, in blacklisting private respondent . .
. .
The determination of amount of attorney's fees largely depends
on the court's discretion. So long as it has sound basis, it will
not be interfered with. . . .
Here the lower court was further guided by the complex nature of
this case, involving as it did several causes of action each of
which proved difficult to establish, and made more so by
petitioner's sustained albeit unjustified, resistance. . . .
Thus this suit was a compelled recourse against arbitrary and
capricious conduct and the denial of the rudimentary requirements
of due process. 16Anent the claim of NPC that the decision of the
trial court does not contain any discussion of the basis for the
award of attorney's fees, suffice it to say that the trial court
undisputedly awarded exemplary damages, which award is itself a
legal justification, under Article 2208 17 of the Civil Code, for
the award of attorney's fees.II
G.R. No. 116000
First. Growth Link insists that the decision of the trial court
should be deemed final and executory insofar as NPC's officers and
members of the Board of Directors are concerned, because they did
not appeal the trial court's decision. Growth Link specifically
cites the Notice of Appeal filed by the NPC to be personal only to
the NPC.
This submission, however, is, in the first place, belied by the
caption of the Notice of Appeal in question, which states,
"NATIONAL POWER CORPORATION, ET AL., Respondents." This same
caption can be found in NPC's Motion for Reconsideration.
Significantly, Growth Link's Opposition to the Motion for
Reconsideration made reference to the NPC officers and members of
the Board of Directors, in its arguments. At any rate,
technicalities that defeat substantial justice are, by this court's
policy, an unpreferred basis to deprive parties of their statutory
right to appeal a decision that is fatally flawed in certain
respects.
In the second place, the finding of solidary liability among the
NPC and its officers and members of the Board of Directors, is
patently baseless. The decision of the trial court contains no such
allegation, finding or conclusion regarding particular acts
committed by said officers and members of the Board of Directors
that show them to have been individually guilty of unmistakable
malice, bad faith, or ill-motive in their personal dealings with
Growth Link. In fact, it was only in the dispositive portion of the
decision of the court a quo that solidary liability as such was
first mentioned.
NPC's officers and members of the Board of Directors were sued
merely as nominal parties in their official capacities as such.
They were impleaded by Growth Link not in their personal capacities
as individuals but in their official capacities as officers and
members of the Board of Directors through whom the NPC conducts
business and undertakes its operations pursuant to its avowed
corporate purposes. Therefore, as a bonafide government
corporation, NPC should alone be liable for its corporate acts as
duly authorized by its officers and directors. 18This is so,
because a corporation "is invested by law with a separate
personality, separate and distinct from that of the persons
composing it as well as from any other legal entity to which it may
be related." (Tan Boon Bee & Co., Inc. v. Jarencio, 163 SCRA
205 [1988] citing Yutivo and Sons Hardware Company v. Court of Tax
Appeals, 1 SCRA 160 [1961]; Emilio Cano Enterprises, Inc. v. Court
of Industrial Relations, 13 SCRA 290 [1965]). A corporation is an
artificial person and can transact its business only through its
officers and agents. Necessarily, somebody has to act for it. The
separate personality of the corporation may be disregarded, or the
veil of corporate fiction pierced and the individual stockholders
may be personally liable to obligations of the corporation only
when the corporation is used "as a cloak or cover for fraud or
illegality, or to work an injustice, or where necessary to achieve
equity or when necessary for the protection of creditors." (Sulo ng
Bayan, Inc. v. Araneta, Inc., 72 SCRA 347 [1976] . . . ). 19We
repeat, there was nothing in Growth Link's petition nor in the mass
of evidence proffered, before the court a quo that established the
factual or legal basis to hold the officers and members of the
Board of Directors of the NPC jointly and severally liable with the
NPC for the damages suffered by Growth Link because of acts of
gross evident bad faith on the part of the NPC as a corporate
entity acting through its officers and directors. The records even
bear out that every single offense taken by the NPC against Growth
Link arose from a corporate decision and was executed as a
corporate act. Thus, the trial court gravely erred in holding said
officers and directors to be jointly and severally liable with the
NPC for the damages suffered by Growth Link but caused by the NPC
alone as a corporate entity.
Second. Growth Link takes exception to the reduction made by the
respondent Court of Appeals of the award for compensatory, moral
and exemplary damages. It submits that "the damages awarded by the
lower court are not even adequate compensation for the injuries
visited upon petitioner by the precipitate and irresponsible
conduct of private respondent" and that the amounts as determined
by the trial court were "even conservative in view of the
demonstrated income-potential of petitioner."
We empathize with Growth Link, especially with its
owner-president, Teodoro Miguel, whose sincere testimony as to the
irreparable damage wrought on his business and personal reputation
by NPC's act of blacklisting his company, does call for some
reparation in the form of substantial damages.
However, substantial damages do not translate into excessive
damages. It is well-settled that the award of damages as well as
attorney's fees lies upon the discretion of the court in the
context of the facts and circumstances of eachcase, 20 and this
judicial discretion is largely addressed towards tempering any
tendency to award excessive damages so much so that it stands
vulnerable to and actually magnetizes, attacks as to its being a
result of passion, prejudice or corruption.Two million pesos
(P2,000,000.00) as compensatory damages and one and a half million
pesos (P1,500,000.00) as moral and exemplary damages, are too much.
While NPC may be accountable for lost profits that Growth Link may
have gained from its dealings with the NPC itself, NPC cannot be
made to bear the burden of answering for what other profits that
Growth Link may have earned from other contracts with other
companies. NPC may have accredited Growth Link as a supplier, but
it did not thereby become Growth Link's insurer for all and any
profitable contracts that Growth Link may obtain. Thus, we find the
reduction of the awards of damages by the respondent Court of
Appeals, to be warranted under the facts and circumstances of the
instant case.
Third. Growth Link contests the deletion by the respondent Court
of Appeals of the awards made by the trial court for unrealized
commissions from bids disregarded by the NPC albeit Growth Link was
the lowest and most advantageous bidder, on the ground that the
said amounts were "too speculative and uncertain". Growth Link
cites two (2) reasons: first, that the NPC admitted its liability
for such unrealized commissions in its Answer; and second, that the
basis for the unrealized commissions was not necessarily contract
but quasi-delict.
We disagree.
Growth Link insists that because the NPC allegedly, in its
Answer, failed to deny the claims for unrealized commissions as
laid out in Growth Link's petition, it had, in effect, admitted the
existence and merit of such claims. Growth Link apparently relied
on the general rule that non-denial of allegations in the complaint
results in admissions thereof. This rule, however, is, just like
any other rule, not absolute and correspondingly admits of
exceptions.
. . . [I]n spite of the presence of judicial admissions in a
party's pleading, the trial court is still given leeway to consider
other evidence presented. This rule should apply with more reason
when the parties had agreed to submit an issue for resolution of
the trial court on the basis of the evidence presented.
21Statements made in an Answer are merely statements of fact which
the party filing it expects to prove, but they are not evidence.
With more reason, statements made in the complaint, or in this
case, in the Petition for Mandamus with Preliminary Mandatory
Injunction and Damages, which are not directly refuted in the
Answer, are deemed admissions but neither are they evidence that
will prevail over documentary proofs.
Assuming arguendo that the NPC did not deny the claims for
unrealized commissions as alleged by Growth Link in its mandamus
petition with damages, and that consequently these claims have been
transmuted into judicial admissions, these admissions cannot still
prevail over the rules and regulations governing the bidding for
NPC contracts, which necessarily and inherently include the
reservation by the NPC of its right to reject any or all bids. By
its own assertion, Growth Link has been a regular bidder for NPC
contracts. It cannot deny, much less pretend ignorance of, the
reserved discretion of the NPC to accept or reject any bid. Neither
could Growth Link have forgotten the well-settled rule that this
discretion is of such wide latitude that the courts will not
generally interfere with the exercise thereof by the government,
unless it is apparent that it is used as a shield to a fraudulent
award 22 or an unfairness or injustice is clearly shown. 23We thus
quote, with approval, the following postulations of the Solicitor
General, in behalf of the NPC:
Clearly, it is not NAPOCOR's ministerial duty to make an
automatic award to [Growth Link] even if it was the lowest bidder.
As aforesaid, NAPOCOR reserved the "right to reject the bid of any
bidder." Thus, [Growth Link] has no cause of action . . . . . .
Mandamus will not lie to compel the acceptance of the bid of an
unsuccessful bidder (Borromeo vs. City of Manila, et al., 62 Phil.
512 [1935]).
By participating in the public bidding, after NAPOCOR was
ordered to cease from cancelling [Growth Link's] accreditation and
to allow the latter to participate in any bidding, [Growth Link]
submitted itself to the conditions laid down by NAPOCOR, among
which is the reservation of its right to reject any and all bids to
be made therein. . . .
Furthermore, Sec. 393 of the National Accounting and Auditing
Manual provides:
Sec. 393. Reservation of rights to reject any or all bids. The
contract will be awarded to the contractor whose proposal appears
to be the most advantageous to the Government, but the right shall
be reserved to reject any or all bids, to waive any informality in
the bids received, and to accept or reject any items of any bid
unless such bid is qualified by specific limitations; also to
disregard the bid of any failing bidder, known as such to the
agency head or director, or any bid which is obviously unbalanced
or below what the work can be done for. The right shall also be
reserved to reject the bid of a bidder who has previously failed to
perform properly or complete on time contracts of a similar nature,
or a bid of a bidder who is not in a position to perform the
contract. . . .
In fine, NAPOCOR has the right to reject any and all bids, not
only of [Growth Link] but of all other bidders, as well, if
warranted. 24And then there is Growth Link's submission that its
claims for unrealized commissions are made proceeding not from
facts founded on contract but from facts establishing NPC's
culpability under quasi-delict.
We, however, find no allegation in Growth Link's petition, no
factual finding in the decision of the trial court and no error
assigned before the Court of Appeals, as to anything about NPC's
liability for unrealized commissions based on quasi-delict. We are
hardly surprised, however, by this change of theory at this belated
stage of the proceedings, because Growth Link indeed has no
perfected contract whatsoever to show in order to prove that its
claims for unrealized commissions are anything more than an attempt
to collect on mere proposal-bids that may have been the lowest and
most advantageous in their class but nonetheless remain subject to
the explicit reservation by the NPC of its prerogative to reject
any or all bids.
All told, we find the Decision of the Court of Appeals in CA-G.R
SP No. 26898 to have been rendered in accordance with the
applicable law and jurisprudence.
WHEREFORE, the instant consolidated petitions are HEREBY
DISMISSED for lack of merit.
No pronouncement as to costs.
G.R. No. 58168 December 19, 1989
CONCEPCION MAGSAYSAY-LABRADOR, SOLEDAD MAGSAYSAY-CABRERA, LUISA
MAGSAYSAY-CORPUZ, assisted be her husband, Dr. Jose Corpuz,
FELICIDAD P. MAGSAYSAY, and MERCEDES MAGSAYSAY-DIAZ, petitioners,
vs. THE COURT OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY, Special
Administratrix of the Estate of the late Genaro F. Magsaysay
respondents.
In this petition for review on certiorari, petitioners seek to
reverse and set aside [1] the decision of the Court of Appeals
dated July l3, 1981, 1 affirming that of the Court of First
Instance of Zambales and Olongapo City which denied petitioners'
motion to intervene in an annulment suit filed by herein private
respondent, and [2] its resolution dated September 7, 1981, denying
their motion for reconsideration.Petitioners are raising a purely
legal question; whether or not respondent Court of Appeals
correctly denied their motion for intervention.
On February 9, 1979, Adelaida Rodriguez-Magsaysay, widow and
special administratix of the estate of the late Senator Genaro
Magsaysay, brought before the then Court of First Instance of
Olongapo an action against Artemio Panganiban, Subic Land
Corporation (SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and
the Register of Deeds of Zambales. In her complaint, she alleged
that in 1958, she and her husband acquired, thru conjugal funds, a
parcel of land with improvements, known as "Pequena Island",
covered by TCT No. 3258; that after the death of her husband, she
discovered [a] an annotation at the back of TCT No. 3258 that "the
land was acquired by her husband from his separate capital;" [b]
the registration of a Deed of Assignment dated June 25, 1976
purportedly executed by the late Senator in favor of SUBIC, as a
result of which TCT No. 3258 was cancelled and TCT No. 22431 issued
in the name of SUBIC; and [c] the registration of Deed of Mortgage
dated April 28, 1977 in the amount of P 2,700,000.00 executed by
SUBIC in favor of FILMANBANK; that the foregoing acts were void and
done in an attempt to defraud the conjugal partnership considering
that the land is conjugal, her marital consent to the annotation on
TCT No. 3258 was not obtained, the change made by the Register of
Deeds of the titleholders was effected without the approval of the
Commissioner of Land Registration and that the late Senator did not
execute the purported Deed of Assignment or his consent thereto, if
obtained, was secured by mistake, violence and intimidation. She
further alleged that the assignment in favor of SUBIC was without
consideration and consequently null and void. She prayed that the
Deed of Assignment and the Deed of Mortgage be annulled and that
the Register of Deeds be ordered to cancel TCT No. 22431 and to
issue a new title in her favor.
On March 7, 1979, herein petitioners, sisters of the late
senator, filed a motion for intervention on the ground that on June
20, 1978, their brother conveyed to them one-half (1/2 ) of his
shareholdings in SUBIC or a total of 416,566.6 shares and as
assignees of around 41 % of the total outstanding shares of such
stocks of SUBIC, they have a substantial and legal interest in the
subject matter of litigation and that they have a legal interest in
the success of the suit with respect to SUBIC.
On July 26, 1979, the court denied the motion for intervention,
and ruled that petitioners have no legal interest whatsoever in the
matter in litigation and their being alleged assignees or
transferees of certain shares in SUBIC cannot legally entitle them
to intervene because SUBIC has a personality separate and distinct
from its stockholders.
On appeal, respondent Court of Appeals found no factual or legal
justification to disturb the findings of the lower court. The
appellate court further stated that whatever claims the petitioners
have against the late Senator or against SUBIC for that matter can
be ventilated in a separate proceeding, such that with the denial
of the motion for intervention, they are not left without any
remedy or judicial relief under existing law.
Petitioners' motion for reconsideration was denied. Hence, the
instant recourse.
Petitioners anchor their right to intervene on the purported
assignment made by the late Senator of a certain portion of his
shareholdings to them as evidenced by a Deed of Sale dated June 20,
1978. 2 Such transfer, petitioners posit, clothes them with an
interest, protected by law, in the matter of litigation.Invoking
the principle enunciated in the case of PNB v. Phil. Veg. Oil Co.,
49 Phil. 857,862 & 853 (1927), 3 petitioners strongly argue
that their ownership of 41.66% of the entire outstanding capital
stock of SUBIC entitles them to a significant vote in the corporate
affairs; that they are affected by the action of the widow of their
late brother for it concerns the only tangible asset of the
corporation and that it appears that they are more vitally
interested in the outcome of the case than SUBIC.Viewed in the
light of Section 2, Rule 12 of the Revised Rules of Court, this
Court affirms the respondent court's holding that petitioners
herein have no legal interest in the subject matter in litigation
so as to entitle them to intervene in the proceedings below. In the
case of Batama Farmers' Cooperative Marketing Association, Inc. v.
Rosal, 4 we held: "As clearly stated in Section 2 of Rule 12 of the
Rules of Court, to be permitted to intervene in a pending action,
the party must have a legal interest in the matter in litigation,
or in the success of either of the parties or an interest against
both, or he must be so situated as to be adversely affected by a
distribution or other disposition of the property in the custody of
the court or an officer thereof ."To allow intervention, [a] it
must be shown that the movant has legal interest in the matter in
litigation, or otherwise qualified; and [b] consideration must be
given as to whether the adjudication of the rights of the original
parties may be delayed or prejudiced, or whether the intervenor's
rights may be protected in a separate proceeding or not. Both
requirements must concur as the first is not more important than
the second. 5The interest which entitles a person to intervene in a
suit between other parties must be in the matter in litigation and
of such direct and immediate character that the intervenor will
either gain or lose by the direct legal operation and effect of the
judgment. Otherwise, if persons not parties of the action could be
allowed to intervene, proceedings will become unnecessarily
complicated, expensive and interminable. And this is not the policy
of the law. 6 The words "an interest in the subject" mean a direct
interest in the cause of action as pleaded, and which would put the
intervenor in a legal position to litigate a fact alleged in the
complaint, without the establishment of which plaintiff could not
recover. 7Here, the interest, if it exists at all, of
petitioners-movants is indirect, contingent, remote, conjectural,
consequential and collateral. At the very least, their interest is
purely inchoate, or in sheer expectancy of a right in the
management of the corporation and to share in the profits thereof
and in the properties and assets thereof on dissolution, after
payment of the corporate debts and obligations.
While a share of stock represents a proportionate or aliquot
interest in the property of the corporation, it does not vest the
owner thereof with any legal right or title to any of the property,
his interest in the corporate property being equitable or
beneficial in nature. Shareholders are in no legal sense the owners
of corporate property, which is owned by the corporation as a
distinct legal person. 8Petitioners further contend that the
availability of other remedies, as declared by the Court of
appeals, is totally immaterial to the availability of the remedy of
intervention.
We cannot give credit to such averment. As earlier stated, that
the movant's interest may be protected in a separate proceeding is
a factor to be considered in allowing or disallowing a motion for
intervention. It is significant to note at this juncture that as
per records, there are four pending cases involving the parties
herein, enumerated as follows: [1] Special Proceedings No. 122122
before the CFI of Manila, Branch XXII, entitled "Concepcion
Magsaysay-Labrador, et al. v. Subic Land Corp., et al.", involving
the validity of the transfer by the late Genaro Magsaysay of
one-half of his shareholdings in Subic Land Corporation; [2] Civil
Case No. 2577-0 before the CFI of Zambales, Branch III, "Adelaida
Rodriguez-Magsaysay v. Panganiban, etc.; Concepcion Labrador, et
al. Intervenors", seeking to annul the purported Deed of Assignment
in favor of SUBIC and its annotation at the back of TCT No. 3258 in
the name of respondent's deceased husband; [3] SEC Case No. 001770,
filed by respondent praying, among other things that she be
declared in her capacity as the surviving spouse and administratrix
of the estate of Genaro Magsaysay as the sole subscriber and
stockholder of SUBIC. There, petitioners, by motion, sought to
intervene. Their motion to reconsider the denial of their motion to
intervene was granted; [4] SP No. Q-26739 before the CFI of Rizal,
Branch IV, petitioners herein filing a contingent claim pursuant to
Section 5, Rule 86, Revised Rules of Court. 9 Petitioners'
interests are no doubt amply protected in these cases. Neither do
we lend credence to petitioners' argument that they are more
interested in the outcome of the case than the
corporation-assignee, owing to the fact that the latter is willing
to compromise with widow-respondent and since a compromise involves
the giving of reciprocal concessions, the only conceivable
concession the corporation may give is a total or partial
relinquishment of the corporate assets. 10 Such claim all the more
bolsters the contingent nature of petitioners' interest in the
subject of litigation.
The factual findings of the trial court are clear on this point.
The petitioners cannot claim the right to intervene on the strength
of the transfer of shares allegedly executed by the late Senator.
The corporation did not keep books and records. 11 Perforce, no
transfer was ever recorded, much less effected as to prejudice
third parties. The transfer must be registered in the books of the
corporation to affect third persons. The law on corporations is
explicit. Section 63 of the Corporation Code provides, thus: "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." And even assuming arguendo that
there was a valid transfer, petitioners are nonetheless barred from
intervening inasmuch as their rights can be ventilated and amply
protected in another proceeding.
WHEREFORE, the instant petition is hereby DENIED. Costs against
petitioners.
G.R. No. 125469 October 27, 1997
PHILIPPINE STOCK EXCHANGE, INC., petitioner, vs.THE HONORABLE
COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and PUERTO
AZUL LAND, INC., respondents.
The Securities and Exchange Commission is the government agency,
under the direct general supervision of the Office of the
President, 1 with the immense task of enforcing the Revised
Securities Act, and all other duties assigned to it by pertinent
laws. Among its inumerable functions, and one of the most
important, is the supervision of all corporations, partnerships or
associations, who are grantees of primary franchise and/or a
license or permit issued by the government to operate in the
Philippines. 2 Just how far this regulatory authority extends,
particularly, with regard to the Petitioner Philippine Stock
Exchange, Inc. is the issue in the case at bar.In this Petition for
Review on Certiorari, petitioner assails the resolution of the
respondent Court of Appeals, dated June 27, 1996, which affirmed
the decision of the Securities and Exchange Commission ordering the
petitioner Philippine Stock Exchange, Inc. to allow the private
respondent Puerto Azul Land, Inc. to be listed in its stock market,
thus paving the way for the public offering of PALI's shares.
The facts of the case are undisputed, and are hereby restated in
sum.
The Puerto Azul Land, Inc. (PALI), a domestic real estate
corporation, had sought to offer its shares to the public in order
to raise funds allegedly to develop its properties and pay its
loans with several banking institutions. In January, 1995, PALI was
issued a Permit to Sell its shares to the public by the Securities
and Exchange Commission (SEC). To facilitate the trading of its
shares among investors, PALI sought to course the trading of its
shares through the Philippine Stock Exchange, Inc. (PSE), for which
purpose it filed with the said stock exchange an application to
list its shares, with supporting documents attached.
On February 8, 1996, the Listing Committee of the PSE, upon a
perusal of PALI's application, recommended to the PSE's Board of
Governors the approval of PALI's listing application.
On February 14, 1996, before it could act upon PALI's
application, the Board of Governors of the PSE received a letter
from the heirs of Ferdinand E. Marcos, claiming that the late
President Marcos was the legal and beneficial owner of certain
properties forming part of the Puerto Azul Beach Hotel and Resort
Complex which PALI claims to be among its assets and that the
Ternate Development Corporation, which is among the stockholders of
PALI, likewise appears to have been held and continue to be held in
trust by one Rebecco Panlilio for then President Marcos and now,
effectively for his estate, and requested PALI's application to be
deferred. PALI was requested to comment upon the said letter.
PALI's answer stated that the properties forming part of the
Puerto Azul Beach Hotel and Resort Complex were not claimed by PALI
as its assets. On the contrary, the resort is actually owned by
Fantasia Filipina Resort, Inc. and the Puerto Azul Country Club,
entities distinct from PALI. Furthermore, the Ternate Development
Corporation owns only 1.20% of PALI. The Marcoses responded that
their claim is not confined to the facilities forming part of the
Puerto Azul Hotel and Resort Complex, thereby implying that they
are also asserting legal and beneficial ownership of other
properties titled under the name of PALI.
On February 20, 1996, the PSE wrote Chairman Magtanggol
Gunigundo of the Presidential Commission on Good Government (PCGG)
requesting for comments on the letters of the PALI and the
Marcoses. On March 4, 1996, the PSE was informed that the Marcoses
received a Temporary Restraining Order on the same date, enjoining
the Marcoses from, among others, "further impeding, obstructing,
delaying or interfering in any manner by or any means with the
consideration, processing and approval by the PSE of the initial
public offering of PALI." The TRO was issued by Judge Martin S.
Villarama, Executive Judge of the RTC of Pasig City in Civil Case
No. 65561, pending in Branch 69 thereof.
In its regular meeting held on March 27, 1996, the Board of
Governors of the PSE reached its decision to reject PALI's
application, citing the existence of serious claims, issues and
circumstances surrounding PALI's ownership over its assets that
adversely affect the suitability of listing PALI's shares in the
stock exchange.
On April 11, 1996, PALI wrote a letter to the SEC addressed to
the then Acting Chairman, Perfecto R. Yasay, Jr., bringing to the
SEC's attention the action taken by the PSE in the application of
PALI for the listing of its shares with the PSE, and requesting
that the SEC, in the exercise of its supervisory and regulatory
powers over stock exchanges under Section 6(j) of P.D. No. 902-A,
review the PSE's action on PALI's listing application and institute
such measures as are just and proper under the circumstances.
On the same date, or on April 11, 1996, the SEC wrote to the
PSE, attaching thereto the letter of PALI and directing the PSE to
file its comments thereto within five days from its receipt and for
its authorized representative to appear for an "inquiry" on the
matter. On April 22, 1996, the PSE submitted a letter to the SEC
containing its comments to the April 11, 1996 letter of PALI.
On April 24, 1996, the SEC rendered its Order, reversing the
PSE's decision. The dispositive portion of the said order
reads:
WHEREFORE, premises considered, and invoking the Commissioner's
authority and jurisdiction under Section 3 of the Revised
Securities Act, in conjunction with Section 3, 6(j) and 6(m) of
Presidential Decree No. 902-A, the decision of the Board of
Governors of the Philippine Stock Exchange denying the listing of
shares of Puerto Azul Land, Inc., is hereby set aside, and the PSE
is hereby ordered to immediately cause the listing of the PALI
shares in the Exchange, without prejudice to its authority to
require PALI to disclose such other material information it deems
necessary for the protection of the investigating public.
This Order shall take effect immediately. SO ORDERED.
PSE filed a motion for reconsideration of the said order on
April 29, 1996, which was, however denied by the Commission in its
May 9, 1996 Order which states:
WHEREFORE, premises considered, the Commission finds no
compelling reason to reconsider its order dated April 24, 1996, and
in the light of recent developments on the adverse claim against
the PALI properties, PSE should require PALI to submit full
disclosure of material facts and information to protect the
investing public. In this regard, PALI is hereby ordered to amend
its registration statements filed with the Commission to
incorporate the full disclosure of these material facts and
information.
Dissatisfied with this ruling, the PSE filed with the Court of
Appeals on May 17, 1996 a Petition for Review (with Application for
Writ of Preliminary Injunction and Temporary Restraining Order),
assailing the above mentioned orders of the SEC, submitting the
following as errors of the SEC:
I. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN
ISSUING THE ASSAILED ORDERS WITHOUT POWER, JURISDICTION, OR
AUTHORITY; SEC HAS NO POWER TO ORDER THE LISTING AND SALE OF SHARES
OF PALI WHOSE ASSETS ARE SEQUESTERED AND TO REVIEW AND SUBSTITUTE
DECISIONS OF PSE ON LISTING APPLICATIONS;
II. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN
FINDING THAT PSE ACTED IN AN ARBITRARY AND ABUSIVE MANNER IN
DISAPPROVING PALI'S LISTING APPLICATION;
III. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID FOR
ALLOWING FURTHER DISPOSITION OF PROPERTIES IN CUSTODIA LEGIS AND
WHICH FORM PART OF NAVAL/MILITARY RESERVATION; AND
IV. THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY PROMULGATED
AND ITS IMPLEMENTATION AND APPLICATION IN THIS CASE VIOLATES THE
DUE PROCESS CLAUSE OF THE CONSTITUTION.
On June 4, 1996, PALI filed its Comment to the Petition for
Review and subsequently, a Comment and Motion to Dismiss. On June
10, 1996, PSE fled its Reply to Comment and Opposition to Motion to
Dismiss.
On June 27, 1996, the Court of Appeals promulgated its
Resolution dismissing the PSE's Petition for Review. Hence, this
Petition by the PSE.
The appellate court had ruled that the SEC had both jurisdiction
and authority to look into the decision of the petitioner PSE,
pursuant to Section 3 3 of the Revised Securities Act in relation
to Section 6(j) and 6(m) 4 of P.D. No. 902-A, and Section 38(b) 5
of the Revised Securities Act, and for the purpose of ensuring fair
administration of the exchange. Both as a corporation and as a
stock exchange, the petitioner is subject to public respondent's
jurisdiction, regulation and control. Accepting the argument that
the public respondent has the authority merely to supervise or
regulate, would amount to serious consequences, considering that
the petitioner is a stock exchange whose business is impressed with
public interest. Abuse is not remote if the public respondent is
left without any system of control. If the securities act vested
the public respondent with jurisdiction and control over all
corporations; the power to authorize the establishment of stock
exchanges; the right to supervise and regulate the same; and the
power to alter and supplement rules of the exchange in the listing
or delisting of securities, then the law certainly granted to the
public respondent the plenary authority over the petitioner; and
the power of review necessarily comes within its authority.All in
all, the court held that PALI complied with all the requirements
for public listing, affirming the SEC's ruling to the effect
that:
. . . the Philippine Stock Exchange has acted in an arbitrary
and abusive manner in disapproving the application of PALI for
listing of its shares in the face of the following
considerations:
1. PALI has clearly and admittedly complied with the Listing
Rules and full disclosure requirements of the Exchange;
2. In applying its clear and reasonable standards on the
suitability for listing of shares, PSE has failed to justify why it
acted differently on the application of PALI, as compared to the
IPOs of other companies similarly situated that were allowed
listing in the Exchange;
3. It appears that the claims and issues on the title to PALI's
properties were even less serious than the claims against the
assets of the other companies in that, the assertions of the
Marcoses that they are owners of the disputed properties were not
substantiated enough to overcome the strength of a title to
properties issued under the Torrens System as evidence of ownership
thereof;
4. No action has been filed in any court of competent
jurisdiction seeking to nullify PALI's ownership over the disputed
properties, neither has the government instituted recovery
proceedings against these properties. Yet the import of PSE's
decision in denying PALI's application is that it would be PALI,
not the Marcoses, that must go to court to prove the legality of
its ownership on these properties before its shares can be
listed.
In addition, the argument that the PALI properties belong to the
Military/Naval Reservation does not inspire belief. The point is,
the PALI properties are now titled. A property losses its public
character the moment it is covered by a title. As a matter of fact,
the titles have long been settled by a final judgment; and the
final decree having been registered, they can no longer be
re-opened considering that the one year period has already passed.
Lastly, the determination of what standard to apply in allowing
PALI's application for listing, whether the discretion method or
the system of public disclosure adhered to by the SEC, should be
addressed to the Securities Commission, it being the government
agency that exercises both supervisory and regulatory authority
over all corporations.
On August 15, 19961 the PSE, after it was granted an extension,
filed the instant Petition for Review on Certiorari, taking
exception to the rulings of the SEC and the Court of Appeals.
Respondent PALI filed its Comment to the petition on October 17,
1996. On the same date, the PCGG filed a Motion for Leave to file a
Petition for Intervention. This was followed up by the PCGG's
Petition for Intervention on October 21, 1996. A supplemental
Comment was filed by PALI on October 25, 1997. The Office of the
Solicitor General, representing the SEC and the Court of Appeals,
likewise filed its Comment on December 26, 1996. In answer to the
PCGG's motion for leave to file petition for intervention, PALI
filed its Comment thereto on January 17, 1997, whereas the PSE
filed its own Comment on January 20, 1997.
On February 25, 1996, the PSE filed its Consolidated Reply to
the comments of respondent PALI (October 17, 1996) and the
Solicitor General (December 26, 1996). On May 16, 1997, PALI filed
its Rejoinder to the said consolidated reply of PSE.
PSE submits that the Court of Appeals erred in ruling that the
SEC had authority to order the PSE to list the shares of PALI in
the stock exchange. Under presidential decree No. 902-A, the powers
of the SEC over stock exchanges are more limited as compared to its
authority over ordinary corporations. In connection with this, the
powers of the SEC over stock exchanges under the Revised Securities
Act are specifically enumerated, and these do not include the power
to reverse the decisions of the stock exchange. Authorities are in
abundance even in the United States, from which the country's
security policies are patterned, to the effect of giving the
Securities Commission less control over stock exchanges, which in
turn are given more lee-way in making the decision whether or not
to allow corporations to offer their stock to the public through
the stock exchange. This is in accord with the "business judgment
rule" whereby the SEC and the courts are barred from intruding into
business judgments of corporations, when the same are made in good
faith. the said rule precludes the reversal of the decision of the
PSE to deny PALI's listing application, absent a showing of bad
faith on the part of the PSE. Under the listing rules of the PSE,
to which PALI had previously agreed to comply, the PSE retains the
discretion to accept or reject applications for listing. Thus, even
if an issuer has complied with the PSE listing rules and
requirements, PSE retains the discretion to accept or reject the
issuer's listing application if the PSE determines that the listing
shall not serve the interests of the investing public.
Moreover, PSE argues that the SEC has no jurisdiction over
sequestered corporations, nor with corporations whose properties
are under sequestration. A reading of Republic of the Philippines
vs. Sadiganbayan, G.R. No. 105205, 240 SCRA 376, would reveal that
the properties of PALI, which were derived from the Ternate
Development Corporation (TDC) and the Monte del Sol Development
Corporation (MSDC). are under sequestration by the PCGG, and
subject of forfeiture proceedings in the Sandiganbayan. This ruling
of the Court is the "law of the case" between the Republic and TDC
and MSDC. It categorically declares that the assets of these
corporations were sequestered by the PCGG on March 10, 1986 and
April 4, 1988.
It is, likewise, intimated that the Court of Appeals' sanction
that PALI's ownership over its properties can no longer be
questioned, since certificates of title have been issued to PALI
and more than one year has since lapsed, is erroneous and ignores
well settled jurisprudence on land titles. That a certificate of
title issued under the Torrens System is a conclusive evidence of
ownership is not an absolute rule and admits certain exceptions. It
is fundamental that forest lands or military reservations are
non-alienable. Thus, when a title covers a forest reserve or a
government reservation, such title is void.
PSE, likewise, assails the SEC's and the Court of Appeals
reliance on the alleged policy of "full disclosure" to uphold the
listing of PALI's shares with the PSE, in the absence of a clear
mandate for the effectivity of such policy. As it is, the case
records reveal the truth that PALI did not comply with the listing
rules and disclosure requirements. In fact, PALI's documents
supporting its application contained misrepresentations and
misleading statements, and concealed material information. The
matter of sequestration of PALI's properties and the fact that the
same form part of military/naval/forest reservations were not
reflected in PALI's application.
It is undeniable that the petitioner PSE is not an ordinary
corporation, in that although it is clothed with the markings of a
corporate entity, it functions as the primary channel through which
the vessels of capital trade ply. The PSE's relevance to the
continued operation and filtration of the securities transactions
in the country gives it a distinct color of importance such that
government intervention in its affairs becomes justified, if not
necessarily. Indeed, as the only operational stock exchange in the
country today, the PSE enjoys a monopoly of securities
transactions, and as such, it yields an immense influence upon the
country's economy.
Due to this special nature of stock exchanges, the country's
lawmakers has seen it wise to give special treatment to the
administration and regulation of stock exchanges. 6These
provisions, read together with the general grant of jurisdiction,
and right of supervision and control over all corporations under
Sec. 3 of P.D. 902-A, give the SEC the special mandate to be
vigilant in the supervision of the affairs of stock exchanges so
that the interests of the investing public may be fully
safeguard.
Section 3 of Presidential Decree 902-A, standing alone, is
enough authority to uphold the SEC's challenged control authority
over the petitioner PSE even as it provides that "the Commission
shall have absolute jurisdiction, supervision, and control over all
corporations, partnerships or associations, who are the grantees of
primary franchises and/or a license or permit issued by the
government to operate in the Philippines. . ." The SEC's regulatory
authority over private corporations encompasses a wide margin of
areas, touching nearly all of a corporation's concerns. This
authority springs from the fact that a corporation owes its
existence to the concession of its corporate franchise from the
state.
The SEC's power to look into the subject ruling of the PSE,
therefore, may be implied from or be considered as necessary or
incidental to the carrying out of the SEC's express power to insure
fair dealing in securities traded upon a stock exchange or to
ensure the fair administration of such exchange. 7 It is, likewise,
observed that the principal function of the SEC is the supervision
and control over corporations, partnerships and associations with
the end in view that investment in these entities may be encouraged
and protected, and their activities for the promotion of economic
development. 8Thus, it was in the alleged exercise of this
authority that the SEC reversed the decision of the PSE to deny the
application for listing in the stock exchange of the private
respondent PALI. The SEC's action was affirmed by the Court of
Appeals.
We affirm that the SEC is the entity with the primary say as to
whether or not securities, including shares of stock of a
corporation, may be traded or not in the stock exchange. This is in
line with the SEC's mission to ensure proper compliance with the
laws, such as the Revised Securities Act and to regulate the sale
and disposition of securities in the country. 9 As the appellate
court explains:Paramount policy also supports the authority of the
public respondent to review petitioner's denial of the listing.
Being a stock exchange, the petitioner performs a function that is
vital to the national economy, as the business is affected with
public interest. As a matter of fact, it has often been said that
the economy moves on the basis of the rise and fall of stocks being
traded. By its economic power, the petitioner certainly can dictate
which and how many users are allowed to sell securities thru the
facilities of a stock exchange, if allowed to interpret its own
rules liberally as it may please. Petitioner can either allow or
deny the entry to the market of securities. To repeat, the
monopoly, unless accompanied by control, becomes subject to abuse;
hence, considering public interest, then it should be subject to
government regulation.
The role of the SEC in our national economy cannot be minimized.
The legislature, through the Revised Securities Act, Presidential
Decree No. 902-A, and other pertinent laws, has entrusted to it the
serious responsibility of enforcing all laws affecting corporations
and other forms of associations not otherwise vested in some other
government office. 10This is not to say, however, that the PSE's
management prerogatives are under the absolute control of the SEC.
The PSE is, alter all, a corporation authorized by its corporate
franchise to engage in its proposed and duly approved business. One
of the PSE's main concerns, as such, is still the generation of
profit for its stockholders. Moreover, the PSE has all the rights
pertaining to corporations, including the right to sue and be sued,
to hold property in its own name, to enter (or not to enter) into
contracts with third persons, and to perform all other legal acts
within its allocated express or implied powers.
A corporation is but an association of individuals, allowed to
transact under an assumed corporate name, and with a distinct legal
personality. In organizing itself as a collective body, it waives
no constitutional immunities and perquisites appropriate to such a
body. 11 As to its corporate and management decisions, therefore,
the state will generally not interfere with the same. Questions of
policy and of management are left to the honest decision of the
officers and directors of a corporation, and the courts are without
authority to substitute their judgment for the judgment of the
board of directors. The board is the business manager of the
corporation, and so long as it acts in good faith, its orders are
not reviewable by the courts. 12Thus, notwithstanding the
regulatory power of the SEC over the PSE, and the resultant
authority to reverse the PSE's decision in matters of application
for listing in the market, the SEC may exercise such power only if
the PSE's judgment is attended by bad faith. In Board of
Liquidators vs. Kalaw, 13 it was held 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 a breach of a known duty through some motive or interest of
ill will, partaking of the nature of fraud.In reaching its decision
to deny the application for listing of PALI, the PSE considered
important facts, which, in the general scheme, brings to serious
question the qualification of PALI to sell its shares to the public
through the stock exchange. During the time for receiving
objections to the application, the PSE heard from the
representative of the late President Ferdinand E. Marcos and his
family who claim the properties of the private respondent to be
part of the Marcos estate. In time, the PCGG confirmed this claim.
In fact, an order of sequestration has been issued covering the
properties of PALI, and suit for reconveyance to the state has been
filed in the Sandiganbayan Court. How the properties were
effectively transferred, despite the sequestration order, from the
TDC and MSDC to Rebecco Panlilio, and to the private respondent
PALI, in only a short span of time, are not yet explained to the
Court, but it is clear that such circumstances give rise to serious
doubt as to the integrity of PALI as a stock issuer. The petitioner
was in the right when it refused application of PALI, for a
contrary ruling was not to the best interest of the general public.
The purpose of the Revised Securities Act, after all, is to give
adequate and effective protection to the investing public against
fraudulent representations, or false promises, and the imposition
of worthless ventures. 14It is to be observed that the U.S.
Securities Act emphasized its avowed protection to acts detrimental
to legitimate business, thus:
The Securities Act, often referred to as the "truth in
securities" Act, was designed not only to provide investors with
adequate information upon which to base their decisions to buy and
sell securities, but also to protect legitimate business seeking to
obtain capital through honest presentation against