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RECOGNITION AND DISREGARD OF CORPORATENESS G.R. No. 101699 March 13, 1996 BENJAMIN A. SANTOS, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, HON. LABOR ARBITER FRUCTUOSO T. AURELLANO and MELVIN D. MILLENA, respondents. VITUG, J.: p In a petition for certiorari under Rule 65 of the Rules of Court, petitioner Benjamin A. Santos, former President of the Mana Mining and Development Corporation ("MMDC"), questions the resolution of the National Labor Relations Commission ("NLRC") affirming the decision of Labor Arbiter Fructuoso T. Aurellano who, having held illegal the termination of employment of private respondent Melvin D. Millena, has ordered petitioner MMDC, as well as its president (herein petitioner) and the executive vice-president in their personal capacities, to pay Millena his monetary claims. Private respondent, on 01 October 1985, was hired to be the project accountant for MMDC's mining operations in Gatbo, Bacon, Sorsogon. On 12 August 1986, private respondent sent to Mr. Gil Abaño, the MMDC corporate treasurer, a memorandum calling the latter's attention to the failure of the company to comply with the withholding tax requirements of, and to make the corresponding monthly remittances to, the Bureau of Internal Revenue ("BIR") on account of delayed payments of accrued salaries to the company's laborers and employees. 1 In a letter, dated 08 September 1986, Abaño advised private respondent thusly: Regarding Gatbo operations, as you also are aware, the rainy season is now upon us and the peace and order condition in Sorsogon has deteriorated. It is therefore, the board's decision that it would be useless for us to continue operations, especially if we will always be in the "hole," so to speak. Our first funds receipts will be used to pay all our debts. We will stop production until the advent of the dry season, and until the insurgency problem clears. We will undertake only necessary maintenance and repair work and will keep our overhead down to the minimum manageable level. Until we resume full-scale operations, we will not need a project accountant as there will be

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RECOGNITION AND DISREGARD OF CORPORATENESS

G.R. No. 101699 March 13, 1996

BENJAMIN A. SANTOS, petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION, HON. LABOR ARBITER FRUCTUOSO T. AURELLANO and MELVIN D. MILLENA, respondents.

 

VITUG, J.:p

In a petition for certiorari under Rule 65 of the Rules of Court, petitioner Benjamin A. Santos, former President of the Mana Mining and Development Corporation ("MMDC"), questions the resolution of the National Labor Relations Commission ("NLRC") affirming the decision of Labor Arbiter Fructuoso T. Aurellano who, having held illegal the termination of employment of private respondent Melvin D. Millena, has ordered petitioner MMDC, as well as its president (herein petitioner) and the executive vice-president in their personal capacities, to pay Millena his monetary claims.

Private respondent, on 01 October 1985, was hired to be the project accountant for MMDC's mining operations in Gatbo, Bacon, Sorsogon. On 12 August 1986, private respondent sent to Mr. Gil Abaño, the MMDC corporate treasurer, a memorandum calling the latter's attention to the failure of the company to comply with the withholding tax requirements of, and to make the corresponding monthly remittances to, the Bureau of Internal Revenue ("BIR") on account of delayed payments of accrued salaries to the company's laborers and employees. 1

In a letter, dated 08 September 1986, Abaño advised private respondent thusly:

Regarding Gatbo operations, as you also are aware, the rainy season is now upon us and the peace and order condition in Sorsogon has deteriorated. It is therefore, the board's decision that it would be useless for us to continue operations, especially if we will always be in the "hole," so to speak. Our first funds receipts will be used to pay all our debts. We will stop production until the advent of the dry season, and until the insurgency problem clears. We will undertake only necessary maintenance and repair work and will keep our overhead down to the minimum manageable level. Until we resume full-scale operations, we will not need a project accountant as there will be very little paper work at the site, which can be easily handled at Makati.

We appreciate the work you have done for Mana and we will not hesitate to take you back when we resume work at Gatbo. However it would be unfair to you if we kept you in the payroll and deprive you of the opportunity to earn more, during this period of Mana's crisis. 2

Private respondent expressed "shock" over the termination of his employment. He complained that he would not have resigned from the Sycip, Gorres & Velayo accounting firm, where he was already a senior staff auditor, had it not been for the assurance of a "continuous job" by MMDC's Engr. Rodillano E. Velasquez. Private respondent requested that he be reimbursed the "advances" he had made for the company and be paid his "accrued salaries/claims. 3

The claim was not heeded; on 20 October 1986, private respondent filed with the NLRC Regional Arbitration, Branch No. V, in Legazpi City, a complaint for illegal dismissal, unpaid salaries, 13th month pay, overtime pay, separation pay and incentive leave pay against MMDC and its two top officials,

namely, herein petitioner Benjamin A. Santos (the President) and Rodillano A. Velasquez (the executive vice-president). in his complaint-affidavit (position paper), submitted on 27 October 1986, Millena alleged, among other things, that his dismissal was merely an offshoot of his letter of 12 August 1986 to Abaño about the company's inability to pay its workers and to remit withholding taxes to the BIR. 4

A copy of the notice and summons was served on therein respondents (MMDC, Santos and Velasquez) on 29 October 1986. 5 At the initial hearing on 14 November 1986 before the Labor Arbiter, only the complainant, Millena, appeared; however, Atty. Romeo Perez, in representation of the respondents, requested by telegram that the hearing be reset to 01 December 1986. Although the request was granted by the Labor Arbiter, private respondent was allowed, nevertheless, to present his evidence ex parte at that initial hearing.

The scheduled 01st December 1986 hearing was itself later reset to 19 December 1986. On 05 December 1986, the NLRC in Legazpi City again received a telegram from Atty. Perez asking for fifteen (15) days within which to submit the respondents' position paper. On 19 December 1986, Atty. Perez sent yet another telegram seeking a further postponement of the hearing and asking for a period until 15 January 1987 within which to submit the position paper.

On 15 January 1987, Atty. Perez advised the NLRC in Legazpi City that the position paper had finally been transmitted through the mail and that he was submitting the case for resolution without further hearing. The position paper was received by the Legazpi City NLRC office on 19 January 1987. Complainant Millena filed, on 26 February 1987, his rejoinder to the position paper.

On 27 July 1988, Labor Arbiter Fructuoso T. Aurellano, finding no valid cause for terminating complainant's employment, ruled, citing this Court's pronouncement in Construction & Development

Corporation of the Philippines vs. Leogardo, Jr. 6 that a partial closure of an establishment due to losses was a retrenchment measure that rendered the employer liable for unpaid salaries and other monetary claims. The Labor Arbiter adjudged

WHEREFORE, the respondents are hereby ordered to pay the petitioner the amount of P37,132.25 corresponding to the latter's unpaid salaries and advances; P5,400.00 for petitioner's 13th month pay; P3,340.95 as service incentive leave pay; and P5,400.00 as separation pay. The respondents are further ordered to pay the petitioner 10% of the monetary awards as attorney's fees.

All other claims are dismissed for lack of sufficient evidence.

SO ORDERED. 7

Alleging abuse of discretion by the Labor Arbiter, the company and its co-respondents filed a "motion for reconsideration and/or appeal. 8 The motion/appeal was forthwith indorsed to the Executive Director of the NLRC in Manila.

In a resolution, dated 04 September 1989, the NLRC 9 affirmed the decision of the Labor Arbiter. It held that the reasons relied upon by MMDC and its co-respondents in the dismissal of Millena, i.e., the rainy season, deteriorating peace and order situation and little paperwork, were "not causes mentioned under Article 282 of the Labor Code of the Philippines" and that Millena, being a regular employee, was "shielded by the tenurial clause mandated under the law. 10

A writ of execution correspondingly issued; however, it was returned unsatisfied for the failure of the sheriff to locate the offices of the corporation in the address indicated. Another writ of

execution and an order of garnishment was thereupon served on petitioner at his residence.

Contending that he had been denied due process, petitioner filed a motion for reconsideration of the NLRC's resolution along with a prayer for the quashal of the writ of execution and order of garnishment. He averred that he had never received any notice, summons or even a copy of the complaint; hence, he said, the Labor Arbiter at no time had acquired jurisdiction over him.

On 16 August 1991, the NLRC 11 dismissed the motion for reconsideration. Citing Section 2, Rule 13, 12 and Section 13, Rule 14, 13 of the Rules of Court, it ruled that the Regional Arbitration office had not, in fact, been remiss in the observance of the legal processes for acquiring jurisdiction over the case and over the persons of the respondents therein. The NLRC was also convinced that Atty. Perez had been the authorized counsel of MMDC and its two most ranking officers.

In holding petitioner personally liable for private respondent's claim, the NLRC cited Article 289 14 of the Labor Code and the ruling in A.C. Ransom Labor Union-CCLU vs. NLRC 15 to the effect that "(t)he responsible officer of an employer corporation (could) be held personally, not to say even criminally, liable for non-payment of backwages," and that of Gudezvs. NLRC 16 which amplified that "where the employer corporation (was) no longer existing and unable to satisfy the judgment in favor of the employee, the officer should be liable for acting on behalf of the corporation.

In the instant petition for certiorari, petitioner Santos reiterates that he should not have been adjudged personally liable by public respondents, the latter not having validly acquired jurisdiction over his person whether by personal service of summons or by substituted service under Rule 19 of the Rules of Court.

Petitioner's contention is unacceptable. The fact that Atty. Romeo B. Perez has been able to timely ask for a deferment of the initial hearing on 14 November 1986, coupled with his

subsequent active participation in the proceedings, should disprove the supposed want of service of legal process. Although as a rule, modes of service of summons are strictly followed in order that the court may acquire jurisdiction over the person of a defendant, 17such procedural modes, however, are liberally construed in quasi-judicial proceedings, substantial compliance with the same being considered adequate. 18 Moreover, jurisdiction over the person of the defendant in civil cases is acquired not only by service of summons but also by voluntary appearance in court and submission to its authority. 19 "Appearance" by a legal advocate is such "voluntary submission to a court's jurisdiction." 20 It may be made not only by actual physical appearance but likewise by the submission of pleadings in compliance with the order of the court or tribunal.

To say that petitioner did not authorize Atty. Perez to represent him in the case 21 is to unduly tax credulity. Like the Solicitor General, the Court likewise considers it unlikely that Atty. Perez would have been so irresponsible as to represent petitioner if he were not, in fact, authorized. 22 Atty. Perez is an officer of the court, and he must be presumed to have acted with due propriety. The employment of a counsel or the authority to employ an attorney, it might be pointed out, need not be proved in writing; such fact could be inferred from circumstantial evidence. 23 Petitioner was not just an ordinary official of the MMDC; he was the President of the company.

Petitioner, in any event, argues that public respondents have gravely abused their discretion "in finding petitioner solidarily liable with MMDC even (in) the absence of bad faith and malice on his part." 24 There is merit in this plea.

A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. The rule is that obligations incurred by the corporation, acting through its directors, officers and employees, are its sole liabilities. Nevertheless, being a mere fiction of law, peculiar situations or valid grounds can exist to warrant, albeit done sparingly, the disregard of its independent being and the lifting of the corporate veil. 25 As a rule, this situation

might arise when a corporation is used to evade a just and due obligation or to justify a wrong, 26 to shield or perpetrate fraud, 27 to carry out similar other unjustifable aims or intentions, or as a subterfuge to commit injustice and so circumvent the law. 28 In Tramat Mercantile, Inc., vs. Court of Appeals, 29 the Court has collated the settled instances when, without necessarily piercing the veil of corporate fiction, personal civil liability can also be said to lawfully attach to a corporate director, trustee or officer; to wit: When —

(1) He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons;

(2) He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto;

(3) He agrees to hold himself personally and solidarily liable with the corporation; or

(4) He is made, by a specific provision of law, to personally answer for his corporate action.

The case of petitioner is way off these exceptional instances. It is not even shown that petitioner has had a direct hand in the dismissal of private respondent enough to attribute to him (petitioner) a patently unlawful act while acting for the corporation. Neither can Article 289 30 of the Labor Code be applied since this law specifically refers only to the imposition of penalties under the Code. It is undisputed that the termination of petitioner's employment has, instead, been due, collectively, to the need for a further mitigation of losses, the onset of the rainy season, the

insurgency problem in Sorsogon and the lack of funds to further support the mining operation in Gatbo.

It is true, there were various cases when corporate officers were themselves held by the Court to be personally accountable for the payment of wages and money claims to its employees. In A.C. Ransom Labor Union-CCLU vs.NLRC, 31 for instance, the Court ruled that under the Minimum Wage Law, the responsible officer of an employer corporation could be held personally liable for nonpayment of backwages for "(i)f the policy of the law were otherwise, the corporation employer (would) have devious ways for evading payment of back wages." In the absence of a clear identification of the officer directly responsible for failure to pay the backwages, the Court considered the President of the corporation as such officer. The case was cited in Chua vs. NLRC 32 in holding personally liable the vice-president of the company, being the highest and most ranking official of the corporation next to the President who was dismissed, for the latter's claim for unpaid wages.

A review of the above exceptional cases would readily disclose the attendance of facts and circumstances that could rightly sanction personal liability an the part of the company officer. In A.C. Ransom, the corporate entity was a family corporation and execution against it could not be implemented because of the disposition posthaste of its leviable assets evidently in order to evade its just and due obligations. The doctrine of "piercing the veil of corporate fiction" was thus clearly appropriate. Chua likewise involved another family corporation, and this time the conflict was between two brothers occupying the highest ranking positions in the company. There were incontrovertible facts which pointed to extreme personal animosity that resulted, evidently in bad faith, in the easing out from the company of one of the brothers by the other.

The basic rule is still that which can be deduced from the Court's pronouncement in Sunio vs. National Labor Relations Commission; 33 thus:

We come now to the personal liability of petitioner, Sunio, who was made jointly and severally responsible with petitioner company and CIPI for the payment of the backwages of private respondents. This is reversible error. The Assistant Regional Director's Decision failed to disclose the reason why he was made personally liable. Respondents, however, alleged as grounds thereof, his the being owner of one-half (1/2) interest of said corporation, and his alleged arbitrary dismissal of private respondents.

Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager of petitioner corporation. There appears to be no evidence on record that he acted maliciously or in bad faith in terminating the services of private respondents. His act, therefore, was within the scope of his authority and was a corporate act.

It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. Petitioner Sunio, therefore, should not have been made personally answerable for the payment of private respondents' back salaries.

The Court, to be sure, did appear to have deviated somewhat in Gudez vs. NLRC; 34 however, it should be clear from our recent pronouncement in Mam Realty Development Corporation and Manuel Centeno vs. NLRC 35 that the Sunio doctrine still prevails.

WHEREFORE, the instant petition for certiorari is given DUE COURSE and the decision of the Labor Arbiter, affirmed by the NLRC, is hereby MODIFIED insofar as it holds herein petitioner Benjamin Santos personally liable with Mana Mining and Development Corporation, which portion of the questioned judgment is now SET ASIDE. In all other respects, the questioned decision remains unaffected. No costs.

SO ORDERED.

Padilla, Bellosillo, Kapunan and Hermosisima, Jr., JJ., concur.

G.R. No. L-18216            October 30, 1962

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

Ramon C. Fernando for petitioners-appellants.Office of the Solicitor General for respondent-appellee.

BAUTISTA ANGELO, J.:

On September 19, 1960, the five stockholders of the F. Guanzon and Sons, Inc. executed a certificate of liquidation of the assets of the corporation reciting, among other things, that by virtue of a resolution of the stockholders adopted on September 17, 1960, dissolving the corporation, they have distributed among themselves in proportion to their shareholdings, as liquidating dividends, the assets of said corporation, including real properties located in Manila.

The certificate of liquidation, when presented to the Register of Deeds of Manila, was denied registration on seven grounds, of which the following were disputed by the stockholders:

3. The number of parcels not certified to in the acknowledgment;

5. P430.50 Reg. fees need be paid;

6. P940.45 documentary stamps need be attached to the document;

7. The judgment of the Court approving the dissolution and directing the disposition of the assets of the corporation need be presented (Rules of Court, Rule 104, Sec. 3).

Deciding the consulta elevated by the stockholders, the Commissioner of Land Registration overruled ground No. 7 and sustained requirements Nos. 3, 5 and 6.

The stockholders interposed the present appeal.

As correctly stated by the Commissioner of Land Registration, the propriety or impropriety of the three grounds on which the denial of the registration of the certificate of liquidation was predicated hinges on whether or not that certificate merely involves a distribution of the corporation's assets or should be considered a transfer or conveyance.

Appellants contend that the certificate of liquidation is not a conveyance or transfer but merely a distribution of the assets of the corporation which has ceased to exist for having been dissolved. This is apparent in the minutes for dissolution attached to the document. Not being a conveyance the certificate need not contain a statement of the number of parcel of land involved in the distribution in the acknowledgment appearing therein. Hence the amount of documentary stamps to be affixed thereon should only be P0.30 and not P940.45, as required by the register of deeds. Neither is it correct to require appellants to pay the amount of P430.50 as registration fee.

The Commissioner of Land Registration, however, entertained a different opinion. He concurred in the view expressed by the register of deed to the effect that the certificate of liquidation in question, though it involves a distribution of the corporation's assets, in the last analysis represents a transfer of said assets from the corporation to the stockholders. Hence, in substance it is a transfer or conveyance.

We agree with the opinion of these two officials. A corporation is a juridical person distinct from the members composing it. Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. While

shares of stock constitute personal property they do not represent property of the corporation. The corporation has property of its own which consists chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75; Morrow v. Gould, 145 Iowa 1, 123 N.W. 743). A share of stock only typifies an aliquot part of the corporation's property, or the right to share in its proceeds to that extent when distributed according to law and equity (Hall & Faley v. Alabama Terminal, 173 Ala 398, 56 So., 235), but its holder is not the owner of any part of the capital of the corporation (Bradley v. Bauder 36 Ohio St., 28). Nor is he entitled to the possession of any definite portion of its property or assets (Gottfried v. Miller, 104 U.S., 521; Jones v. Davis, 35 Ohio St., 474). The stockholder is not a co-owner or tenant in common of the corporate property (Halton v. Hohnston, 166 Ala 317, 51 So 992).

On the basis of the foregoing authorities, it is clear that the act of liquidation made by the stockholders of the F. Guanzon and Sons, Inc. of the latter's assets is not and cannot be considered a partition of community property, but rather a transfer or conveyance of the title of its assets to the individual stockholders. Indeed, since the purpose of the liquidation, as well as the distribution of the assets of the corporation, is to transfer their title from the corporation to the stockholders in proportion to their shareholdings, — and this is in effect the purpose which they seek to obtain from the Register of Deeds of Manila, — that transfer cannot be effected without the corresponding deed of conveyance from the corporation to the stockholders. It is, therefore, fair and logical to consider the certificate of liquidation as one in the nature of a transfer or conveyance.

WHEREFORE, we affirm the resolution appealed from, with costs against appellants.

Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and Makalintal, JJ., concur.Barrera, J., took no part.

G.R. No. L-42780             January 17, 1936

MANILA GAS CORPORATION, plaintiff-appellant, vs.THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.

DeWitt, Perkins and Ponce Enrile for appellant.Office of the Solicitor-General Hilado for appellee.

MALCOLM, J.:

This is an action brought by the Manila Gas Corporation against the Collector of Internal Revenue for the recovery of P56,757.37, which the plaintiff was required by the defendant to deduct and withhold from the various sums paid it to foreign corporations as dividends and interest on bonds and other indebtedness and which the plaintiff paid under protest. On the trial court dismissing the complaint, with costs, the plaintiff appealed assigning as the principal errors alleged to have been committed the following:

1. The trial court erred in holding that the dividends paid by the plaintiff corporation were subject to income tax in the hands of its stockholders, because to impose the tax thereon would be to impose a tax on the plaintiff, in violation of the terms of its franchise, and would, moreover, be oppressive and inequitable.

2. The trial court erred in not holding that the interest on bonds and other indebtedness of the plaintiff corporation, paid by it outside of the Philippine Islands to corporations not residing therein, were not, on the part of the recipients thereof, income from Philippine sources, and hence not subject to Philippine income tax.

The facts, as stated by the appellant and as accepted by the appellee, may be summarized as follows: The plaintiff is a corporation organized under the laws of the Philippine Islands. It operates a gas plant in the City of Manila and furnishes gas service to the people of the metropolis and surrounding municipalities by virtue of a franchise granted to it by the Philippine Government. Associated with the plaintiff are the Islands Gas and Electric Company domiciled in New York, United States, and the General Finance Company domiciled in Zurich, Switzerland. Neither of these last mentioned corporations is resident in the Philippines.

For the years 1930, 1931, and 1932, dividends in the sum of P1,348,847.50 were paid by the plaintiff to the Islands Gas and Electric Company in the capacity of stockholders upon which withholding income taxes were paid to the defendant totalling P40,460.03 For the same years interest on bonds in the sum of P411,600 was paid by the plaintiff to the Islands Gas and Electric Company upon which withholding income taxes were paid to the defendant totalling P12,348. Finally for the stated time period, interest on other indebtedness in the sum of P131,644,90 was paid by the plaintiff to the Islands Gas and Electric Company and the General Finance Company respectively upon which withholding income taxes were paid to the defendant totalling P3,949.34.

Some uncertainty existing regarding the place of payment, we will not go into this factor of the case at this point, except to remark that the bonds and other tokens of indebtedness are not to be found in the record. However, Exhibits E, F, and G, certified correct by the Treasurer of the Manila Gas Corporation, purport to prove that the place of payment was the United States and Switzerland.

The appeal naturally divides into two subjects, one covered by the first assigned error, and the other by the second assigned error. We shall discuss these subjects and errors in order.

1. Appellant first contends that the dividends paid by it to its stockholders, the Islands Gas and Electric Company , were not subject to tax because to impose a tax thereon would be to do so on the plaintiff corporation, in violation of the terms of its franchise and would, moreover, be oppressive and inequitable. This argument is predicated on the constitutional provision that no law impairing the obligation of contracts shall be enacted. The particular portion of the franchise which is invoked provides:

The grantee shall annually on the fifth day of January of each year pay to the City of Manila and the municipalities in the Province of Rizal in which gas is sold, two and one half per centum of the gross receipts within said city and municipalities, respectively, during the preceding year. Said payment shall be in lieu of all taxes, Insular, provincial and municipal, except taxes on the real estate, buildings, plant, machinery, and other personal property belonging to the grantee.

The trial judge was of the opinion that the instant case was governed by our previous decision in the case ofPhilippine Telephone and Telegraph Co., vs. Collector of Internal Revenue ([1933], 58 Phil. 639). In this view we concur. It is true that the tax exemption provision relating to the Manila Gas Corporation hereinbefore quoted differs in phraseology from the tax exemption provision to be found in the franchise of the Telephone and Telegraph Company, but the ratio decidendi of the two cases is substantially the same. As there held and as now confirmed, a corporation has a personality distinct from that of its stockholders, enabling the taxing power to reach the latter when they receive dividends from the corporation. It must be considered as settled in this jurisdiction that dividends of a domestic corporation, which are paid and delivered in cash to foreign corporations as stockholders, are subject to the payment

in the income tax, the exemption clause in the charter of the corporation notwithstanding.

For the foreign reasons, we are led to sustain the decision of the trial court and to overrule appellant's first assigned error.

2. In support of its second assignment of error, appellant contends that, as the Islands Gas and Electric Company and the General Finance Company are domiciled in the United States and Switzerland respectively, and as the interest on the bonds and other indebtedness earned by said corporations has been paid in their respective domiciles, this is not income from Philippine sources within the meaning of the Philippine Income Tax Law. Citing sections 10 (a) and 13 (e) of Act No. 2833, the Income Tax Law, appellant asserts that their applicability has been squarely determined by decisions of this court in the cases ofManila Railroad Co. vs. Collector of Internal Revenue (No. 31196, promulgated December 2, 1929, nor reported), and Philippine Railway Co. vs. Posadas (No. 38766, promulgated October 30, 1933 [58 Phil., 968]) wherein it was held that interest paid to non-resident individuals or corporations is not income from Philippine sources, and hence not subject to the Philippine Income Tax. The Solicitor-General answers with the observation that the cited decisions interpreted the Income Tax Law before it was amended by Act No. 3761 to cover the interest on bonds and other obligations or securities paid "within or without the Philippine Islands." Appellant rebuts this argument by "assuming, for the sake of the argument, that by the amendment introduced to section 13 of Act No. 2833 by Act No. 3761 the Legislature intended the interest from Philippine sources and so is subject to tax," but with the necessary sequel that the amendatory statute is invalid and unconstitutional as being the power of the Legislature to enact.

Taking first under observation that last point, it is to be observed that neither in the pleadings, the decision of the trial court, nor the assignment of errors, was the question of the validity of Act No. 3761 raised. Under such circumstances, and no jurisdictional issue being involved, we do not feel that it is the duty of the court to pass on the constitutional question, and accordingly will refrain from doing so. (Cadwaller-Gibson Lumber Co. vs. Del Rosario [1913], 26 Phil., 192; Macondray and Co. vs. Benito and Ocampo, P. 137, ante; State vs. Burke [1912], 175 Ala., 561.)

As to the applicability of the local cases cited and of the Porto Rican case of Domenech vs. United Porto Rican Sugar co. ([1932], 62 F. [2d], 552), we need only observe that these cases announced good law, but that each he must be decided on its particular facts. In other words, in the opinion of the majority of the court, the facts at bar and the facts in those cases can be clearly differentiated. Also, in the case at bar there is some uncertainty concerning the place of payment, which under one view could be considered the Philippines and under another view the United States and Switzerland, but which cannot be definitely determined without the necessary documentary evidence before, us.

The approved doctrine is that no state may tax anything not within its jurisdiction without violating the due process clause of the constitution. The taxing power of a state does not extend beyond its territorial limits, but within such it may tax persons, property, income, or business. If an interest in property is taxed, the situs of either the property or interest must be found within the state. If an income is taxed, the recipient thereof must have a domicile within the state or the property or business out of which the income issues must be situated within the state so that the income may be said to have a situs therein. Personal property may be separated from its owner, and he may be taxed on its account at the place where the property is although it is not the place of his own domicile and even though he is not a citizen or resident of the state which imposes the tax. But debts owing by corporations are obligations of the debtors, and only possess value in the

hands of the creditors. (Farmers Loan Co. vs. Minnesota [1930], 280 U.S., 204; Union Refrigerator Transit Co. vs. Kentucky [1905], 199 U.S., 194 State Tax on Foreign held Bonds [1873, 15 Wall., 300; Bick vs. Beach [1907], 206 U. S., 392; State ex rel. Manitowoc Gas Co. vs. Wig. Tax Comm. [1915], 161 Wis., 111; United States Revenue Act of 1932, sec. 143.)

These views concerning situs for taxation purposes apply as well to an organized, unincorporated territory or to a Commonwealth having the status of the Philippines.

Pushing to one side that portion of Act No. 3761 which permits taxation of interest on bonds and other indebtedness paid without the Philippine Islands, the question is if the income was derived from sources within the Philippine Islands.

In the judgment of the majority of the court, the question should be answered in the affirmative. The Manila Gas Corporation operates its business entirely within the Philippines. Its earnings, therefore come from local sources. The place of material delivery of the interest to the foreign corporations paid out of the revenue of the domestic corporation is of no particular moment. The place of payment even if conceded to be outside of tho country cannot alter the fact that the income was derived from the Philippines. The word "source" conveys only one idea, that of origin, and the origin of the income was the Philippines.

In synthesis, therefore, we hold that conditions have not been provided which justify the court in passing on the constitutional question suggested; that the facts while somewhat obscure differ from the facts to be found in the cases relied upon, and that the Collector of Internal Revenue was justified in withholding income taxes on interest on bonds and other indebtedness paid to non-resident corporations because this income was received from sources within the Philippine Islands as authorized by the Income Tax Law. For the foregoing reasons, the second assigned error will be overruled.

Before concluding, it is but fair to state that the writer's opinion on the first subject and the first assigned error herein discussed is accurately set forth, but that his opinion on the second subject and the second assigned error is not accurately reflected, because on this last division his views coincide with those of the appellant. However, in the interest of the prompt disposition of this case, the decision has been written up in accordance with instructions received from the court.

Judgment affirmed, with the cost of this instance assessed against the appellant.

Hull, Vickers, Imperial, Butte, and Recto, JJ., concur.

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.

 

FERNAN, C.J.:

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.

The facts are not controverted.

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), 3petitioners 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. 5

The 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. 7

Here, 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. 8

Petitioners 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.

SO ORDERED.

G.R. No. 82797 February 27, 1991

GOOD EARTH EMPORIUM INC., and LIM KA PING, petitioners, vs.HONORABLE COURT OF APPEALS and ROCES-REYES REALTY INC., respondents.

A.E. Dacanay for petitioners.

Antonio Quintos Law Office for private respondent.

 

PARAS, J.:p

This is a petition for review on certiorari of the December 29, 1987 decision * of the Court of Appeals in CA-G.R. No. 11960 entitled "ROCES-REYES REALTY, INC. vs. HONORABLE JUDGE REGIONAL TRIAL COURT OF MANILA, BRANCH 44, GOOD EARTH EMPORIUM, INC. and LIM KA PING" reversing the decision of respondent Judge ** of the Regional Trial Court of Manila, Branch 44 in Civil Case No. 85-30484, which reversed the resolution of the Metropolitan Trial Court Of Manila, Branch 28 in Civil Case No. 09639, *** denying herein petitioners' motion to quash the alias writ of execution issued against them.

As gathered from the records, the antecedent facts of this case, are as follows:

A Lease Contract, dated October 16, 1981, was entered into by and between ROCES-REYES REALTY, INC., as lessor, and GOOD EARTH EMPORIUM, INC., as lessee, for a term of three years beginning November 1, 1981 and ending October 31, 1984 at a monthly rental of P65,000.00 (Rollo, p. 32; Annex "C" of Petition). The building which was the subject of the contract of

lease is a five-storey building located at the corner of Rizal Avenue and Bustos Street in Sta. Cruz, Manila.

From March 1983, up to the time the complaint was filed, the lessee had defaulted in the payment of rentals, as a consequence of which, private respondent ROCES-REYES REALTY, INC., (hereinafter designated as ROCES for brevity) filed on October 14, 1984, an ejectment case (Unlawful Detainer) against herein petitioners, GOOD EARTH EMPORIUM, INC. and LIM KA PING, hereinafter designated as GEE, (Rollo, p. 21; Annex "B" of the Petition). After the latter had tendered their responsive pleading, the lower court (MTC, Manila) on motion of Roces rendered judgment on the pleadings dated April 17, 1984, the dispositive portion of which states:

Judgment is hereby rendered ordering defendants (herein petitioners) and all persons claiming title under him to vacate the premises and surrender the same to the plaintiffs (herein respondents); ordering the defendants to pay the plaintiffs the rental of P65,000.00 a month beginning March 1983 up to the time defendants actually vacate the premises and deliver possession to the plaintiff; to pay attorney's fees in the amount of P5,000.00 and to pay the costs of this suit. (Rollo, p. 111; Memorandum of Respondents)

On May 16, 1984, Roces filed a motion for execution which was opposed by GEE on May 28, 1984 simultaneous with the latter's filing of a Notice of Appeal (Rollo, p. 112, Ibid.). On June 13, 1984, the trial court resolved such motion ruling:

After considering the motion for the issuance of a writ of execution filed by counsel for the plaintiff (herein respondents) and the opposition filed in relation thereto and finding that the defendant failed to file the necessary supersedeas bond, this

court resolved to grant the same for being meritorious. (Rollo, p. 112)

On June 14, 1984, a writ of execution was issued by the lower court. Meanwhile, the appeal was assigned to the Regional Trial Court (Manila) Branch XLVI. However, on August 15, 1984, GEE thru counsel filed with the Regional Trial Court of Manila, a motion to withdraw appeal citing as reason that they are satisfied with the decision of the Metropolitan Trial Court of Manila, Branch XXVIII, which said court granted in its Order of August 27, 1984 and the records were remanded to the trial court (Rollo, p. 32; CA Decision). Upon an ex-parte Motion of ROCES, the trial court issued an Alias Writ of Execution dated February 25, 1985 (Rollo, p. 104; Annex "D" of Petitioner's Memorandum), which was implemented on February 27, 1985. GEE thru counsel filed a motion to quash the writ of execution and notice of levy and an urgent Ex-parte Supplemental Motion for the issuance of a restraining order, on March 7, and 20, 1985, respectively. On March 21, 1985, the lower court issued a restraining order to the sheriff to hold the execution of the judgment pending hearing on the motion to quash the writ of execution (Rollo, p. 22; RTC Decision). While said motion was pending resolution, GEE filed a Petition for Relief from judgment before another court, Regional Trial Court of Manila, Branch IX, which petition was docketed as Civil Case No. 80-30019, but the petition was dismissed and the injunctive writ issued in connection therewith set aside. Both parties appealed to the Court of Appeals; GEE on the order of dismissal and Roces on denial of his motion for indemnity, both docketed as CA-G.R. No. 15873-CV. Going back to the original case, the Metropolitan Trial Court after hearing and disposing some other incidents, promulgated the questioned Resolution, dated April 8, 1985, the dispositive portion of which reads as follows:

Premises considered, the motion to quash the writ is hereby denied for lack of merit.

The restraining orders issued on March 11 and 23, 1985 are hereby recalled, lifted and set aside. (Rollo, p. 20, MTC Decision)

GEE appealed and by coincidence. was raffled to the same Court, RTC Branch IX. Roces moved to dismiss the appeal but the Court denied the motion. On certiorari, the Court of Appeals dismissed Roces' petition and remanded the case to the RTC. Meantime, Branch IX became vacant and the case was re-raffled to Branch XLIV.

On April 6, 1987, the Regional Trial Court of Manila, finding that the amount of P1 million evidenced by Exhibit "I" and another P1 million evidenced by the pacto de retro sale instrument (Exhibit "2") were in full satisfaction of the judgment obligation, reversed the decision of the Municipal Trial Court, the dispositive portion of which reads:

Premises considered, judgment is hereby rendered reversing the Resolution appealed from quashing the writ of execution and ordering the cancellation of the notice of levy and declaring the judgment debt as having been fully paid and/or Liquidated. (Rollo, p. 29).

On further appeal, the Court of Appeals reversed the decision of the Regional Trial Court and reinstated the Resolution of the Metropolitan Trial Court of Manila, the dispositive portion of which is as follows:

WHEREFORE, the judgment appealed from is hereby REVERSED and the Resolution dated April 8, 1985, of the Metropolitan Trial Court of Manila Branch XXXIII is hereby REINSTATED. No pronouncement as to costs. (Rollo, p. 40).

GEE's Motion for Reconsideration of April 5, 1988 was denied (Rollo, p. 43). Hence, this petition.

The main issue in this case is whether or not there was full satisfaction of the judgment debt in favor of respondent corporation which would justify the quashing of the Writ of Execution.

A careful study of the common exhibits (Exhibits 1/A and 2/B) shows that nowhere in any of said exhibits was there any writing alluding to or referring to any settlement between the parties of petitioners' judgment obligation (Rollo, pp. 45-48).

Moreover, there is no indication in the receipt, Exhibit "1", that it was in payment, full or partial, of the judgment obligation. Likewise, there is no indication in the pacto de retro sale which was drawn in favor of Jesus Marcos Roces and Marcos V. Roces and not the respondent corporation, that the obligation embodied therein had something to do with petitioners' judgment obligation with respondent corporation.

Finding that the common exhibit, Exhibit 1/A had been signed by persons other than judgment creditors (Roces-Reyes Realty, Inc.) coupled with the fact that said exhibit was not even alleged by GEE and Lim Ka Ping in their original motion to quash the alias writ of execution (Rollo, p. 37) but produced only during the hearing (Ibid.) which production resulted in petitioners having to claim belatedly that there was an "overpayment" of about half a million pesos (Rollo, pp. 25-27) and remarking on the utter absence of any writing in Exhibits "1/A" and "2/B" to indicate payment of the judgment debt, respondent Appellate Court correctly concluded that there was in fact no payment of the judgment debt. As aptly observed by the said court:

What immediately catches one's attention is the total absence of any writing alluding to or referring to any settlement between the parties of private

respondents' (petitioners') judgment obligation. In moving for the dismissal of the appeal Lim Ka Ping who was then assisted by counsel simply stated that defendants (herein petitioners) are satisfied with the decision of the Metropolitan Trial Court (Records of CA, p. 54).

Notably, in private respondents' (petitioners') Motion to Quash the Writ of Execution and Notice of Levy dated March 7, 1985, there is absolutely no reference to the alleged payment of one million pesos as evidenced by Exhibit 1 dated September 20, 1984. As pointed out by petitioner (respondent corporation) this was brought out by Linda Panutat, Manager of Good Earth only in the course of the latter's testimony. (Rollo, p. 37)

Article 1240 of the Civil Code of the Philippines provides that:

Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it.

In the case at bar, the supposed payments were not made to Roces-Reyes Realty, Inc. or to its successor in interest nor is there positive evidence that the payment was made to a person authorized to receive it. No such proof was submitted but merely inferred by the Regional Trial Court (Rollo, p. 25) from Marcos Roces having signed the Lease Contract as President which was witnessed by Jesus Marcos Roces. The latter, however, was no longer President or even an officer of Roces-Reyes Realty, Inc. at the time he received the money (Exhibit "1") and signed the sale with pacto de retro (Exhibit "2"). He, in fact, denied being in possession of authority to receive payment for the respondent corporation nor does the receipt show that he signed in the same capacity as he did in the Lease Contract at a time when he was

President for respondent corporation (Rollo, p. 20, MTC decision).

On the other hand, Jesus Marcos Roces testified that the amount of P1 million evidenced by the receipt (Exhibit "1") is the payment for a loan extended by him and Marcos Roces in favor of Lim Ka Ping. The assertion is home by the receipt itself whereby they acknowledged payment of the loan in their names and in no other capacity.

A corporation has a personality distinct and separate from its individual stockholders or members. Being an officer or stockholder of a corporation does not make one's property also of the corporation, and vice-versa, for they are separate entities (Traders Royal Bank v. CA-G.R. No. 78412, September 26, 1989; Cruz v. Dalisay, 152 SCRA 482). Shareowners are in no legal sense the owners of corporate property (or credits) which is owned by the corporation as a distinct legal person (Concepcion Magsaysay-Labrador v. CA-G.R. No. 58168, December 19, 1989). As a consequence of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of the stockholder, nor is the stockholder's debt or credit that of the corporation (Prof. Jose Nolledo's "The Corporation Code of the Philippines, p. 5, 1988 Edition, citing Professor Ballantine).

The absence of a note to evidence the loan is explained by Jesus Marcos Roces who testified that the IOU was subsequently delivered to private respondents (Rollo, pp. 97-98). Contrary to the Regional Trial Court's premise that it was incumbent upon respondent corporation to prove that the amount was delivered to the Roces brothers in the payment of the loan in the latter's favor, the delivery of the amount to and the receipt thereof by the Roces brothers in their names raises the presumption that the said amount was due to them. There is a disputable presumption that money paid by one to the other was due to the latter (Sec. 5(f) Rule 131, Rules of Court). It is for GEE and Lim Ka Ping to prove otherwise. In other words, it is for the latter to prove that the

payments made were for the satisfaction of their judgment debt and not vice versa.

The fact that at the time payment was made to the two Roces brothers, GEE was also indebted to respondent corporation for a larger amount, is not supportive of the Regional Trial Court's conclusions that the payment was in favor of the latter, especially in the case at bar where the amount was not receipted for by respondent corporation and there is absolutely no indication in the receipt from which it can be reasonably inferred, that said payment was in satisfaction of the judgment debt. Likewise, no such inference can be made from the execution of the pacto de retro sale which was not made in favor of respondent corporation but in favor of the two Roces brothers in their individual capacities without any reference to the judgment obligation in favor of respondent corporation.

In addition, the totality of the amount covered by the receipt (Exhibit "1/A") and that of the sale with pacto de retro(Exhibit "2/B") all in the sum of P2 million, far exceeds petitioners' judgment obligation in favor of respondent corporation in the sum of P1,560,000.00 by P440,000.00, which militates against the claim of petitioner that the aforesaid amount (P2M) was in full payment of the judgment obligation.

Petitioners' explanation that the excess is interest and advance rentals for an extension of the lease contract (Rollo, pp. 25-28) is belied by the absence of any interest awarded in the case and of any agreement as to the extension of the lease nor was there any such pretense in the Motion to Quash the Alias Writ of Execution.

Petitioners' averments that the respondent court had gravely abused its discretion in arriving at the assailed factual findings as contrary to the evidence and applicable decisions of this Honorable Court are therefore, patently unfounded. Respondent court was correct in stating that it "cannot go beyond what appears in the documents submitted by petitioners themselves (Exhibits "1" and "2") in the absence of clear and convincing

evidence" that would support its claim that the judgment obligation has indeed been fully satisfied which would warrant the quashal of the Alias Writ of Execution.

It has been an established rule that when the existence of a debt is fully established by the evidence (which has been done in this case), the burden of proving that it has been extinguished by payment devolves upon the debtor who offers such a defense to the claim of the plaintiff creditor (herein respondent corporation) (Chua Chienco v. Vargas, 11 Phil. 219; Ramos v. Ledesma, 12 Phil. 656; Pinon v. De Osorio, 30 Phil. 365). For indeed, it is well-entrenched in Our jurisprudence that each party in a case must prove his own affirmative allegations by the degree of evidence required by law (Stronghold Insurance Co. v. CA, G.R. No. 83376, May 29,1989; Tai Tong Chuache & Co. v. Insurance Commission, 158 SCRA 366).

The appellate court cannot, therefore, be said to have gravely abused its discretion in finding lack of convincing and reliable evidence to establish payment of the judgment obligation as claimed by petitioner. The burden of evidence resting on the petitioners to establish the facts upon which their action is premised has not been satisfactorily discharged and therefore, they have to bear the consequences.

PREMISES CONSIDERED, the petition is hereby DENIED and the Decision of the Respondent court is hereby AFFIRMED, reinstating the April 8, 1985 Resolution of the Metropolitan Trial Court of Manila.

SO ORDERED.

DEFECTIVE INCORPORATION

G.R. No. L-30188             October 2, 1928

FELIPE TAYKO, EDUARDO BUENO, BAUTISTA TAYKO, BERNARDO SOLDE and VICENTE ELUM, petitioners, vs.NICOLAS CAPISTRANO, acting as Judge of First Instance of Oriental Negros. ALFREDO B. CACNIO, as Provincial Fiscal of Oriental Negros, and JUAN GADIANI, respondents.

Abad Santos, Camus and Delgado and Teopisto Guingona for petitioners. Araneta and Zaragoza for respondents. The respondent Judge in his own behalf.

 

OSTRAND, J.:

This is a petition for a writ of prohibition enjoining the respondent judge from making cognizance of certain civil and criminal election cases in which the petitioners are parties.

The petitioners allege that the respondent judge, previous to this date, was appointed judge of the Court of First Instance of Oriental Negros, to hold office during good behavior and until he should reach the age of 65 years; that he now has reached that age and, therefore, under the provisions of section 148 of the Administrative Code as amended, is disqualified from acting as a judge of the Court of First Instance. The petitioners further allege that in view of the many election protests and criminal cases for violation of the election law filed in the Court of First Instance of Oriental Negros arising in the Court of First Instance of Oriental Negros arising from the last election of June 5, 1928, the Honorable Sixto de la Costa was duly designated and acted as auxiliary judge of the Province of Oriental Negros; that between

the auxiliary judge and the respondent judge herein there was an understanding, and the assignment of the said auxiliary judge was made with this understanding, that the said auxiliary judge so designated would hear and take cognizance of all election protests and criminal actions then pending or to filed arising from the said last general election, and that the respondent Honorable Nicolas Capistrano would try and hear the ordinary cases pending in the said court, but, notwithstanding this understanding or agreement, the respondent judge tried and is still trying to take cognizance of the election protests an criminal actions in said court; that the respondent judge declared in open court that he will try the criminal cases herein mentioned for the reason that the auxiliary judge refused to try the same on the ground that the preliminary investigations were held before him, when, in truth and in fact, the said auxiliary judge did not make the statement imputed to him and was and is still willing to try the election protests and criminal cases for violation of the election law pending in the court of the Province of Oriental Negros; that the respondent Honorable Nicolas Capistrano, in spite of the fact that he was holding and is now pretending to hold the office of judge of the Court of First Instance of Oriental Negros, took great interest and active part in the filing of criminal charges against the petitioners herein to the unjustifiable extent of appointing a deputy fiscal, who then filed the proper informations, when the provincial fiscal refused to file criminal charges against the petitioners for violation of the election law for lack of sufficient evidence to sustain the same; that said respondent is neither a judge de jure nor de facto, but that, notwithstanding this fact, he continues to hold the office of judge of the Court of First Instance of Oriental Negros and pretends to be duly qualified and acting judge of the said province; and that he has tried, and continues to try, to act as such judge and that there is reasonable ground to believe that he will take cognizance of the cases in question unless he be restrained by order of this court; that in acting as a duly qualified judge notwithstanding the facts alleged in the fifth, sixth, and seventh paragraphs hereof, the respondent judge acted and is about to act without and in excess of jurisdiction and also after the loss of jurisdiction.

To this petition the respondents demur on the ground that the facts stated in that (1) none of the facts alleged in the petition divest the respondent judge of his jurisdiction to take cognizance of the cases referred to in the complaint, and (2) even admitting as true, for the sake of this demurrer, the facts alleged in paragraph 7 of the petition, the respondent judge is still a de facto judge and his title to the office and his jurisdiction to hear the cases referred to in the petition cannot be questioned by prohibition, as this writ, even when directed against persons acting as judges, cannot be treated as a substitute for quo warranto, or be rightfully called upon to perform any of the functions of that writ.

The ground upon which the petition rests may be reduced to three propositions. (1) That the assignment of the Auxiliary Judge, Sixto de la Costa, to Dumaguete was made with the understanding that the he was to hear and take cognizance of all election contests and criminal causes for violation of the election law and that the respondent judge was to take cognizance of the ordinary cases and that there was an understanding between them that this arrangement was to be followed.

(2) That the respondent judge took great interest and an active part in the filing of the criminal charges against the petitioners herein to the unjustifiable extent of appointing a deputy fiscal who filed the proper informations when the regular provincial fiscal refused to file them for lack of sufficient evidence.

(3) That the respondent judge is already over 65 years of age and has, therefore, automatically ceased as judge of the Court of First Instance of Oriental Negros and that he is neither a judge de jure nor de facto.

(a) But little need be said as to the first proposition. A writ of prohibition to a judge of an interior court will only lie in cases where he acts without or in excess of his jurisdiction (section

226, Code of Civil Procedure), and it is obvious that a mere "understanding" as to the distribution of cases for trial did not deprive the respondent judge of the jurisdiction conferred upon him by law. It may be noted that it is not alleged that another judge had taken cognizance of the cases in question or that they had been definitely assigned to trial before such other judge.

(b) The second proposition is equally untenable. 1awph!

l.net That the respondent judge took great interest and an active part in the filing of the criminal charges against the petitioners to the extent of appointing a deputy fiscal when the regular provincial fiscal refused to file the proper informations, did not disqualify him from trying the case in question. Section 1679 of the Administrative Code provides that "when a provincial fiscal shall be disqualified by personal interest to act in a particular case or when for any reason he shall be unable, or shall fail, to discharge any of the duties of his position, the judge of the Court of First Instance of the province shall appoint an acting provincial fiscal, . . . ." (Emphasis ours.)

The determination of the question as to whether the fiscal has failed to discharge his duty in the prosecution of a crime must necessarily, to a large extent, lie within the sound discretion of the presiding judge, and there is no allegation in the petition that such discretion was abused in the present instance. It is true that it is stated that the appointment of the acting fiscal was "unjustifiable," but that is only a conclusion of law and not an allegation of facts upon which such a conclusion can be formed and may, therefore, be disregarded. It follows that in appointing an acting

fiscal, the respondent judge was well within his jurisdiction.

(c) The third ground upon which the petition is based is the most important and merits some consideration. It is well settled that the title to the office of a judge, whether de jure or de facto, can only be determined in a proceeding in the nature of quo warranto and cannot be tested by prohibition. But counsel for the petitioners maintains that the respondent judge is neither a judge de jure nor de facto and that, therefore, prohibition will lie. In this, counsel is undoubtedly mistaken.

The respondent judge has been duly appointed to the office of Judge of the Court of First Instance of Oriental Negros, but section 148 of the Administrative Code, as amended, provides that "Judges of the Court of First Instance and auxiliary judges shall be appointed to serve until they shall reach the age of sixty-five years." In view of this provision and assuming, as we must, that the allegations of the petition are true, it is evident that the respondent is no longer a judge de jure, but we do not think that it can be successfully disputed that he is still a judge de facto.

Briefly defined, a de facto judge is one who exercises the duties of a judicial office under color of an appointment or election thereto (Brown vs. O'Connell, 36 Conn., 432). He differs, on the one hand, from a mere usurper who undertakes to act officially without any color of right, and on the other hand, from a judge de jure who is in all respects legally appointed and qualified and whose term of office has not expired (State vs. Carroll, 38 Conn., 449; Denny vs. Matton, 2 Allen [Mass.], 361; Van Slyke vs. Farmers' Mut. Fire Ins. Co., 39 Wis., 390).

Apart from any constitutional or statutory regulation on the subject there seems to be a general rule of law that an incumbent of an office will hold over after the conclusion

of his term until the elction and qualification of a successor (22 R. C. L., pp. 554-5). When a judge in good faith remains in office after his title has ended, he is a de facto officer (Sheehan's Case, 122 Mass., 445).

Applying the principles stated to the facts set forth in the petition before us, we cannot escape the conclusion that, on the assumption that said facts are true, the respondent judge must be considered a judge de facto. His term of office may have expired, but his successor has not been appointed, and as good faith is presumed, he must be regarded as holding over in good faith. The contention of counsel for the petitioners that the auxiliary judge present in the district must be considered the regular judge seems obviously erroneous.

In these circumstances the remedy prayed for cannot be granted. "The rightful authority of a judge, in the full exercise of his public judicial function, cannot be questioned by any merely private suitor, nor by any other, excepting in the form especially provided by law. A judge de facto assumes the exercise of a part of the prerogative of sovereignty, and the legality of that assumption is open to the attack of the sovereign power alone. Accordingly, it is a well established principle, dating from the earliest period and repeatedly confirmed by an unbroken current of decisions, that the official acts of a de facto judge are just as valid for all purposes as those of a de jure judge, so far as the public or third persons who are interested therein are concerned. The rule is the same in civil criminal cases. The principle is one founded in policy and convenience, for the right of no one claiming a title or interest under or through the proceedings of an officer having an apparent authority to act would be safe, if it were necessary in every case to examine the legality of the title of such officer up to its original source, and the title or interest of such person were held to be invalidated by some accidental defect or flaw in the appointment, election or qualification of such officer, or in the rights of those from whom his appointment or election emanated; nor could the supremacy of the laws be maintained, or their execution enforced, if the acts of the judge having a colorable, but not a

legal title, were to be deemed invalid. As in the case of judges of courts of record, the acts of a justice de facto cannot be called in question in any suit to which he is not a party. The official acts of a de facto justice cannot b attacked collaterally. An exception to the general rule that the title of a person assuming to act as judge cannot be questioned in a suit before him is generally recognized in the case of a special judge, and it is held that a party to an action before a special judge may question his title to the office of a judge on the proceedings before him, and that the judgment will be reversed on appeal, where proper exceptions are taken, if the person assuming to act as special judge is not a judge de jure. The title of a de facto officer cannot be indirectly questioned in a proceeding to obtain a writ of prohibition to prevent him from doing an official act nor in a suit to enjoin the collection of a judgment rendered by him. Having at least colorable right to the office his title can be determined only in a quo warranto proceeding or information in the nature of a quo warranto at suit of the sovereign." (15 R. C. L., pp. 519-521.)

The demurrer to the petition is sustained, and inasmuch as it is evident that the weakness of the petition cannot be cured by amendment the present proceedings are hereby dismissed with the costs against the petitioners jointly and severally. The preliminary injunction hereinbefore issued is dissolved. So ordered.