G.R. No. 154489 - Far East Bank and Trust Co. vs. Spouses Plaza

Case Summary (G.R. No. 154489)

Factual Background: The LCP’s Governance and the Board Controversy

LCP’s governing body was its national board of directors, originally composed of seven (7) directors serving a two-year term. Six directors were elected separately in district conferences, with two members representing each district. The remaining director was the LCP national president, elected at large in a national convention held in October of every even-numbered year.

During the 1976 LCP national convention, LCP adopted a resolution dividing the North Luzon District (NLD) into NLD Highland District (NLHD) and NLD Lowland District (NLLD), increasing the board from seven (7) to nine (9) directors. During the 1984 LCP national convention, LCP created the Visayan Islands District (VID), increasing directors further to eleven (11). Both actions were allegedly authorized by Section 2 of Article 7 of the LCP By-Laws, which stated that LCP in convention may form additional districts as it sees fit.

Although the resulting eleven (11)-member board operated for years, controversies later emerged involving board resolutions, particularly those terminating the LCP business manager and corporate treasurer since 1979, namely Mr. Excelsio Hipe. The termination triggered intracorporate complaints before the SEC, where for the first time the legality of the eleven-member board was challenged as being in excess of the number of directors stated in the Articles of Incorporation because no amendments were made to reflect the increase.

Among the earlier SEC matters were SEC-SICD Case No. 3556 (“Excelsio Hipe, et. al. vs. Thomas Batong, et. al.”), SEC-SICD Case No. 3524 (“Domingo Shambu, et. al. vs. Thomas Batong, et. al.”), and SEC-SICD Case No. 3550 (“The Lutheran Church in the Philippines vs. Excelsio Hipe”), among others. The members of the Batong group were described as the duly elected board of directors of LCP at the time of the filing of SEC-SICD Case No. 3857. The members of the Ao-As group had served in various capacities as directors or officers of LCP.

SEC-SICD Case No. 3857 and the Creation of a Management Committee

On August 17, 1990, the Ao-As group filed SEC-SICD Case No. 3857 for accounting and damages, with prayer for preliminary injunction and appointment of a management committee. They asserted six causes of action against the Batong group, namely: (first) non-liquidation or non-accounting of proceeds of the La Trinidad land transaction in the amount of P64,000.00; (second) non-liquidation or unaccounting of cash advances totaling P323,750.00; (third) alleged dissipation or unaccounting of the LCP general fund amounting to 4.8 million; (fourth) alleged non-registration of Leyte land purchased with LCP funds by Victorio Saquilayan; (fifth) severance of the church-partnership relationship with Lutheran Church-Missouri Synod (LCMS); and (sixth) transfer of LCP corporate books from the Sta. Mesa office to the Caloocan office.

The Batong group sought to suspend the proceedings based on an alleged amicable settlement entitled “A FORMULA FOR CONCORD.” The SEC-SICD denied the request despite the FORMULA FOR CONCORD, and similarly denied the Motion to Dismiss filed on January 23, 1992 on the same ground.

After hearing, on September 3, 1992, the SEC-SICD Hearing Officer issued an order creating a management committee. The order reasoned, in part, that all board resolutions and management actions passed by the LCP Board were deemed null and void ab initio because they were approved by an illegally constituted board. It also found that several board actions caused irreparable damage to the corporation, including termination of LCP staff and employees, dissolution of the LCP business office, termination of the partnership relationship with LCMS, and alleged forcible taking of corporate records and equipment, as well as acquisition of lands in other names and various cash advances not liquidated.

Proceedings in the SEC En Banc and the Issuance of Preliminary Injunction

On September 14, 1992, the Batong group filed a Motion for Reconsideration, later denied on September 23, 1992. On the same date, the Batong group filed with the SEC En Banc a Petition for Certiorari, alleging grave abuse of discretion in the creation of the management committee.

A management committee was appointed on September 29, 1992, with Atty. Puno as chairman and other members including private respondents Jose Laking and others. Atty. Puno later resigned and was replaced by Atty. Oscar Almazan as chairman. After the death of one member, Luis Ao-As replaced him.

On October 6, 1992, the Ao-As group sought a writ of preliminary injunction to enjoin the Batong group not only from acting as LCP directors but also from calling a national convention to elect new officers and board members under the LCP Constitution and By-Laws. On October 16, 1992, the SEC-SIDC issued the injunction prohibiting the Batong group from acting as board directors or officers and from holding any convention or membership meeting, “as well as election” of directors, until further orders.

National Convention Elections and Related Supervening Events

The Batong group alleged that the injunction was used to facilitate ultra vires acts by the management committee, including taking control of church buildings, evicting clergymen from parsonages, and ordaining and appointing new clergymen to replace incumbents. The decision noted, however, that before the injunction and management committee appointment, the national convention had already been called in a Board meeting held on September 26, 1991, and that the 17th LCP national convention proceeded as scheduled from October 26 to 30, 1992.

A “Manifesto” was issued during the national convention by the majority of delegates representing the three districts to initiate an election due to the injunction. In the election, officers were elected, including Rev. Victorino Saquilayan as President and Rev. Juanito Basalong as Vice-President, among others. In addition, the South Luzon District had already held its district conference before the injunction, electing a district president, clergy representative, and lay representative, and the North Luzon District conference was similarly held before the injunction.

After the national convention, the SEC management committee called a special convention on January 25 to 29, 1993 in Cagayan de Oro to elect different officers. The Batong group alleged lack of notice to some congregations and limited attendance of members by the Ao-As group, based on the official delegate list in the special convention minutes.

SEC En Banc Denial of Mandamus and the Court of Appeals Decision in Favor of the Batong Group

While the petitions pending before the SEC En Banc were unresolved, the management committee allegedly took control of church properties, replaced clergymen from their parsonages, and froze LCP bank accounts. The Batong group then filed a Petition for Mandamus and Damages with prayer for preliminary mandatory injunction on August 19, 1993 to unfreeze bank accounts and recover seized buildings. The SEC En Banc denied it, including the motion for reconsideration.

The Batong group then filed a Petition for Review with the Court of Appeals, seeking to annul the SEC En Banc decision. The Court of Appeals issued a Temporary Restraining Order on July 12, 1994 to enjoin certain acts, including enforcement of the SEC-SIDC injunction and implementation of a contract to sell with Solid Gold Realty Corporation.

On October 10, 1996, the Court of Appeals ruled for the Batong group, set aside the SEC En Banc decision and annulled the SEC-SIDC orders dated September 3, 1992 and October 16, 1992. It directed the SEC to conduct a new election of the directors consistent with the Corporation Code. Its Resolution dated March 3, 1997 denied the motion for reconsideration.

Issues Raised by the Ao-As Group

The Ao-As group challenged the Court of Appeals on four principal grounds: first, that the Court of Appeals allegedly disregarded evidence and made findings unsupported by record evidence; second, that the Court of Appeals erred in ruling that SEC-SICD Case No. 3857 was a case of forum shopping; third, that the Court of Appeals reversibly erred in declaring as invalid the election manner for the LCP Board under LCP By-Laws; and fourth, that it reversibly erred in ruling that SEC-SICD had no jurisdiction to call a special election.

They also prayed for declarations regarding the legitimacy of board members elected in the special convention called by the management committee, invalidation of Batong group acts, return of seized properties, and restraint from representation of LCP by the Batong group.

Forum Shopping Ruling: No Willful and Deliberate Forum Shopping

The Supreme Court first addressed whether the Court of Appeals correctly held that SEC-SICD Case No. 3857 was forum shopping. The Court of Appeals had ruled that the acts embodied in certain LCP board resolutions had already been raised in other pending cases, and that the Ao-As group had filed multiple petitions involving similar issues.

The Court of Appeals discussed that: employment-related resolutions were subject of NLRC cases, corporate record-transfer resolutions were subject of civil cases for forcible entry and unlawful detainer, and legality of the board composition was subject of SEC-SICD Case No. 3524, among others. It also noted prior SEC attempts to seek appointment of management committee, referencing earlier SEC matters and an SEC-SICD order that had treated the management-committee motion as an incident in SEC-SICD Case No. 3857.

However, the Supreme Court held that the case was not one of willful and deliberate forum shopping. It explained that while the Ao-As group had included grounds related to earlier cases into SEC-SICD Case No. 3857, the need for strict evidentiary showing for the appointment of a management committee under Section 6(d) of Presidential

Case Syllabus (G.R. No. 154489)

The case arose from a Petition for Certiorari filed under Rule 45 of the Rules of Court to reverse the Court of Appeals Decision dated 10 October 1996 and its Resolution dated 3 March 1997.
The petitioners were Rev. Luis Ao-As, Rev. Jose Laking, Eusequicio Galang, Rev. Isabelo Mononggitt, Rev. Edwin0 Mercado, Rev. Daniel Pondevida, Rev. Teodorico Taran and Dr. Benjamin Galapia (the Ao-As group).
The respondents included the Hon. Court of Appeals, and individuals identified as the Batong group, namely Thomas P. Batong, Juanito Basalong, Augusto Catangi, Paul Garcia, Guido Rivera, Victorio Y. Saquilayan and Danilo Zamora.
The Court of Appeals had granted the Batong group’s petition and annulled the SEC orders creating a management committee and directing a new election of directors consistent with corporate law.

Lutheran Church Organization Background

The Lutheran Church in the Philippines (LCP) was a religious organization registered with the Securities and Exchange Commission (SEC) on 8 May 1967.
The LCP’s membership included Lutheran clergymen and local Lutheran congregations in the Philippines, and the organization was originally divided into three districts: North Luzon District (NLD), South Luzon District (SLD), and Mindanao District (MDD).
The governing body was the LCP national board of directors (LCP Board), originally composed of seven members with a two-year term.
Six board members were elected separately in each district conference, with each district electing a clergy representative and a lay representative for the LCP Board.
The seventh board member was the LCP National President, elected at large in a national convention held every even-numbered year.
During the 1976 national convention, the LCP passed a resolution dividing the NLD into the NLD Highland District (NLHD) and the NLD Lowland District (NLLD), increasing board membership from seven to nine.
During the 1984 national convention, the LCP created the Visayan Islands District (VID), increasing the board to eleven directors.
Both district-creation resolutions were adopted pursuant to Section 2 of Article 7 of the LCP By-Laws, which allowed the LCP in convention to form additional districts.

Intracorporate Dispute and SEC Cases

Controversies arose years later concerning board resolutions that allegedly involved terminating the services of Eclesio Hipe, the LCP business manager and corporate treasurer.
The termination sparked intracorporate complaints lodged before the SEC, with the legality of the eleven-member board later placed in issue because no amendments had been made to reflect the increased number in the Articles of Incorporation.
Prior SEC-SICD and SEC En Banc proceedings included disputes seeking to declare certain board resolutions null and void and to recover corporate records.
The Batong group was identified as the duly elected board of directors of the LCP at the time of the filing of SEC-SICD Case No. 3857.
The Ao-As group had served in various capacities as directors or officers of the LCP.

SEC-SICD Case 3857 Filed

On 17 August 1990, the Ao-As group filed SEC-SICD Case No. 3857 for accounting and damages with prayer for a preliminary injunction and appointment of a management committee.
The SEC-SICD complaint asserted six causes of action tied to alleged mismanagement, including non-liquidation or non-accounting of proceeds and cash advances, dissipation or unaccounting of the LCP general fund, non-registration of land purchased with LCP funds, severance of a church partnership relationship, and transfer of corporate books.
During hearings on the application for creation of a management committee, the Batong group filed an Urgent Motion to Suspend Proceedings in view of an alleged amicable settlement entitled “A FORMULA FOR CONCORD.”
Despite the FORMULA FOR CONCORD, the SEC-SICD denied the motion to suspend and later denied a motion to dismiss predicated on the same settlement.
After presentation of evidence, on 3 September 1992 the SEC-SICD Hearing Officer issued an order creating a management committee.
The SEC-SICD order held that board resolutions and management actions were passed and approved by an allegedly illegally constituted Board of Directors, and it cited corporate harm, including termination of staff, dissolution of the business office, severance of the partnership relationship with Lutheran Church Missouri Synod (LCMS), forcible taking of records and equipment, and allegations that land acquisition and cash advances were not liquidated.
The order directed creation of the management committee to manage the LCP until new board members could be elected and qualified, preferably in October 1992.

Management Committee Appointment and Injunction

The Batong group filed motions for reconsideration of the management committee order, which were denied.
On 23 September 1992, the Batong group filed with the SEC En Banc a petition for certiorari with prayer for a temporary restraining order, alleging grave abuse of discretion in creating the management committee.
On 29 September 1992, the management committee was constituted with named individuals including a chairman and members, and later replacements occurred due to resignation and death.
On 6 October 1992, the Ao-As group sought issuance of a writ of preliminary injunction to enjoin the Batong group from acting as LCP board and from calling a national convention for elections.
On 16 October 1992, the SEC-SIDC issued a writ of preliminary injunction preventing the Batong group from acting as board or officers and from holding any convention or membership meeting until further orders.
The Batong group later alleged that the management committee and the writ were used for ultra vires acts, including closing down church buildings, evicting clergymen, and ordaining and appointing replacement clergy.

National and District Conventions Occurred

The Batong group alleged that a national convention had been called and notices were already received before the writ of preliminary injunction was issued.
The Court of Appeals findings included that the 17th LCP national convention was held on 26 to 30 October 1992 as scheduled.
During that convention, delegates issued a “Manifesto” to initiate elections despite the injunction, and new officers were elected.
The SLD district conference had been held on 26 to 28 August 1992 before the writ, and it elected a district president and lay representative.
The NLD district conference had also been held on 7 to 9 October 1992 before the writ, and it included local manifestos opposing appointment of a management committee.
After the 17th national convention, the management committee called a special convention in Cagayan de Oro on 25 to 29 January 1993 to elect a different set of officers, which the Batong group challenged for improper notice and exclusion of members.

SEC En Banc Filings and Enforcement Measures

The Batong group filed supplemental petitions in the SEC En Banc alleging supervening events and seeking review of specific SEC-SICD orders.
The Batong group alleged that while petitions were pending, the management committee took control of properties, replaced clergymen, and froze bank accounts in the name of LCP.
The Batong group filed a petition for mandamus and damages with prayer for preliminary mandatory injunction on 19 August 1993 to unfreeze bank accounts and recover seized buildings.
The SEC En Banc denied the mandamus petition and denied reconsideration.

Court of Appeals Review and Contempt/Ultra Vires Allegations

The Batong group filed a petition for review with the Court of Appeals to annul the SEC En Banc decision.
The Batong group alleged continuing ultra vires and illegal acts by the Ao-As group and named individuals, including:
an attempt to close the Gloria Dei School after school year 1993 to 1994,
an alleged contract to sell LCP property in Cavite executed by an officer acting as president,
an alleged takeover of the Abatan Hospital in Baguias, Benguet, enforced using SEC orders and the writ of preliminary injunction.
The Court of Appeals issued a Temporary Restraining Order on 12 July 1994 enjoining enforcement of the contract to sell and enjoining implementation of the October 16, 1992 SEC writ.
The Batong group later moved to cite officials for contempt for allegedly padlocking church premises and barring the assigned overseer.

Court of Appeals Decision

On 10 Octo