Republic of the PhilippinesSUPREME COURTManilaSECOND DIVISIONG.R. No. 108905 October 23, 1997GRACE CHRISTIAN HIGH SCHOOL,petitioner,vs.THE COURT OF APPEALS, GRACE VILLAGE ASSOCIATION, INC., ALEJANDRO G. BELTRAN, and ERNESTO L. GO,respondents.MENDOZA,J.:The question for decision in this case is the right of petitioner's representative to sit in the board of directors of respondent Grace Village Association, Inc. as a permanent member thereof. For fifteen years from 1975 until 1989 petitioner's representative had been recognized as a "permanent director" of the association. But on February 13, 1990, petitioner received notice from the association's committee on election that the latter was "reexamining" (actually, reconsidering) the right of petitioner's representative to continue as an unelected member of the board. As the board denied petitioner's request to be allowed representation without election, petitioner brought an action formandamusin the Home Insurance and Guaranty Corporation. Its action was dismissed by the hearing officer whose decision was subsequently affirmed by the appeals board. Petitioner appealed to the Court of Appeals, which in turn upheld the decision of the HIGC's appeals board. Hence this petition for review based on the following contentions:1. The Petitioner herein has already acquired a vested right to a permanent seat in the Board of Directors of Grace Village Association;2. The amended By-laws of the Association drafted and promulgated by a Committee on December 20, 1975 is valid and binding; and3. The Practice of tolerating the automatic inclusion of petitioner as a permanent member of the Board of Directors of the Association without the benefit of election is allowed under the law.1Briefly stated, the facts are as follows:Petitioner Grace Christian High School is an educational institution offering preparatory, kindergarten and secondary courses at the Grace Village in Quezon City. Private respondent Grace Village Association, Inc., on the other hand, is an organization of lot and/or building owners, lessees and residents at Grace Village, while private respondents Alejandro G. Beltran and Ernesto L. Go were its president and chairman of the committee on election, respectively, in 1990, when this suit was brought.As adopted in 1968, the by-laws of the association provided in Article IV, as follows:The annual meeting of the members of the Association shall be held on the first Sunday of January in each calendar year at the principal office of the Association at 2:00 P.M. where they shall elect by plurality vote and by secret balloting, the Board of Directors, composed of eleven (11) members to serve for one (1) year until their successors are duly elected and have qualified.2It appears, that on December 20, 1975, a committee of the board of directors prepared a draft of an amendment to the by-laws, reading as follows:3VI. ANNUAL MEETINGThe Annual Meeting of the members of the Association shall be held on thesecond Thursdayof January of each year. EachCharter or AssociateMember of the Association is entitled to vote. He shall be entitled to as many votes as he has acquired thru his monthly membershipfees onlycomputed on a ratio ofTEN (P10.00) PESOSfor one vote.TheCharter and Associate Membersshall elect the Directors of the Association. The candidates receiving thefirst fourteen (14)highest number of votes shall be declared and proclaimed elected until their successors are elected and qualified.GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION.This draft was never presented to the general membership for approval. Nevertheless, from 1975, after it was presumably submitted to the board, up to 1990, petitioner was given a permanent seat in the board of directors of the association. On February 13, 1990, the association's committee on election in a letter informed James Tan, principal of the school, that "it was the sentiment that all directors should be elected by members of the association" because "to make a person or entity a permanent Director would deprive the right of voters to vote for fifteen (15) members of the Board," and "it is undemocratic for a person or entity to hold office in perpetuity."4For this reason, Tan was told that "the proposal to make the Grace Christian High School representative as a permanent director of the association, although previously tolerated in the past elections should be reexamined." Following this advice, notices were sent to the members of the association that the provision on election of directors of the 1968 by-laws of the association would be observed.Petitioner requested the chairman of the election committee to change the notice of election by following the procedure in previous elections, claiming that the notice issued for the 1990 elections ran "counter to the practice in previous years" and was "in violation of the by-laws (of 1975)" and "unlawfully deprive[d] Grace Christian High School of its vested right [to] a permanent seat in the board."5As the association denied its request, the school brought suit formandamusin the Home Insurance and Guaranty Corporation to compel the board of directors of the association to recognize its right to a permanent seat in the board. Petitioner based its claim on the following portion of the proposed amendment which, it contended, had become part of the by-laws of the association as Article VI, paragraph 2, thereof:TheCharter and Associate Membersshall elect the Directors of the Association. The candidates receiving thefirst fourteen (14)highest number of votes shall be declared and proclaimed elected until their successors are elected and qualified.GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION.It appears that the opinion of the Securities and Exchange Commission on the validity of this provision was sought by the association and that in reply to the query, the SEC rendered an opinion to the effect that the practice of allowing unelected members in the board was contrary to the existing by-laws of the association and to 92 of the Corporation Code (B.P. Blg. 68).Private respondent association cited the SEC opinion in its answer. Additionally, the association contended that the basis of the petition formandamuswas merely "a proposed by-laws which has not yet been approved by competent authority nor registered with the SEC or HIGC." It argued that "the by-laws which was registered with the SEC on January 16, 1969 should be the prevailing by-laws of the association and not the proposed amended by-laws."6In reply, petitioner maintained that the "amended by-laws is valid and binding" and that the association was estopped from questioning the by-laws.7A preliminary conference was held on March 29, 1990 but nothing substantial was agreed upon. The parties merely agreed that the board of directors of the association should meet on April 17, 1990 and April 24, 1990 for the purpose of discussing the amendment of the by-laws and a possible amicable settlement of the case. A meeting was held on April 17, 1990, but the parties failed to reach an agreement. Instead, the board adopted a resolution declaring the 1975 provision null and void for lack of approval by members of the association and the 1968 by-laws to be effective.On June 20, 1990, the hearing officer of the HIGC rendered a decision dismissing petitioner's action. The hearing officer held that the amended by-laws, upon which petitioner based its claim, "[was] merely a proposed by-laws which, although implemented in the past, had not yet been ratified by the members of the association nor approved by competent authority"; that, on the contrary, in the meeting held on April 17, 1990, the directors of the association declared "the proposed by-law dated December 20, 1975 prepared by the committee on by-laws . . . null and void" and the by-laws of December 17, 1968 as the "prevailing by-laws under which the association is to operate until such time that the proposed amendments to the by-laws are approved and ratified by a majority of the members of the association and duly filed and approved by the pertinent government agency." The hearing officer rejected petitioner's contention that it had acquired a vested right to a permanent seat in the board of directors. He held that past practice in election of directors could not give rise to a vested right and that departure from such practice was justified because it deprived members of association of their right to elect or to be voted in office, not to say that "allowing the automatic inclusion of a member representative of petitioner as permanent director [was] contrary to law and the registered by-laws of respondent association."8The appeals board of the HIGC affirmed the decision of the hearing officer in its resolution dated September 13, 1990. It cited the opinion of the SEC based on 92 of the Corporation Code which reads:92. Election and term of trustees. Unless otherwise provided in the articles of incorporation or the by-laws, the board of trustees of non-stock corporations, which may be more than fifteen (15) in number as may be fixed in their articles of incorporation or by-laws, shall, as soon as organized, so classify themselves that the term of office of one-third (1/3) of the number shall expire every year; and subsequent elections of trustees comprising one-third (1/3) of the board of trustees shall be held annually and trustees so elected shall have a term of three (3) years. Trustees thereafter elected to fill vacancies occurring before the expiration of a particular term shall hold office only for the unexpired period.The HIGC appeals board denied claims that the school "[was] being deprived of its right to be a member of the Board of Directors of respondent association," because the fact was that "it may nominate as many representatives to the Association's Board as it may deem appropriate." It said that "what is merely being upheld is the act of the incumbent directors of the Board of correcting a long standing practice which is not anchored upon any legal basis."9Petitioner appealed to the Court of Appeals but petitioner again lost as the appellate court on February 9, 1993, affirmed the decision of the HIGC. The Court of Appeals held that there was no valid amendment of the association's by-laws because of failure to comply with the requirement of its existing by-laws, prescribing the affirmative vote of the majority of the members of the association at a regular or special meeting called for the adoption of amendment to the by-laws. Article XIX of the by-laws provides:10The members of the Association by an affirmative vote of the majority at any regular or special meeting called for the purpose, may alter, amend, change or adopt any new by-laws.This provision of the by-laws actually implements 22 of the Corporation Law (Act No. 1459) which provides:22. The owners of a majority of the subscribed capital stock, or a majority of the members if there be no capital stock, may, at a regular or special meeting duly called for the purpose, amend or repeal any by-law or adopt new by-laws. The owners of two-thirds of the subscribed capital stock, or two-thirds of the members if there be no capital stock, may delegate to the board of directors the power to amend or repeal any by-law or to adopt new by-laws:Provided, however, That any power delegated to the board of directors to amend or repeal any by-law or adopt new by-laws shall be considered as revoked whenever a majority of the stockholders or of the members of the corporation shall so vote at a regular or special meeting.And provided, further, That the Director of the Bureau of Commerce and Industry shall not hereafter file an amendment to the by-laws of any bank, banking institution or building and loan association, unless accompanied by certificate of the Bank Commissioner to the effect that such amendments are in accordance with law.The proposed amendment to the by-laws was never approved by the majority of the members of the association as required by these provisions of the law and by-laws. But petitioner contends that the members of the committee which prepared the proposed amendment were duly authorized to do so and that because the members of the association thereafter implemented the provision for fifteen years, the proposed amendment for all intents and purposes should be considered to have been ratified by them. Petitioner contends:11Considering, therefore, that the "agents" or committee were duly authorized to draft the amended by-laws and the acts done by the "agents" were in accordance with such authority, the acts of the "agents" from the very beginning were lawful and binding on the homeowners (the principals)per sewithout need of any ratification or adoption. The more has the amended by-laws become binding on the homeowners when the homeowners followed and implemented the provisions of the amended by-laws. This is not merely tantamount to tacit ratification of the acts done by duly authorized "agents" but express approval and confirmation of what the "agents" did pursuant to the authority granted to them.Corollarily, petitioner claims that it has acquired a vested right to a permanent seat in the board. Says petitioner:The right of the petitioner to an automatic membership in the board of the Association was granted by the members of the Association themselves and this grant has been implemented by members of the board themselves all through the years. Outside the present membership of the board, not a single member of the Association has registered any desire to remove the right of herein petitioner to an automatic membership in the board. If there is anybody who has the right to take away such right of the petitioner, it would be the individual members of the Association through a referendum and not the present board some of the members of which are motivated by personal interest.Petitioner disputes the ruling that the provision in question, giving petitioner's representative a permanent seat in the board of the association, is contrary to law. Petitioner claims that that is not so because there is really no provision of law prohibiting unelected members of boards of directors of corporations. Referring to 92 of the present Corporation Code, petitioner says:It is clear that the above provision of the Corporation Code only provides for the manner of election of the members of the board of trustees of non-stock corporations which may be more than fifteen in number and which manner of election is even subject to what is provided in the articles of incorporation or by-laws of the association thus showing that the above provisions [are] not even mandatory.Even a careful perusal of the above provision of the Corporation Code would not show that it prohibits a non-stock corporation or association from granting one of its members a permanent seat in its board of directors or trustees. If there is no such legal prohibition then it is allowable provided it is so provided in the Articles of Incorporation or in the by-laws as in the instant case.xxx xxx xxxIf fact, the truth is that this is allowed and is being practiced by some corporations duly organized and existing under the laws of the Philippines.One example is the Plus XII Catholic Center, Inc. Under the by-laws of this corporation, that whoever is the Archbishop of Manila is considered a member of the board of trustees without benefit of election. And not only that. He also automatically sits as the Chairman of the Board of Trustees, again without need of any election.Another concrete example is the Cardinal Santos Memorial Hospital, Inc. It is also provided in the by-laws of this corporation that whoever is the Archbishop of Manila is considered a member of the board of trustees year after year without benefit of any election and he also sits automatically as the Chairman of the Board of Trustees.It is actually 28 and 29 of the Corporation Law not 92 of the present law or 29 of the former one which require members of the boards of directors of corporations to be elected. These provisions read:28. Unless otherwise provided in this Act, the corporate powers of all corporations formed under this Act shall be exercised, all business conducted and all property of such corporations controlled and held by a board of not less than five nor more than eleven directors to be elected from among the holders of stock or, where there is no stock, from the members of the corporation:Provided, however, That in corporations, other than banks, in which the United States has or may have a vested interest, pursuant to the powers granted or delegated by the Trading with the Enemy Act, as amended, and similar Acts of Congress of the United States relating to the same subject, or by Executive Order No. 9095 of the President of the United States, as heretofore or hereafter amended, or both, the directors need not be elected from among the holders of the stock, or, where there is no stock from the members of the corporation. (emphasis added)29. At the meeting for the adoption of the original by-laws, or at such subsequent meeting as may be then determined, directors shall be elected to hold their offices for one year and until their successors are elected and qualified. Thereafter thedirectors of the corporation shall be elected annually by the stockholders if it be a stock corporation or by the members if it be a nonstock corporation, and if no provision is made in the by-laws for the time of election the same shall be held on the first Tuesday after the first Monday in January. Unless otherwise provided in the by-laws, two weeks' notice of the election of directors must be given by publication in some newspaper of general circulation devoted to the publication of general news at the place where the principal office of the corporation is established or located, and by written notice deposited in the post-office, postage pre-paid, addressed to each stockholder, or, if there be no stockholders, then to each member, at his last known place of residence. If there be no newspaper published at the place where the principal office of the corporation is established or located, a notice of the election of directors shall be posted for a period of three weeks immediately preceding the election in at least three public places, in the place where the principal office of the corporation is established or located. (Emphasis added)The present Corporation Code (B.P. Blg. 68), which took effect on May 1, 1980,12similarly provides:23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trusteesto be electedfrom among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified. (Emphasis added)These provisions of the former and present corporation law leave no room for doubt as to their meaning: the board of directors of corporations must be elected from among the stockholders or members. There may be corporations in which there are unelected members in the board but it is clear that in the examples cited by petitioner the unelected members sit asex officiomembers,i.e., by virtue of and for as long as they hold a particular office. But in the case of petitioner, there is no reason at all for its representative to be given a seat in the board. Nor does petitioner claim a right to such seat by virtue of an office held. In fact it was not given such seat in the beginning. It was only in 1975 that a proposed amendment to the by-laws sought to give it one.Since the provision in question is contrary to law, the fact that for fifteen years it has not been questioned or challenged but, on the contrary, appears to have been implemented by the members of the association cannot forestall a later challenge to its validity. Neither can it attain validity through acquiescence because, if it is contrary to law, it is beyond the power of the members of the association to waive its invalidity. For that matter the members of the association may have formally adopted the provision in question, but their action would be of no avail because no provision of the by-laws can be adopted if it is contrary to law.13It is probable that, in allowing petitioner's representative to sit on the board, the members of the association were not aware that this was contrary to law. It should be noted that they did not actually implement the provision in question except perhaps insofar as it increased the number of directors from 11 to 15, but certainly not the allowance of petitioner's representative as an unelected member of the board of directors. It is more accurate to say that the members merely tolerated petitioner's representative and tolerance cannot be considered ratification.Nor can petitioner claim a vested right to sit in the board on the basis of "practice." Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law. Even less tenable is petitioner's claim that its right is "coterminus with the existence of the association."14Finally, petitioner questions the authority of the SEC to render an opinion on the validity of the provision in question. It contends that jurisdiction over this case is exclusively vested in the HIGC.But this case was not decided by the SEC but by the HIGC. The HIGC merely cited as authority for its ruling the opinion of the SEC chairman. The HIGC could have cited any other authority for the view that under the law members of the board of directors of a corporation must be elected and it would be none the worse for doing so.WHEREFORE, the decision of the Court of Appeals is AFFIRMED.SO ORDERED.

Digest

GRACE CHRISTIAN HIGH SCHOOL, petitioner,vs.THE COURT OF APPEALS, GRACE VILLAGE ASSOCIATION, INC., ALEJANDRO G. BELTRAN, and ERNESTO L. GO, respondents.

G.R. No. 108905 October 23, 1997

MENDOZA, J.:

Petitioner Grace Christian High School is an educational institution located at the Grace Village in Quezon City, while Private respondent Grace Village Association, Inc. ["Association'] is an organization of lot and/or building owners, lessees and residents at Grace Village.

The original 1968 by-laws provide that the Board of Directors, composed of eleven (11) members, shall serve for one (1) year until their successors are duly elected and have qualified.

On 20 December 1975, a committee of the board of directors prepared a draft of an amendment to theby-laws which provides that "GRACE CHRISTIAN HIGH SCHOOL representative is a permanentDirector of the ASSOCIATION."

However, this draft was never presented to the general membership for approval. Nevertheless, from 1975 to 1990, petitioner was given a permanent seat in the board of directors of the association.

On 13 February 1990, the association's committee on election sought to change the by-laws and informed the Petitioner's school principal "the proposal to make the Grace Christian High School representative as a permanent director of the association, although previously tolerated in the past elections should be reexamined."

Following this advice, notices were sent to the members of the association that the provision on election of directors of the 1968 by-laws of the association would be observed. Petitioner requested the chairman of the election committee to change the notice to honor the 1975 by-laws provision, but was denied.

The school then brought suit for mandamus in the Home Insurance and Guaranty Corporation (HIGC) to compel the board of directors to recognize its right to a permanent seat in the board.

Meanwhile, the opinion of the SEC was sought by the association, and SEC rendered an opinion to the effect that the practice of allowing unelected members in the board was contrary to the existing by-laws of the association and to 92 of the Corporation Code (B.P. Blg. 68). This was adopted by the association in its Answer in the mandamus filed with the HIGC.

The HIGC hearing officer ruled in favor of the association, which decision was affirmed by the HIGC Appeals Board and the Court of Appeals.

Issue:W/N the 1975 provision giving the petitioner a permanent board seat was valid.

Ruling:No.

Section 23 of the Corporation Code (and its predecessor Section 28 and 29 of the Corporation Law) leaves no room for doubt that the Board of Directors of a Corporation must be elected from among the stockholders or members.

There may be corporations in which there are unelected members in the board but it is clear that in these instances, the unelected members sit as ex officio members, i.e., by virtue of and for as long as they hold a particular office (e.g. whoever is the Archbishop of Manila is considered a member of the board of Cardinal Santos Memorial Hospital, Inc.)

But in the case of petitioner, there is no reason at all for its representative to be given a seat in the board. Nor does petitioner claim a right to such seat by virtue of an office held. In fact it was not given such seat in the beginning. It was only in 1975 that a proposed amendment to the by-laws sought to give it one.

Since the provision in question is contrary to law, the fact that it has gone unchallenged for fifteen years cannot forestall a later challenge to its validity. Neither can it attain validity through acquiescence because, if it is contrary to law, it is beyond the power of the members of the association to waive its invalidity.

It is more accurate to say that the members merely tolerated petitioner's representative and tolerance cannot be considered ratification.

Nor can petitioner claim a vested right to sit in the board on the basis of "practice." Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law.

THIRD DIVISION[G.R. No. 121791.December 23, 1998]ENRIQUE SALAFRANCA,petitioner, vs.PHILAMLIFE (PAMPLONA) VILLAGE, HOMEOWNERS ASSOCIATION, INC., BONIFACIO DAZO and THE SECOND DIVISION, NATIONAL LABOR RELATIONS COMMISSION (NLRC),respondents.D E C I S I O NROMERO,J.:Petitioner Enrique Salafranca started working with the private respondent Philamlife Village Homeowners Association on May 1, 1981 as administrative officer for a period of six months.From this date until December 31, 1983, petitioner was reappointed to his position three more times.[1]As administrative officer, petitioner was generally responsible for the management of the villages day to day activities.[2]After petitioners term of employment expired on December 31, 1983, he still continued to work in the same capacity, albeit, without the benefit of a renewed contract.Sometime in 1987, private respondent decided to amend its by-laws.Included therein was a provision regarding officers, specifically, the position of administrative officer under which said officer shall holdoffice at the pleasure of the Board of Directors.In view of this development, private respondent, on July 3, 1987, informed the petitioner that his term of office shall be coterminus with the Board of Directors which appointed him to his position.Furthermore, until he submits a medical certificate showing his state of health, his employment shall be on a month-to-month basis.[3]Oddly, notwithstanding the failure of herein petitioner to submit his medical certificate, he continued working until his termination in December 1992.[4]Claiming that his services had been unlawfully and unceremoniously dispensed with, petitioner filed a complaint for illegal dismissal with money claims and for damages.[5]After the submission by the parties of their respective position papers and other pleadings, the Labor Arbiter rendered a decision[6]ordering private respondent to pay the petitioner the amount ofP257,833.33 representing his backwages, separation pay and 13th month pay.In justifying the award, the Labor Arbiter elucidated:Respondents contention that complainants term of employment was co-terminus with the term of Office of the Board of Directors, is wanting in merit.Records show that complainant had been hired in 1981 while the Amendment of the respondents By-Laws making the position of an Administrative Officer co-terminus with the term of the Board of Directors was made in 1987.Evidently, the said Amendment would not be applicable to the case of complainant who had become a regular employee long time before the Amendment took place.Moreover, the Amendment should be applied prospectively and not retroactively.On appeal by the private respondent, the NLRC reversed the decision of the LaborArbiter and rendered a new one[7]reducing petitioners monetary award to only one-half (1/2) month pay for every year of service representing his retirement pay.In other words, the NLRC viewed the dismissal of the petitioner as a valid act by the private respondent.The fact that he continued to perform the function of the office of administrative officer without extension or re-appointment thereafter, to our mind, did not in any way make his employment permanent as in fact, he was even reminded of the nature of his position by then president of the association Jaime Y. Ladao in a letter of 3 July 1987.His reply to the aforesaid letter, claiming his employment regular, and viz a viz, referring to submit his medical certificate, notwithstanding, to our mind, merely underscored the need to define his position as, in fact, the Associations Rules and Regulations were amendedif but to put to rest the tenural (sic) limit of the office of the Administrative Officer in accordance with its earlier intention, that it is co-terminus with that of the members of the Board of Directors.WHEREFORE, the decision appealed from is hereby set aside.Respondents are hereby ordered to pay herein appellee one half (1/2) month pay for every year of service representing his retirement pay.In view of the sudden turn of events, petitioner has elevated the case to this Court assigning the following errors:[8]1.The NLRC gravely abused its discretion when it ruled that the employment of the Petitioner is not purely based on considerations of Employer-Employee relationship.2.Petitioner was illegally dismissed by private respondents.As to the first assigned error by the petitioner, we need not dwell on this at length.We agree with the Solicitor Generals observation that an employer-employee relationship exists between the petitioner and the private respondent.[9]x x xx x xx x xThe first element is present in this case.Petitioner was hired as Administrative Officer by respondents.In fact, he was extended successive appointments by respondents.The second element is also present since it is not denied that respondent PVHA paid petitioner a fixed salary for his services.As to the third element, it can be seen from the Records that respondents had the power of dismissal over petitioner.In their letter dated December 7, 1992, respondents informed petitioner that they had decided to discontinue his services.In their Position Paper submitted to the Labor Arbiter, respondents stated that petitioner was dismissed for cause. (p. 17, Record).With respect to the fourth and most important element, respondents controlled the work of petitioner not only with respect to the ends to be achieved but also the means used in reaching such ends.Relative to the second assigned error of the petitioner, both the Solicitor General and the private respondent take the stance that petitioner was not illegally dismissed.[10]On this aspect, we disagree with their contentions.On the outset, there is no dispute that petitioner had already attained the status of a regular employee, as evidenced by his eleven years of service with the private respondent.Accordingly, petitioner enjoys the right to security of tenure[11]and his services may be terminated only for causes provided by law.[12]Viewed in this light, while private respondent has the right to terminate the services ofpetitioner, this is subject to both substantive and procedural grounds.[13]The substantive causes for dismissal are those provided in Articles 282 and 283 of the Labor Code,[14]while the procedural grounds refer to the observance of the requirement of due process.[15]In all these instances, it is the private respondent, being the employer, who must prove the validity of the dismissal.[16]Having reviewed the records of this case carefully, we conclude that private respondent utterly failed to substantiate petitioners dismissal, rendering the latters termination illegal.At the risk of being redundant, it must be stressed that these requirements are mandatory and non-compliance therewith renders any judgment reached by the management void and inexistent.[17]While private respondent imputes gross negligence, and serious misconduct as the causes of petitioners dismissal,[18]not a shred of evidence was offered in support thereof, other than bare and uncorroborated allegations.The facts and circumstances regarding such alleged infractionswere never explained.While it is true that private respondent, through its president BonifacioDazo, executed an affidavit narrating the alleged violations of the petitioner,[19]these were never corroborated by concrete or competent evidence.It is settled that no undue importance should be given to a sworn statement or affidavit as a piece of evidence because, being takenex-parte, an affidavit is almost always incomplete and inaccurate.[20]Furthermore, it must be noted that when petitioner was terminated in 1992, these alleged infractions were never raised nor communicated to him.In fact, these were only revealed after the complaint was filed by the petitioner in 1993.Why there was a delay was never adequately explained byprivate respondent.Likewise, we note that Dazo himself was not presented as a witness to give the petitioner an opportunity to cross-examine him and propound clarificatory questions regarding matters averred in his affidavit.All told, the foregoing lapses and the belated submission of the affidavit, cast doubt as to the credibility of the allegations.In sum, the dismissal of the petitioner had no factual basis whatsoever.The rule is that unsubstantiated accusations withoutmore, are not tantamount to guilt.[21]As regards the issue of procedural due process, private respondent justifies its non-compliance therewithin this wise:The Association Officers, being his peers and friends had a problem however in terminating his services.He had been found to have committed infractions as previously enumerated.PVHA could have proceeded with a full-blown investigation to hear these charges, but the ordeal might break the old mans heart as this will surely affect his standing in the community.So they decided to make their move as discreetly (but legally) as possible to save the petitioners reputation.Terminating him in accordance with the provision of the by-laws of the Association without pointing out his numerous faults and malfeasance in office and with one-half month pay for every year of service in accordance with the Retirement Law was the best and only alternative.We are not impressed.The reasoning advanced by the private respondent is as puerile as it ispreposterous.The essence of due process is to afford the party an opportunity to be heard and defend himself,to cleanse his name and reputation from any taint.It includes the twin requirements of notice and hearing.[22]This concept evolved from the basic tenet that ones employment or profession is a property right protected by the constitutional guaranty of due process of law.[23]Hence, an individuals separation from work must be founded on clearly-established facts, not on mere conjectures and suspicions.[24]In light of the foregoing, private respondents arguments areclearly baseless and without merit.In truth, instead of protecting petitioners reputation, private respondent succeeded in doing exactly the opposite - it condemned the petitioner without even hearing his side.It is stating the obvious that dismissal, being the ultimate penalty that can be meted out to an employee, should be based on a clear or convincing ground.[25]As such, a decision to terminate an employee without fully apprising him of the facts, on the pretext that the twin requirements of notice and hearing are unnecessary or useless, is an invalid and obnoxious exercise of management prerogative.Furthermore, private respondent, in an effort to validate the dismissal of the petitioner, posits the theory that the latters position is coterminus with that of the Villages Board of Directors, as provided for in its amended by-laws.[26]Admittedly, the right to amend the by-laws lies solely in the discretion of the employer, this being in the exercise of management prerogative or business judgment.However this right, extensive as it may be, cannot impair the obligation of existing contracts or rights.Prescinding from these premises, private respondents insistence that it can legally dismiss petitioner on the ground that his tenure has expired is untenable.To reiterate, petitioner, being a regular employee, is entitled to security of tenure; hence, his services may only be terminatedfor causes provided by law.[27]A contrary interpretation would not find justification inthe laws or the Constitution.If we were to rule otherwise, it would enable an employer to remove any employee from his employment by the simple expediency of amending its by-laws and providing that his/her position shall cease to exist upon the occurrence of a specified event.If private respondent wanted to make the petitioners position co-terminus with that of the Board of Directors, then the amendment must be effective after petitioners stay with the private respondent, not during his term.Obviously, the measure taken by the private respondent in amending its by-laws is nothing but a devious, but crude, attempt to circumvent petitioners right to security of tenure as a regular employee guaranteed under the Labor Code.[28]Interestingly, the Solicitor General is of the view that what actually transpired was that petitioner was retired from his employment, considering the fact that in 1992 he was already 70 years old and not terminated.[29]While there seems to be a semblance of plausibility in this contention for the matter of extension of service of such employee or official is addressed to the sound discretion of the employer, still we have no doubt that this was just a mere after-thought - a dismissal disguised as retirement.In the proceedings before the Labor Arbiter, it is noteworthy that private respondent never raised the issue of compulsory retirement,[30]as a cause for terminating petitioners service.In its appeal before the NLRC, this ground was never discussed.In fact, private respondent, in justifying the termination of the petitioner, still anchored its claim on the applicability of the amended by-laws.This omission is fatal to private respondents cause, for the rule is well-settled that matters, theories or arguments not brought out inthe proceedings below will ordinarilynot be considered by a reviewing court, as they cannot be raised for the first time on appeal.[31]Undaunted, private respondent now asserts that the instant petition was filed out of time,[32]considering that the assailed NLRC decision was received on June 28, 1995 while this petition was filed on September 20, 1995.At this juncture, we take this opportunity to state that under the 1997 Rules of Civil Procedure, a petition forcertiorarimust now be instituted within sixty days of receipt of the assailed judgment, order or resolution.[33]However, since this case arose in 1995 and the aforementioned rule only took effect on July 1, 1997 thenthe old rule is applicable.Since prior to the effectivity of the new rule, a special civil action ofcertiorarishould be instituted within a period of three months,[34]the instant petition which was filed on September 20, 1995 ortwo months and twenty-two days thereafter, was still withinthe reglementary period.With respect to the issue of themonetary award to be given to the petitioner, private respondent argues that he deserves only retirement pay and nothing more.This position would have been tenable had petitioner not been illegally dismissed.However, since we have already ruled petitioners dismissal as without just cause and lacking due process, the award of backwages and reinstatement is proper.[35]In this particular case, reinstatement is no longer feasible since petitioner was already 70 years old at the time he was removed from his employment.As a substitute thereof, separation pay is generally awarded,[36]the amount of which must be equivalent to one-month salary for every year of service.[37]With respect to the amount of backwages which, incidentally is differentfrom separation pay,[38]it is now settled that an illegally dismissed employee isentitled to its full payment as long as the cause of action accrued afterMarch 21, 1989.[39]Considering that petitioner was terminated from the service on December 9, 1992, which is after March 21, 1989, he is entitled to full backwages from the time of the illegal dismissal without any qualification or deduction.[40]As regards the issue of retirement pay, private respondent asserts that the correct amount should be one-half (1/2) month salary for every year of service.This time we agree with private respondents contention.The pertinent law is Article 287 of the Labor Code, as amended by Republic Act No. 7641, which reads:Art. 287.Retirement. -Any employee may be retired upon reaching the retirement age established in the collective bargaining agreement or other applicable employment contract.In case of retirement, the employee shall be entitled to receive such retirement benefits as he may have earned under existing laws and any collective bargaining agreement and other agreements:Provided, however, That an employees retirement benefits under any collective bargaining and other agreements shall not be less than those provided herein.In the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment, an employee upon reaching the age of sixty (60) years or more, but not beyond sixty-five (65) years which is hereby declared the compulsory retirement age, who has served at least five (5) years in the said establishment, may retire and shall be entitled to retirement pay equivalent to at least one-half (1/2) month salary for every year of service, a fraction of at least six (6) months being considered as one whole year.x x xx x xx x x.With respect to the issue that petitioner, being a managerial employee, is not entitled to thirteenth month pay,Memorandum Order No. 28, as implemented by the Revised Guidelines on the Implementation of the 13th Month Pay Law dated November 16, 1987, provides:Section 1 of Presidential Decree No. 851 is hereby modified to the extent that all employers are hereby required to pay all theirrank and file employeesa 13th month pay not later than December 24 of every year.Clearly, therefore, the foregoing exempts managerial employees from this benefit.Of course, this does not preclude an employer from granting other bonuses, in lieu of the 13th month pay, to managerial employees in its discretion.Finally, we cannot simply ignore private respondents malicious scheme to remove petitioner from his position which is contrary to good customs and effectedin an oppressive manner, thus warranting an award of moral and exemplary damages to the petitioner.[41]Moreover, since petitioner was forced to litigate and incur expenses to protect his right and interests, he is entitled to attorneys fees.[42]WHEREFORE, in view of the foregoing, the instant petition is GRANTED. The NLRC decision dated June 15, 1995 is herebyREVERSED andSET ASIDE.PrivaterespondentPhilamlifeVillageHomeowners Association is ORDERED: (1) to pay petitioner Enrique Salafranca separation pay equivalent to one month salary for every year of service; (2) to pay his full backwages in accordance with our ruling inBustamantev. NLRC;[43](3) to pay his retirement pay in accordance with Article 287 of the Labor Code, as amended by Republic Act No. 7641, (4)to pay moral and exemplary damages in the amount of twenty thousand (P20,000.00) pesos and ten thousand (P10,000.00) pesos, respectively;[44]and(5) to pay ten (10%) percent of the total amount due to petitioner, as attorneys fees.Consequently, the respondent NLRC isORDEREDtoCOMPUTEthe total monetary benefits awarded in accordance with this decision and to submit its compliance thereon within thirty (30) days from notice of this decision.SO ORDERED.

digestIn 1981, Enrique Salafranca was hired as an administrative officer by the Philamlife Village Homeowners Associaiton, Inc. (PVHAI). Salafranca was tasked to manage the villages day to day activities. His employment was originally for 6 months only but his contract was renewed multiple times until 1983. But even after 1983, he was still allowed to continue work even without a renewed contract. In 1987, PVHAI amended its by-laws. Among the amendment was a provision that the administrative officer (Salafranca) shall have a tenure which is co-terminus with the Board of Directors which appointed him. In 1992, the tenure of said Board of Directors expired and so Salafranca was terminated.ISSUE:Whether or not Salafranca was illegally dismissed.HELD:Yes. At that time, Salafranca already enjoys security of tenure because he is already a regular employee. It is true that PVHAI has the right to amend its by-laws but such amendment must not impair existing contracts or rights. In this case, the provision that Salafrancas position shall be co-terminus with the appointing Board impairs his right to security of tenure which has already vested even prior to the amendment of the by-laws in 1987.

PMI Colleges

In 1991, PMI Colleges hired the services of Alejandro Galvan for the latter to teach in said institution. However, for unknown reasons, PMI defaulted from paying the remunerations due to Galvan. Galvan made demands but were ignored by PMI. Eventually, Galvan filed a labor case against PMI. Galvan got a favorable judgment from the Labor Arbiter; this was affirmed by the National Labor Relations Commission. On appeal, PMI reiterated, among others, that the employment of Galvan is void because it did not comply with its by-laws. Apparently, the by-laws require that an employment contract must be signed by the Chairman of the Board of PMI. PMI asserts that Galvans employment contract was not signed by the Chairman of the Board.ISSUE:Whether or not Galvans employment contract is void.HELD:No. PMI Colleges never even presented a copy of the by-laws to prove the existence of such provision. But even if it did, the employment contract cannot be rendered invalid just because it does not bear the signature of the Chairman of the Board of PMI. By-Laws operate merely as internal rules among the stockholders,they cannot affect or prejudice third personswho deal with the corporation, unless they have knowledge of the same. In this case, PMI was not able to prove that Galvan knew of said provision in the by-laws when he was employed by PMI.

Republic of the PhilippinesSUPREME COURTManilaEN BANCG.R. Nos. 89679-81 September 28, 1990LAND BANK OF THE PHILIPPINES,petitioner,vsCOMMISSION ON AUDIT,respondent.Menandro A. Alvarez and Norberto L. Martinez for petitioner.MELENCIO-HERRERA,J.:This Petition raises the issue of whether it is within the corporate powers of the Land Bank of the Philippines (LBP) to waive the penalty charges of P9,636.36 on the loan of the Home Savings Bank and Trust Company (HSBTC). The LBP asserts that, as a banking institution, its Charter authorizes it to condone claims or liabilities. The Commission on Audit, on the other hand, maintains that such power is exclusively vested in the Commission pursuant to Section 36 of Pres. Decree No. 1445, or the Government Auditing Code.The records indicate that on 22 July 1980, the Board of Directors of the LBP issued Resolution No. 80-222 (Rollo, pp. 4-5, pp. 91-93) fixing the new rates for penalty charges on past due loans/amortization and other credit accommodations. The Resolution also provided that "in cases of defaults in loan payment and other credit accommodations due to unforeseen, highly justifiable reasons/circumstances beyond the control of the borrower such as damages due to natural calamities, sickness, adverse government rulings or court judgments, duly processed and verified by the lending units,penalty charges may be condoned/reduced by the Loan Executive Committee upon recommendation of theappropriate lending units" (Emphasis supplied)Pursuant to this Resolution, LBP, through its Loan Executive Committee, waived the penalty charges in the amount of Nine Thousand Six Hundred Thirty Six Pesos and Thirty Six Centavos (P9,636.36) on the loan of HSBTC, a thrift banking institution organized under Philippine laws (Rollo, p. 4).On 23 September 1986, LBP requested its Corporate Auditor to pass in audit its waiver of the penalty charges. Said official questioned the waiver and opined that the power to condone interests or penalties is vested exclusively in the COA but, in the absence of a categorical ruling on the matter applicable to a government banking institution, referred the LBP request to the COA in a letter dated 20 January 1987.In COA Decision No. 551, dated 29 June 1988 (Annex "C", Petition,Rollo, p. 29), the COA held that the waiver is unauthorized and should outrightly be disallowed in audit, pursuant to Pres. Decree No. 1445, Section 36,infra. Reconsiderations successively sought by LBP met with denial in COA Decision No. 701, dated 13 December 1988 (Annex "F", Petition,Rollo, p. 38), and in COA Decision No. 977, dated 6 June 1989 (Annex "A", ibid., p. 25), both of which Decisions emphasized COA's exclusive prerogative to settle and/or compromise claims.Thus, this Petition and Amended Petition erroneously brought under Rules 44 and 43 of the Rules of Court, respectively, the proper remedy being that ofcertiorariunder Rule 65 (Article IX (A) Sec. 7, 1987 Constitution).The issue for resolution is whether or not LBP is authorized to compromise or release claims or liabilities in whole or in part.COA maintains that it has the sole prerogative to compromise liabilities to the Government pursuant to Section 36 of Pres. Decree No. 1445, the Government Auditing Code, which provides, inter alia, that:Sec. 36. Power to compromise claims. (1) When the interest of the government so requires, the Commission may compromise or release in whole or in part, any claim or settled liability to any government agency not exceeding ten thousand pesos and with the written approval of the Prime Minister, it may likewise compromise or release any similar claim or liability not exceeding one hundred thousand pesos, the application for relief therefrom shall be submitted, through the Commission and the Prime Minister, with their recommendations, to the National Assembly.xxx xxx xxxOn the other hand, LBP claims that it, too, has the power to condone penalties being a commercial bank clothed with authority to exercise all the general powers mentioned in the Corporation Law and the General Banking Act, as provided in Section 75[12] of its Charter, Rep. Act. No. 3844, as amended by Pres. Decree No. 251, among which is the power to write off loans and advances (General Banking Act, Sec. 84,infra), which necessarily includes the lesser power to charge off interests and penalties. LBP also submits that its Charter (Rep. Act No. 3844, as amended), being a special law, should prevail over the general grant of authority to COA by Pres. Decree No. 1445 to compromise claims.We agree with LBP.LBP was created as a body corporate and government instrumentality to provide timely and adequate financial support in all phases involved in the execution of needed agrarian reform (Rep. Act No. 3844, as amended, Sec. 74). Section 75 of its Charter vests in LBP specific powers normally exercised by banking institutions, such as the authority to grant short, medium and long-term loans and advances against security of real estate and/or other acceptable assets; to guarantee acceptance(s), credits, loans, transactions or obligations; and to borrow from, or rediscount notes, bills of exchange and other commercial papers with the Central Bank. In addition to the enumeration of specific powers granted to LBP, Section 75 of its Charter also authorizes it:12. To exercise the general powers mentioned in the Corporation Law and the General Banking Act, as amended, insofar as they are not inconsistent or incompatible with this Decree.One of the general powers mentioned in the General Banking Act is that provided for in Section 84 thereof, reading:xxx xxx xxxWriting-off loans and advances with an outstanding amount of one hundred thousand pesos or more shall require the prior approval of the Monetary Board (As amended by PD 71).It will thus be seen that LBP is a unique and specialized banking institution, not an ordinary "government agency" within the scope of Section 36 of Pres. Decree No. 1445. As a bank, it is specifically placed under the supervision and regulation of the Central Bank of the Philippines pursuant to its Charter (Sec. 97, Rep. Act No. 3844, as amended by Pres. Decree No. 251). In so far as loans and advances are concerned, therefore, it should be deemed primarily governed by Central Bank Circular No. 958, Series of 1983, which vests the determination of the frequency of writing-off loans in the Board of Directors of a bank provided that the loans written-off do not exceed a certain aggregate amount. The pertinent portion of that Circular reads:b. Frequency/ceiling of write-off. The frequency for writing-off loans and advances shall be left to the discretion of the Board of Directors of the bank concerned. Provided, that the aggregate amount of loans and advances which may be written-off during the year, shall in no case exceed 3% of total loans and investments; Provided, further, that charge-offs are made against allowance for possible losses, earnings during the year and/or retained earnings.The authority to write-off loans and advances should be construed to include within its scope the waiver of penalty charges on past due loans, which are of a lesser category.Concededly, the power to write-off is not expressly granted in the LBP Charter. It can be logically implied however, from LBP's authority to exercise the general powers vested in banking institutions as provided in the General Banking Act. The clear intendment of its Charter is for LBP to be clothed not only with the express powers granted to it, but also with those implied, incidental and necessary for the exercise of those express powers. "The test to be applied is whether the act of the corporation is in direct and immediate furtherance of its business, fairly incident to the express powers and reasonably necessary to their exercise. If so, the corporation has the power to do it; otherwise, not" (Montelibano v. Bacolod-Murcia Milling Co. Inc., L-15092, 18 May 1962, 5 SCRA 36).It bears emphasizing that LBP was created to provide adequate financial support to the agrarian reform program as well as to grant loans to farmers' cooperatives/associations, and to finance and/or guarantee the acquisition of farm lots transferred to tenant-farmers. Its clientele consists primarily of agrarian reform beneficiaries, landowners affected by agrarian reform and Land Bank bond-holders. It should, therefore, be given some measure of flexibility in its operations in order not to hamper it unduly in the fulfillment of its objectives. Moreover, it is only the penalty charges on a past due loan of the HSBTC that are being condoned and not the loan itself. The criteria for waiver are likewise specifically spelled out in LBP Resolution No. 80-222, namely, for "unforeseen, highly justifiable reasons/circumstances beyond the control of the borrower such as damages due to natural calamities, sickness, adverse government rulings or court judgments, duly processed and verified by the appropriate lending units."But while we rule that LBP is empowered by its corporate charter to waive penalty charges, thereby overruling COA's avowed exclusive prerogative to settle and compromise liabilities to the Government, nevertheless, pursuant to Pres. Decree No. 1445, LBP is still subject to COA's general audit jurisdiction to see to it that the fiscal responsibility that rests directly with the head of the government agency has been properly and effectively discharged (Section 25[1]), and as provided for in its Section 26, reading:Sec. 26.General jurisdiction. The authority and powers of the Commission shall extend to and comprehend all matters relating to auditing procedures, systems and controls, the keeping of the general accounts of the Government, the preservation of vouchers pertaining thereto for a period of ten years, the examination and inspection of the books, records, and papers relating to those accounts, and the audit and settlement of the accounts of all persons respecting funds or property received or held by them in an accountable capacity, as well as the examination, audit, and settlement of all debts and claims of any sort due from or owing to the Government or any of its subdivisions, agencies and instrumentalities. The said jurisdiction extends to all government-owned or controlled corporations . . .This is but in keeping with the wide sphere of state audit set forth in the fundamental law of the land.SEC. 2 (1) The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned and controlled corporations with original charters, . . . (Article IX [D], Sec. 2[l], 1987 Constitution).Having arrived at the foregoing conclusions, we find no need to pass upon the other arguments raised.WHEREFORE, the Decisions of the Commission on Audit sought to be reviewed are hereby SET ASIDE in so far as they hold that the Commission on Audit,vis-a-visthe Land Bank, has the exclusive prerogative to settle and compromise liabilities to the Government. No costs.SO ORDERED.

Ignacio

In 1967, HI Cement Corporation was granted authority to operate mining facilities in Bulacan. However, theareasallowed for it to explore coverareaswhich were also being explored by Ignacio Vicente,JuanBernabe, and Moises Angeles. And so a dispute arose between the three and HI Cement as neither side wanted to give up their mining claims over the disputedareas. Eventually, HI Cement filed a civil case against the three. During pre-trial, the possibility of an amicable settlement was explored where HI Cement offered to purchase theareasof claims of Vicente et al at the rate of P0.90 per square meter. Vicente et al however wanted P10.00 per square meter.In 1969, the lawyers of HI Cement agreed to enter into a compromise agreement with the three whereby commissioners shall be assigned by the court for the purpose of assessing the value of the disputedareasof claim. An assessment was subsequently made pursuant to the compromise agreement and the commissioners recommended a price rate of P15.00 per square meter.One of the lawyers of HI Cement, Atty. Francisco Ventura, then notified the Board of Directors of HI Cement for the approval of the compromise agreement. But the Board disapproved the compromise agreement hence Atty. Ventura filed a motion with the court to disregard the compromise agreement. Vicente et al naturally assailed the motion. Vicente et al insisted that the compromise agreement is binding because prior toenteringinto the compromise agreement, the three lawyers of HI Cement declared in open court that they are authorized to enter into a compromise agreement for HI Cement; that one of the lawyers of HI Cement, Atty. Florentino Cardenas, is an executive official of HI Cement; that Cardenas even nominated one of the commissioners; that such act ratified the compromise agreement even if it was not approved by the Board. HI Cement, in its defense, averred that the lawyers were not authorized and that in fact there was no special power of attorney executed in their favor for the purpose ofenteringinto a compromise agreement. Judge Ambrosio Geraldez ruled in favor of HI Cement.ISSUE:Whether or not a compromise agreement entered into by a lawyer purportedly in behalf of the corporation is valid without a written authority.HELD:No. Corporations may compromise only in the form and with the requisites which may be necessary to alienate their property. Under the corporation law the power to compromise or settle claims in favor of or against the corporation is ordinarily and primarily committed to the Board of Directors but such power may be delegated. The delegation must be clearly shown for as a general rule an officer or agent of the corporation has no power to compromise or settle a claim by or against the corporation, except to the extent that such power is given to him either expressly or by reasonable implication from the circumstances. In the case at bar, there was no special power of attorney authorizing the three lawyers to enter into a compromise agreement. This is even if the lawyers declared in open court that they are authorized to do so by the corporation (in this case, the transcript of stenographic notes does not show that the lawyers indeed declare such in open court).The fact that Cardenas, an officer of HI Cement, acted in effecting the compromise agreement, i.e. nominating a commissioner, does not ratify the compromise agreement. There is no showing that Cardenas act binds HI Cement; no proof that he is authorized by the Board; no proof that there is a provision in the articles of incorporation of HI Cement that he can bind the corporation.