Sawadjaan vs. Court of Appeals

A corporation that fails to file its by-laws within the period prescribed by law does not automatically forfeit its corporate franchise or lose its powers as such; instead, it becomes a de facto corporation whose existence and right to exercise corporate powers may not be collaterally attacked in any private suit to which it is a party. Consequently, an employer's authority to dismiss employees is not invalidated by such organizational defects.

Petitioner Sappari K. Sawadjaan was a long-time employee of the Philippine Amanah Bank (PAB), which was restructured into the Al-Amanah Islamic Investment Bank of the Philippines (AIIBP) under Republic Act No. 6848. In 1988, while serving as appraiser/investigator, he processed a loan application for Compressed Air Machineries and Equipment Corporation (CAMEC) without verifying the authenticity of the collateral titles, resulting in substantial financial loss to the bank when the titles were discovered to be spurious. Following an administrative investigation, he was dismissed from service. He subsequently challenged the dismissal, arguing, among other things, that AIIBP had lost its juridical personality for failure to file its by-laws on time.

• Petitioner Sappari K. Sawadjaan was employed by the Philippine Amanah Bank (PAB) since 1973, rising from security guard to Loans Analyst I.
• In February 1988, as appraiser/investigator, he inspected properties offered as collateral by CAMEC for a P5,000,000.00 loan, covered by TCTs No. N-130671 and No. C-52576.
• He submitted an Inspection and Appraisal Report recommending approval without verifying the authenticity of the titles with the Registry of Deeds or checking for prior encumbrances.
• When CAMEC defaulted, the bank discovered TCT No. N-130671 was spurious and the property non-existent, while TCT No. C-52576 had a prior mortgage to Divina Pablico, causing the bank P6,000,000.00 in losses.
• In January 1990, Republic Act No. 6848 created AIIBP, transferring all assets, liabilities, and personnel from PAB; petitioner was retained during the reorganization.
• On June 18, 1993, petitioner was charged with dishonesty and preventively suspended.
• He refused to appear before the Investigating Committee, questioning its impartiality, and was declared in default; evidence was presented ex parte.
• The Investigating Committee recommended suspension for six months and one day for conduct prejudicial to the best interest of the service, but the Board of Directors imposed dismissal.
• Petitioner later discovered that AIIBP only submitted its draft by-laws to the SEC on May 27, 1992, beyond the 60-day period required by Section 51 of RA 6848.
• He argued that this failure resulted in forfeiture of AIIBP's corporate franchise, rendering it without legal personality to initiate administrative proceedings against him.

• AIIBP committed grave abuse of discretion by conducting administrative investigation without validly promulgated rules of procedure.
• CSC prematurely assumed jurisdiction because the appeal should have been filed with the Merit System Protection Board (MSPB), not the CSC.
• He was not qualified to perform appraisal functions due to lack of training and expertise, and therefore could not be found dishonest.
• AIIBP failed to file its by-laws within 60 days from the effectivity of RA 6848 as required by Section 51, thereby forfeiting its franchise and losing its juridical personality to exist and operate as a corporation.
• Consequently, AIIBP and its Board of Directors lacked legal authority and jurisdiction to investigate and dismiss him; Resolution No. 2309 was null and void.
• CSC erroneously affirmed a null and void resolution, allegedly due to fraud and misrepresentation by AIIBP officers.

• Section 26 of RA 6848 grants the Board of Directors the broadest powers to manage the bank, including the power to discipline employees, without requiring prior promulgation of specific rules of procedure.
• CSC had jurisdiction over the administrative appeal pursuant to CSC Resolution No. 93-2387, which transferred MSPB functions to the CSC.
• Petitioner was validly dismissed for dishonesty and conduct prejudicial to the best interest of the service due to his failure to verify the authenticity of collateral documents, causing substantial damage to the bank.
• AIIBP is a de facto corporation; its failure to file by-laws on time does not result in automatic loss of corporate powers, and its existence cannot be collaterally attacked in this private suit.
• Petitioner is estopped from denying AIIBP's corporate existence after accepting employment, salary, and promotions from the bank.

• Procedural:
  • Whether the petition for certiorari under Rule 65 was the proper remedy when the petitioner failed to file a timely appeal under Rule 45.
  • Whether the Court of Appeals gravely abused its discretion in denying the motion for new trial based on newly discovered evidence regarding AIIBP's by-laws.
  • Whether the CSC had jurisdiction over the administrative appeal or if jurisdiction lay with the MSPB.
• Substantive Issues:
  • Whether AIIBP, having failed to file its by-laws within the period prescribed by RA 6848, lost its juridical personality and authority to dismiss the petitioner.
  • Whether the petitioner was validly dismissed for dishonesty and conduct prejudicial to the best interest of the service.

• Procedural:
  • The petition for certiorari cannot be used as a substitute for the lost remedy of appeal; the petition was filed on February 23, 2000, well beyond the 15-day reglementary period which lapsed on January 11, 2000.
  • Even if treated as a special civil action for certiorari, the petitioner failed to show grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the Court of Appeals.
  • The CSC had jurisdiction over the case under CSC Resolution No. 93-2387 dated June 29, 1993, which provided that decisions in administrative cases involving civil service officials and employees shall be appealed directly to the CSC and not to the MSPB, pursuant to Section 47 of Book V of the Administrative Code of 1987.
  • Petitioner is estopped from questioning the CSC's jurisdiction after filing a Motion for Reconsideration seeking affirmative relief.
• Substantive:
  • AIIBP is a de facto corporation. It was created by special law (RA 6848), has a main office, shareholders, corporate officers, a board of directors, assets, and personnel. Its failure to file by-laws within the prescribed period does not ipso facto result in the loss of its corporate powers or franchise.
  • The existence of a de facto corporation and its right to exercise corporate powers may not be inquired into collaterally in any private suit to which such corporations may be a party, citing Section 20 of the Corporation Code (BP 68) and Hall v. Piccio.
  • This case is a labor dispute, not a corporate controversy; regardless of its corporate status, AIIBP is the petitioner's employer, and it is an elementary right of an employer to select and discharge employees.
  • Petitioner is estopped from denying AIIBP's corporate existence after accepting employment, rendering services, receiving salaries, and accepting promotions from the bank for several years.
  • The dismissal was valid: As an appraiser/investigator, petitioner was expected to exercise more than ordinary prudence by verifying documents with the Registry of Deeds and conducting ocular inspections. His failure to do so, resulting in the approval of a fraudulent loan, constitutes dishonesty and conduct prejudicial to the best interest of the service, warranting dismissal.

• De Facto Corporation — A corporation that has failed to comply with all organizational requirements (such as filing by-laws within the statutory period) but otherwise possesses all attributes of a corporation and exercises corporate powers under color of law. Its existence cannot be collaterally attacked in any private suit to which it is a party. Applied to hold that AIIBP retained its authority to dismiss employees despite its failure to file by-laws on time.
• Collateral Attack on Corporate Existence — The prohibition against questioning the legal existence of a de facto corporation in proceedings that are not directly instituted for the purpose of inquiring into its existence. Applied to bar the petitioner's argument that AIIBP lacked authority to dismiss him due to defective incorporation.
• Estoppel to Deny Corporate Existence — A party who has dealt with a corporation as such and accepted benefits from it is estopped from denying its existence and refusing to perform obligations assumed. Applied to prevent the petitioner from denying AIIBP's corporate existence after years of accepting employment and compensation.

• "At the very least, by its failure to submit its by-laws on time, the AIIBP may be considered a de facto corporation whose right to exercise corporate powers may not be inquired into collaterally in any private suit to which such corporations may be a party."
• "Moreover, a corporation which has failed to file its by-laws within the prescribed period does not ipso facto lose its powers as such."
• "Regardless of whether AIIBP is a corporation, a partnership, a sole proprietorship, or a sari-sari store, it is an undisputed fact that AIIBP is the petitioner's employer."
• "One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact no corporation."
• "Grave abuse of discretion implies such capricious and whimsical exercise of judgment as equivalent to lack of jurisdiction, or, in other words, where the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and it must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law."

• Hall v. Piccio, No. L-2598, 29 June 1950, 86 Phil 603 — Cited for the doctrine that the existence of a de facto corporation cannot be collaterally attacked in a private suit.
• Rubenecia v. Civil Service Commission, 244 SCRA 640 — Cited regarding the re-allocation of MSPB functions to the CSC under Resolution No. 93-2387.
• Casolita, Sr. v. Court of Appeals, 275 SCRA 257 — Cited regarding the rule that issues not raised below cannot be raised for the first time on appeal.
• Filipro, Incorporated v. National Labor Relations Commission, G.R. No. 70546, 16 October 1986, 145 SCRA 123 — Cited regarding an employer's right to freely select or discharge employees as a measure of self-protection.
• Heirs of Lourdes Potenciano Padilla v. Court of Appeals, G.R. No. 147205, 10 March 2004, 425 SCRA 236 — Cited regarding the principle that certiorari is not a substitute for the lost remedy of appeal.

• Republic Act No. 6848, Section 26 — Grants the Board of Directors the broadest powers to manage the Islamic Bank and adopt internal rules and regulations.
• Republic Act No. 6848, Section 48 — Mandates the transfer of all assets, liabilities, and capital accounts of PAB to AIIBP.
• Republic Act No. 6848, Section 49 — Provides for the retention of existing PAB personnel by AIIBP.
• Republic Act No. 6848, Section 51 — Requires the filing of by-laws within 60 days from the effectivity of the Act.
• Batas Pambansa Blg. 68 (Corporation Code), Section 20 — Provides that the due incorporation of a corporation shall not be inquired into collaterally in any private suit, and that no person dealing with such corporation shall be permitted to maintain an action on the ground of its lack of corporate existence.
• Batas Pambansa Blg. 68 (Corporation Code), Section 21, Paragraph 2 — Provides that no person who has dealt with a corporation shall be permitted to deny its corporate existence in any action arising out of such dealing.
• Executive Order No. 26 (1992), Item No. 2 — Directs administrative agencies to adopt rules of procedure for the speedy disposition of administrative cases.
• Civil Service Commission Resolution No. 93-2387, Item No. 1 — Provides that decisions in administrative cases involving civil service officials and employees shall be appealed directly to the CSC, not to the MSPB.