Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-2598 June 29, 1950

C. ARNOLD HALL and BRADLEY P. HALL, petitioners,

vs.
EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte, FRED
BROWN, EMMA BROWN, HIPOLITA CAPUCIONG, in his capacity as receiver of
the Far Eastern Lumber and Commercial Co., Inc.,respondents.

Claro M. Recto for petitioners.

Ramon Diokno and Jose W. Diokno for respondents.

BENGZON, J.:

This is petition to set aside all the proceedings had in civil case No. 381 of the Court of
First Instance of Leyte and to enjoin the respondent judge from further acting upon the
same.

Facts: (1) on May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the
respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella,
signed and acknowledged in Leyte, the article of incorporation of the Far Eastern
Lumber and Commercial Co., Inc., organized to engage in a general lumber business to
carry on as general contractors, operators and managers, etc. Attached to the article
was an affidavit of the treasurer stating that 23,428 shares of stock had been
subscribed and fully paid with certain properties transferred to the corporation described
in a list appended thereto.

(2) Immediately after the execution of said articles of incorporation, the corporation
proceeded to do business with the adoption of by-laws and the election of its officers.

(3) On December 2, 1947, the said articles of incorporation were filed in the office of the
Securities and Exchange Commissioner, for the issuance of the corresponding
certificate of incorporation.

(4) On March 22, 1948, pending action on the articles of incorporation by the aforesaid
governmental office, the respondents Fred Brown, Emma Brown, Hipolita D. Chapman
and Ceferino S. Abella filed before the Court of First Instance of Leyte the civil case
numbered 381, entitled "Fred Brown et al. vs. Arnold C. Hall et al.", alleging among
other things that the Far Eastern Lumber and Commercial Co. was an unregistered
partnership; that they wished to have it dissolved because of bitter dissension among
the members, mismanagement and fraud by the managers and heavy financial losses.
(5) The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion
to dismiss, contesting the court's jurisdiction and the sufficiently of the cause of action.

(6) After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution of the
company; and at the request of plaintiffs, appointed of the properties thereof, upon the
filing of a P20,000 bond.

(7) The defendants therein (petitioners herein) offered to file a counter-bond for the
discharge of the receiver, but the respondent judge refused to accept the offer and to
discharge the receiver. Whereupon, the present special civil action was instituted in this
court. It is based upon two main propositions, to wit:

(a) The court had no jurisdiction in civil case No. 381 to decree the dissolution of the
company, because it being a de facto corporation, dissolution thereof may only be
ordered in a quo warranto proceeding instituted in accordance with section 19 of the
Corporation Law.

(b) Inasmuch as respondents Fred Brown and Emma Brown had signed the article of
incorporation but only a partnership.

Discussion: The second proposition may at once be dismissed. All the parties are
informed that the Securities and Exchange Commission has not, so far, issued the
corresponding certificate of incorporation. All of them know, or sought to know, that the
personality of a corporation begins to exist only from the moment such certificate is
issued — not before (sec. 11, Corporation Law). The complaining associates have not
represented to the others that they were incorporated any more than the latter had
made similar representations to them. And as nobody was led to believe anything to his
prejudice and damage, the principle of estoppel does not apply. Obviously this is not an
instance requiring the enforcement of contracts with the corporation through the rule of
estoppel.

The first proposition above stated is premised on the theory that, inasmuch as the Far
Eastern Lumber and Commercial Co., is a de facto corporation, section 19 of the
Corporation Law applies, and therefore the court had not jurisdiction to take cognizance
of said civil case number 381. Section 19 reads as follows:

. . . The due incorporation of any corporations claiming in good faith to be a

corporation under this Act and its right to exercise corporate powers shall not be
inquired into collaterally in any private suit to which the corporation may be a
party, but such inquiry may be had at the suit of the Insular Government on
information of the Attorney-General.

There are least two reasons why this section does not govern the situation. Not having
obtained the certificate of incorporation, the Far Eastern Lumber and Commercial Co.
— even its stockholders — may not probably claim "in good faith" to be a corporation.
 Under our statue it is to be noted (Corporation Law, sec. 11) that it is the
issuance of a certificate of incorporation by the Director of the Bureau of
Commerce and Industry which calls a corporation into being. The immunity if
collateral attack is granted to corporations "claiming in good faith to be a
corporation under this act." Such a claim is compatible with the existence of
errors and irregularities; but not with a total or substantial disregard of the law.
Unless there has been an evident attempt to comply with the law the claim to be
a corporation "under this act" could not be made "in good faith." (Fisher on the
Philippine Law of Stock Corporations, p. 75. See also Humphreys vs. Drew, 59
Fla., 295; 52 So., 362.)

Second, this is not a suit in which the corporation is a party. This is a litigation between
stockholders of the alleged corporation, for the purpose of obtaining its dissolution.
Even the existence of a de jure corporation may be terminated in a private suit for its
dissolution between stockholders, without the intervention of the state.

There might be room for argument on the right of minority stockholders to sue for
dissolution;1 but that question does not affect the court's jurisdiction, and is a matter for
decision by the judge, subject to review on appeal. Whkch brings us to one principal
reason why this petition may not prosper, namely: the petitioners have their remedy by
appealing the order of dissolution at the proper time.

There is a secondary issue in connection with the appointment of a receiver. But it must
be admitted that receivership is proper in proceedings for dissolution of a company or
corporation, and it was no error to reject the counter-bond, the court having declared the
dissolution. As to the amount of the bond to be demanded of the receiver, much
depends upon the discretion of the trial court, which in this instance we do not believe
has been clearly abused.

Judgment: The petition will, therefore, be dismissed, with costs. The preliminary
injunction heretofore issued will be dissolved.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-11442 May 23, 1958

MANUELA T. VDA. DE SALVATIERRA, petitioner,

vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First
Instance of Leyte, Branch II, and SEGUNDINO REFUERZO, respondents.

Jimenez, Tantuico, Jr. and Tolete for petitioner.

Francisco Astilla for respondent SegundinoRefuerzo.

FELIX, J.:

This is a petition for certiorari filed by Manuela T. Vda. deSalvatierra seeking to nullify
the order of the Court of First Instance of Leyte in Civil Case No. 1912, dated March 21,
1956, relieving SegundinoRefuerzo of liability for the contract entered into between the
former and the Philippine Fibers Producers Co., Inc., of which Refuerzo is the president.
The facts of the case are as follows:

Manuela T. Vda. deSalvatierra appeared to be the owner of a parcel of land located at

Maghobas, Poblacion, Burauen, Teyte. On March 7, 1954, said landholder entered into
a contract of lease with the Philippine Fibers Producers Co., Inc., allegedly a
corporation "duly organized and existing under the laws of the Philippines, domiciled at
Burauen, Leyte, Philippines, and with business address therein, represented in this
instance by Mr. Segundino Q. Refuerzo, the President". It was provided in said contract,
among other things, that the lifetime of the lease would be for a period of 10 years; that
the land would be planted to kenaf, ramie or other crops suitable to the soil; that the
lessor would be entitled to 30 per cent of the net income accruing from the harvest of
any, crop without being responsible for the cost of production thereof; and that after
every harvest, the lessee was bound to declare at the earliest possible time the income
derived therefrom and to deliver the corresponding share due the lessor.

Apparently, the aforementioned obligations imposed on the alleged corporation were

not complied with because on April 5, 1955, Alanuela T. Vda, de Salvatierra filed with
the Court of First Instance of Leyte a complaint against the Philippine Fibers Producers
Co., Inc., and Segundino Q. Refuerzo, for accounting, rescission and damages (Civil
Case No. 1912). She averred that sometime in April, 1954, defendants planted kenaf on
3 hectares of the leased property which crop was, at the time of the commencement of
the action, already harvested, processed and sold by defendants; that notwithstanding
that fact, defendants refused to render an accounting of the income derived therefrom
and to deliver the lessor's share; that the estimated gross income was P4,500, and the
deductible expenses amounted to P1,000; that as defendants' refusal to undertake such
task was in violation of the terms of the covenant entered into between the plaintiff and
defendant corporation, a rescission was but proper.

As defendants apparently failed to file their answer to the complaint, of which they were
allegedly notified, the Court declared them in default and proceeded to receive plaintiff's
evidence. On June 8, 1955, the lower Court rendered judgment granting plaintiff's
prayer, and required defendants to render a complete accounting of the harvest of the
land subject of the proceeding within 15 days from receipt of the decision and to deliver
30 per cent of the net income realized from the last harvest to plaintiff, with legal interest
from the date defendants received payment for said crop. It was further provide that
upon defendants' failure to abide by the said requirement, the gross income would be
fixed at P4,200 or a net income of P3,200 after deducting the expenses for production,
30 per cent of which or P960 was held to be due the plaintiff pursuant to the
aforementioned contract of lease, which was declared rescinded.

No appeal therefrom having been perfected within the reglementary period, the Court,
upon motion of plaintiff, issued a writ of execution, in virtue of which the Provincial
Sheriff of Leyte caused the attachment of 3 parcels of land registered in the name of
SegundinoRefuerzo. No property of the Philippine Fibers Producers Co., Inc., was
found available for attachment. On January 31, 1956, defendant SegundinoRefuerzo
filed a motion claiming that the decision rendered in said Civil Case No. 1912 was null
and void with respect to him, there being no allegation in the complaint pointing to his
personal liability and thus prayed that an order be issued limiting such liability to
defendant corporation. Over plaintiff's opposition, the Court a quo granted the same and
ordered the Provincial Sheriff of Leyte to release all properties belonging to the movant
that might have already been attached, after finding that the evidence on record made
no mention or referred to any fact which might hold movant personally liable therein. As
plaintiff's petition for relief from said order was denied, Manuela T. Vda. deSalvatierra
instituted the instant action asserting that the trial Judge in issuing the order complained
of, acted with grave abuse of discretion and prayed that same be declared a nullity.

From the foregoing narration of facts, it is clear that the order sought to be nullified was
issued by tile respondent Judge upon motion of defendant Refuerzo, obviously pursuant
to Rule 38 of the Rules of Court. Section 3 of said Rule, however, in providing for the
period within which such a motion may be filed, prescribes that:

SEC. 3. WHEN PETITION FILED; CONTENTS AND VERIFICATION. — A

petition provided for in either of the preceding sections of this rule must be
verified, filed within sixty days after the petitioner learns of the judgment, order, or
other proceeding to be set aside, and not more than six months after such
judgment or order was entered, or such proceeding was taken; and must be must
be accompanied with affidavit showing the fraud, accident, mistake, or excusable
negligence relied upon, and the facts constituting the petitioner is good and
substantial cause of action or defense, as the case may be, which he may prove
if his petition be granted". (Rule 38)
The aforequoted provision treats of 2 periods, i.e., 60 days after petitioner learns of the
judgment, and not more than 6 months after the judgment or order was rendered, both
of which must be satisfied. As the decision in the case at bar was under date of June 8,
1955, whereas the motion filed by respondent Refuerzo was dated January 31, 1956, or
after the lapse of 7 months and 23 days, the filing of the aforementioned motion was
clearly made beyond the prescriptive period provided for by the rules. The remedy
allowed by Rule 38 to a party adversely affected by a decision or order is certainly an
alert of grace or benevolence intended to afford said litigant a penultimate opportunity to
protect his interest. Considering the nature of such relief and the purpose behind it, the
periods fixed by said rule are non-extendible and never interrupted; nor could it be
subjected to any condition or contingency because it is of itself devised to meet a
condition or contingency (Palomares vs. Jimenez,* G.R. No. L-4513, January 31, 1952).
On this score alone, therefore, the petition for a writ of certiorari filed herein may be
granted. However, taking note of the question presented by the motion for relief
involved herein, We deem it wise to delve in and pass upon the merit of the same.

Refuerzo, in praying for his exoneration from any liability resulting from the non-
fulfillment of the obligation imposed on defendant Philippine Fibers Producers Co., Inc.,
interposed the defense that the complaint filed with the lower court contained no
allegation which would hold him liable personally, for while it was stated therein that he
was a signatory to the lease contract, he did so in his capacity as president of the
corporation. And this allegation was found by the Court a quo to be supported by the
records. Plaintiff on the other hand tried to refute this averment by contending that her
failure to specify defendant's personal liability was due to the fact that all the time she
was under the impression that the Philippine Fibers Producers Co., Inc., represented by
Refuerzo was a duly registered corporation as appearing in the contract, but a
subsequent inquiry from the Securities and Exchange Commission yielded otherwise.
While as a general rule a person who has contracted or dealt with an association in
such a way as to recognize its existence as a corporate body is estopped from denying
the same in an action arising out of such transaction or dealing, (Asia Banking
Corporation vs. Standard Products Co., 46 Phil., 114; Compania Agricola de Ultramar
vs. Reyes, 4 Phil., 1; Ohta Development Co.; vs. Steamship Pompey, 49 Phil., 117), yet
this doctrine may not be held to be applicable where fraud takes a part in the said
transaction. In the instant case, on plaintiff's charge that she was unaware of the fact
that the Philippine Fibers Producers Co., Inc., had no juridical personality, defendant
Refuerzo gave no confirmation or denial and the circumstances surrounding the
execution of the contract lead to the inescapable conclusion that plaintiff Manuela T.
Vda. deSalvatierra was really made to believe that such corporation was duly organized
in accordance with law.

There can be no question that a corporation with registered has a juridical personality
separate and distinct from its component members or stockholders and officers such
that a corporation cannot be held liable for the personal indebtedness of a stockholder
even if he should be its president (Walter A. Smith Co. vs. Ford, SC-G.R. No. 42420)
and conversely, a stockholder or member cannot be held personally liable for any
financial obligation be, the corporation in excess of his unpaid subscription. But this rule
is understood to refer merely to registered corporations and cannot be made applicable
to the liability of members of an unincorporated association. The reason behind this
doctrine is obvious-since an organization which before the law is non-existent has no
personality and would be incompetent to act and appropriate for itself the powers and
attribute of a corporation as provided by law; it cannot create agents or confer authority
on another to act in its behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their own risk. And as it is an
elementary principle of law that a person who acts as an agent without authority or
without a principal is himself regarded as the principal, possessed of all the rights and
subject to all the liabilities of a principal, a person acting or purporting to act on behalf of
a corporation which has no valid existence assumes such privileges and obligations and
comes personally liable for contracts entered into or for other acts performed as such,
agent (Fay vs. Noble, 7 Cushing [Mass.] 188. Cited in II Tolentino's Commercial Laws of
the Philippines, Fifth Ed., P. 689-690). Considering that defendant Refuerzo, as
president of the unregistered corporation Philippine Fibers Producers Co., Inc., was the
moving spirit behind the consummation of the lease agreement by acting as its
representative, his liability cannot be limited or restricted that imposed upon corporate
shareholders. In acting on behalf of a corporation which he knew to be unregistered, he
assumed the risk of reaping the consequential damages or resultant rights, if any,
arising out of such transaction.

Wherefore, the order of the lower Court of March 21, 1956, amending its previous
decision on this matter and ordering the Provincial Sheriff of Leyte to release any and all
properties of movant therein which might have been attached in the execution of such
judgment, is hereby set aside and nullified as if it had never been issued. With costs
against respondent SegundinoRefuerzo. It is so ordered.
 FIRST DIVISION

[G.R. No. 123552. February 27, 2003]

TWIN TOWERS CONDOMINIUM CORPORATION, petitioner, vs. THE COURT OF

APPEALS, ALS MANAGEMENT & DEVELOPMENT CORPORATION,
ANTONIO LITONJUA and SECURITIES AND EXCHANGE
COMMISSION, respondents.

DECISION
CARPIO, J.:

The Case

Before us is a petition for review on certiorari[1] to nullify the Decision[2] dated August
31, 1995 of the Court of Appeals and its Resolution[3] dated January 16, 1996 denying
petitioners motion for reconsideration. The Court of Appeals dismissed petitioners
appeal from the Decision en banc[4] of the Securities and Exchange Commission, which
reversed the order of the SEC Hearing Officer.[5] The Court of Appeals dismissed the
appeal for lack of merit and for non-compliance with the requirement on certification of
non-forum shopping.[6]

The Antecedent Facts

On June 30, 1988, petitioner Twin Towers Condominium Corporation (petitioner for
brevity) filed a complaint[7] with the Securities and Exchange Commission (SEC for
brevity) against respondents ALS Management & Development Corporation (ALS for
brevity) and Antonio Litonjua (Litonjua for brevity). The complaint prayed that ALS and
Litonjua be ordered to pay solidarily the unpaid condominium assessments and dues
with interests and penalties covering the four quarters of 1986 and 1987 and the first
quarter of 1988.
The complaint alleged, among others, that petitioner, a non-stock corporation, is
organized for the sole purpose of holding title to and managing the common areas of
Twin Towers Condominium (Condominium for brevity). Membership in petitioner
corporation is compulsory and limited to all registered owners of units in the
Condominium. ALS, as registered owner of Unit No. 4-A (Unit for brevity) of the
Condominium, is a member of petitioner. Litonjua, who is the corporate president of
ALS, occupies the Unit.
 Petitioner collects from all its members quarterly assessments and dues as
authorized by its Master Deed and Declaration of Restrictions (Master Deed for brevity)
and its By-Laws. As of the filing of the complaint with the SEC, petitioners records of
account show that ALS failed to pay assessments and dues starting 1986 up to the first
quarter of 1988. Petitioner claimed against both ALS and Litonjua P118,923.20 as
unpaid assessments and dues. This amount includes accrued interests of P30,808.33
and penalty charges of P7,793.34, plus P 1,500.00 as unpaid contingency fund
assessment for 1987.[8]
In their joint Answer with Counterclaim, ALS and Litonjua asserted that petitioner
failed to state a cause of action against Litonjua. ALS and Litonjua argued that
petitioners admission that ALS and not Litonjua is the registered owner of the Unit and
member of petitioner exonerates Litonjua from any liability to petitioner. While ALS is a
juridical person that cannot by itself physically occupy the Unit, the natural person who
physically occupies the Unit does not assume the liability of ALS to petitioner. Neither
does the agent who acts for the corporation become personally liable for the
corporations obligation.
As counterclaim, ALS claimed damages against petitioner arising from petitioners
act of repeatedly preventing ALS, its agents and guests from using the parking space,
swimming pool, gym, and other facilities of the Condominium. In addition, Litonjua
claimed damages against petitioner for the latters act of including Litonjuas name in the
list of delinquent unit owners which was posted on petitioners bulletin board. [9]
On December 11, 1991, the SEC Hearing Officer ordered petitioner to pay Litonjua
moral and exemplary damages for maliciously including Litonjuas name in the list of
delinquent unit owners and for impleading him as a respondent. On the other hand, the
SEC Hearing Officer ordered ALS to pay the assessments and dues to
petitioner.[10] However, the Hearing Officer did not determine the exact amount to be
paid by ALS because petitioner failed to lay down the basis for computing the unpaid
assessments and dues.[11] The dispositive portion of the decision reads thus:

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

1. Ordering respondent ALS to pay the legal assessments/dues due the complainant within thirty
(30) days from finality of this Decision; and

2. Ordering the complainant to pay respondent Antonio Litonjua the sum of THREE HUNDRED
THOUSAND PESOS (P300,000.00) as moral damages, FIFTY THOUSAND PESOS
(P50,000.00) as exemplary damages, and TWO HUNDRED THOUSAND PESOS
(P200,000.00) as and by way of attorneys fees.

SO ORDERED.[12]

Not satisfied with the SEC Hearing Officers decision, both parties filed their
respective appeals to the SEC en banc.[13] Petitioner assailed the award of moral and
exemplary damages as well as attorneys fees in favor of Litonjua. On the other hand,
ALS appealed that portion of the decision ordering it to pay to petitioner the
assessments and dues.
In a decision dated July 30, 1993, the SEC en banc nullified the award of damages
and attorneys fees to Litonjua on the ground that the SEC had no jurisdiction over
Litonjua. The SEC en banc held that there is no intra-corporate relationship between
petitioner and Litonjua who is not the registered owner of the Unit and thus, not a
member of petitioner. The SEC en banc stated that petitioner could not invoke the
doctrine of piercing the veil of ALS corporate fiction since disregarding the corporate
entity is a function of the regular courts.
Furthermore, the SEC en banc remanded the case to the Hearing Officer to
determine the value of the services petitioner failed to render to ALS because of the
latters non-use of the Condominium facilities.The SEC en banc ruled that the value of
these services could be deducted from the unpaid assessments and dues that ALS
owes petitioner.
Thus, the SEC en banc declared:

WHEREFORE, in view of the foregoing, the order appealed from is hereby reversed insofar as it
awards moral and exemplary damages and attorneys fees to respondent Litonjua as the same is
null and void for lack of jurisdiction of this Commission over the said party.[14]

As regards that portion of the appealed Order directing respondent ALS to pay the legal
assessment/dues to the complainant TTC within thirty (30) [days] from finality of the said
decision, the same is hereby modified by remanding the case to the hearing officer
for determination of the value of the services withheld by the complainant TTC from
respondent ALS in order that the same may be deducted from the amount of legal assessments
and dues which the respondent corporation shall pay to the complainant.

SO ORDERED.[15] (Emphasis supplied)

Petitioner appealed the SEC en banc Decision to the Court of Appeals contending
grave error or grave abuse of discretion by the SEC en banc.

The Ruling of the Court of Appeals

The Court of Appeals dismissed petitioners appeal on both procedural and

substantive grounds. Procedurally, the Court of Appeals found the petition defective for
failure to contain a sworn certification of non-forum shopping as required by Section 6 of
Administrative Circular No. 1-95 and Section 2 of Revised Circular No. 28-91.
On the merits, the Court of Appeals substantially affirmed the decision of the
SEC en banc that there is no ground to pierce the veil of ALS corporate fiction. The
Court of Appeals held that there is nothing in the records to show that ALS is engaged
in unlawful, business or that Litonjua is using ALS to defraud third parties. The fact
alone that ALS is in arrears in paying its assessments and dues does not make ALS or
Litonjua guilty of fraud which would warrant piercing the corporate veil of ALS. Thus, it
was improper for petitioner to post Litonjuas name instead of ALS in the list of
delinquent unit owners since Litonjua is not a member of petitioner.
The Court of Appeals also sustained the claim of petitioner against ALS for unpaid
assessments and dues but found that petitioner failed to substantiate by preponderance
of evidence the basis for computing the unpaid assessments and dues. Thus, the Court
of Appeals remanded the case to the SEC Hearing Officer for further reception of
evidence and for determination of the exact amount of ALS liability to petitioner. The
Court of Appeals, however, directed the SEC Hearing Officer to deduct from ALS
unpaid assessments and dues the value of the services denied to ALS because of the
latters non-use of the Condominium facilities. In allowing the deduction, the Court of
Appeals declared the Condominiums House Rule 26.3 as ultra vires. House Rule 26.3,
which petitioner claims as its basis for denying the use of the Condominium facilities to
ALS, authorizes withholding of the use of the Condominium facilities from delinquent
unit owners. The Court of Appeals, however, ruled that petitioner is not expressly
authorized by its Master Deed and By-Laws to prohibit delinquent members from using
the facilities of the Condominium.
The Court of Appeals went further and declared the interest and penalty charges
prescribed by House Rule 26.5[16] on delinquent accounts as exorbitant or grossly
excessive, although this was not raised as an issue. While in its complaint, petitioner
sought to recover P118,923.20 as unpaid assessments and dues, in its amended
petition for review, petitioner sought P994,529.75, more than eight times the amount it
originally claimed from ALS.[17]
In the dispositive portion of its assailed decision, the Court of Appeals declared:

WHEREFORE, the instant petition is hereby DENIED and is accordingly DISMISSED.[18]

Hence, this petition.

The Issues

In its Memorandum, petitioner assigns the following errors in the decision of the
Court of Appeals:
1. IN DISMISSING THE PETITION ALLEGEDLY BECAUSE OF PETITIONERS
FAILURE TO COMPLY WITH THE PERTINENT PROVISIONS OF
SUPREME COURT CIRCULAR NOS. 1-95 AND 28-91 ON THE
CERTIFICATION AGAINST FORUM SHOPPING;
2. IN ORDERING A REMAND OF THE CASE BACK TO THE HEARING
OFFICER FOR THE RECEPTION OF EVIDENCE FOR SERVICES
SUPPOSEDLY NOT RENDERED BY PETITIONER;
3. IN DECLARING HOUSE RULE NO. 26.3 AS ULTRA VIRES;
 4. IN FINDING THE PENALTIES AND INTERESTS PRESCRIBED IN HOUSE
RULE 26.5[19] AS EXORBITANT AND GROSSLY EXCESSIVE;
5. IN REFUSING TO RECOGNIZE THE FACT THAT RESPONDENT
LITONJUA AND NOT ALS IS THE REAL OWNER OF APARTMENT UNIT 4-
A; and
6. IN FAILING TO FIND THAT THERE IS ON RECORD OVERWHELMING
EVIDENCE TO SHOW THE BASIS OF THE DUES AND ASSESSMENTS
BEING COLLECTED FROM THE PRIVATE RESPONDENTS.[20]

The Ruling of the Court

The petition is partly meritorious.

A perusal of the foregoing issues readily reveals that petitioner raises two aspects
of the case for consideration - the procedural aspect and the substantive aspect.
We will discuss the procedural aspect first.

Non-compliance with Supreme Court Circular No. 1-95 and Revised Circular No.
28-91.

Petitioner submits that the Court of Appeals erred in dismissing its appeal for non-
compliance with Supreme Court Circular No. 1-95 and Revised Circular No. 28-91.
Petitioner asserts that when it filed its petition, both circulars were not yet in full force.
Petitioner filed its petition for review with the Court of Appeals on August 18, 1993
and its amended petition on September 3, 1993. Both the original and amended
petitions were filed before the effectivity of Revised Administrative Circular No. 1-95 on
June 1, 1995. However, contrary to petitioners claim, before the issuance of Revised
Administrative Circular No. 1-95, there was already an existing circular requiring a
sworn certification of non-forum shopping from a party filing a petition for review with the
Court of Appeals.
Circular No. 28-91, which took effect on January 1, 1992, required a sworn
certification of non-forum shopping in cases filed with the Court of Appeals and the
Supreme Court. Circular No. 28-91 specifically provides for summary dismissal of
petitions which do not contain a sworn certification of non-forum shopping. Sections 2
and 3 of Circular No. 28-91 state:

2. Certification - The party must certify under oath that he has not commenced any other action
or proceeding involving the same issues in the Supreme Court, the Court of Appeals, or different
Divisions thereof, or any other tribunal or agency, and that to the best of his knowledge, no such
action or proceeding is pending in the Supreme Court, the Court of Appeals, or different
Divisions thereof, or any other tribunal or agency. If there is any action pending, he must state
the status of the same. If he should learn that a similar action or proceeding has been filed or is
pending before the Supreme Court, the Court of Appeals, or different Divisions thereof, or any
other tribunal or agency, he should notify the court, tribunal or agency within five (5) days from
such notice.

3. Penalties -

a. Any violation of this Circular shall be a cause for the summary dismissal of the multiple
petition or complaint.

x xx.

Clearly, petitioner cannot claim that at the time of the filing of its petitions with the
Court of Appeals, it was not required under any existing Supreme Court Circular to
include in its petitions a sworn certification of non-forum shopping. Circular No. 28-91
applies in the instant case, being the Circular in force at the time. Petitioner cannot even
feign ignorance of Circular No. 28-91 as its petitions were filed more than one year after
the Circulars effectivity. The rule against forum shopping has long been established and
Circular No. 28-91 merely formalized the prohibition and provided the appropriate
penalties against violators.[21]
The Court of Appeals did not err in dismissing the petition for this procedural lapse.
However, special circumstances or compelling reasons may justify relaxing the rule
requiring certification on non-forum shopping.[22] Technical rules of procedure should be
used to promote, not frustrate justice. While the swift unclogging of court dockets is a
laudable objective, granting substantial justice is an even more urgent ideal. [23] The
certificate of non-forum shopping is a mandatory requirement. Nonetheless, this
requirement must not be interpreted too literally to defeat the ends of justice. [24]
In the instant case, the merits of petitioners case should be considered special
circumstances or compelling reasons that justify tempering the hard consequence of the
procedural requirement on non-forum shopping. In the interest of justice, we reinstate
the petition.
Essentially, the substantive issues for resolution in the instant petition can be
summarized into four, as follows:

1. Whether petitioner can collect assessments and dues despite its denial to ALS of the use of the
Condominium facilities pursuant to House Rule 26.3;

2. Whether ALS can validly offset against its unpaid assessments and dues the value of the
services withheld by petitioner;

3. Whether a remand of the case to the proper trial court is necessary to determine the amounts
involved; and

4. Whether the penalties prescribed in House Rule 26.2 are grossly excessive and exorbitant.
 First Issue: Payment of assessments and dues.

Petitioners authority to assess dues.

Petitioner was organized to hold title to the common areas of the Condominium and
to act as its management body. The Condominium Act, the law governing
condominiums, states that:

Title to the common areas, including the land, or the appurtenant interests in such areas, may be
held by a corporation specially formed for the purpose (hereinafter known as the condominium
corporation) in which the holders of separate interests shall automatically be members or
shareholders, to the exclusion of others, in proportion to the appurtenant interest of their
respective units in the common areas. xxx[25]

The Condominium Act provides that the Master Deed may authorize the
condominium corporation to collect reasonable assessments to meet authorized
expenditures.[26] For this purpose, each unit owner may be assessed separately for its
share of such expenditures in proportion (unless otherwise provided) to its owners
fractional interest in the common areas.[27] Also, Section 20 of the Condominium Act
declares:

Section 20. An assessment upon any condominium made in accordance with a duly registered
declaration of restrictions shall be an obligation of the owner thereof at the time the assessment
is made. xxx (Emphasis supplied)

Petitioner is expressly authorized by its Master Deed to impose reasonable

assessments on its members to maintain the common areas and facilities of the
Condominium. Section 4, Part II of petitioners Master Deed provides:

Section 4. ASSESSMENTS. From and after date Ayala Investment & Development Corporation
formally conveys the condominium project to the Condominium Corporation, the owner of each
unit shall be proportionately liable for the common expenses of the condominium project,
which shall be assessed against each unit owner in the project and paid to the Condominium
Corporation as provided in Part I Section 8 (b) hereof at such times and in such manner as shall
be provided in the By-Laws of the Condominium Corporation,

a.) Regular assessments for such amounts as shall be necessary to meet the operating
expenses of the Condominium Corporation as well as such amounts, determined
in accordance with the provisions of the By-Laws, to be made for the purpose of
creating and maintaining a special fund for capital expenditures on the common
areas of the project; including the cost of extraordinary repairs, reconstruction or
restoration necessitated by damage, depreciation, obsolescence, expropriation or
condemnation of the common areas or part thereof, as well as the cost of
improvements or additions thereto authorized in accordance with the provisions of
the By-Laws;
b.) xxx

c.) There may be assessed against the unit owners, in the manner prescribed herein or in the
By-Laws of the Condominium Corporation, such other assessments as are not
specifically provided for herein;

d.) The amount of any such assessment, plus interest penalties, attorneys fees and other
charges incurred for the collection of such assessment, shall constitute a lien upon
the unit and on the appurtenant interest of the unit owner in the Condominium
Corporation. Such lien shall be constituted in the manner provided in the By-
Laws of the Condominium Corporation. The foreclosure, transfer of conveyance,
as well as redemption of the unit shall include the unit owners appurtenant interest
in the Condominium Corporation. The Condominium Corporation shall have the
power to bid at the foreclosure sale.[28]

Thus, petitioners right to collect assessments and dues from its members and the
corollary obligation of its members to pay are beyond dispute.
There is also no question that ALS is a member of petitioner considering that ALS is
the registered owner of the Unit. Under the automatic exclusive membership clause in
the Master Deed,[29] ALS became a regular member of petitioner upon its acquisition of
a unit in the Condominium.
As a member of petitioner, ALS assumed the compulsory obligation to share in the
common expenses of the Condominium. This compulsory obligation is further
emphasized in Section 8, paragraph c, Part I of the Master Deed, to wit:

Each member of the Condominium Corporation shall share in the common expenses of the
condominium project in the same sharing or percentage stated xxx[30] (Emphasis supplied)

Undoubtedly, as a member of petitioner, ALS is legally bound to pay petitioner

assessments and dues LO maintain the common areas and facilities of the
Condominium. ALS obligation arises from both the law and its contract with the
Condominium developer and other unit owners.
Petitioners Master Deed provides that a member of the Condominium corporation
shall share in the common expenses of the condominium project. [31] This obligation
does not depend on the use or non-use by the member of the common areas and
facilities of the Condominium. Whether or not a member uses the common areas or
facilities, these areas and facilities will have to be maintained. Expenditures must be
made to maintain the common areas and facilities whether a member uses them
frequently, infrequently or never at all.
ALS asserts that the denial by petitioner to ALS and Litonjua of the use of the
Condominium facilities deprived petitioner of any right to demand from ALS payment of
any condominium assessments and dues. ALS contends that the right to demand
payment of assessments and dues carries with it the correlative obligation to allow the
use of the Condominium facilities. ALS is correct if it had not defaulted on its
assessment and dues before the denial of the use of the facilities. However, the records
clearly show that petitioner denied ALS and Litonjua the use of the facilities
only after ALS had defaulted on its obligation to pay the assessments and dues. The
denial of the use of the facilities was the sanction for the prior default incurred by ALS.
In essence, what ALS wants is to use its own prior non-payment as a justification for
its future non-payment of its assessments and dues. Stated another way, ALS
advances the argument that a contracting party who is guilty of first breaching his
obligation is excused from such breach if the other party retaliates by refusing to comply
with his own obligation.
This obviously is not the law. In reciprocal obligations, when one party fulfills his
obligation, and the other does not, delay by the other begins. Moreover, when one party
does not comply with his obligation, the other party does not incur delay if he does not
perform his own reciprocal obligation because of the first partys non-compliance. This is
embodied in Article 1169 of the Civil Code, the relevant provision of which reads:

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready
to comply in a proper manner with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins.

Thus, before ALS incurred its arrearages, petitioner allowed ALS to use the
facilities. However, ALS subsequently defaulted and thus incurred delay. It was only
then that petitioner disallowed ALS and Litonjua from using the facilities. Clearly,
petitioners denial to ALS of the Condominium facilities, after ALS had defaulted, does
not constitute a valid ground on the part of ALS to refuse paying its assessments and
dues.

Validity of House Rule 26.3.

Petitioners House Rules and Regulations (House Rules for brevity) expressly
authorize denial of the use of condominium facilities to delinquent members.
Specifically, House Rule 26.3 provides that:

26. ASSESSMENTS:

xxx

26.3 Names of unit owners with delinquent accounts who fail to pay two consecutive quarters
shall be posted in the bulletin board. Unit owners with delinquent accounts, their tenants,
guests/visitors and relatives shall not be allowed the use of all facilities of the condominium
such as the swimming pool, gym, social hall, etc. (Emphasis supplied)

The issue on the validity of House Rule 26.3 was raised for the first time on appeal.
It is settled that an issue not raised during trial could not be raised for the first time on
appeal as to do so would be offensive to the basic rules of fair play, justice, and due
process.[32] Nonetheless, the Court of Appeals opted to address this issue.
Petitioner justifies House Rule 26.3 by invoking Section 36, paragraph 11 of the
Corporation Code which grants every corporation the power to exercise such powers as
may be essential or necessary to carry out its purpose or purposes as stated in its
Articles of Incorporation. Petitioner was organized for the main purpose of holding title
to and managing the common areas of the Condominium. Petitioner claims that there is
here implied the power to enact such measures as may be necessary to carry out the
provisions of the Articles of Incorporation, By-Laws and Master Deed to deal with
delinquent members.This, asserts petitioner, includes the power to enact House Rule
26.3 to protect and safeguard the interests not only of petitioner but also of its members.
For their part, ALS and Litonjua assail the validity of House Rule 26.3 alleging that it
is ultra vires. ALS and Litonjua maintain that neither the Master Deed nor the By-Laws
of petitioner expressly authorizes petitioner to prohibit delinquent members from using
the Condominium facilities. Being ultra vires, House Rule 26.3 binds no one. Even
assuming that House Rule 26.3 is intra vires, the same is iniquitous, unconscionable,
and contrary to morals, good customs and public policy. Thus, ALS claims it can validly
deduct the value of the services withheld from the assessments and dues since it was
barred from using the Condominium facilities for which the assessments and dues were
being collected.
The Court of Appeals sustained respondents argument and declared House Rule
26.3 ultra vires on the ground that petitioner is not expressly authorized by its Master
Deed or its By-Laws to promulgate House Rule 26.3.
House Rule 26.3 clearly restricts delinquent members from the use and enjoyment
of the Condominium facilities. The question is whether petitioner can validly adopt such
a sanction to enforce the collection of Condominium assessments and dues.
We rule that House Rule 26.3 is valid.
Section 45 of the Corporation Code provides:

Sec. 45. Ultra vires acts of corporations. - No corporation under this code shall possess or
exercise any corporate powers except those conferred by this Code or by its articles of
incorporation and except such as are necessary or incidental to the exercise of the powers so
conferred.

The term ultra vires refers to an act outside or beyond corporate powers, including
those that may ostensibly be within such powers but are, by general or special laws,
prohibited or declared illegal.[33] The Corporation Code defines an ultra vires act as one
outside the powers conferred by the Code or by the Articles of Incorporation, or beyond
what is necessary or incidental to the exercise of the powers so conferred. Moreover,
special laws governing certain classes of corporations, like the Condominium Act, also
grant specific corporate powers to corporations falling under such special laws.
 The Condominium Act, petitioners By-Laws and the Master
Deed expressly empower petitioner to promulgate House Rule 26.3. Section 9 of the
Condominium Act provides:

Section 9. The owner of a project shall, prior to the conveyance of any condominium therein,
register a declaration of restrictions relating to such project, which restrictions xxx shall inure to
and bind all condominium owners in the project. xxx The Register of Deeds shall enter and
annotate the declaration of restrictions upon the certificate of title covering the land included
within the project, if the land is patented or registered under the Land Registration or Cadastral
acts.

xxx

Such declaration of restrictions, among other things, may also provide:

(a) As to any management body-

1. For the powers thereof, Including power to enforce the provisions of the
declaration of restrictions;

xxx

3. Provisions for maintenance xxx and other services benefiting the common
areas, xxx (Emphasis supplied)

The Condominium Act clearly provides that the Master Deed may expressly empower
the management body, petitioner in the instant case, to enforce all provisions in the
Master Deed and Declaration of Restrictions.
Pursuant to Section 9 (a) (1) and (3) of the Condominium Act, the Master Deed
expressly authorizes petitioner to exercise all the powers granted to the management
body by the Condominium Act, petitioners Articles of Incorporation and By-Laws, the
Master Deed, and the Corporation Code. Section 3, Part II of the Master Deed reads:

Section 3. MANAGEMENT BODY. - The Condominium Corporation to be formed and

organized pursuant to Section 7 of Part I, above, shall constitute the management body of the
project. As such management body, the powers of the Condominium Corporation shall be such
as are provided by the Condominium Act, by the Articles of Incorporation and the By-Laws of
the Corporation, by this instrument and by the applicable provisions of the Corporation Code
as are not inconsistent with the Condominium Act. Among such powers but not by way of
limitation, it shall have the power to enforce the provisions thereof in accordance with the By-
Laws of the corporation. (Emphasis supplied)

Thus, the Master Deed clearly empowers petitioner to enforce the provisions of the
Master Deed in accordance with petitioners By-Laws.
 Petitioners By-Laws expressly authorize petitioners Board of Directors to
promulgate rules and regulations on the use and enjoyment of the common areas.
Thus, paragraph 2, Section 2 of petitioners By-Laws states:

Without limiting the general nature of the foregoing powers, the Board of Directors shall have
the power to enforce the limitations, restrictions, and conditions contained in the Master Deed
and Declaration of Restrictions of the project; promulgate rules and regulations concerning the
use, enjoyment and occupancy of the units, common areas and other properties in the
condominium project, to make and collect assessments against members as unit owners to
defray the costs and expenses of the condominium project and the corporation and to secure by
legal means the observance of the provisions of the Condominium Act, the Master Deed, the
Articles of Incorporation, these By-Laws, and the rules and regulations promulgated by it in
accordance herewith. The members of the corporation bind themselves to comply faithfully with
all these provisions.[34] (Emphasis supplied)

Evidently, the Condominium Act, the Master Deed and petitioners By-Laws grant
petitioner the express power to promulgate rules and regulations concerning the use,
enjoyment and occupancy of the common areas.
Moreover, House Rule 26.3, which prohibits delinquent members from using the
common areas, is necessary to ensure maintenance of the common areas. Petitioners
purpose in enacting House Rule 26.3 is to enforce effectively the provisions of the
Master Deed. House Rule 26.3 is well within the powers of petitioner to adopt as the
same is reasonably necessary to attain the purpose for which both petitioner and the
Condominium project were created. Thus, Section 7 of the Master Deed declares:

Section 7. CONDOMINIUM CORPORATION. - A corporation to be known as THE TWIN

TOWERS CONDOMINIUM (hereinafter referred to as the Condominium Corporation), shall be
formed and organized pursuant to the Condominium Act and the Corporation Code to hold title
to all the aforestated common areas of the condominium project including the land, to manage
THE TWIN TOWERS CONDOMINIUM and to do such other things as may be necessary,
incidental and convenient to the accomplishment of said purposes xxx[35] (Emphasis supplied)

Petitioner would be unable to carry out its main purpose of maintaining the
Condominium common areas and facilities if members refuse to pay their dues and yet
continue to use these areas and facilities. To impose a temporary ban on the use of the
common areas and facilities until the assessments and dues in arrears are paid is a
reasonable measure that petitioner may undertake to compel the prompt payment of
assessments and dues.

Second Issue: Offsetting the value of services withheld against ALS unpaid
assessments and dues.

ALS claim for reduction of its assessments and dues because of its non-use of
the Condominium facilities.
 We rule that ALS has no right to a reduction of its assessments and dues to the
extent of its non-use of the Condominium facilities. ALS also cannot offset damages
against its assessments and dues because ALS is not entitled to damages for alleged
injury arising from its own violation of its contract. Such a breach of contract cannot be
the source of rights or the basis of a cause of action.[36] To recognize the validity of such
claim would be to legalize ALS breach of its contract.

ALS claim for unrendered repair services barred by estoppel.

ALS also justifies its non-payment of dues on the ground of the alleged failure of
petitioner to repair the defects in ALS Unit. However, this claim for unrendered repairs
was never raised before the SEC Hearing Officer or the SEC en banc. The issue on
these alleged unrendered repairs, which supposedly caused ALS Unit to deteriorate,
was raised for the first time on appeal. The Court of Appeals did not pass upon the
same.
Neither in the proceedings in the SEC nor in the appellate court did ALS present
evidence to substantiate its allegation that petitioner failed to render the repair services.
Also, ALS failed to establish whether it claimed for the costs of the repair because ALS
advanced these expenses, or for the value of damages caused to the Unit by the water
leakage.
ALS is therefore barred at this late stage to interpose this claim. In Del Rosario v.
Bonga,[37] the Court held:

As a rule, no question will be entertained on appeal unless it has been raised in the court below.
Points of law, theories, issues and arguments not brought to the attention of the lower court need
not be, and ordinarily will not be, considered by a reviewing court, as they cannot be raised for
the first time at that late stage. Basic considerations of due process impel this rule.

As this claim was a separate cause of action which should have been raised in ALS
Answer with Counterclaim, ALS failure to raise this claim is deemed a waiver of the
claim.

Third Issue: Remand of the case to the proper trial court.

Question of fact.

The Court of Appeals ruled that there is a need to remand the case considering that
there is no sufficient evidence on record to establish the amount of petitioners claim
against ALS for unpaid assessments and dues.
 The question of whether petitioners claim of P994,529.75 for unpaid assessments
and dues against ALS is supported by sufficient evidence is a purely factual issue and
inevitably requires the weighing of evidence. This Court is not a trier of facts, and it is
not the function of this Court to re-examine the evidence submitted by the parties.[38] In
cases brought before this Court from the Court of Appeals under Rule 45 of the Rules of
Court, this Courts jurisdiction is limited to reviewing errors of law which must be
distinctly set forth.[39] In this mode of appeal, the findings of fact of the Court of Appeals
and other courts of origin are conclusive.[40]
Jurisprudence is settled that:

(a)s a rule, the jurisdiction of this Court in cases brought to it from the Court of Appeals xxx is
limited to the review and revision of errors of law allegedly committed by the appellate court, as
its findings of fact are deemed conclusive. As such this Court is not duty-bound to analyze and
weigh all over again the evidence already considered in the proceedings below.[41]

This rule admits of several exceptions. This Court may review the findings of fact of
the Court of Appeals:

(a) where there is grave abuse of discretion; (b) when the finding is grounded entirely on
speculations, surmises or conjectures; (c) when the inference made is manifestly mistaken,
absurd or impossible; (d) when the judgment of the Court of Appeals was based on a
misapprehension of facts; (e) when the factual findings are conflicting; (F) when the Court of
Appeals, in making its findings, went beyond the issues of the case and the same are contrary to
the admissions of both appellant and appellee; (g) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties and which, if properly considered,
would justify a different conclusion; and, (h) where the findings of fact of the Court of Appeals
are contrary to those of the trial court, or are mere conclusions without citation of specific
evidence, or where the facts set forth by the petitioner are not disputed by the respondent, or
where the findings of fact of the Court of Appeals are premised on the absence of evidence and
are contradicted by the evidence on record.[42]

However, none of these exceptions exists in the instant case.

The SEC Hearing Officer found that, while petitioner is entitled to collect the unpaid
assessments and dues from ALS, petitioner has failed to establish clearly the basis for
computing the correct amount of the unpaid assessments and dues. Indeed, there is no
evidence laying down the basis of petitioners claim other than allegations of previous
demands and statements of accounts. Whether petitioner has sufficiently established its
claim by preponderance of evidence requires an examination of the probative weight of
the evidence presented by the parties. Evidently, this is a question of fact the resolution
of which is beyond the purview of the petition for review where only errors of law may be
raised. On the other hand, the decision of the Court of Appeals, finding insufficient
evidence on record, was made under its power to review both questions of fact and law.

Remand to the proper trial court.

 While we sustain the ruling of the Court of Appeals, the case can no longer be
remanded to the SEC Hearing Officer. Republic Act No. 8799, which took effect on
August 8, 2000, transferred SECs jurisdiction over cases involving intra-corporate
disputes to courts of general jurisdiction or the appropriate regional trial courts. Section
5.2 of R.A. No. 8799 reads:

5.2. The Commissions jurisdiction over all cases enumerated under Section 5 of Presidential
Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate
Regional Trial Court; Provided, That the Supreme Court in the exercise of its authority may
designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The
Commission shall retain jurisdiction over pending cases involving intra-corporate disputes
submitted for final resolution which should be resolved within one (1) year from the enactment
of this Code. The Commission shall retain jurisdiction over pending suspension of
payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.

Based on the Resolution issued by this Court in AM No. 00-8-10-SC,[43] the Court
Administrator and the Securities and Exchange Commission should cause the transfer
of the records of SEC-AC Nos. 377 and 378 to the proper regional trial court for further
reception of evidence and computation of the correct amount of assessments and dues
that ALS shall pay to petitioner.

Fourth Issue: Penalties prescribed in House Rule 26.2.

ALS and Litonjua did not question before either the SEC or the Court of Appeals the
validity of the penalties prescribed in the Condominiums House Rule 26.2.
Nevertheless, the Court of Appeals ruled that House Rule 26.2 prescribes grossly
excessive penalties and interests. The resolution of this issue is not necessary in
arriving at a complete and just resolution of this case. At any rate, we find the interest
and penalties prescribed under House Rule 26.2 reasonable considering the premier
location of the Condominium at the heart of Makati City. It is inevitable that ALS unpaid
assessments and dues would escalate because ALS delinquency started since 1986.
House Rule 26.2 clearly provides for a 24% interest and an 8% penalty, both
running annually, on the total amount due in case of failure to pay, to wit:

26.2. Late payment of accounts of members shall be charged an interest rate of 24% per annum.
In addition, a penalty at the rate of 8% per annum shall be charged on delinquent accounts. The
24% interest shall be imposed on unpaid accounts starting with the 21st day of the quarter until
fully paid.

To reiterate, the Condominium Act expressly provides that the Master Deed may
empower the management body of the Condominium to enforce the provisions of the
declaration of restrictions.[44] The Master Deed authorizes petitioner, as the
management body, to enforce the provisions of the Master Deed in accordance with
petitioners By-Laws. Thus, petitioners Board of Directors is authorized to determine the
reasonableness of the penalties and interests to be imposed against those who violate
the Master Deed. Petitioner has validly done this by adopting the House Rules.
The Master Deed binds ALS since the Master Deed is annotated on the
condominium certificate of title of ALS Unit. The Master Deed is ALS contract with all
Condominium members who are all co-owners of the common areas and facilities of the
Condominium. Contracts have the force of law between the parties and are to be
complied with in good faith.[45] From the moment the contract is perfected, the parties
are bound to comply with what is expressly stipulated as well as with what is required by
the nature of the obligation in keeping with good faith, usage and the law. [46] Thus, when
ALS purchased its Unit from petitioner, ALS was bound by the terms and conditions set
forth in the contract, including the stipulations in the House Rules of petitioner, such as
House Rule 26.2.
In sum, as a member of petitioner, ALS is indisputably bound by the Condominiums
House Rules which are authorized by the By-Laws, the Master Deed and the
Condominium Act.

Award of attorneys fees.

The award of attorneys fees as damages is the exception rather than the rule. The
general rule is that attorneys fees cannot be recovered as part of damages because of
the policy that no premium should be placed on the right to litigate.[47] Counsels fees are
not awarded every time a party prevails in a suit. [48] An award of attorneys fees and
expenses of litigation is proper under the instances provided for in Article 2208 of the
Civil Code, one of which is where the defendant acted in gross and evident bad faith. In
this case, however, we find no cogent reason to award attorneys fees in the absence of
showing of gross and evident bad faith on the part of ALS in refusing to satisfy
petitioners claim.
WHEREFORE, the petition is GRANTED and the assailed Decision of the Court of
Appeals is SET ASIDE. ALS Management & Development Corporation is ordered to
pay Twin Towers Condominium Corporation all overdue assessments and dues,
including interest and penalties from date of default, as shall be determined by the
proper Regional Trial Court in accordance with this Decision. The proper Regional Trial
Court shall complete the computation within sixty (60) days from its receipt of this
Decision and the records of SEC-AC Nos. 377 and 378. Costs of suit against ALS
Management & Development Corporation.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-31339 January 31, 1978

VILLA REY TRANSIT, INC., and HON. JESUS P. MORFE, in his capacity as Judge
of the Court of First Instance of Manila, petitioners,
vs.
FAR EAST MOTOR CORPORATION and THE HONORABLE COURTS OF
APPEALS, respondents.

Marcial C. Reyes for petitioners.

Jaime S. Linsangan& Associates for private respondent.

GUERRERO, J.:

Appeal by certiorari from the Derision of the Court of Appeals 1 and its Resolution
denying petitioner's Motion for Reconsideration of said Decision in CA-G.R. No. 43144-
R, entitled "Far East Motor Corporation, Petitioner, vs. Hon. Jesus P. Morfe Judge of the
Court of First Instance of Manila, et al., Respondents."

On April 25, 1968, respondent Far East Motor Corporation sued petitioner Villa Rey
Transit, Inc. for various sums of money before the Court of First Instance of Manila,
Branch XIII.

Summons was issued to petitioner and per return of the Sheriff, the summons was
served on petitioner on June 16, 1968, the sheriff certifying. "Served thru Atty. Virgilio A.
Reyes, Assistant General Mgr., but refused to sign."

Claiming failure of the petitioner to file answer within the reglementary period,
respondent corporation filed on August 13, 1968 an ex-parte motion to declare the
petitioner in default, which was granted on August 21, 1968.

On the other hand, late receipt of the summons by its main office, petitioner filed an
Urgent Motion to Extend Time to Answer, which was denied on October 2, 1968, the
order of denial being served on petitioner's counsel on October 7, 1968.
Pursuant to the order of default, respondent Far East Motor Corporation then presented
its evidence ex-parte, and based on the said evidence, the lower court adjudicated
various sums of money to the respondent Far East Motor Corporation. Copy of the
decision was received by the petitioner on October 25, 1968.

On November 6, 1968, petitioner then filed a Motion to Quash Service of Summons, to

Lift the Order of Default, and to Set Aside Judgment, on the following grounds:

a. The service of summons upon defendant was not in accordance with

law and therefor this Honorable Court had not acquired a valid jurisdiction
over said defendant;

b. Assuring for the sake of argument only that a valid substituted service
of summons was made, failure of defendant to answer with the
reglementarypeirod was due to failure of Sheriff otpropertly serve
summons and/or due to excusable negligence on the part of defendant's
employee; and

c. Considering the huge claims of plaintiff which are incorrect and against
which defendant has valid and genuine defense, it is in the interest of
justice and truth to lift the order of deafult which defandant has not
received, and to set aside judgment already rendered.

Petitioner's motion was denied on November 19, 1968 and copy of the denial was
received by the corporation on November 21, 1968.

Hence, on December 3, 1968, respondent Far East Motor Corporation filed a Motion for
Execution of the decision. Upon receipt of its copy of the said motion, petitioner Villa
Rey Transit filed a motion dated December 5, 1968 asking for reconsideration of the
court's order denying its Motion to Set Aside on the following grounds: (a) the sheriff's
return is null and void and hence, the court has not acquired jurisdiction over it, and (b)
defendant has valid defenses which will alter the decision rendered ex-parte if the
defendant is given the opportunity to file its answer and present evidence in support
thereof. The motion was set for hearing on December 14, 1968.

Acting on these last two motions, the lower court on December 27, 1968 denied
plaintiff's motion for execution; granted defendant's motionfor reconsideration; set aside
its order of November 19, 1967; quashed the service of summons; and set aside the
judgment already rendered.

On the claim that the judgment had already become final and unappealable on
December 9, 1968, respondent moved to reconsider the above order of December 9,
1968 but was denied.

Respondent then filed a petition for certiorari, mandamus and prohibition before the
Supreme Court. However, on the ground that the remedy sought in the petition was in
aid of the appellate jurisdictionof the Court of Appeals, the case was certified to the
appellate court whose decision, sustaining the petition and ordering the lower court to
issue the writ of execution upon the judgement, i now subject of this appeal.

Emphasis is on the jurisdictional issue of service of summons.

To recount the facts surrounding the service of summons: Sometime in June, 1968,
Deputy Sheriff Salita went to petitioner's sub-station at 853 M. Earnshaw St., Sampaloc,
Manila; he handed some papers to Atty. Virgilio A. Reyes, Assistant General Manager
for Operations: after reading the contents of the same, and noting that they were copies
of a complaint filed by Far East Motor corporation against petitioner involving some
transactions made by him with the complainant as the then president of petitioner
corporation, he suggested that service of the complaint made by him with the
complainant as the then president of petitioner corporation, he suggested that service of
the complaint and the corresponding summons be made directly on De. Jose M.
Villarama, the present President and General Manager, at their main office at Ricarfor
Street, corner Sta. Elena Street, Tondo, Manila; instead, the sheriff left the papers with
one of their night tellers, Juanito Vince Cruz; due to volume and pressure of his work,
Cruz forgot all about the papers; hence, the papers were delivered to their main office
only on September 27, 1968.

Based on the above facts, petitioner claims that service of summons on its mere
Assistant General Manager holding office at ists sub-station is not a valid service; thus,
the court did not acquire jurisdiction over tis person.

We find the claim untenable. Service of process on a corporation is controlled by

Section 13, Rule 14 of the Revised Rules of Court, thus —

Sec. 13. Service upon private domestic corporation for partnership. — If

the defendant is a corporation organized under the laws of the Philippines
or a partnership duly registered, service may be made on the president,
manager, secretary, cashier, agent, or any of its directors.

Petitioner claims that the foregoing enumeration is exclusive and service of summons is
without force and effect unless made upon any one of them. The focus of inquiry then is
whether an Assistant General Manager for Operations may properly be within the terms
manager or agent.

Petitioner relies on the Litton Mills case 2 where this Court held that a branch manager
(sales manager) does not come within the enumeration in Sec. 13, Rule 14 of the
Revised Rules of Court, all of whom are top officers whose duties extend generally to
overall transactions of the corporation, not merely to a particular branch or department
thereof.

The above cases without application here.

Atty. Virgilio A. Reyes is the Assistant General Manager, and admittedly, the former
President and General Manager of the petitioner corporation. As his present title
implies, Atty. Virgilio A. Reyes is not one of the lesser officers of the petitioner
corporation upon whom service of Summons is not authorized by law. That he is in
charge of Operations, which "includes the incoming and outgoing buses, the
arrangement of schedule, the appointment of drivers and conductors, the following of
highway troubles, and generally affecting the running of buses, 3 does not make him a
mere branch manager so insistently pointed out by petitioner. We take the opposite
view, for precisely, as the Assistant General Manager for Operations, he is in charge of
the main bulk of the corporate business of the petitioner transit corporation.
"Operations" is the main concern, if not all, of a transit corporation.

More, We find petitioner's claim that Attorney. Virgilio A. Reyes, holding office at their M.
Earnshaw sub-station, is not the proper person upon whom summons may be seized
inconsistent with their own admission that Atty. Reyes customarily receives summons at
the same sub-station in behalf of the petitioner. To quote part of petitioner's motion for
reconsideration of the CFI's denial of its motion to set aside judgment: "Records will
show that Atty. Reyes has been receiving summon issued in cases wherein the Villa
Rey Transit, Inc. is a defendant, before and after June 18, 1968, the alleged date when
the deputy sheriff allegedly served the summons and complaint in the above case. In all
these occasions, Atty. Reyes signed having received said summons and in no occasion
had he refused to sign. However, in connection with the service of summons in the
above case, it is not true that Atty. Reyes refused to sign. What he did was to instruct
the deputy sheriff to serve the same directly to Dr. Jose M. Villarama who is the
President and General Manager of the Villa Rey Transit Inc. and having offices at the
Villa Rey Transit main compound located at Ricafort (corner Sta. Elena Street), Tondo,
Manila. There was reason for Atty. Reyes to make such request upon the deputy sheriff
because the promissory notes (Annexes B, C. D, E, F and G to complaint) were signed
by him in his former capacity as President of the Villa Rey Transit, Inc. while in other
cases, the attention of Dr. Villarama may not be imperative." 4 That the transactions
alleged in the complaint involved him personally is no reason for his refusal to receive
this particular summons. Indeed, with more reason that he should have received the
summons because as the signatory to the promissory notes, he had an interest therein.

According to jurisprudence, the rationale of all rules for service of process on

corporation is that service must be made on a representative so integrated with the
corporation sued as to make it a priori supposable that he will realize his responsibilities
and know what he should do with any legal papers served on him. 5 Based on the
particular facts of this case, service of summons upon Atty. Virgilio A. Reyes has served
the purpose of the law. And as he refused to receive the summons, tender unto him was
sufficient to confer jurisdiction over the petitioner.

Since petitioner failed to answer within the reglementary period, even after denial of its
motion to extend time to answer, the order of default was proper. So also with the
hearing on the merits ex-parte resulting in the judgment by default. The decision was
appealable, and as receipt of the same by petitioner was on October 25, 1968, the 30-
day appeal period commenced from that date on. On November 6, 1968, petitioner filed
a Motion to Quash Service of Summons, To Lift Order of Defeat and To Set Aside
Judgment, and from that day on, the appeal period was deemed suspended, the
remaining 18 days beginning to run again upon receipt of the denial of the motion.
Receipt of such denial was on November 21, 1968; hence, by mathematical
computation, the 30-day appeal period expired on December 9, 1968. There being no
appeal increased by the petitioner from the judgment of default on or before December
9, 1968, the lower court lost its jurisdiction to hear on December 14, 1968 petitioner's
Motion for Reconsideration dated December 5, 1968, the judgment by default having
become final and executory.

Of course, petitioner insists that on December 5, 1968 it filed a Motion for

Reconsideration of the order denying its Motion to Quash, Lift Order of Default and to
Set Aside Judgment taking the position that it should have suspended the period to
appeal We do not agree. The records clearly show that there were no new arguments
presented against the judgment on the merits, perforce the motion is pro forma and did
not suspend the running of the period to appeal.

Petitioner then insists that the above motion should be considered a petition for relief.
This again is untenable. As correctly pointed out by the apellate court, a petition for
relief presupposes a final and unappealable judgment. In this case, judgment has not
yet become final and unappealable at the time of the filing of the motion on December
5, 1968.

WHEREFORE, the decision appealed from is affirmed. Let execution issue on the lower
court's judgment by default, Costs against petitioner. SO ORDERED.
 URKE
v.
SMITH.
Supreme Court of United States.
*393 Messrs. Burke, Porter, and Harrison, for the appellants.
Mr. M.C. Kerr, contra.
*394 Mr. Justice STRONG delivered the opinion of the court.
The question to be solved is whether the appellees are debtors to the railroad company
for the excess of the subscriptions above $300, made by them to the articles of
association. If they are, the complainants have an equitable right to subject those debts
to the payment of the judgment they have against the railroad company. And it must
also be conceded that if the company has, in fraud of its creditors, released subscribers
to its stock from the payment of their subscriptions, the release is inoperative to protect
those *395 subscribers against claims of the creditors. Under the law of the State, all
railroad companies are required to have a subscription to their capital stock not less
than $1000 for every mile of their proposed roads before they may exercise corporate
powers. This requirement is intended as a protection to the public, and to the creditors
of the companies. And it is clear that the directors of a company, organized under the
law, have no power to destroy it, to give away its funds, or deprive it of any means
which it possesses to accomplish the purposes for which it was incorporated. The stock
subscribed is the capital of the company, its means for performing its duty to the
commonwealth, and to those who deal with it. Accordingly, it has been settled by very
numerous decisions that the directors of a company are incompetent to release an
original subscriber to its capital stock, or to make any arrangement with him by which
the company, its creditors, or the State shall lose any of the benefit of his subscription.
Every such arrangement is regarded in equity, not merely as ultra vires, but as a fraud
upon the other stockholders, upon the public, and upon the creditors of the company.
It is upon these principles that the appellants in this case rely, and the question is
whether they are applicable to the facts as found.
That the subscriptions made by the appellees to the articles of association for the
incorporation of the company were, according to their terms, not absolute engagements
to pay for a greater amount of stock than $300 for each subscriber is undeniable. They
were engagements to pay for the number of shares subscribed, only on the contingency
that the city of New Albany should not afterwards take stock in the corporation to the
amount of $50,000 or upwards, or, if such stock should be taken, on the contingency
that they failed to transfer a part of their subscriptions to the city. Such was the letter
and the spirit of the contract entered into by each subscriber. Whether the law permitted
it to have such a legal effect we will presently consider. But that such was its meaning,
independently of any rule *396 of legal policy, is very plain. It is the very language of the
articles of association. When, therefore, the directors of the company, on the 31st of
December, 1853, ordered that the original subscribers to the articles, in accordance with
the stipulation contained therein, be permitted to transfer any amount of the stock
(exceeding six shares) subscribed by them to the city of New Albany (that city having
made a subscription exceeding $50,000), and ordered that the stock thus transferred be
merged in the stock subscribed by the city, the order was no more than allowing the
contract to be performed as made. It was no release of any rights which the company
had; no abandonment of any resources of the corporation. It was no more than the
subscribers, in view of the provisions of their contract, had a right to demand. Unless
the contract must be held to have been an absolute undertaking, that each subscriber
would himself pay for all the stock subscribed by him, it was fully performed by the
payment of $300 and the transfer of the excess to the city to be merged in its larger
subscription.
It must, however, be conceded that conditions attached to subscriptions for the stock of
a railroad company made before its incorporation have, in many cases, been held to be
void, and the subscriptions have been treated as absolute. The question respecting
their validity has most frequently arisen when the condition has been that the proposed
road should be located in a specified manner, or over a defined line. But other
conditions have been held invalid, and have been disregarded by the courts. The
reasons for such a ruling are obvious, and they commend themselves to universal
approval. When a company is incorporated under general laws, as the New Albany and
Sandusky Railroad Company was, and the law prescribes that a certain amount of stock
shall be subscribed before corporate powers shall be exercised, if subscriptions,
obtained before the organization was effected, may be subsequently rendered
unavailable by conditions attached to them, the substantial requirements of the laws are
defeated. The purpose of such a requisition is, that the State may be assured of the
successful prosecution *397 of the work, and that creditors of the company may have,
to the extent at least of the required subscription, the means of obtaining satisfaction of
their claims. The grant of the franchise is, therefore, made dependent upon securing a
specified amount of capital. If the subscriptions to the stock can be clogged with such
conditions as to render it impossible to collect the fund which the State required to be
provided before it would assent to the grant of corporate powers, a charter might be
obtained without any available capital. Conditions attached to subscriptions, which, if
valid, lessen the capital of the company, thus depriving the State of the security it
exacted that the railroad would be built, and diminishing the means intended for the
protection of creditors, are therefore a fraud upon the grantor of the franchise, and upon
those who may become creditors of the corporation. They are also a fraud upon
unconditional stockholders, who subscribed to the stock in the faith that capital sufficient
would be obtained to complete the projected work, and who may be compelled to pay
their subscriptions, though the enterprise has failed, and their whole investment has
been lost. It is for these reasons that such conditions are denied any effect.
But the reasons of the rule are totally inapplicable to the present case. The appellees
are not asking to diminish the capital of the company by force of any condition attached
to their subscriptions. The action of the board of directors permitting a transfer to the city
of New Albany of all the stock originally subscribed, in excess of six shares by each
subscriber, according to the stipulations of the articles of association, was not a release
of any stock subscription, nor was it an attempt to lessen the means of the company to
build its road and pay its creditors. We cannot, while recognizing the rule as a sound
one, overlook the peculiar facts of this case. Under the articles of association the
original subscribers undertook, not that they would respectively pay, at all events, for all
the shares mentioned in their several subscriptions, but, in substance and effect, that
such a number of shares should be paid for, either by themselves *398 or by the city of
New Albany, if it became a subscriber. There was no condition by which the number of
shares subscribed and made available could ever be reduced. Had the city taken no
stock they would have been liable for all the shares taken by them. It is impossible to
see in this any fraud upon the State or upon the creditors of the company. They have all
the security in those subscriptions which they would have had there been no right to
transfer to the city reserved. The capital stock is all that it was represented to be when
the company became incorporated. The only change is, that a part of it is pledged by
the city of New Albany, instead of by these appellees. No capital has been lost by the
transfer.
If, then, the reason of the rule invoked by the appellants has no applicability to the facts
of this case, the rule itself fails, there is no condition to be stricken from the subscription,
and there is no ground for holding the appellees liable beyond the plain letter and spirit
of their contract.
It is insisted, however, on behalf of the appellants that there never was any transfer by
these appellees to the city of the excess above six shares for each, of the stock
mentioned in their subscriptions, and it is denied that we can consider the admission of
such a transfer, which appears in the record, as any proof of its having been made. It is
said that the alleged admission is an unauthorized certificate of the clerk, which
constitutes no part of the record, and we are referred to Fisher v. Cockerell. [*] But that
case does not support the appellants. It was an action at common law, in which it was
said "in cases at common law, the course of the court has been uniform, not to consider
any paper as part of the record which is not made so by the pleadings, or by some
opinion of the court referring to it... . The unauthorized certificate of the clerk that any
document was read, or any evidence given to the jury, cannot make that document or
that evidence a part of the record, so as to bring it to the cognizance of this court."
*399 All the other cases cited were suits at law in which, of course, the evidence could
not come upon the record except in the regular manner. A clerk's certificate could not
bring it there. But this is a bill in equity. In such a case no bill of exceptions is necessary
to bring upon the record the proofs and admissions of the parties. There is the same
reason for regarding the admission which appears in this record a part of the record, as
there is for considering any one of the depositions. It would be very extraordinary if
parties to a proceeding in equity may not, at the hearing, make an admission of facts,
upon which the inferior court may act, and which may be considered on appeal to this
court. And it would be still more extraordinary, if appellants, under whose direction a
record in chancery has been made up, and who have filed it here without objection,
should be permitted to assert for the first time on the argument that the clerk had
certified improperly as a part of the record, an admission at the hearing below, which
was never made, or which, if made, we are not at liberty to regard. It is not denied that
the admission of record, certified by the clerk, was agreed to by the parties, that it was
reduced to writing, and entered upon the record, nor is it denied that it was considered
by the court below as evidence in the cause, and considered without objection. We
must, therefore, hold that it is to be treated as a part of the record now, and if so, it
establishes fully the transfer of the stock to the city before July 1st, 1854; that none of
the appellees were ever charged with it on the books of the company, and that the
transfer was made with the assent of the corporation, constituting with the payment
made for the six shares not transferred, full satisfaction of the indebtedness of the
appellees, and accepted as such. It is true there appears to have been no written
transfer. None was necessary. The appellees had received no certificates. They were
not on the books as stockholders for more than six shares each, and from the beginning
it was understood and agreed that for all liability beyond that, the city, if it subscribed,
was to step into their place.
*400 It is next denied that the city accepted the transfer. To this it may be answered that
the acceptance is implied in the admission of record. There could have been no transfer
without the assent of both parties. More than this. The other evidence tends strongly to
show that the mayor and some members of the councils of the city knew of the transfers
and assented to them, and the city never dissented from the arrangement.
It is true that a mere assignment of his share by a subscriber does not relieve him from
liability until the assignee is substituted in his place. But here the substitution was
recognized by the company. The stock was not charged to the appellees on the books,
and after the lapse of nine years it is too late to affirm that the transfer was not
accepted.
Again, it is argued that the directors of the company were personally interested as
original subscribers, and therefore that their order of December 31st, 1853, permitting
the transfer was illegal. But if, as we have endeavored to show, the original
subscriptions were valid as made, if the stipulation in the articles of association was not
prohibited by the law, it needed no such order of the board of directors to validate the
substitution of the city for the original subscribers. It matters not then that the directors
were interested. Equity would have enjoined them against interference to prevent a
transfer, with all its stipulated consequences. The substitution of the city was a matter
over which they had no discretionary power.
There is, then, we think, nothing, either in law or in the facts, that can justify our holding
that the appellees were indebted to the company on their subscriptions when this bill
was filed; nothing to impeach the validity of the arrangement provided for in the articles
of association, and carried out afterwards with the assent of the company, by which they
were discharged from all liability.
This is sufficient for the case, and if it were not it would be a grave inquiry, whether the
laches of the appellants has not been such that they cannot now invoke equitable
relief. *401 Their judgment was recovered in 1857, and the return of nulla bona to their
execution was made in December, 1858. Before that time the company had become
insolvent, and some five years before that time the arrangement had been
consummated which they now assail as a fraud upon the creditors. It is incredible that
they did not know of the arrangement. The articles of association were on record open
to their inspection. Those articles exhibited in prospect precisely what was done. No
one could have seen them without having it suggested that the original sub scribers had
not at first intended to pay for all the stock mentioned in their subscription, and that it
was intended the city should take part of the stock off their hands. The company's
books, which they might have seen, would have told them the appellees had paid for
only six shares. This was quite sufficient to make inquiry a duty. And had inquiry been
made there was not the least difficulty in ascertaining the facts. Yet the present suit was
delayed until 1868. True, the appellants' bill alleges the indebtedness of the appellees
by force of their contracts. It does not charge a fraud. But it is plain that unless the
arrangement by which the subscriptions were merged in that of the city was a fraud
upon them their bill must fail. The court must set aside that arrangement or they cannot
recover. And the burden is upon them to establish the fraud. Had their bill been framed
to set aside the arrangement because of fraud, it must have been held to have been
filed too late. The statute of limitations bars actions for fraud in Indiana after six years,
and equity acts or refuses to act in analogy to the statute. Can a party evade the statute
or escape in equity from the rule that the analogy of the statute will be followed by
changing the form of his bill? We think not. We think a court of equity will not be moved
to set aside a fraudulent transaction at the suit of one who has been quiescent during a
period longer than that fixed by the statute of limitations, after he had knowledge of the
fraud, or after he was put upon inquiry with the means of knowledge accessible to him.
*402 But we pursue this branch of the case no further. We have already said enough to
show that, in our opinion, there was no error in the decree of the court below.
DECREE AFFIRMED.