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[G.R. No. 60502. July 16, 1991.]

PEDRO LOPEZ DEE, petitioner,vs.SECURITIES AND EXCHANGE

COMMISSION, HEARING OFFICEREMMANUEL SISON, NAGATELEPHONE CO., INC.,COMMUNICATION SERVICES, INC.,LUCIANO MAGGAY, AUGUSTOFEDERIS, NILDA RAMOS, FELIPAJAVALERA, DESIDERIO SAAVEDRA,

respondents.

[G.R. No. 63922. July 16, 1991.]

JUSTINO DE JESUS, SR., PEDROLOPEZ DEE, JULIO LOPEZ DEE, and

VICENTE TORDILLA, JR., petitioners,vs. INTERMEDIATE APPELLATE

COURT, LUCIANO MAGGAY, NILDA I.RAMOS, DESIDERIO SAAVEDRA,

AUGUSTO FEDERIS, ERNESTOMIGUEL, COMMUNICATIONSERVICES, INC., and NAGATELEPHONE COMPANY, INC.,respondents.

Vicente P. Tordilla, Jr. for respondent Naga TelephoneCompany.

SYLLABUS


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1.CORPORATION LAW; SECURITIES AND EXCHANGECOMMISSION; POWERS AND JURISDICTION; SCOPE.In order that the SEC can take cognizance of a case, the

controversy must pertain to any of the followingrelationship: (a) between corporation, partnership orassociation and the public; (b) between the corporation,partnership, or association and its stockholders, partners,members or officers; (c) between the corporation,partnership or association and the state insofar as itsfranchise, permit or license to operate is concerned; and(d) among the stockholders, partners, or associates

themselves (Union Glass & Container Corp. vs. SEC, 126SCRA 31 [1983]). The jurisdiction of the SEC is limited tomatters intrinsically connected with the regulation ofcorporations, partnerships and associations and thosedealing with internal affairs of such entities P.D. 902-Adoes not confer jurisdiction to SEC over all mattersaffecting corporations (Pereyra vs. IAC, 181 SCRA 244

[1990]; Sales vs. SEC, 169 SCRA 121 [1989]). Thejurisdiction of the SEC in SEC Case No. 1748 is limited todeciding the controversy in the election of the directorsand officers of Natelco. Thus, the SEC was correct whenit refused to rule on whether the issuance of the sharesof Natelco stocks to CSI violated Sec. 20 (h) of the PublicService Act.

2.ID.; ID.; STOCKHOLDERS; POWER TO ISSUE SHARESOF STOCKS LODGED IN THE BOARD OF DIRECTORS.While the group of Luciano Maggay was in control ofNatelco by virtue of the restraining order issued in G.R.NO. 50885, the Maggay Board issued 113,800 shares ofstock to CSI. Petitioner said that the Maggay Board, in


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issuing said shares without notifying Natelcostockholders, violated their right of pre-emption to theunissued shares. The questioned issuance of the 113,800

stocks is not invalid even assuming that it was madewithout notice to the stockholders as claimed by thepetitioner. The power to issue sharesof stocks in acorporation is lodged in the board of directors and nostockholders meeting is required to consider it becauseadditional issuance of shares of stocks does not needapproval of the stockholders. Consequently, nopreemptive right of Natelco stockholders was violated by

the issuance of the 113,800 shares to CSI.

3.REMEDIAL LAW; CIVIL PROCEDURE; TRIAL COURTSHAVE NO POWER TO INTERFERE WITH THE ORDERS OFSECURITIES AND EXCHANGE COMMISSION.In thecase of Philippine Pacific Fishing Co., Inc. vs. Luna, 112SCRA 604, 613 [1983], this Tribunal stated clearly thefollowing rule: "Nowhere does the law (P.D. No. 902-A)

empower any Court of First Instance to interfere with theorders of the Commission (SEC). Not even on grounds ofdue process or jurisdiction. The Commission is,conceding arguendo a possible claim of respondents, atthe very least, a co-equal body with the Courts of FirstInstance. Even as such co-equal, one would have nopower to control the other. But the truth of the matter is

that only the Supreme Court can enjoin and correct anyactuation of the Commission." Accordingly, it is clear thatsince the trial judge in the lower court (CFI of CamarinesSur) did not have jurisdiction in issuing the questionedrestraining order, disobedience thereto did not constitutecontempt, as it is necessary that the order be a valid and


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legal one. It is an established rule that the court has noauthority to punish for disobedience of an order issuedwithout authority (Chanco v. Madrilejos, 9 Phil. 356;

Angel Jose Realty Corp. v. Salao, et al., 76 Phil. 201).

4.ID.; COURTS; POWER TO PUNISH CONTEMPT;SHOULD BE EXERCISED ON THE PRESERVATIVE ANDNOT VINDICTIVE PRINCIPLE.It is well-settled thatthe power to punish for contempt of court should beexercised on the preservative and not on the vindictiveprinciple. Only occasionally should the court invoke its

inherent power in order to retain that respect withoutwhich the administration of justice must falter or fail(Rivera v. Florendo, 144 SCRA 643, 662-663 [1986];Lipata v. Tutaan 124, SCRA 880 [1983]).

D E C I S I O N

PARAS, Jp

:

These are petitions for certiorari with preliminaryinjunction and/or restraining order which seek to annuland set aside in: (1) G.R. No. 60502, the order *of thehearing officer dated May 4, 1982, setting the date forthe election of the directors to be held by thestockholders on May 22, 1982, in SEC Case No. 1748

entitled "Pedro Lopez Dee v. Naga Telephone Co., Inc. etal."; and (2) G.R. No. 63922, the decision **of theIntermediate Appellate Court dated April 14, 1983 whichannulled the judgment of the trial court on the contemptcharge against the private respondents in G.R. No. SP-


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14846-R, entitled "Luciano Maggay, et al. v. Hon. DelfinVir Sunga, et al."

As gathered from the records, the facts of these cases

are as follows:

Naga Telephone Company, Inc. was organized in 1954,the authorized capital was P100,000.00. In 1974 NagaTelephone Co., Inc. (Natelco for short) decided toincrease its authorized 'capital to P3,000,000.00. Asrequired by the Public Service Act, Natelco filed anapplication for the approval of the increased authorized

capital with the then Board of Communications underBOC Case No. 74-84. On January 8, 1975, a decision wasrendered in said case, approving the said applicationsubject to certain conditions, among which was:

"3.That the issuance of the shares of stockswill be for a period of one year from the datehereof, 'after which no further issues will be

made without previous authority from thisBoard."

Pursuant to the approval given by the then Board ofCommunications, Natelco filed its Amended Articles ofIncorporation with the Securities and ExchangeCommission (SEC for short). When the amended articleswere filed with the SEC, the original authorized capital of

P100,000.00 was already paid. Of the increased capitalof P2,900,000.00 the subscribers subscribed toP580,000.00 of which P145,000 was fully paid.

The capital stock of Natelco was divided into 213,000common shares and 87,000 preferred shares, both at a


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par value of P10.00 per share.

On April 12, 1977, Natelco entered into a contract withCommunication Services, Inc. (CSI for short) for the

"manufacture, supply, delivery and installation" oftelephone equipment. In accordance with this contract,Natelco issued 24,000 shares of common stocks to CSIon the same date as part of the downpayment. On May5, 1979, another 12,000 shares of common stocks wereissued to CSI. In both instances, no prior authorizationfrom the Board of Communications, now the National

Telecommunications Commission, was secured pursuantto the conditions imposed by the decision in BOC CaseNO. 74-84 aforecited (Rollo, Vol. III, Memorandum forprivate respondent Natelco, pp. 814-816).

On May 19, 1979, the stockholders of the Natelco heldtheir annual stockholders' meeting to elect their sevendirectors to their Board of Directors, for the year 1979-

1980. In this election Pedro Lopez Dee (Dee for short)was unseated as Chairman of the Board and President ofthe Corporation, but was elected as one of the directors,together with his wife, Amelia Lopez Dee (Rollo, Vol. III,Memorandum for private respondents, p. 985; p. 2). prLL

In the election CSI was able to gain control of Natelcowhen the latter's legal counsel, Atty. Luciano Maggay

(Maggay for short) won a seat in the Board with the helpof CSI. In the reorganization Atty. Maggay becamepresident (Ibid., Memorandum for Private RespondentNatelco, p. 811).

The following were elected in the May 19,1979 election:


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Atty. Luciano Maggay, Mr. Augusto Federis, Mrs. NildaRamos, Ms. Felipa Javalera, Mr. Justino de Jesus, Sr., Mr.Pedro Lopez Dee and Mrs. Amelia C. Lopez Dee. The last

three named directors never attended the meetings ofthe Maggay Board. The members of the Maggay Boardwho attended its meetings were Maggay, Federis, Ramosand Javalera. The last who were and are CSIrepresentatives (Ibid., p. 812).

Petitioner Dee having been unseated in the election, fileda petition in the SEC docketed as SEC Case No. 1748,

questioning the validity of the elections of May 19, 1979upon the main ground that there was no valid list ofstockholders through which the right to vote could bedetermined (Rollo, Vol. I, pp. 254-262-A). As prayed forin the petition (Ibid., p. 262), a restraining order wasissued by the SEC placing petitioner and the otherofficers of the 1978-1979 Natelco Board in hold-overcapacity (Rollo, Vol. II, Reply, p. 667).

The SEC restraining order was elevated to the SupremeCourt in G.R. No. 50885 where the enforcement of theSEC restraining order was restrained. Privaterespondents therefore, replaced the hold-over officers(Rollo, Vol. II, p. 897).

During the tenure of the Maggay Board, from June 22,

1979 to March 10, 1980, it did not reform the contract ofApril 12, 1977, and entered into another contract withCSI for the supply and installation of additionalequipment but also issued to CSI 113,800 shares ofcommon stock (Ibid., p. 812).


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The shares of common stock issued to CSI are asfollows:

NO. OF SHARESDATE ISSUED

24,000 sharesApril 12, 1977

12,000 sharesMay 5, 1979

28,000 sharesOctober 2, 1979

28,500 sharesNovember 5, 1979

20,000 sharesNovember 14, 1979

20,000 sharesJanuary 7, 1980

16,500 sharesJanuary 26, 1980

149,000 shares (Ibid., pp. 816-817).

===========

Subsequently, the Supreme Court dismissed the petitionin G.R. No. 50885 upon the ground that the same waspremature and the Commission should be allowed toconduct its hearing on the controversy. The dismissal ofthe petition resulted in the unseating of the Maggaygroup from the board of directors of Natelco in a "hold-over" capacity (Rollo, Vol. II, p. 533).

In the course of the proceedings in SEC Case No. 1748,respondent hearing officer issued an order on June 23,1981, declaring: (1) that CSI is a stockholder of Natelcoand, therefore, entitled to vote; (2) that unexplained16,858 shares of Natelco appear to have been issued in


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excess to CSI which should not be allowed to vote; (3)that 82 shareholders with their corresponding number ofshares shall be allowed to vote; and (4) consequently,

ordering the holding of special stockholder' meeting toelect the new members of the Board of Directors forNatelco based on the findings made in the order as towho are entitled to vote (Rollo, Vol. I, pp. 288-299).cdphil

From the foregoing order dated June 23, 1981, petitionerDee filed a petition for certiorari/appeal with the SEC enbanc. The petition appeal was docketed as SEC-AC NO.

036. Thereafter, the Commission en banc rendered adecision on April 5, 1982, the dispositive part of whichreads:

"Now therefore, the Commission en bancresolves to sustain the order of the HearingOfficer; to dismiss the petition/appeal for lackof merit; and order new elections as theHearing Officer shall set after consultationswith Natelco officers. For the protection ofminority stockholders and in the interest offair play and justice, the Hearing Officer shallorder the formation of a special committee ofthree, one from the respondents (other thanNatelco), one from petitioner, and theHearing Officer as Chairman to supervise theelection.

"It remains to state that the Commission enbanc cannot pass upon motions belatedlyfiled by petitioner and respondent Natelco tointroduce newly discovered evidence anysuch evidence may be introduced at hearings


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on the merits of SEC Case No. 1748.

"SO ORDERED." (Rollo, Vol. I, p. 24).

On April 21, 1982, petitioner filed a motion forreconsideration (Rollo, Vol. I, pp. 25-30). Likewise,private respondent Natelco filed its motion forreconsideration dated April 21, 1982 (Ibid., pp. 32-51).

Pending resolution of the motions for reconsideration, onMay 4, 1982, respondent hearing officer without waitingfor the decision of the commission en banc, to becomefinal and executory rendered an order stating that theelection for directors would be held on May 22, 1982(Ibid., pp. 300-301).

On May 20, 1982, the SEC en banc denied the motionsfor reconsideration (Rollo, Vol. II, pp. 763-765).

Meanwhile on May 20, 1982 (G.R. No. 63922), petitionerAntonio Villasenor (as plaintiff) filed Civil Case No. 1507

with the Court of First Instance of Camarines Sur, NagaCity, against private respondents and co-petitioners, deJesus, Tordilla and the Dees', all defendants therein,which was raffled to Branch I, presided over by JudgeDelfin Vir. Sunga (Rollo, G.R. No. 63922; pp. 25-30).Villasenor claimed that he was an assignee of an optionto repurchase 36,000 shares of common stocks of

Natelco under a Deed of Assignment executed in hisfavor (Rollo, p. 31). The defendants therein (now privaterespondents), principally the Maggay group, allegedlyrefused to allow the repurchase of said stocks whenpetitioner Villasenor offered to defendant CSI therepurchase of said stocks by tendering payment of its


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price (Rollo, p. 26 and p. 78). The complaint therefore,prayed for the allowance to repurchase the aforesaidstocks and that the holding of the May 22, 1982 election

of directors and officers of Natelco be enjoined (Rollo,pp. 28-29).

A restraining order dated May 21, 1982 was issued bythe lower court commanding desistance from thescheduled election until further orders (Rollo, p. 32).LLpr

Nevertheless, on May 22, 1982, as scheduled, thecontrolling majority of the stockholders of the Natelco

defied the restraining order, and proceeded with theelections, under the supervision of the SECrepresentatives (Rollo, Vol. III, p. 985); p. 10; G.R. No.60502).

On May 25, 1982, the SEC recognized the fact thatelections were duly held, and proclaimed that thefollowing are the "duly elected directors" of the Natelco

for the term 1982-1983:

1.Felipa T. Javalera

2.Nilda I. Ramos

3.Luciano Maggay

4.Augusto Federis

5.Daniel J. Ilano

6.Nelin J. Ilano, Sr.

7.Ernesto A. Miguel.

And, the following are the recognized officers to wit:


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1.PresidentLuciano Maggay

2.Vice-PresidentNilda I. Ramos

3.SecretaryDesiderio Saavedra

4.TreasurerFelipa Javalera

5.AuditorDaniel Ilano

(Rollo, Vol. I, pp. 302-303)

Despite service of the order of May 25, 1982, the LopezDee group headed by Messrs. Justino De Jesus and JulioLopez Dee kept insisting no elections were held andrefused to vacate their positions (Rollo, Vol. III, p. 985;p. 11).

On May 28, 1982, the SEC issued another order directingthe hold-over directors and officers to turn over theirrespective posts to the newly elected directors andofficers and directing the Sheriff of Naga City, with the

assistance of PC and INP of Naga City, and other lawenforcement agencies of the City or of the Province ofCamarines Sur, to enforce the aforesaid order (Rollo, Vol.II, pp. 577-578).LLphil

On May 29, 1982, the Sheriff of Naga City, assisted bylaw enforcement agencies, installed the newly electeddirectors and officers of the Natelco, and the hold-over

officers peacefully vacated their respective offices andturned-over their functions to the new officers (Rollo,Vol. III, p. 985; pp. 12-13).

On June 2, 1982, a charge for contempt was filed bypetitioner Villasenor alleging that private respondents


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have been claiming in press conferences and over theradio airlanes that they actually held and conductedelections on May 22, 1982 in the City of Naga and that

they have a new set of officers, and that such acts ofherein private respondents constitute contempt of court(G.R. 63922; Rollo, pp. 35-37).

On September 7, 1982, the lower court renderedjudgment on the contempt charge, the dispositiveportion of which reads:

"WHEREFORE, judgment is hereby rendered:

"1.Declaring respondents, CSI, Nilda Ramos,Luciano Maggay, Desiderio Saavedra,

Augusto Federis and Ernesto Miguel, guilty ofcontempt of court, and accordingly punishedwith imprisonment of six (6) months and topay fine of P1,000.00 each: and

"2.Ordering respondents, CSI, Nilda Ramos,

Luciano Maggay, Desiderio Saavedra,Augusto Federis and Ernesto Miguel, andthose now occupying the positions ofdirectors and officers of NATELCO to vacatetheir respective positions therein, andordering them to reinstate the hold-overdirectors and officers of NATELCO, such asPedro Lopez Dee as President, Justino de

Jesus, Sr., as Vice President, Julio Lopez Deeas Treasurer and Vicente Tordilla, Jr. asSecretary, and others referred to as hold-over directors and officers of NATELCO in theorder dated May 28, 1982 of SEC Hearing


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Officer Emmanuel Sison, in SEC Case No.1748 (Exh. 6), by way of RESTITUTION, andconsequently, ordering said respondents toturn over all records, property and assets ofNATELCO to said hold-over directors andofficers." (Ibid., Rollo, p. 49).

The trial judge issued an order dated September 10,1982 directing the respondents in the contempt chargeto "comply strictly, under pain of being subjected toimprisonment until they do so" (Ibid., p. 50). The orderalso commanded the Deputy Provincial Sheriff, with the

aid of the PC Provincial Commander of Camarines Surand the INP Station Commander of Naga City to"physically remove or oust from the offices or positionsof directors and officers of NATELCO, the aforesaidrespondents (herein private respondents) x x x and toreinstate and maintain, the hold-over directors andofficers of NATELCO referred to in the order dated May

28, 1982 of SEC Hearing Officer Emmanuel Sison."(Ibid.).

Private respondents filed on September 17, 1982, apetition for certiorari and prohibition with preliminaryinjunction or restraining order against the CFI Judge ofCamarines Sur, Naga City and herein petitioners, withthe then Intermediate Appellate Court which issued a

resolution ordering herein petitioners to comment on thepetition, which was complied with, and at the same timetemporarily refrained from implementing and orenforcing the questioned judgment and order of thelower court (Rollo, p. 77, Decision of CA, p. 2).


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On April 14, 1983, the then Intermediate AppellateCourt, rendered a decision, the dispositive portion ofwhich reads:

"WHEREFORE, judgment is hereby renderedas follows:

"1.Annuling the judgment dated September7, 1982 rendered by respondent judge on thecontempt charge, and his order datedSeptember 10, 1982, implementing said

judgment;

"2.Ordering the 'hold-over' directors andofficers of NATELCO to vacate theirrespective offices;

"3.Directing respondents to restore or re-establish petitioners (private respondents inthis case) who were ejected on May 22, 1982to their respective offices in the NATELCO, . .

.;

"4.Prohibiting whoever may be the successorof respondent Judge from interfering with theproceedings of the Securities and ExchangeCommission in SEC-AC No. 036;

xxx xxx xxx

(Rollo, p. 88).

The order of re-implementation was issued, and, finally,the Maggay group has been restored as the officers ofthe Natelco (Rollo, G.R. No. 60502, p. 985; p. 37).

Hence, these petitions involve the same parties and


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practically the same issues. Consequently, in theresolution of the Court En Banc dated August 23, 1983,G.R. No. 63922 was consolidated with G.R. No. 60502.

In G.R. No. 60502

In a resolution issued by the CourtEn Banc dated March 22, 1983, the Court gave duecourse to the petition and required the parties to submittheir respective memoranda (Rollo, Resolution, p. 638-A;Vol. II).

In G.R. No. 60502The main issues in this case are:

(1)Whether or not the Securities andExchange Commission has thepower and jurisdiction to declarenull and void shares of stock issuedby NATELCO to CSI for violation of

Sec. 20 (h) of the Public Service Act;

(2)Whether or not the issuance of 113,800 shares of Natelco to CSI, madeduring the pendency of SEC CaseNo. 1748 in the Securities andExchange Commission was valid;LibLex

(3)Whether or not Natelco stockholdershave a right of preemption to the113,800 shares in question; and(4)Whether or not the privaterespondents were duly elected tothe Board of Directors of Natelco at


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an election held on May 22, 1982.

In G.R. No. 63922

The crucial issue to be resolved is whether or not thetrial judge has jurisdiction to restrain the holding of anelection of officers and directors of a corporation.

The petitions are devoid of merit.

In G.R. No. 60502

I

It is the contention of petitioner that the Securities andExchange Commission En Banc committed grave abuseof discretion when, in its decision dated April 5, 1982, inSEC-AC No. 036, it refused to declare void the shares ofstock issued by Natelco to CSI allegedly in violation ofSec. 20 (h) of the Public Service Act. This sectionrequires prior administrative approval of any transfer orsale of shares of stock of any public service which vest inthe transferee more than forty percentum of thesubscribed capital of the said public service.

Section 5 of P.D. No. 902-A, as amended, enumeratesthe jurisdiction of the Securities and ExchangeCommission:

"Sec. 5.In addition to the regulatory and

adjudicative functions of the Securities andExchange Commission over Corporations,partnerships and other forms of associations,registered with it as expressly granted underthe existing laws and decrees, it shall haveoriginal and exclusive jurisdiction to hear and


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decide cases involving:

"a)Devices or schemes employed by or anyacts, of the board of directors, business

associates, its officers or partners, amountingto fraud and misrepresentation which may bedetrimental to the interest of the public andor of the stockholders, partners, members ofassociations or organizations registered withthe Commission.

(b)Controversies arising out of intra-corporate or partnership relations, betweenand among stockholders, members, orassociates; between any or all of them andthe corporation, partnership or association ofwhich they are stockholders, members orassociates, respectively; and between suchcorporation, partnership or association andthe state insofar as it concerns their

individual franchise or right to exist as suchentity;

"c)Controversies in the election orappointments of directors, trustees, officersor managers of such corporations,partnerships or associations.

"d) Petitions of corporations, partnerships or

associations to be declared in the state ofsuspension of payments in cases where thecorporation, partnership or associationpossesses sufficient property to cover all itsdebts but foresees the impossibility ofmeeting them when they respectively fall due


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or in cases where the corporation,partnership or association has no sufficientassets to cover its liabilities, but is under themanagement of a Rehabilitation Receiver orManagement Committee created pursuant tothis Decree." (As added by PD 1758).

In other words, in order that the SEC can takecognizance of a case, the controversy must pertain toany of the following relationships: (a) betweencorporation, partnership or association and the public;(b) between the corporation, partnership, or association

and its stockholders, partners, members or officers; (c)between the corporation, partnership or association andthe state insofar as its franchise, permit or license tooperate is concerned; and (d) among the stockholders,partners, or associates themselves (Union Glass &Container Corp. vs. SEC, 126 SCRA 31 [1983]).cdll

The jurisdiction of the SEC is limited to mattersintrinsically connected with the regulation ofcorporations, partnerships and associations and thosedealing with internal affairs of such entities; P.D. 902-Adoes not confer jurisdiction to SEC over all mattersaffecting corporations (Pereyra vs. IAC, 181 SCRA 244[1990]; Sales vs. SEC, 169 SCRA 121 [1989]).

The jurisdiction of the SEC in SEC Case No. 1748 islimited to deciding the controversy in the election of thedirectors and officers of Natelco. Thus, the SEC wascorrect when it refused to rule on whether the issuanceof the shares of Natelco stocks to CSI violated Sec. 20(h) of the Public Service Act.


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The SEC ruling as to the issue involving the PublicService Act, Section 20 (h), asserts that the CommissionEn Banc is not empowered to grant much less cancel

franchise for telephone and communications, andtherefore has no authority to rule that the issuance andsale of shares would in effect constitute a violation ofNatelco's secondary franchise. It would be in excess ofjurisdiction on our part to decide that a violation of ourpublic service laws has been committed. The matter isbetter brought to the attention of the appropriate bodyfor determination. Neither can the SEC provisionally

decide the issue because it is only vested with the powerto grant or revoke the primary corporate franchise. TheSEC is empowered by P.D. 902-A to decide intra-corporate controversies and that is precisely the onlyissue in this case.

II

The issuance of 113,800 shares of Natelco stock to CSImade during the pendency of SEC Case No. 1748 in theSecurities and Exchange Commission was valid. Thefindings of the SEC En Banc as to the issuance of the113,800 shares of stock was stated as follows:

"But the issuance of 113,800 shares were(sic) pursuant to a Board Resolution andstockholders' approval prior to May 19, 1979when CSI was not yet in control of the Boardor of the voting shares. There is distinctionbetween an order to issue shares on orbefore May 19, 1979 and actual issuance ofthe shares after May 19, 1979. The actual


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issuance, it is true, came during the periodwhen CSI was in control of voting shares andthe Board (if they were in fact in control) -but only pursuant to the original Board andstockholders' orders, not on the initiative tothe new Board, elected May 19, 1979, whichpetitioners are questioning. The Commissionen banc finds it difficult to see how the onewho gave the orders can turn around andimpugn the implementation of the orders hehad previously given. The reformation of thecontract is understandable for Natelco lackedthe corporate funds to purchase the CSIequipment.

"xxx xxx xxx

"Appellant had raised the issue whether theissuance of 113,800 shares of stock duringthe incumbency of the Maggay Board which

was allegedly CSI controlled, and while thecase was sub judice, amounted to unfair andundue advantage. This does not meritconsideration in the absence of additionalevidence to support the proposition."

In effect, therefore, the stockholders of Natelcoapproved the issuance of stock to CSI.

IIIWhile the group of Luciano Maggay was in control ofNatelco by virtue of the restraining order issued in G.R.No. 50885, the Maggay Board issued 113,800 shares ofstock to CSI. Petitioner said that the Maggay Board, in


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issuing said shares without notifying Natelcostockholders, violated their right of pre-emption to theunissued shares.LLphil

This Court in Benito vs. SEC, et al., has ruled that:

"Petitioner bewails the fact that in view of thelack of notice to him of such subsequentissuance, he was not able to exercise hisright of pre-emption over the unissuedshares. However, the general rule is that pre-emptive right is recognized only with respect

to new issues of shares, and not with respectto additional issues of originally authorizedshares. This is on the theory that when acorporation at its inception offers its firstshares, it is presumed to have offered all ofthose which it is authorized to issue. Anoriginal subscriber is deemed to have takenhis shares knowing that they form a definite

proportionate part of the whole number ofauthorized shares. When the shares leftunsubscribed are later reoffered, he cannottherefore (sic) claim a dilution of interest(Benito vs. SEC, et al., 123 SCRA 722)."

The questioned issuance of the 113,800 stocks is notinvalid even assuming that it was made without notice to

the stockholders as claimed by the petitioner. The powerto issue shares of stocks in a corporation is lodged in theboard of directors and no stockholders meeting isrequired to consider it because additional issuance ofshares of stocks does not need approval of thestockholders. Consequently, no pre-emptive right of


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The contempt charge against herein private respondentswas predicated on their failure to comply with therestraining order issued by the lower court on May 21,

1982, enjoining them from holding the election ofofficers and directors of Natelco scheduled on May 22,1982. The SEC en banc, in its decision of April 5, 1982,directed the holding of a new election which, through aconference attended by the hold-over directors ofNatelco accompanied by their lawyers and presided by aSEC hearing officer, was scheduled on May 22, 1982(Rollo, p. 59). Contrary to the claim of petitioners that

the case is within the jurisdiction of the lower court as itdoes not involve an intra-corporate matter but merely aclaim of a private party of the right to repurchasecommon shares of stock of Natelco and that therestraining order was. not meant to stop the electionduly called for by the SEC, it is undisputed that the mainobjective of the lower court's order of May 21, 1982 was

precisely to restrain or stop the holding of said electionof officers and directors of Natelco, a matter purelywithin the exclusive jurisdiction of the SEC (P.D. No. 902-A, Section 5). The said restraining order reads in part:

". . . A temporary restraining order is herebyissued, directing defendants (hereinrespondents), their agents, attorneys as wellas any and all persons, whether publicofficers or private individuals to desist fromconducting and holding, in any mannerwhatsoever, an election of the directors andofficers of the Naga Telephone Co. (Natelco). . ." (Rollo, p. 32).


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Indubitably, the aforesaid restraining order, aimed notonly to prevent the stockholders of Natelco fromconducting the election of its directors and officers, but it

also amounted to an injunctive relief against the SEC,since it is clear that even "public officers" (such as theHearing Officer of the SEC) are commanded to desistfrom conducting or holding the election "under pain ofpunishment of contempt of court" (Ibid.) The fact thatthe SEC or any of its officers has not been cited forcontempt, along with the stockholders of Natelco, whochose to heed the lawful order of the SEC to go on with

the election as scheduled by the latter, is of no moment,since it was precisely the acts of herein privaterespondents done pursuant to an order lawfully issuedby an administrative body that have been considered ascontemptuous by the lower court prompting the latter tocite and punish them for contempt (Rollo, p. 48).

Noteworthy is the pertinent portion of the judgment of

the lower court which states:

"Certainly, this Court will not tolerate, ormuch less countenance, a mere HearingOfficer of the Securities and ExchangeCommission, to render a restraining orderissued by it (said Court) within its jurisdiction,nugatory and ineffectual and abet

disobedience and even defiance byindividuals and entities of the same . . ."(Rollo, p. 48).

Finally, in the case of Philippine Pacific Fishing Co., Inc.vs. Luna, 112 SCRA 604, 613 [1983], this Tribunal stated


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clearly the following rule:

"Nowhere does the law (P.D No. 902-A)empower any Court of First Instance to

interfere with the orders of the Commission(SEC). Not even on grounds of due processor jurisdiction. The Commission is, concedingarguendo a possible claim of respondents, atthe very least, a co-equal body with theCourts of First Instance. Even as such co-equal, one would have no power to controlthe other. But the truth of the matter is that

only the Supreme Court can enjoin andcorrect any actuation of the Commission."

Accordingly, it is clear that since the trial judge in thelower court (CFI of Camarines Sur) did not havejurisdiction in issuing the questioned restraining order,disobedience thereto did not constitute contempt, as it isnecessary that the order be a valid and legal one. It is an

established rule that the court has no authority to punishfor disobedience of an order issued without authority(Chanco v. Madrilejos, 9 Phil. 356; Angel Jose RealtyCorp. v. Galao, et al., 76 Phil. 201).

Finally, it is well-settled that the power to punish forcontempt of court should be exercised on thepreservative and not on the vindictive principle. Only

occasionally should the court invoke its inherent power inorder to retain that respect without which theadministration of justice must falter or fail (Rivera v.Florendo, 144 SCRA 643, 662-663 [1986]; Lipata v.Tutaan, 124 SCRA 880 [1983]).


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PREMISES CONSIDERED, both petitions are herebyDISMISSED for lack of merit.

SO ORDERED.


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[G.R. No. 146667. January 23, 2007.]

JOHN F. McLEOD, petitioner, vs.NATIONAL LABOR RELATIONS

COMMISSION (First Division),FILIPINAS SYNTHETIC FIBERCORPORATION (FILSYN), FAREASTERN TEXTILE MILLS, INC., STA.ROSA TEXTILES, INC., (PEGGY MILLS,INC.), PATRICIO L. LIM, and ERICHU, respondents.

D E C I S I O N

CARPIO, J p:

The Case

This is a petition for review 1to set aside the Decision 2dated 15 June 2000 and the Resolution 3dated 27December 2000 of the Court of Appeals in CA-G.R. SPNo. 55130. The Court of Appeals affirmed withmodification the 29 December 1998 Decision 4of theNational Labor Relations Commission (NLRC) in NLRCNCR 02-00949-95.

The FactsThe facts, as summarized by the Labor Arbiter andadopted by the NLRC and the Court of Appeals, are asfollows:

On February 2, 1995, John F. McLeod filed a


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complaint for retirement benefits, vacationand sick leave benefits, non-payment ofunused airline tickets, holiday pay,underpayment of salary and 13th month pay,moral and exemplary damages, attorney'sfees plus interest against Filipinas SyntheticCorporation (Filsyn), Far Eastern Textile Mills,Inc., Sta. Rosa Textiles, Inc., Patricio Lim andEric Hu.

In his Position Paper, complainant allegedthat he is an expert in textile manufacturing

process; that as early as 1956 he was hiredas the Assistant Spinning Manager ofUniversal Textiles, Inc. (UTEX); that he waspromoted to Senior Manager and worked forUTEX till 1980 under its President,respondent Patricio Lim; that in 1978 PatricioLim formed Peggy Mills, Inc. with respondentFilsyn having controlling interest; that

complainant was absorbed by Peggy Mills asits Vice President and Plant Manager of theplant at Sta. Rosa, Laguna; that at the timeof his retirement complainant was receivingP60,000.00 monthly with vacation and sickleave benefits; 13th month pay, holiday payand two round trip business class tickets on aManila-London-Manila itinerary every three

years which is convertible to cas[h] ifunused; that in January 1986, respondentsfailed to pay vacation and leave credits andrequested complainant to wait as it was shortof funds but the same remain unpaid atpresent; that complainant is entitled to such


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benefit as per CBA provision (Annex "A");that respondents likewise failed to paycomplainant's holiday pay up to the present;that complainant is entitled to such benefitsas per CBA provision (Annex "B"); that in1989 the plant union staged a strike and in1993 was found guilty of staging an illegalstrike; that from 1989 to 1992 complainantwas entitled to 4 round trip business classplane tickets on a Manila-London-Manilaitinerary but this benefit not (sic) itsmonetary equivalent was not given; that on

August 1990 the respondents reducedcomplainant's monthly salary of P60,000.00by P9,900.00 till November 1993 or a periodof 39 months; that in 1991 Filsyn sold PeggyMills, Inc. to Far Eastern Textile Mills, Inc. asper agreement (Annex "D") and this wasrenamed as Sta. Rosa Textile with PatricioLim as Chairman and President; thatcomplainant worked for Sta. Rosa untilNovember 30 that from time to time theowners of Far Eastern consulted withcomplainant on technical aspects ofreoperation of the plant as percorrespondence (Annexes "D-1" and "D-2");that when complainant reached and applied

retirement age at the end of 1993, he wasonly given a reduced 13th month pay ofP44,183.63, leaving a balance of P15,816.87;that thereafter the owners of Far EasternTextiles decided for cessation of operationsof Sta. Rosa Textiles; that on two occasions,


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complainant wrote letters (Annexes "E-1" to"E-2") to Patricio Lim requesting for hisretirement and other benefits; that in the lastquarter of 1994 respondents offeredcomplainant compromise settlement of onlyP300,000.00 which complainant rejected;that again complainant wrote a letter (Annex"F") reiterating his demand for full paymentof all benefits and to no avail, hence thiscomplaint; and that he is entitled to all hismoney claims pursuant to law.

On the other hand, respondents in theirPosition Paper alleged that complainant wasthe former Vice-President and Plant Managerof Peggy Mills, Inc.; that he was hired in June1980 and Peggy Mills closed operations dueto irreversible losses at the end of July 1992but the corporation still exists at present;that its assets were acquired by Sta. Rosa

Textile Corporation which was established inApril 1992 but still remains non-operational atpresent; that complainant was hired asconsultant by Sta. Rosa Textile in November1992 but he resigned on November 30, 1993;that Filsyn and Far Eastern Textiles areseparate legal entities and have no employerrelationship with complainant; that

respondent Patricio Lim is the President andBoard Chairman of Sta. Rosa TextileCorporation; that respondent Eric Hu is aTaiwanese and is Director of Sta. RosaTextiles, Inc.; that complainant has no causeof action against Filsyn, Far Eastern Textile


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Ltd., Sta. Rosa Textile Corporation and EricHu; that Sta. Rosa only acquired the assetsand not the liabilities of Peggy Mills, Inc.;that Patricio Lim was only impleaded asBoard Chairman of Sta. Rosa Textile and notas private individual; that while complainantwas Vice President and Plant Manager ofPeggy Mills, the union staged a strike up toJuly 1992 resulting in closure of operationsdue to irreversible losses as per Notice(Annex "1"); that complainant was reliedupon to settle the labor problem but due tohis lack of attention and absence the strikecontinued resulting in closure of thecompany; and losses to Sta. Rosa whichacquired its assets as per their financialstatements (Annexes "2" and "3"); that theattendance records of complainant from April1992 to November 1993 (Annexes "4" and"5") show that he was either absent orworked at most two hours a day; that Sta.Rosa and Peggy Mills are interposingcounterclaims for damages in the totalamount of P36,757.00 against complainant;that complainant's monthly salary at PeggyMills was P50,495.00 and not P60,000.00;that Peggy Mills, does not have a retirement

program; that whatever amount complainantis entitled should be offset with thecounterclaims; that complainant worked onlyfor 12 years from 1980 to 1992; thatcomplainant was only hired as a consultantand not an employee by Sta. Rosa Textile;


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that complainant's attendance record ofabsence and two hours daily work during theperiod of the strike wipes out anyvacation/sick leave he may haveaccumulated; that there is no basis forcomplainant's claim of two (2) business classairline tickets; that complainant's pay alreadyincluded the holiday pay; that he is entitledto holiday pay as consultant by Sta. Rosa;that he has waived this benefit in his 12years of work with Peggy Mills; that he is notentitled to 13th month pay as consultant;and that he is not entitled to moral andexemplary damages and attorney's fees.

In his Reply, complainant alleged that allrespondents being one and the same entitiesare solidarily liable for all salaries andbenefits and complainant is entitled to; thatall respondents have the same address at

12/F B.A. Lepanto Building, Makati City; thattheir counsel holds office in the sameaddress; that all respondents have the sameoffices and key personnel such as PatricioLim and Eric Hu; that respondents' PositionPaper is verified by Marialen C. Corpuz whoknows all the corporate officers of allrespondents; that the veil of corporate fiction

may be pierced if it is used as a shield toperpetuate fraud and confuse legitimateissues; that complainant never accepted thechange in his position from Vice-Presidentand Plant Manager to consultant and it isincumbent upon respondents to prove that


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he was only a consultant; that the Deed ofDation in Payment with Lease (Annex "C")proves that Sta. Rosa took over the assets ofPeggy Mills as early as June 15, 1992 and not1995 as alleged by respondents; thatcomplainant never resigned from his job butapplied for retirement as per letters (Annexes"E-1", "E-2" and "F"); that documents "G","H" and "I" show that Eric Hu is a top officialof Peggy Mills that the closure of Peggy Millscannot be the fault of complainant; that thestrike was staged on the issue of CBAnegotiations which is not part of the usualduties and responsibilities as Plant Manager;that complainant is a British national and isprohibited by law in engaging in unionactivities; that as per Resolution (Annex "3")of the NLRC in the proper case, complainanttestified in favor of management; that thealleged attendance record of complainantwas lifted from the logbook of a securityagency and is hearsay evidence; that in theother attendance record it shows thatcomplainant was reporting daily and even onSaturdays; that his limited hours was due tothe strike and cessation of operations; thatas plant manager complainant was on call 24

hours a day; that respondents must paycomplainant the unpaid portion of his salariesand his retirement benefits that cash voucherNo. 17015 (Annex "K") shows thatcomplainant drew the monthly salary ofP60,000.00 which was reduced to P50,495.00


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in August 1990 and therefore without theconsent of complainant; that complainantwas assured that he will be paid thededuction as soon as the company improvedits financial standing but this assurance wasnever fulfilled; that Patricio Lim promisedcomplainant his retirement pay as per thelatter's letters (Annexes "E-1", "E-2" and "F");that the law itself provides for retirementbenefits; that Patricio Lim by way ofMemorandum (Annex "M") approved vacationand sick leave benefits of 22 days per yeareffective 1986; that Peggy Mills requiredmonthly paid employees to sign anacknowledgement that their monthlycompensation includes holiday pay; thatcomplainant was not made to sign thisundertaking precisely because he is entitledto holiday pay over and above his monthlypay; that the company paid for complainant'stwo (2) round trip tickets to London in 1983and 1986 as reflected in the complainant'spassport (Annex "N"); that respondents claimthat complainant is not entitled to 13thmonth pay but paid in 1993 and all the past13 years; that complainant is entitled tomoral and exemplary damages and attorney's

fees; that all doubts must be resolved infavor of complainant; and that complainantreserved the right to file perjury casesagainst those concerned.


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In their Reply, respondents alleged thatexcept for Peggy Mills, the other respondentsare not proper persons in interest due to thelack of employer-employee relationshipbetween them and complainant; thatundersigned counsel does not representPeggy Mills, Inc.

In a separate Position Paper, respondentPeggy Mills alleged that complainant washired on February 10, 1991 as per BoardMinutes (Annex "A"); that on August 19,

1987, the workers staged an illegal strikecausing cessation of operations on July 21,1992; that respondent filed a Notice ofClosure with the DOLE (Annex "B"); that allemployees were given separation pay exceptfor complainant whose task was extended toDecember 31, 1992 to wind up the affairs ofthe company as per vouchers (Annexes "C"

and "C-1"); that respondent offeredcomplainant his retirement benefits under RA7641 but complainant refused; that theregular salaries of complainant from closureup to December 31, 1992 have offsetwhatever vacation and sick leaves heaccumulated; that his claim for unused planetickets from 1989 to 1992 has no policy

basis, the company's formula of employeesmonthly rate x 314 days over 12 monthsalready included holiday pay; thatcomplainant's unpaid portion of the 13thmonth pay in 1993 has no basis because hewas only an employee up to December 31,


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1992; that the 13th month pay was based onhis last salary; and that complainant is notentitled to damages. 5

On 3 April 1998, the Labor Arbiter rendered his decisionwith the following dispositive portion:

WHEREFORE, premises considered, We holdall respondents as jointly and solidarily liablefor complainant's money claims asadjudicated above and computed below asfollows:

Retirement Benefits (one monthsalaryfor every year of service) 6/80-11/30/93 = 14 years P60,000 x 14.0mos.P840,000.00

Vacation and Sick Leave (3yrs.)P2,000.00 x 22 days x 3yrs.132,000.00

Underpayment of Salaries (3yrs.)P60,000-P50,495 = P9,505 P9,505x 36.0 mos.342,180.00

Holiday Pay (3 yrs.)P2,000 x 30days60,000.00

Underpayment of 13th month pay(1993) 15,816.87

Moral Damages3,000,000.00

Exemplary Damages1,000,000.00

10% Attorney's Fees138,999.68


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On 15 June 2000, the Court of Appeals renderedjudgment as follows:

WHEREFORE, the decision dated December

29, 1998 of the NLRC is hereby AFFIRMEDwith the MODIFICATION that respondentPatricio Lim is jointly and solidarily liable withPeggy Mills, Inc., to pay the followingamounts to petitioner John F. McLeod:

1.retirement pay equivalent to 22.5days for every year of service

for his twelve (12) years ofservice from 1980 to 1992based on a salary rate ofP50,495, a month;

2.moral damages in the amount of onehundred thousand(P100,000.00) Pesos;

3.exemplary damages in the amountof fifty thousand (P50,000.00)Pesos; and

4.attorney's fees equivalent to 10% ofthe total award.

No costs is awarded.

SO ORDERED. 10

The Court of Appeals rejected McLeod's theory that allrespondent corporations are the same corporate entitywhich should be held solidarily liable for the payment ofhis monetary claims.


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The Court of Appeals ruled that the fact that (1) allrespondent corporations have the same address; (2) allwere represented by the same counsel, Atty. Isidro S.

Escano; (3) Atty. Escano holds office at respondentcorporations' address; and (4) all respondentcorporations have common officers and key personnel,would not justify the application of the doctrine ofpiercing the veil of corporate fiction.

The Court of Appeals held that there should be clear andconvincing evidence that SRTI, FETMI, and Filsyn were

being used as alter ego, adjunct or business conduit forthe sole benefit of Peggy Mills, Inc. (PMI), otherwise,said corporations should be treated as distinct andseparate from each other.

The Court of Appeals pointed out that the Articles ofIncorporation of PMI show that it has six incorporators,namely, Patricio, Jose Yulo, Jr., Carlos Palanca, Jr., Cesar

R. Concio, Jr., E. A. Picasso, and Walter Euyang. On theother hand, the Articles of Incorporation of Filsyn showthat it has 10 incorporators, namely, Jesus Y. Yujuico,Carlos Palanca, Jr., Patricio, Ang Beng Uh, Ramon A.Yulo, Honorio Poblador, Jr., Cipriano Azada, ManuelTomacruz, Ismael Maningas, and Benigno Zialcita, Jr.

The Court of Appeals pointed out that PMI and Filsyn

have only two interlocking incorporators and directors,namely, Patricio and Carlos Palanca, Jr.

Reiterating the ruling of this Court in Laguio v. NLRC, 11the Court of Appeals held that mere substantial identityof the incorporators of two corporations does not


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necessarily imply fraud, nor warrant the piercing of theveil of corporate fiction.

The Court of Appeals also pointed out that when SRTI

and PMI executed the Dation in Payment with Lease, itwas clear that SRTI did not assume the liabilities PMIincurred before the execution of the contract.

The Court of Appeals held that McLeod failed tosubstantiate his claim that all respondent corporationsshould be treated as one corporate entity. The Court ofAppeals thus upheld the NLRC's finding that no

employer-employee relationship existed between McLeodand respondent corporations except PMI.

The Court of Appeals ruled that Eric Hu, as an officer ofPMI, should be exonerated from any liability, there beingno proof of malice or bad faith on his part. The Court ofAppeals, however, ruled that McLeod was entitled torecover from PMI and Patricio, the company's Chairman

and President.

The Court of Appeals pointed out that Patriciodeliberately and maliciously evaded PMI's financialobligation to McLeod. The Court of Appeals stated that,on several occasions, despite his approval, Patriciorefused and ignored to pay McLeod's retirement benefits.The Court of Appeals stated that the delay lasted for one

year prompting McLeod to initiate legal action. The Courtof Appeals stated that although PMI offered to payMcLeod his retirement benefits, this offer for P300,000was still below the "floor limits" provided by law. TheCourt of Appeals held that an employee could demand


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payment of retirement benefits as a matter of right.

The Court of Appeals stated that considering that PMIwas no longer in operation, its "officer should be held

liable for acting on behalf of the corporation."

The Court of Appeals also ruled that since PMI did nothave a retirement program providing for retirementbenefits of its employees, Article 287 of the Labor Codemust be followed. The Court of Appeals thus upheld theNLRC's finding that McLeod was entitled to retirementpay equivalent to 22.5 days for every year of service

from 1980 to 1992 based on a salary rate of P50,495 amonth.

The Court of Appeals held that McLeod was not entitledto payment of vacation, sick leave and holiday paybecause as Vice President and Plant Manager, McLeod isa managerial employee who, under Article 82 of theLabor Code, is not entitled to these benefits.

The Court of Appeals stated that for McLeod to beentitled to payment of service incentive leave andholidays, there must be an agreement to that effectbetween him and his employer.

Moreover, the Court of Appeals rejected McLeod'sargument that since PMI paid for his two round-trip

tickets Manila-London in 1983 and 1986, he was also"entitled to unused airline tickets." The Court of Appealsstated that the fact that PMI granted McLeod "freetransport to and from Manila and London for the year1983 and 1986 does not ipso facto characterize it asregular that would establish a prevailing company


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policy."

The Court of Appeals also denied McLeod's claims forunderpayment of salaries and his 13th month pay for the

year 1994. The Court of Appeals upheld the NLRC'sruling that it could be deduced from McLeod's ownnarration of facts that he agreed to the reduction of hiscompensation from P60,000 to P50,495 in August 1990to November 1993.

The Court of Appeals found the award of moral damagesfor P50,000 in order because of the "stubborn refusal" of

PMI and Patricio to respect McLeod's valid claims.

The Court of Appeals also ruled that attorney's feesequivalent to 10% of the total award should be given toMcLeod under Article 2208, paragraph 2 of the CivilCode. 12

Hence, this petition.

The Issues

McLeod submits the following issues for ourconsideration:

1.Whether the challenged Decision andResolution of the 14th Division of theCourt of Appeals promulgated on 15June 2000 and 27 December 2000,

respectively, in CA-G.R. SP No. 55130are in accord with law and

jurisprudence;

2.Whether an employer-employeerelationship exists between the private


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respondents and the petitioner forpurposes of determining employerliability to the petitioner;

3.Whether the private respondents may avoidtheir financial obligations to thepetitioner by invoking the veil ofcorporate fiction;

4.Whether petitioner is entitled to the reliefhe seeks against the privaterespondents;

5.Whether the ruling of [this] Court in SpecialPolice and Watchman Association(PLUM) Federation v. National LaborRelations Commission cited by theOffice of the Solicitor General isapplicable to the case of petitioner;

and6.Whether the appeal taken by the private

respondents from the Decision of thelabor arbiter meets the mandatoryrequirements recited in the LaborCode of the Philippines, as amended.13

The Court's Ruling

The petition must fail.

McLeod asserts that the Court of Appeals should nothave upheld the NLRC's findings that he was amanagerial employee of PMI from 20 June 1980 to 31


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December 1992, and then a consultant of SRTI up to 30November 1993. McLeod asserts that if only for this"brazen assumption," the Court of Appeals should not

have sustained the NLRC's ruling that his cause of actionwas only against PMI.

These assertions do not deserve serious consideration.

Records disclose that McLeod was an employee only ofPMI. 14PMI hired McLeod as its acting Vice President andGeneral Manager on 20 June 1980. 15PMI confirmedMcLeod's appointment as Vice President/Plant Manager

in the Special Meeting of its Board of Directors on 10February 1981. 16McLeod himself testified during thehearing before the Labor Arbiter that his "regularemployment" was with PMI. 17

When PMI's rank-and-file employees staged a strike on19 August 1989 to July 1992, PMI incurred seriousbusiness losses. 18This prompted PMI to stop

permanently plant operations and to send a notice ofclosure to the Department of Labor and Employment on21 July 1992. 19

PMI informed its employees, including McLeod, of theclosure. 20PMI paid its employees, including managerialemployees, except McLeod, their unpaid wages, sickleave, vacation leave, prorated 13th month pay, and

separation pay. Under the compromise agreementbetween PMI and its employees, the employer-employeerelationship between them ended on 25 November 1992.21

Records also disclose that PMI extended McLeod's


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service up to 31 December 1992 "to wind up someaffairs" of the company. 22McLeod testified on cross-examination that he received his last salary from PMI in

December 1992. 23

It is thus clear that McLeod was a managerial employeeof PMI from 20 June 1980 to 31 December 1992.

However, McLeod claims that after FETMI purchased PMIin January 1993, he "continued to work at the sameplant with the same responsibilities" until 30 November1993. McLeod claims that FETMI merely renamed PMI as

SRTI. McLeod asserts that it was for this reason thatwhen he reached the retirement age in 1993, he askedall the respondents for the payment of his benefits. 24

These assertions deserve scant consideration.

What took place between PMI and SRTI was dation inpayment with lease. Pertinent portions of the contract

that PMI and SRTI executed on 15 June 1992 read:WHEREAS, PMI is indebted to theDevelopment Bank of the Philippines ("DBP")and as security for such debts (the"Obligations") has mortgaged its realproperties covered by TCT Nos. T-38647, T-37136, and T-37135, together with allmachineries and improvements found

thereat, a complete listing of which is heretoattached as Annex "A" (the "Assets");

WHEREAS, by virtue of an inter-governmental agency arrangement, DBPtransferred the Obligations, including the


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Assets, to the Asset Privatization Trust("APT") and the latter has received paymentfor the Obligations from PMI, under APT'sDirect Debt Buy-Out ("DDBO") programthereby causing APT to completely dischargeand cancel the mortgage in the Assets and torelease the titles of the Assets back to PMI;

WHEREAS, PMI obtained cash advances fromSRTC in the total amount of TWO HUNDREDTEN MILLION PESOS (P210,000,000.00) (the"Advances") to enable PMI to consummate

the DDBO with APT, with SRTC subrogatingAPT as PMI's creditor thereby;

WHEREAS, in payment to SRTC for PMI'sliability, PMI has agreed to transfer allits rights, title and interests in the

Assets by way of a dation in payment toSRTC, provided that simultaneous with

the dation in payment, SRTC shall grantunto PMI the right to lease the Assetsunder terms and conditions statedhereunder;

xxx xxx xxx

NOW THEREFORE, for and in consideration ofthe foregoing premises, and of the terms and

conditions hereinafter set forth, the partieshereby agree as follows:

1.CESSION. In consideration of the amountof TWO HUNDRED TEN MILLION PESOS(P210,000,000.00), PMI hereby cedes,


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conveys and transfers to SRTC all of itsrights, title and interest in and to the Assetsby way of a dation in payment. 25(Emphasissupplied)

As a rule, a corporation that purchases the assets ofanother will not be liable for the debts of the sellingcorporation, provided the former acted in good faith andpaid adequate consideration for such assets, exceptwhen any of the following circumstances is present: (1)where the purchaser expressly or impliedly agrees toassume the debts, (2) where the transaction amounts toa consolidation or merger of the corporations, (3) wherethe purchasing corporation is merely a continuation ofthe selling corporation, and (4) where the sellingcorporation fraudulently enters into the transaction toescape liability for those debts. 26

None of the foregoing exceptions is present in this case.

Here, PMI transferred its assets to SRTI to settle itsobligation to SRTI in the sum of P210,000,000. We arenot convinced that PMI fraudulently transferred theseassets to escape its liability for any of its debts. PMI hadalready paid its employees, except McLeod, their moneyclaims.

There was also no merger or consolidation of PMI and

SRTI.

Consolidation is the union of two or more existingcorporations to form a new corporation called theconsolidated corporation. It is a combination byagreement between two or more corporations by which


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their rights, franchises, and property are united andbecome those of a single, new corporation, composedgenerally, although not necessarily, of the stockholders

of the original corporations.

Merger, on the other hand, is a union whereby onecorporation absorbs one or more existing corporations,and the absorbing corporation survives and continues thecombined business.

The parties to a merger or consolidation are calledconstituent corporations. In consolidation, all the

constituents are dissolved and absorbed by the newconsolidated enterprise. In merger, all constituents,except the surviving corporation, are dissolved. In bothcases, however, there is no liquidation of the assets ofthe dissolved corporations, and the surviving orconsolidated corporation acquires all their properties,rights and franchises and their stockholders usually

become its stockholders.The surviving or consolidated corporation assumesautomatically the liabilities of the dissolved corporations,regardless of whether the creditors have consented ornot to such merger or consolidation. 27

In the present case, there is no showing that the subjectdation in payment involved any corporate merger or

consolidation. Neither is there any showing of thoseindicative factors that SRTI is a mere instrumentality ofPMI.

Moreover, SRTI did not expressly or impliedly agree toassume any of PMI's debts. Pertinent portions of the


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subject Deed of Dation in Payment with Lease provide,thus:

2.WARRANTIES AND REPRESENTATIONS.

PMI hereby warrants and represents thefollowing:

xxx xxx xxx

(e)PMI shall warrant that it will holdSRTC or its assigns, free andharmless from any liability forclaims of PMI's creditors,

laborers, and workersand forphysical injury or injury to propertyarising from PMI's custody,possession, care, repairs,maintenance, use or operation of the

Assets except ordinary wear and tear;28(Emphasis supplied)

Also, McLeod did not present any evidence to show thealleged renaming of "Peggy Mills, Inc." to "Sta. RosaTextiles, Inc."

Hence, it is not correct for McLeod to treat PMI and SRTIas the same entity.

Respondent corporations assert that SRTI hired McLeodas consultant after PMI stopped operations. 29On the

other hand, McLeod asserts that he was respondentcorporations' employee from 1980 to 30 November 1993.30However, McLeod failed to present any proof ofemployer-employee relationship between him and Filsyn,SRTI, or FETMI. McLeod testified, thus:


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ATTY. ESCANO:

Do you have any employment contract withFar Eastern Textile?

WITNESS:

It is my belief up the present time.

ATTY. AVECILLA:

May I request that the witness be allowed togo through his Annexes, Your Honor.

ATTY. ESCANO:

Yes, but I want a precise answer to thatquestion. If he has an employmentcontract with Far Eastern Textile?

WITNESS:

Can I answer it this way, sir? There is not avalid contract but I was under the

impression taking into considerationthat the closeness that I had at FarEastern Textile is enough during thatperiod of time of the development ofPeggy Mills to reorganize a staff. I wasunder the basic impression that theymight still retain my status as VicePresident and Plant Manager of the

company.

ATTY. ESCANO:

But the answer is still, there is noemployment contract in your


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possession appointing you in anycapacity by Far Eastern?

WITNESS:

There was no written contract, sir.

xxx xxx xxx

ATTY. ESCANO:

So, there is proof that you were in fact reallyemployed by Peggy Mills?

WITNESS:

Yes, sir.

ATTY. ESCANO:

Of course, my interest now is to whether ornot there is a similar document topresent that you were employed bythe other respondents like Filsyn

Corporation?

WITNESS:

I have no document, sir.

ATTY. ESCANO:

What about Far Eastern Textile Mills?

WITNESS:I have no document, sir.

ATTY. ESCANO:

And Sta. Rosa Textile Mills?


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WITNESS:

There is no document, sir. 31

xxx xxx xxx

ATTY. ESCANO:

QYes. Let me be more specific, Mr. McLeod.Do you have a contract of employmentfrom Far Eastern Textiles, Inc.?

ANo, sir.

QWhat about Sta. Rosa Textile Mills, do youhave an employment contract fromthis company?

ANo, sir.

xxx xxx xxx

QAnd what about respondent Eric Hu. Haveyou had any contract of employmentfrom Mr. Eric Hu?

ANot a direct contract but I was taken in andI told to take over this from Mr. EricHu. Automatically, it confirms that Mr.Eric Hu, in other words, was under thecontrol of Mr. Patricio Lim at that

period of time.

QNo documents to show, Mr. McLeod?

ANo. No documents, sir. 32

McLeod could have presented evidence to support his


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allegation of employer-employee relationship betweenhim and any of Filsyn, SRTI, and FETMI, but he did not.Appointment letters or employment contracts, payrolls,

organization charts, SSS registration, personnel list, aswell as testimony of co-employees, may serve asevidence of employee status. 33

It is a basic rule in evidence that parties must prove theiraffirmative allegations. While technical rules are notstrictly followed in the NLRC, this does not mean that therules on proving allegations are entirely ignored. Bare

allegations are not enough. They must be supported bysubstantial evidence at the very least. 34

However, McLeod claims that "for purposes ofdetermining employer liability, all private respondents areone and the same employer" because: (1) they have thesame address; (2) they are all engaged in the samebusiness; and (3) they have interlocking directors and

officers. 35This assertion is untenable.

A corporation is an artificial being invested by law with apersonality separate and distinct from that of itsstockholders and from that of other corporationsto which it may be connected. 36

While a corporation may exist for any lawful purpose, thelaw will regard it as an association of persons or, in caseof two corporations, merge them into one, when itscorporate legal entity is used as a cloak for fraud orillegality. This is the doctrine of piercing the veil ofcorporate fiction. The doctrine applies only when such


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corporate fiction is used to defeat public convenience,justify wrong, protect fraud, or defend crime, 37or whenit is made as a shield to confuse the legitimate issues, or

where a corporation is the mere alter ego or businessconduit of a person, or where the corporation is soorganized and controlled and its affairs are so conductedas to make it merely an instrumentality, agency, conduitor adjunct of another corporation. 38

To disregard the separate juridical personality of acorporation, the wrongdoing must be established clearly

and convincingly. It cannot be presumed. 39Here, we do not find any of the evils sought to beprevented by the doctrine of piercing the corporate veil.

Respondent corporations may be engaged in the samebusiness as that of PMI, but this fact alone is not enoughreason to pierce the veil of corporate fiction. 40

In Indophil Textile Mill Workers Union v. Calica, 41theCourt ruled, thus:

In the case at bar, petitioner seeks to piercethe veil of corporate entity of Acrylic, allegingthat the creation of the corporation is adevise to evade the application of the CBAbetween petitioner Union and privaterespondent Company. While we do notdiscount the possibility of the similarities ofthe businesses of private respondent and

Acrylic, neither are we inclined to apply thedoctrine invoked by petitioner in granting therelief sought. The fact that the businesses


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of private respondent and Acrylic arerelated, that some of the employees ofthe private respondent are the samepersons manning and providing forauxiliary services to the units of Acrylic,and that the physical plants, offices andfacilities are situated in the samecompound, it is our considered opinionthat these facts are not sufficient to

justify the piercing of the corporate veilof Acrylic. 42(Emphasis supplied)

Also, the fact that SRTI and PMI shared the sameaddress, i.e., 11/F BA-Lepanto Bldg., Paseo de Roxas,Makati City, 43can be explained by the two companies'stipulation in their Deed of Dation in Payment with Leasethat "simultaneous with the dation in payment, SRTCshall grant unto PMI the right to lease the Assets underterms and conditions stated hereunder." 44

As for the addresses of Filsyn and FETMI, Filsyn heldoffice at 12th Floor, BA-Lepanto Bldg., Paseo de Roxas,Makati City, 45while FETMI held office at 18F, Tun NanCommercial Building, 333 Tun Hwa South Road, Sec. 2,Taipei, Taiwan, R.O.C. 46Hence, they did not have thesame address as that of PMI.

That respondent corporations have interlocking

incorporators, directors, and officers is of no moment.

The only interlocking incorporators of PMI and Filsynwere Patricio and Carlos Palanca, Jr. 47While Patriciowas Director and Board Chairman of Filsyn, SRTI, andPMI, 48he was never an officer of FETMI.


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Eric Hu, on the other hand, was Director of Filsyn andSRTI. 49He was never an officer of PMI.

Marialen C. Corpuz, Filsyn's Finance Officer, 50testified

on cross-examination that (1) among all of Filsyn'sofficers, only she was the one involved in themanagement of PMI; (2) only she and Patricio were thecommon officers between Filsyn and PMI; and (3) Filsynand PMI are "two separate companies." 51

Apolinario L. Posio, PMI's Chief Accountant, testified that"SRTI is a different corporation from PMI." 52

At any rate, the existence of interlocking incorporators,directors, and officers is not enough justification topierce the veil of corporate fiction, in the absence offraud or other public policy considerations. 53

In Del Rosario v. NLRC, 54the Court ruled thatsubstantial identity of the incorporators of corporations

does not necessarily imply fraud.In light of the foregoing, and there being no proof ofemployer-employee relationship between McLeod andrespondent corporations and Eric Hu, McLeod's cause ofaction is only against his former employer, PMI.

On Patricio's personal liability, it is settled that in theabsence of malice, bad faith, or specific provision of law,

a stockholder or an officer of a corporation cannot bemade personally liable for corporate liabilities. 55

To reiterate, a corporation is a juridical entity with legalpersonality separate and distinct from those acting forand in its behalf and, in general, from the people


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comprising it. The rule is that obligations incurred by thecorporation, acting through its directors, officers, andemployees, are its sole liabilities. 56

Personal liability of corporate directors, trustees orofficers attaches only when (1) they assent to a patentlyunlawful act of the corporation, or when they are guiltyof bad faith or gross negligence in directing its affairs, orwhen there is a conflict of interest resulting in damagesto the corporation, its stockholders or other persons; (2)they consent to the issuance of watered down stocks or

when, having knowledge of such issuance, do notforthwith file with the corporate secretary their writtenobjection; (3) they agree to hold themselves personallyand solidarily liable with the corporation; or (4) they aremade by specific provision of law personallyanswerable for their corporate action. 57

Considering that McLeod failed to prove any of the

foregoing exceptions in the present case, McLeod cannothold Patricio solidarily liable with PMI.

The records are bereft of any evidence that Patricioacted with malice or bad faith. Bad faith is a question offact and is evidentiary. Bad faith does not connote badjudgment or negligence. It imports a dishonest purposeor some moral obliquity and conscious wrongdoing. It

means breach of a known duty through some ill motiveor interest. It partakes of the nature of fraud. 58

In the present case, there is nothing substantial onrecord to show that Patricio acted in bad faith interminating McLeod's services to warrant Patricio's


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personal liability. PMI had no other choice but to stopplant operations. The work stoppage therefore was bynecessity. The company could no longer continue with its

plant operations because of the serious business lossesthat it had suffered. The mere fact that Patricio waspresident and director of PMI is not a ground to concludethat he should be held solidarily liable with PMI forMcLeod's money claims.

The ruling in A.C. Ransom Labor Union-CCLU v. NLRC, 59which the Court of Appeals cited, does not apply to this

case. We quote pertinent portions of the ruling, thus:(a)Article 265 of the Labor Code, in part,expressly provides:

"Any worker whose employment has beenterminated as a consequence of an unlawfullockout shall be entitled to reinstatement withfull backwages."

Article 273 of the Code provides that:

"Any person violating any of the provisions ofArticle 265 of this Code shall be punishedby a fine of not exceeding five hundredpesos and/or imprisonmentfor not lessthan one (1) day nor more than six (6)months."

(b)How can the foregoing provisions beimplemented when the employer is acorporation? The answer is found in Article212 (c) of the Labor Code which provides:

"(c)'Employer' includes any person


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acting in the interest of an employer,directly or indirectly. The term shallnot include any labor organization orany of its officers or agents exceptwhen acting as employer."

The foregoing was culled from Section 2 ofRA 602, the Minimum Wage Law. SinceRANSOM is an artificial person, it must havean officer who can be presumed to be theemployer, being the "person acting in theinterest of (the) employer" RANSOM. The

corporation, only in the technical sense, isthe employer.

The responsible officer of an employercorporation can be held personally, not to sayeven criminally, liable for non-payment ofback wages. That is the policy of the law.

xxx xxx xxx

(c)If the policy of the law were otherwise,the corporation employer can have deviousways for evading payment of back wages. Inthe instant case, it would appear thatRANSOM, in 1969, foreseeing thepossibility or probability of payment of

back wages to the 22 strikers,organized ROSARIO to replaceRANSOM, with the latter to beeventually phased out if the 22 strikerswin their case. RANSOM actually ceased


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operations on May 1, 1973, after theDecember 19, 1972 Decision of the Court ofIndustrial Relations was promulgated againstRANSOM. 60(Emphasis supplied)

Clearly, in A.C. Ransom, RANSOM, through its President,organized ROSARIO to evade payment of backwages tothe 22 strikers. This situation, or anything similarshowing malice or bad faith on the part of Patricio, doesnot obtain in the present case. In Santos v. NLRC, 61theCourt held, thus:

It is true, there were various cases whencorporate officers were themselves held bythe Court to be personally accountable forthe payment of wages and money claims toits employees. InA.C. Ransom LaborUnion-CCLU vs. NLRC, for instance, theCourt ruled that under the Minimum WageLaw, the responsible officer of an employer

corporation could be held personally liable fornonpayment of backwages for "(i)f the policyof the law were otherwise, the corporationemployer (would) have devious ways forevading payment of backwages." In theabsence of a clear identification of the officerdirectly responsible for failure to pay thebackwages, the Court considered the

President of the corporation as such officer.The case was cited in Chua vs. NLRCinholding personally liable the vice-president ofthe company, being the highest and mostranking official of the corporation next to thePresident who was dismissed for the latter's


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claim for unpaid wages.

A review of the above exceptional caseswould readily disclose the attendance of facts

and circumstances that could rightly sanctionpersonal liability on the part of the companyofficer. InA.C. Ransom, the corporateentity was a family corporation andexecution against it could not beimplemented because of the dispositionposthaste of its leviable assetsevidently in order to evade its just and

due obligations. The doctrine of"piercing the veil of corporate fiction"was thus clearly appropriate. Chualikewise involved another family corporation,and this time the conflict was between twobrothers occupying the highest rankingpositions in the company. There wereincontrovertible facts which pointed to

extreme personal animosity that resulted,evidently in bad faith, in the easing out fromthe company of one of the brothers by theother.

The basic rule is still that which can bededuced from the Court's pronouncement inSunio vs. National Labor Relations

Commission; thus:We come now to the personal liability ofpetitioner, Sunio, who was made jointly andseverally responsible with petitioner companyand CIPI for the payment of the backwagesof private respondents. This is reversible


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used to defeat public convenience, justify wrong, protectfraud, or defend crime. In the absence of malice, badfaith, or a specific provision of law making a corporate

officer liable, such corporate officer cannot be madepersonally liable for corporate liabilities. Neither Article212 (c) nor Article 273 (now 272) of the Labor Codeexpressly makes any corporate officer personally liablefor the debts of the corporation. As this Court ruled inH.L. Carlos Construction, Inc. v. Marina PropertiesCorporation: 63

We concur with the CA that these tworespondents are not liable. Section 31 of theCorporation Code (Batas Pambansa Blg. 68)provides:

"Section 31.Liability of directors,trustees or officers. Directors ortrustees who willfully and knowinglyvote for or assent to patently unlawful

acts of the corporation or who areguilty of gross negligence or bad faith. . . shall be liable jointly and severallyfor all damages resulting therefromsuffered by the corporation, itsstockholders and other persons."

The personal liability of corporate officers

validly attaches only when (a) they assent toa patently unlawful act of the corporation; or(b) they are guilty of bad faith or grossnegligence in directing its affairs; or (c) theyincur conflict of interest, resulting in damagesto the corporation, its stockholders or other


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persons.

The records are bereft of any evidence thatTypoco acted in bad faith with gross or

inexcusable negligence, or that he actedoutside the scope of his authority ascompany president. The unilateraltermination of the Contract during theexistence of the TRO was indeedcontemptible for which MPC should havemerely been cited for contempt of court atthe most and a preliminary injunction

would have then stopped work by the secondcontractor. Besides, there is no showing thatthe unilateral termination of the Contract wasnull and void. 64

McLeod is not entitled to payment of vacation leave andsick leave as well as to holiday pay. Article 82, Title I,Book Three of the Labor Code, on Working Conditions

and Rest Periods, provides:

Coverage. The provisions of this titleshall apply to employees in all establishmentsand undertakings whether for profit or not,but not togovernment employees,managerial employees, field personnel,members of the family of the employer whoare dependent on him for support, domestichelpers, persons in the personal service ofanother, and workers who are paid by resultsas determined by the Secretary of Labor inappropriate regulations.

As used herein, "managerial employees" refer


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to those whose primary duty consists of themanagement of the establishment in whichthey are employed or of a department orsubdivision thereof, and to other officers ormembers of the managerial staff. (Emphasissupplied)

As Vice President/Plant Manager, McLeod is a managerialemployee who is excluded from the coverage of Title I,Book Three of the Labor Code. McLeod is entitled topayment of vacation leave and sick leave only if he andPMI had agreed on it. The payment of vacation leave

and sick leave depends on the policy of the employer orthe agreement between the employer and employee. 65In the present case, there is no showing that McLeodand PMI had an agreement concerning payment of thesebenefits.

McLeod's assertion of underpayment of his 13th monthpay in December 1993 is unavailing. 66As already stated,PMI stopped plant operations in 1992. McLeod himselftestified that he received his last salary from PMI inDecember 1992. After the termination of the employer-employee relationship between McLeod and PMI, SRTIhired McLeod as consultant and not as employee. SinceMcLeod was no longer an employee, he was not entitledto the 13th month pay. 67Besides, there is no evidence

on record that McLeod indeed received his alleged"reduced 13th month pay of P44,183.63" in December1993. 68

Also unavailing is McLeod's claim that he was entitled tothe "unpaid monetary equivalent of unused plane tickets


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for the period covering 1989 to 1992 in the amount ofP279,300.00." 69PMI has no company policy granting itsofficers and employees expenses for trips abroad. 70

That at one time PMI reimbursed McLeod for his and hiswife's plane tickets in a vacation to London 71could notbe deemed as an established practice considering that ithappened only once. To be considered a "regularpractice," the giving of the benefits should have beendone over a long period, and must be shown to havebeen consistent and deliberate. 72

In American Wire and Cable Daily Rated EmployeesUnion v. American Wire and Cable Co., Inc., 73the Courtheld that for a bonus to be enforceable, the employermust have promised it, and the parties must haveexpressly agreed upon it, or it must have had a fixedamount and had been a long and regular practice on thepart of the employer.

In the present case, there is no showing that PMI everpromised McLeod that it would continue to grant him thebenefit in question. Neither is there any proof that PMIand McLeod had expressly agreed upon the giving ofthat benefit.

McLeod's reliance on Annex M 74can hardly carry the dayfor him. Annex M, which is McLeod's letter addressed to

"Philip Lim, VP Administration," merely contains McLeod'sproposals for the grant of some benefits to supervisoryand confidential employees. Contrary to McLeod'sallegation, Patricio did not sign the letter. Hence, theletter does not embody any agreement between McLeodand the management that would entitle McLeod to his


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money claims.

Neither can McLeod's assertions find support in Annex U.75Annex U is the Agreement which McLeod and UniversalTextile Mills, Inc. executed in 1959. The Agreementmerely contains the renewal of the service agreementwhich the parties signed in 1956.

McLeod cannot successfully pretend that his monthlysalary of P60,000 was reduced without his consent.

McLeod testified that in 1990, Philip Lim explained to himwhy his salary would have to be reduced. McLeod saidthat Philip told him that "they were short in finances;that it would be repaid." 76Were McLeod not amenableto that reduction in salary, he could have immediatelyresigned from his work in PMI.

McLeod knew that PMI was then suffering from serious

business losses. In fact, McLeod testified that PMI wasnot able to operate from August 1989 to 1992 becauseof the strike. Even before 1989, as Vice President of PMI,McLeod was aware that the company had incurred "hugeloans from DBP." 77As it happened, McLeod continued towork with PMI. We find it pertinent to quote someportions of Apolinario Posio's testimony, to wit:

QYou also stated that before the period ofthe strike as shown by annex "K" ofthe reply filed by the complainantwhich was I think a voucher, thesalary of Mr. McLeod was roughlyP60,000.00 a month?


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AYes, sir.

QAnd as shown by their annex "L" to theirreply, that this was reduced to roughly

P50,000.00 a month?

AYes, sir.

QYou stated that this was indeed upon theinstruction by the Vice-President ofPeggy Mills at that time and that wasMr. Philip Lim, would you not?

AYes, sir.

QOf your own personal knowledge, can yousay if this was, in fact, by agreementbetween Mr. Philip Lim or any otherofficers of Peggy Mills and Mr.McLeod?

AIf I recall it correctly, I assume it was an

agreement, verbal agreement with,between Mr. Philip Lim and Mr.McLeod, because the voucher that weprepared was actually acknowledgedby Mr. McLeod, the reduced amountwas acknowledged by Mr. McLeod thruthe voucher that we prepared.

QIn other words, Mr. Witness, you mean to

tell us that Mr. McLeod continuouslyreceived the reduced amount ofP50,000.00 by signing the voucherand receiving the amount in question?

AYes, sir.


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QAs far as you remember, Mr. Posio, wasthere any complaint by Mr. McLeodbecause of this reduced amount of hissalary at that time?

AI don't have any personal knowledge of anycomplaint, sir.

QAt least, that is in so far as you wereconcerned, he said nothing when hesigned the voucher in question?

AYes, sir.

QNow, you also stated that the reason forwhat appears to be an agreementbetween Peggy Mills and Mr. McLeodin so far as the reduction of his salaryfrom P60,000.00 to P50,000.00 amonth was because he would have areduced number of working days in

view of the strike at Peggy Mills, isthat right?

AYes, sir.

QAnd that this was so because on account ofthe strike, there was no work to bedone in the company?

AYes, sir. 78

xxx xxx xxx

QNow, you also stated if you rememberduring the first time that you testifiedthat in the beginning, the monthlysalary of the complainant was


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P60,000.00, is that correct?

AYes, sir.

QAnd because of the long period of thestrike, when there was no work to bedone, by agreement with thecomplainant, his monthly salary wasadjusted to only P50,495 because hewould not have to report f

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