Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No.

181126 June 15, 2011

LEONARDO S. UMALE, [deceased] represented by CLARISSA VICTORIA, JOHN LEO, GEORGE LEONARD, KRISTINE, MARGUERITA ISABEL, AND MICHELLE ANGELIQUE, ALL SURNAMED UMALE, Petitioners, vs. ASB REALTY CORPORATION, Respondent. DECISION DEL CASTILLO, J.: Being placed under corporate rehabilitation and having a receiver appointed to carry out the rehabilitation plan do not ipso facto deprive a corporation and its corporate officers of the power to recover its unlawfully detained property. Petitioners filed this Petition for Review on Certiorari1 assailing the October 15, 2007 Decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 91096, as well as its January 2, 2008 Resolution.3 The dispositive portion of the assailed Decision reads: WHEREFORE, the Decision dated March 28, 2005 of the trial court is affirmed in toto. SO ORDERED.4 Factual Antecedents This case involves a parcel of land identified as Lot 7, Block 5, Amethyst Street, Ortigas Center, Pasig City which was originally owned by Amethyst Pearl Corporation (Amethyst Pearl), a company that is, in turn, wholly-owned by respondent ASB Realty Corporation (ASB Realty). In 1996, Amethyst Pearl executed a Deed of Assignment in Liquidation of the subject premises in favor of ASB Realty in consideration of the full redemption of Amethyst Pearls outstanding capital stock from ASB Realty.5Thus, ASB Realty became the owner of the subject premises and obtained in its name Transfer Certificate of Title No. PT-105797,6 which was registered in 1997 with the Registry of Deeds of Pasig City. Sometime in 2003, ASB Realty commenced an action in the Metropolitan Trial Court (MTC) of Pasig City for unlawful detainer7 of the subject premises against petitioner Leonardo S. Umale (Umale). ASB Realty alleged that it entered into a lease contract8 with Umale for the period June 1, 1999-May 31, 2000. Their agreement was for Umale to conduct a pay-parking business on the property and pay a monthly rent of P60,720.00 to ASB Realty. Upon the contracts expiration on May 31, 2000, Umale continued occupying the premises and paying rentals albeit at an increased monthly rent of P100,000.00. The last rental payment made by

Umale to ASB Realty was for the June 2001 to May 2002 period, as evidenced by the Official Receipt No. 565119 dated November 19, 2001. On June 23, 2003, ASB Realty served on Umale a Notice of Termination of Lease and Demand to Vacate and Pay.10 ASB Realty stated that it was terminating the lease effective midnight of June 30, 2003; that Umale should vacate the premises, and pay to ASB Realty the rental arrears amounting to P1.3 million by July 15, 2003. Umale failed to comply with ASB Realtys demands and continued in possession of the subject premises, even constructing commercial establishments thereon. Umale admitted occupying the property since 1999 by virtue of a verbal lease contract but vehemently denied that ASB Realty was his lessor. He was adamant that his lessor was the original owner, Amethyst Pearl. Since there was no contract between himself and ASB Realty, the latter had no cause of action to file the unlawful detainer complaint against him. In asserting his right to remain on the property based on the oral lease contract with Amethyst Pearl, Umale interposed that the lease period agreed upon was "for a long period of time."11 He then allegedly paid P1.2 million in 1999 as one year advance rentals to Amethyst Pearl.12 Umale further claimed that when his oral lease contract with Amethyst Pearl ended in May 2000, they both agreed on an oral contract to sell. They agreed that Umale did not have to pay rentals until the sale over the subject property had been perfected between them.13 Despite such agreement with Amethyst Pearl regarding the waiver of rent payments, Umale maintained that he continued paying the annual rent of P1.2 million. He was thus surprised when he received the Notice of Termination of Lease from ASB Realty.14 Umale also challenged ASB Realtys personality to recover the subject premises considering that ASB Realty had been placed under receivership by the Securities and Exchange Commission (SEC) and a rehabilitation receiver had been duly appointed. Under Section 14(s), Rule 4 of the Administrative Memorandum No. 00-8-10SC, otherwise known as the Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules), it is the rehabilitation receiver that has the power to "take possession, control and custody of the debtors assets." Since ASB Realty claims that it owns the subject premises, it is its duly-appointed receiver that should sue to recover possession of the same.15 ASB Realty replied that it was impossible for Umale to have entered into a Contract of Lease with Amethyst Pearl in 1999 because Amethyst Pearl had been liquidated in 1996. ASB Realty insisted that, as evidenced by the written lease contract, Umale contracted with ASB Realty, not with Amethyst Pearl. As further proof thereof, ASB Realty cited the official receipt evidencing the rent payments made by Umale to ASB Realty. Ruling of the Metropolitan Trial Court In its August 20, 2004 Decision,16 the MTC dismissed ASB Realtys complaint against Umale without prejudice. It held that ASB Realty had no cause to seek Umales ouster from the subject property because it was not Umales lessor. The trial court noted an inconsistency in the written lease contract that was presented by ASB Realty as basis for its complaint. Its whereas clauses cited ASB Realty, with Eden C. Lin as its representative, as Umales lessor; but its signatory page contained Eden C. Lins name under the heading Amethyst Pearl. The MTC then concluded from such inconsistency that Amethyst Pearl was the real lessor, who can seek Umales ejectment from the subject property.17

Likewise, the MTC agreed with Umale that only the rehabilitation receiver could file suit to recover ASB Realtys property.18 Having been placed under receivership, ASB Realty had no more personality to file the complaint for unlawful detainer. Ruling of the Regional Trial Court ASB Realty appealed the adverse MTC Decision to the Regional Trial Court (RTC),19 which then reversed20 the MTC ruling. The RTC held that the MTC erred in dismissing ASB Realtys complaint for lack of cause of action. It found sufficient evidence to support the conclusion that it was indeed ASB Realty that entered into a lease contract with Umale, hence, the proper party who can assert the corresponding right to seek Umales ouster from the leased premises for violations of the lease terms. In addition to the written lease contract, the official receipt evidencing Umales rental payments for the period Ju ne 2001 to May 2002 to ASB Realty adequately established that Umale was aware that his lessor, the one entitled to receive his rent payments, was ASB Realty, not Amethyst Pearl. ASB Realtys positive assertions, supported as they are by credible evidence, are more compelling than Umales bare negative assertions. The RTC found Umales version of the facts incredible. It was implausible that a businessman such as Umale would enter into several transactions with his alleged lessor a lease contract, payment of lease rentals, acceptance of an offer to sell from his alleged lessor, and an agreement to waive rentals sans a sliver of evidence. With the lease contract between Umale and ASB Realty duly established and Umales failure to pay the monthly rentals since June 2002 despite due demands from ASB Realty, the latter had the right to terminate the lease contract and seek his eviction from the leased premises. Thus, when the contract expired on June 30, 2003 (as stated in the Notice of Termination of Lease), Umale lost his right to remain on the premises and his continued refusal to vacate the same constituted sufficient cause of action for his ejectment.21 With respect to ASB Realtys personality to file the unlawful detainer suit, the RTC ruled that ASB Realty retained all its corporate powers, including the power to sue, despite the appointment of a rehabilitation receiver. Citing the Interim Rules, the RTC noted that the rehabilitation receiver was not granted therein the power to file complaints on behalf of the corporation.22 Moreover, the retention of its corporate powers by the corporation under rehabilitation will advance the objective of corporate rehabilitation, which is to conserve and administer the assets of the corporation in the hope that it may eventually be able to go from financial distress to solvency. The suit filed by ASB Realty to recover its property and back rentals from Umale could only benefit ASB Realty.23 The dispositive portion of the RTC Decision reads as follows: WHEREFORE, premises considered, the appealed decision is hereby reversed and set aside. Accordingly, judgment is hereby rendered in favor of the plaintiff-appellant ordering defendantappellee and all persons claiming rights under him: 1) To immediately vacate the subject leased premises located at Lot 7, Block 5, Amethyst St., Pearl Drive, Ortigas Center, Pasig City and deliver possession thereof to the plaintiffappellant;

2) To pay plaintiff-appellant the sum of P1,300,000.00 representing rentals in arrears from June 2002 to June 2003; 3) To pay plaintiff-appellant the amount of P100,000.00 a month starting from July 2003 and every month thereafter until they finally vacate the subject premises as reasonable compensation for the continued use and occupancy of the same; 4) To pay plaintiff-appellant the sum of P200,000.00 as and by way of attorneys fees; and the costs of suit. SO ORDERED.24 Umale filed a Motion for Reconsideration25 while ASB Realty moved for the issuance of a writ of execution pursuant to Section 21 of the 1991 Revised Rules on Summary Procedure.26 In its July 26, 2005 Order, the RTC denied reconsideration of its Decision and granted ASB Realtys Motion for Issuance of a Writ of Execution.27 Umale then filed his appeal28 with the CA insisting that the parties did not enter into a lease contract.29 Assuming that there was a lease, it was at most an implied lease. Hence its period depended on the rent payments. Since Umale paid rent annually, ASB Realty had to respect his lease for the entire year. It cannot terminate the lease at the end of the month, as it did in its Notice of Termination of Lease.30 Lastly, Umale insisted that it was the rehabilitation receiver, not ASB Realty, that was the real party-in-interest.31 Pending the resolution thereof, Umale died and widow and legal heirs, per CA Resolution dated August 14, 2006.32 Ruling of the Court of Appeals The CA affirmed the RTC Decision in toto.33 According to the appellate court, ASB Realty fully discharged its burden to prove the existence of a lease contract between ASB Realty and Umale,34 as well as the grounds for eviction.35 The veracity of the terms of the lease contract presented by ASB Realty was further bolstered, instead of demolished, by Umales admission that he paid monthly rents in accordance therewith.36 The CA found no merit in Umales claim that in light of Article 1687 of the Civil Code the lease should be extended until the end of the year. The said provision stated that in cases where the lease period was not fixed by the parties, the lease period depended on the payment periods. In the case at bar, the rent payments were made on a monthly basis, not annually; thus, Umales failure to pay the monthly rent gave ASB Realty the corresponding right to terminate the lease at the end of the month.37 The CA then upheld ASB Realtys, as well as its corporate officers, personality to recover an unlawfully withheld corporate property. As expressly stated in Section 14 of Rule 4 of the Interim Rules, the rehabilitation receiver does not take over the functions of the corporate officers.38 Petitioners filed a Motion for Reconsideration,39 which was denied in the assailed January 2, 2008 Resolution.40 was substituted by his

Issues The petitioners raise the following issues for resolution:41 1. Can a corporate officer of ASB Realty (duly authorized by the Board of Directors) file suit to recover an unlawfully detained corporate property despite the fact that the corporation had already been placed under rehabilitation? 2. Whether a contract of lease exists between ASB Realty and Umale; and 3. Whether Umale is entitled to avail of the lease periods provided in Article 1687 of the Civil Code. Our Ruling Petitioners ask for the dismissal of the complaint for unlawful detainer on the ground that it was not brought by the real party-in-interest.42 Petitioners maintain that the appointment of a rehabilitation receiver for ASB Realty deprived its corporate officers of the power to recover corporate property and transferred such power to the rehabilitation receiver. Section 6, Rule 59 of the Rules of Court states that a receiver has the power to bring actions in his own name and to collect debts due to the corporation. Under Presidential Decree (PD) No. 902-A and the Interim Rules, the rehabilitation receiver has the power to take custody and control of the assets of the corporation. Since the receiver for ASB Realty did not file the complaint for unlawful detainer, the trial court did not acquire jurisdiction over the subject property.43 Petitioners cite Villanueva v. Court of Appeals,44 Yam v. Court of Appeals,45 and Abacus Real Estate Development Center, Inc. v. The Manila Banking Corporation,46 as authorities for the rule that the appointment of a receiver suspends the authority of the corporation and its officers over its property and effects.47 ASB Realty counters that there is no provision in PD 902-A, the Interim Rules, or in Rule 59 of the Rules of Court that divests corporate officers of their power to sue upon the appointment of a rehabilitation receiver.48 In fact, Section 14 , Rule 4 of the Interim Rules expressly limits the receivers power by providing that the rehabilitation receiver does not take over the management and control of the corporation but shall closely oversee and monitor the operations of the debtor.49 Further, the SEC Rules of Procedure on Corporate Recovery (SEC Rules), the rules applicable to the instant case, do not include among the receivers powers the exclusive right to file suits for the corporation.50 The Court resolves the issue in favor of ASB Realty and its officers. There is no denying that ASB Realty, as the owner of the leased premises, is the real party-ininterest in the unlawful detainer suit.51 Real party-in-interest is defined as "the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit."52 What petitioners argue is that the corporate officer of ASB Realty is incapacitated to file this suit to recover a corporate property because ASB Realty has a duly-appointed rehabilitation receiver. Allegedly, this rehabilitation receiver is the only one that can file the instant suit.

Corporations, such as ASB Realty, are juridical entities that exist by operation of law. 53 As a creature of law, the powers and attributes of a corporation are those set out, expressly or impliedly, in the law. Among the general powers granted by law to a corporation is the power to sue in its own name.54 This power is granted to a duly-organized corporation, unless specifically revoked by another law. The question becomes: Do the laws on corporate rehabilitation particularly PD 902-A, as amended,55 and its corresponding rules of procedure forfeit the power to sue from the corporate officers and Board of Directors? Corporate rehabilitation is defined as "the restoration of the debtor to a position of successful operation and solvency, if it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan more if the corporation continues as a going concern than if it is immediately liquidated."56 It was first introduced in the Philippine legal system through PD 902-A, as amended.57 The intention of the law is "to effect a feasible and viable rehabilitation by preserving a floundering business as a going concern, because the assets of a business are often more valuable when so maintained than they would be when liquidated."58 This concept of preserving the corporations business as a going concern while it is undergoing rehabilitation is called debtor-in-possession or debtor-in-place. This means that the debtor corporation (the corporation undergoing rehabilitation), through its Board of Directors and corporate officers, remains in control of its business and properties, subject only to the monitoring of the appointed rehabilitation receiver.59 The concept of debtor-in-possession, is carried out more particularly in the SEC Rules, the rule that is relevant to the instant case.60 It states therein that the interim rehabilitation receiver of the debtor corporation "does not take over the control and management of the debtor corporation."61 Likewise, the rehabilitation receiver that will replace the interim receiver is tasked only to monitor the successful implementation of the rehabilitation plan.62 There is nothing in the concept of corporate rehabilitation that would ipso facto deprive63 the Board of Directors and corporate officers of a debtor corporation, such as ASB Realty, of control such that it can no longer enforce its right to recover its property from an errant lessee. To be sure, corporate rehabilitation imposes several restrictions on the debtor corporation. The rules enumerate the prohibited corporate actions and transactions64 (most of which involve some kind of disposition or encumbrance of the corporations assets) during the pendency of the rehabilitation proceedings but none of which touch on the debtor corporations right to sue. The implication therefore is that our concept of rehabilitation does not restrict this particular power, save for the caveat that all its actions are monitored closely by the receiver, who can seek an annulment of any prohibited or anomalous transaction or agreement entered into by the officers of the debtor corporation. Petitioners insist that the rehabilitation receiver has the power to bring and defend actions in his own name as this power is provided in Section 6 of Rule 59 of the Rules of Court. Indeed, PD 902-A, as amended, provides that the receiver shall have the powers enumerated under Rule 59 of the Rules of Court. But Rule 59 is a rule of general application. It applies to different kinds of receivers rehabilitation receivers, receivers of entities under management, ordinary receivers, receivers in liquidation and for different kinds of situations. While the SEC has the discretion65 to authorize the rehabilitation receiver, as the case may warrant, to exercise the powers in Rule 59, the SECs exercise of such discretion cannot simply be assumed. There is no allegation whatsoe ver in this case that the SEC gave ASB Realtys rehabilitation receiver the exclusive right to sue. Petitioners cite Villanueva,66 Yam,67 and Abacus Real Estate68 as authorities for their theory that the corporate officers of a corporation under rehabilitation is incapacitated to act. In Villanueva,69 the Court nullified the sale contract entered into by the Philippine Veterans Bank on the ground that the banks insolvency restricted its capacity to act. Yam,70 on the other hand, nullified the compromise

agreement that Manphil Investment Corporation entered into while it was under receivership by the Central Bank. In Abacus Real Estate,71 it was held that Manila Banks president had no authority to execute an "option to purchase" contract while the bank was under liquidation. These jurisprudence are inapplicable to the case at bar because they involve banking and financial institutions that are governed by different laws.72 In the cited cases, the applicable banking law was Section 2973 of the Central Bank Act.74 In stark contrast to rehabilitation where the corporation retains control and management of its affairs, Section 29 of the Central Bank Act, as amended, expressly forbids the bank or the quasi-bank from doing business in the Philippines. Moreover, the nullified transactions in the cited cases involve dispositions of assets and claims, which are prohibited transactions even for corporate rehabilitation75 because these may be prejudicial to creditors and contrary to the rehabilitation plan. The instant case, however, involves the recovery of assets and collection of receivables, for which there is no prohibition in PD 902-A. While the Court rules that ASB Realty and its corporate officers retain their power to sue to recover its property and the back rentals from Umale, the necessity of keeping the receiver apprised of the proceedings and its results is not lost upon this Court. Tasked to closely monitor the assets of ASB Realty, the rehabilitation receiver has to be notified of the developments in the case, so that these assets would be managed in accordance with the approved rehabilitation plan. Coming to the second issue, petitioners maintain that ASB Realty has no cause of action against them because it is not their lessor. They insist that Umale entered into a verbal lease agreement with Amethyst Pearl only. As proof of this verbal agreement, petitioners cite their possession of the premises, and construction of buildings thereon, sans protest from Amethyst Pearl or ASB Realty.76 Petitioners concede that they may have raised questions of fact but insist nevertheless on their review as the appellate courts ruling is allegedly grounded entirely on speculations, surmises, and conjectures and its conclusions regarding the termination of the lease contract are manifestly absurd, mistaken, and impossible.77 Petitioners arguments have no merit. Ineluctably, the errors they raised involve factual findings,78 the review of which is not within the purview of the Courts functions under Rule 45, particularly when there is adequate evidentiary support on record. While petitioners assail the authenticity of the written lease contract by pointing out the inconsistency in the name of the lessor in two separate pages, they fail to account for Umales actions which are consistent with the terms of the contract the payment of lease rentals to ASB Realty (instead of his alleged lessor Amethyst Pearl) for a 12-month period. These matters cannot simply be brushed off as sheer happenstance especially when weighed against Umales incredible version of th e facts that he entered into a verbal lease contract with Amethyst Pearl; that the term of the lease is for a "very long period of time;" that Amethyst Pearl offered to sell the leased premises and Umale had accepted the offer, with both parties not demanding any written documentation of the transaction and without any mention of the purchase price; and that finally, Amethyst Pearl agreed that Umale need not pay rentals until the perfection of the sale. The Court is of the same mind as the appellate court that it is simply inconceivable that a businessman, such as petitioners predecessor -in-interest, would enter into commercial transactions with and pay substantial rentals to a corporation nary a single documentation.

Petitioners then try to turn the table on ASB Realty with their third argument. They say that under Article 1687 of the New Civil Code, the period for rent payments determines the lease period. Judging by the official receipt presented by ASB Realty, which covers the 12-month period from June 2001 to May 2002, the lease period should be annual because of the annual rent payments.79 Petitioners then conclude that ASB Realty violated Article 1687 of the New Civil Code when it terminated the lease on June 30, 2003, at the beginning of the new period. They then implore the Court to extend the lease to the end of the annual period, meaning until May 2004, in accordance with the annual rent payments.80 In arguing for an extension of lease under Article 1687, petitioners lost sight of the restriction provided in Article 1675 of the Civil Code. It states that a lessee that commits any of the grounds for ejectment cited in Article 1673, including non-payment of lease rentals and devoting the leased premises to uses other than those stipulated, cannot avail of the periods established in Article 1687.81
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Moreover, the extension in Article 1687 is granted only as a matter of equity. The law simply recognizes that there are instances when it would be unfair to abruptly end the lease contract causing the eviction of the lessee. It is only for these clearly unjust situations that Article 1687 grants the court the discretion to extend the lease.82 The particular circumstances of the instant case however, do not inspire granting equitable relief. Petitioners have not paid, much less offered to pay, the rent for 14 months and even had the temerity to disregard the pay-and-vacate notice served on them. An extension will only benefit the wrongdoer and punish the long-suffering property owner.83 WHEREFORE, the petition is DENIED. The October 15, 2007 Decision and January 2, 2008 Resolution of the Court of Appeals in CA-G.R. SP No. 91096 are hereby AFFIRMED. ASB Realty Corporation is ordered to FURNISH a copy of the Decision on its incumbent Rehabilitation Receiver and to INFORM the Court of its compliance therewith within 10 days. SO ORDERED. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 175352 DANTE V. LIBAN, REYNALDO M. BERNARDO, and SALVADOR M. VIARI, Petitioners, vs. RICHARD J. GORDON, Respondent. DECISION CARPIO, J.: The Case

This is a petition to declare Senator Richard J. Gordon (respondent) as having forfeited his seat in the Senate. The Facts Petitioners Dante V. Liban, Reynaldo M. Bernardo, and Salvador M. Viari (petitioners) filed with this Court a Petition to Declare Richard J. Gordon as Having Forfeited His Seat in the Senate. Petitioners are officers of the Board of Directors of the Quezon City Red Cross Chapter while respondent is Chairman of the Philippine National Red Cross (PNRC) Board of Governors. During respondents incumbency as a member of the Senate of the Philippines,1 he was elected Chairman of the PNRC during the 23 February 2006 meeting of the PNRC Board of Governors. Petitioners allege that by accepting the chairmanship of the PNRC Board of Governors, respondent has ceased to be a member of the Senate as provided in Section 13, Article VI of the Constitution, which reads: SEC. 13. No Senator or Member of the House of Representatives may hold any other office or employment in the Government, or any subdivision, agency, or instrumentality thereof, including government-owned or controlled corporations or their subsidiaries, during his term without forfeiting his seat. Neither shall he be appointed to any office which may have been created or the emoluments thereof increased during the term for which he was elected. Petitioners cite Camporedondo v. NLRC,2 which held that the PNRC is a government-owned or controlled corporation. Petitioners claim that in accepting and holding the position of Chairman of the PNRC Board of Governors, respondent has automatically forfeited his seat in the Senate, pursuant to Flores v. Drilon,3 which held that incumbent national legislators lose their elective posts upon their appointment to another government office. In his Comment, respondent asserts that petitioners have no standing to file this petition which appears to be an action for quo warranto, since the petition alleges that respondent committed an act which, by provision of law, constitutes a ground for forfeiture of his public office. Petitioners do not claim to be entitled to the Senate office of respondent. Under Section 5, Rule 66 of the Rules of Civil Procedure, only a person claiming to be entitled to a public office usurped or unlawfully held by another may bring an action for quo warranto in his own name. If the petition is one for quo warranto, it is already barred by prescription since under Section 11, Rule 66 of the Rules of Civil Procedure, the action should be commenced within one year after the cause of the public officers forfeiture of office. In this case, respondent has been working as a Red Cross volunteer for the past 40 years. Respondent was already Chairman of the PNRC Board of Governors when he was elected Senator in May 2004, having been elected Chairman in 2003 and re-elected in 2005. Respondent contends that even if the present petition is treated as a taxpayers suit, petitioners cannot be allowed to raise a constitutional question in the absence of any claim that they suffered some actual damage or threatened injury as a result of the allegedly illegal act of respondent. Furthermore, taxpayers are allowed to sue only when there is a claim of illegal disbursement of public funds, or that public money is being diverted to any improper purpose, or where petitioners seek to restrain respondent from enforcing an invalid law that results in wastage of public funds. Respondent also maintains that if the petition is treated as one for declaratory relief, this Court would have no jurisdiction since original jurisdiction for declaratory relief lies with the Regional Trial Court.

Respondent further insists that the PNRC is not a government-owned or controlled corporation and that the prohibition under Section 13, Article VI of the Constitution does not apply in the present case since volunteer service to the PNRC is neither an office nor an employment. In their Reply, petitioners claim that their petition is neither an action for quo warranto nor an action for declaratory relief. Petitioners maintain that the present petition is a taxpayers suit questioning the unlawful disbursement of funds, considering that respondent has been drawing his salaries and other compensation as a Senator even if he is no longer entitled to his office. Petitioners point out that this Court has jurisdiction over this petition since it involves a legal or constitutional issue which is of transcendental importance. The Issues Petitioners raise the following issues: 1. Whether the Philippine National Red Cross (PNRC) is a government- owned or controlled corporation; 2. Whether Section 13, Article VI of the Philippine Constitution applies to the case of respondent who is Chairman of the PNRC and at the same time a Member of the Senate; 3. Whether respondent should be automatically removed as a Senator pursuant to Section 13, Article VI of the Philippine Constitution; and 4. Whether petitioners may legally institute this petition against respondent.4 The substantial issue boils down to whether the office of the PNRC Chairman is a government office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the Constitution. The Courts Ruling We find the petition without merit. Petitioners Have No Standing to File this Petition A careful reading of the petition reveals that it is an action for quo warranto. Section 1, Rule 66 of the Rules of Court provides: Section 1. Action by Government against individuals. An action for the usurpation of a public office, position or franchise may be commenced by a verified petition brought in the name of the Republic of the Philippines against: (a) A person who usurps, intrudes into, or unlawfully holds or exercises a public office, position or franchise; (b) A public officer who does or suffers an act which by provision of law, constitutes a ground for the forfeiture of his office; or (c) An association which acts as a corporation within the Philippines without being legally incorporated or without lawful authority so to act. (Emphasis supplied)

Petitioners allege in their petition that: 4. Respondent became the Chairman of the PNRC when he was elected as such during the First Regular Luncheon-Meeting of the Board of Governors of the PNRC held on February 23, 2006, the minutes of which is hereto attached and made integral part hereof as Annex "A." 5. Respondent was elected as Chairman of the PNRC Board of Governors, during his incumbency as a Member of the House of Senate of the Congress of the Philippines, having been elected as such during the national elections last May 2004. 6. Since his election as Chairman of the PNRC Board of Governors, which position he duly accepted, respondent has been exercising the powers and discharging the functions and duties of said office, despite the fact that he is still a senator. 7. It is the respectful submission of the petitioner[s] that by accepting the chairmanship of the Board of Governors of the PNRC, respondent has ceased to be a Member of the House of Senate as provided in Section 13, Article VI of the Philippine Constitution, x x x xxxx 10. It is respectfully submitted that in accepting the position of Chairman of the Board of Governors of the PNRC on February 23, 2006, respondent has automatically forfeited his seat in the House of Senate and, therefore, has long ceased to be a Senator, pursuant to the ruling of this Honorable Court in the case of FLORES, ET AL. VS. DRILON AND GORDON, G.R. No. 104732, x x x 11. Despite the fact that he is no longer a senator, respondent continues to act as such and still performs the powers, functions and duties of a senator, contrary to the constitution, law and jurisprudence. 12. Unless restrained, therefore, respondent will continue to falsely act and represent himself as a senator or member of the House of Senate, collecting the salaries, emoluments and other compensations, benefits and privileges appertaining and due only to the legitimate senators, to the damage, great and irreparable injury of the Government and the Filipino people.5 (Emphasis supplied) Thus, petitioners are alleging that by accepting the position of Chairman of the PNRC Board of Governors, respondent has automatically forfeited his seat in the Senate. In short, petitioners filed an action for usurpation of public office against respondent, a public officer who allegedly committed an act which constitutes a ground for the forfeiture of his public office. Clearly, such an action is for quo warranto, specifically under Section 1(b), Rule 66 of the Rules of Court. Quo warranto is generally commenced by the Government as the proper party plaintiff. However, under Section 5, Rule 66 of the Rules of Court, an individual may commence such an action if he claims to be entitled to the public office allegedly usurped by another, in which case he can bring the action in his own name. The person instituting quo warranto proceedings in his own behalf must claim and be able to show that he is entitled to the office in dispute, otherwise the action may be dismissed at any stage.6 In the present case, petitioners do not claim to be entitled to the Senate office of respondent. Clearly, petitioners have no standing to file the present petition.

Even if the Court disregards the infirmities of the petition and treats it as a taxpayers suit, the petition would still fail on the merits. PNRC is a Private Organization Performing Public Functions On 22 March 1947, President Manuel A. Roxas signed Republic Act No. 95,7 otherwise known as the PNRC Charter. The PNRC is a non-profit, donor-funded, voluntary, humanitarian organization, whose mission is to bring timely, effective, and compassionate humanitarian assistance for the most vulnerable without consideration of nationality, race, religion, gender, social status, or political affiliation.8 The PNRC provides six major services: Blood Services, Disaster Management, Safety Services, Community Health and Nursing, Social Services and Voluntary Service.9 The Republic of the Philippines, adhering to the Geneva Conventions, established the PNRC as a voluntary organization for the purpose contemplated in the Geneva Convention of 27 July 1929.10 The Whereas clauses of the PNRC Charter read: WHEREAS, there was developed at Geneva, Switzerland, on August 22, 1864, a convention by which the nations of the world were invited to join together in diminishing, so far lies within their power, the evils inherent in war; WHEREAS, more than sixty nations of the world have ratified or adhered to the subsequent revision of said convention, namely the "Convention of Geneva of July 29 [sic], 1929 for the Amelioration of the Condition of the Wounded and Sick of Armies in the Field" (referred to in this Charter as the Geneva Red Cross Convention); WHEREAS, the Geneva Red Cross Convention envisages the establishment in each country of a voluntary organization to assist in caring for the wounded and sick of the armed forces and to furnish supplies for that purpose; WHEREAS, the Republic of the Philippines became an independent nation on July 4, 1946 and proclaimed its adherence to the Geneva Red Cross Convention on February 14, 1947, and by that action indicated its desire to participate with the nations of the world in mitigating the suffering caused by war and to establish in the Philippines a voluntary organization for that purpose as contemplated by the Geneva Red Cross Convention; WHEREAS, there existed in the Philippines since 1917 a Charter of the American National Red Cross which must be terminated in view of the independence of the Philippines; and WHEREAS, the volunteer organizations established in the other countries which have ratified or adhered to the Geneva Red Cross Convention assist in promoting the health and welfare of their people in peace and in war, and through their mutual assistance and cooperation directly and through their international organizations promote better understanding and sympathy among the peoples of the world. (Emphasis supplied) The PNRC is a member National Society of the International Red Cross and Red Crescent Movement (Movement), which is composed of the International Committee of the Red Cross (ICRC), the International Federation of Red Cross and Red Crescent Societies (International Federation), and the National Red Cross and Red Crescent Societies (National Societies). The Movement is united and guided by its seven Fundamental Principles:

1. HUMANITY The International Red Cross and Red Crescent Movement, born of a desire to bring assistance without discrimination to the wounded on the battlefield, endeavors, in its international and national capacity, to prevent and alleviate human suffering wherever it may be found. Its purpose is to protect life and health and to ensure respect for the human being. It promotes mutual understanding, friendship, cooperation and lasting peace amongst all peoples. 2. IMPARTIALITY It makes no discrimination as to nationality, race, religious beliefs, class or political opinions. It endeavors to relieve the suffering of individuals, being guided solely by their needs, and to give priority to the most urgent cases of distress. 3. NEUTRALITY In order to continue to enjoy the confidence of all, the Movement may not take sides in hostilities or engage at any time in controversies of a political, racial, religious or ideological nature. 4. INDEPENDENCE The Movement is independent. The National Societies, while auxiliaries in the humanitarian services of their governments and subject to the laws of their respective countries, must always maintain their autonomy so that they may be able at all times to act in accordance with the principles of the Movement. 5. VOLUNTARY SERVICE It is a voluntary relief movement not prompted in any manner by desire for gain. 6. UNITY There can be only one Red Cross or one Red Crescent Society in any one country. It must be open to all. It must carry on its humanitarian work throughout its territory. 7. UNIVERSALITY The International Red Cross and Red Crescent Movement, in which all Societies have equal status and share equal responsibilities and duties in helping each other, is worldwide. (Emphasis supplied) The Fundamental Principles provide a universal standard of reference for all members of the Movement. The PNRC, as a member National Society of the Movement, has the duty to uphold the Fundamental Principles and ideals of the Movement. In order to be recognized as a National Society, the PNRC has to be autonomous and must operate in conformity with the Fundamental Principles of the Movement.11 The reason for this autonomy is fundamental. To be accepted by warring belligerents as neutral workers during international or internal armed conflicts, the PNRC volunteers must not be seen as belonging to any side of the armed conflict. In the Philippines where there is a communist insurgency and a Muslim separatist rebellion, the PNRC cannot be seen as government-owned or controlled, and neither can the PNRC volunteers be identified as government personnel or as instruments of government policy. Otherwise, the insurgents or separatists will treat PNRC volunteers as enemies when the volunteers tend to the wounded in the battlefield or the displaced civilians in conflict areas. Thus, the PNRC must not only be, but must also be seen to be, autonomous, neutral and independent in order to conduct its activities in accordance with the Fundamental Principles. The PNRC must not appear to be an instrument or agency that implements government policy; otherwise, it cannot merit the trust of all and cannot effectively carry out its mission as a National Red Cross Society.12 It is imperative that the PNRC must be autonomous, neutral, and independent in relation to the State.

To ensure and maintain its autonomy, neutrality, and independence, the PNRC cannot be owned or controlled by the government. Indeed, the Philippine government does not own the PNRC. The PNRC does not have government assets and does not receive any appropriation from the Philippine Congress.13 The PNRC is financed primarily by contributions from private individuals and private entities obtained through solicitation campaigns organized by its Board of Governors, as provided under Section 11 of the PNRC Charter: SECTION 11. As a national voluntary organization, the Philippine National Red Cross shall be financed primarily by contributions obtained through solicitation campaigns throughout the year which shall be organized by the Board of Governors and conducted by the Chapters in their respective jurisdictions. These fund raising campaigns shall be conducted independently of other fund drives by other organizations. (Emphasis supplied) The government does not control the PNRC. Under the PNRC Charter, as amended, only six of the thirty members of the PNRC Board of Governors are appointed by the President of the Philippines. Thus, twenty-four members, or four-fifths (4/5), of the PNRC Board of Governors are not appointed by the President. Section 6 of the PNRC Charter, as amended, provides: SECTION 6. The governing powers and authority shall be vested in a Board of Governors composed of thirty members, six of whom shall be appointed by the President of the Philippines, eighteen shall be elected by chapter delegates in biennial conventions and the remaining six shall be selected by the twenty-four members of the Board already chosen. x x x. Thus, of the twenty-four members of the PNRC Board, eighteen are elected by the chapter delegates of the PNRC, and six are elected by the twenty-four members already chosen a select group where the private sector members have three-fourths majority. Clearly, an overwhelming majority of four-fifths of the PNRC Board are elected or chosen by the private sector members of the PNRC. The PNRC Board of Governors, which exercises all corporate powers of the PNRC, elects the PNRC Chairman and all other officers of the PNRC. The incumbent Chairman of PNRC, respondent Senator Gordon, was elected, as all PNRC Chairmen are elected, by a private sector-controlled PNRC Board four-fifths of whom are private sector members of the PNRC. The PNRC Chairman is not appointed by the President or by any subordinate government official. Under Section 16, Article VII of the Constitution,14 the President appoints all officials and employees in the Executive branch whose appointments are vested in the President by the Constitution or by law. The President also appoints those whose appointments are not otherwise provided by law. Under this Section 16, the law may also authorize the "heads of departments, agencies, commissions, or boards" to appoint officers lower in rank than such heads of departments, agencies, commissions or boards.15 In Rufino v. Endriga,16 the Court explained appointments under Section 16 in this wise: Under Section 16, Article VII of the 1987 Constitution, the President appoints three groups of officers. The first group refers to the heads of the Executive departments, ambassadors, other public ministers and consuls, officers of the armed forces from the rank of colonel or naval captain, and other officers whose appointments are vested in the President by the Constitution. The second group refers to those whom the President may be authorized by law to appoint. The third group refers to all other officers of the Government whose appointments are not otherwise provided by law. Under the same Section 16, there is a fourth group of lower-ranked officers whose appointments Congress may by law vest in the heads of departments, agencies, commissions, or boards. x x x

xxx In a department in the Executive branch, the head is the Secretary. The law may not authorize the Undersecretary, acting as such Undersecretary, to appoint lower-ranked officers in the Executive department. In an agency, the power is vested in the head of the agency for it would be preposterous to vest it in the agency itself. In a commission, the head is the chairperson of the commission. In a board, the head is also the chairperson of the board. In the last three situations, the law may not also authorize officers other than the heads of the agency, commission, or board to appoint lower-ranked officers. xxx The Constitution authorizes Congress to vest the power to appoint lower-ranked officers specifically in the "heads" of the specified offices, and in no other person. The word "heads" refers to the chairpersons of the commissions or boards and not to their members, for several reasons. The President does not appoint the Chairman of the PNRC. Neither does the head of any department, agency, commission or board appoint the PNRC Chairman. Thus, the PNRC Chairman is not an official or employee of the Executive branch since his appointment does not fall under Section 16, Article VII of the Constitution. Certainly, the PNRC Chairman is not an official or employee of the Judiciary or Legislature. This leads us to the obvious conclusion that the PNRC Chairman is not an official or employee of the Philippine Government. Not being a government official or employee, the PNRC Chairman, as such, does not hold a government office or employment. Under Section 17, Article VII of the Constitution,17 the President exercises control over all government offices in the Executive branch. If an office is legally not under the control of the President, then such office is not part of the Executive branch. In Rufino v. Endriga,18 the Court explained the Presidents power of control over all government offices as follows: Every government office, entity, or agency must fall under the Executive, Legislative, or Judicial branches, or must belong to one of the independent constitutional bodies, or must be a quasi-judicial body or local government unit. Otherwise, such government office, entity, or agency has no legal and constitutional basis for its existence. The CCP does not fall under the Legislative or Judicial branches of government. The CCP is also not one of the independent constitutional bodies. Neither is the CCP a quasi-judicial body nor a local government unit. Thus, the CCP must fall under the Executive branch. Under the Revised Administrative Code of 1987, any agency "not placed by law or order creating them under any specific department" falls "under the Office of the President." Since the President exercises control over "all the executive departments, bureaus, and offices," the President necessarily exercises control over the CCP which is an office in the Executive branch. In mandating that the President "shall have control of all executive . . . offices," Section 17, Article VII of the 1987 Constitution does not exempt any executive office one performing executive functions outside of the independent constitutional bodies from the Presidents power of control. There is no dispute that the CCP performs executive, and not legislative, judicial, or quasi-judicial functions. The Presidents power of control applies to the acts or decisions of all officers in the Executive branch. This is true whether such officers are appointed by the President or by heads of departments, agencies, commissions, or boards. The power of control means the power to revise or reverse the acts or decisions of a subordinate officer involving the exercise of discretion.

In short, the President sits at the apex of the Executive branch, and exercises "control of all the executive departments, bureaus, and offices." There can be no instance under the Constitution where an officer of the Executive branch is outside the control of the President. The Executive branch is unitary since there is only one President vested with executive power exercising control over the entire Executive branch. Any office in the Executive branch that is not under the control of the President is a lost command whose existence is without any legal or constitutional basis. (Emphasis supplied) An overwhelming four-fifths majority of the PNRC Board are private sector individuals elected to the PNRC Board by the private sector members of the PNRC. The PNRC Board exercises all corporate powers of the PNRC. The PNRC is controlled by private sector individuals. Decisions or actions of the PNRC Board are not reviewable by the President. The President cannot reverse or modify the decisions or actions of the PNRC Board. Neither can the President reverse or modify the decisions or actions of the PNRC Chairman. It is the PNRC Board that can review, reverse or modify the decisions or actions of the PNRC Chairman. This proves again that the office of the PNRC Chairman is a private office, not a government office.
1avv phi 1

Although the State is often represented in the governing bodies of a National Society, this can be justified by the need for proper coordination with the public authorities, and the government representatives may take part in decision-making within a National Society. However, the freelyelected representatives of a National Societys active members must remain in a large majority in a National Societys governing bodies.19 The PNRC is not government-owned but privately owned. The vast majority of the thousands of PNRC members are private individuals, including students. Under the PNRC Charter, those who contribute to the annual fund campaign of the PNRC are entitled to membership in the PNRC for one year. Thus, any one between 6 and 65 years of age can be a PNRC member for one year upon contributing P35, P100, P300, P500 or P1,000 for the year.20 Even foreigners, whether residents or not, can be members of the PNRC. Section 5 of the PNRC Charter, as amended by Presidential Decree No. 1264,21 reads: SEC. 5. Membership in the Philippine National Red Cross shall be open to the entire population in the Philippines regardless of citizenship. Any contribution to the Philippine National Red Cross Annual Fund Campaign shall entitle the contributor to membership for one year and said contribution shall be deductible in full for taxation purposes. Thus, the PNRC is a privately owned, privately funded, and privately run charitable organization. The PNRC is not a government-owned or controlled corporation. Petitioners anchor their petition on the 1999 case of Camporedondo v. NLRC,22 which ruled that the PNRC is a government-owned or controlled corporation. In ruling that the PNRC is a governmentowned or controlled corporation, the simple test used was whether the corporation was created by its own special charter for the exercise of a public function or by incorporation under the general corporation law. Since the PNRC was created under a special charter, the Court then ruled that it is a government corporation. However, the Camporedondoruling failed to consider the definition of a government-owned or controlled corporation as provided under Section 2(13) of the Introductory Provisions of the Administrative Code of 1987: SEC. 2. General Terms Defined. x x x (13) Government-owned or controlled corporation refers to any agency organized as a stock or nonstock corporation, vested with functions relating to public needs whether governmental or proprietary

in nature, and owned by the Government directly or through its instrumentalities either wholly, or where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: Provided, That government-owned or controlled corporations may be further categorized by the Department of the Budget, the Civil Service Commission, and the Commission on Audit for purposes of the exercise and discharge of their respective powers, functions and responsibilities with respect to such corporations.(Boldfacing and underscoring supplied) A government-owned or controlled corporation must be owned by the government, and in the case of a stock corporation, at least a majority of its capital stock must be owned by the government. In the case of a non-stock corporation, by analogy at least a majority of the members must be government officials holding such membership by appointment or designation by the government. Under this criterion, and as discussed earlier, the government does not own or control PNRC. The PNRC Charter is Violative of the Constitutional Proscription against the Creation of Private Corporations by Special Law The 1935 Constitution, as amended, was in force when the PNRC was created by special charter on 22 March 1947. Section 7, Article XIV of the 1935 Constitution, as amended, reads: SEC. 7. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations, unless such corporations are owned or controlled by the Government or any subdivision or instrumentality thereof. The subsequent 1973 and 1987 Constitutions contain similar provisions prohibiting Congress from creating private corporations except by general law. Section 1 of the PNRC Charter, as amended, creates the PNRC as a "body corporate and politic," thus: SECTION 1. There is hereby created in the Republic of the Philippines a body corporate and politic to be the voluntary organization officially designated to assist the Republic of the Philippines in discharging the obligations set forth in the Geneva Conventions and to perform such other duties as are inherent upon a National Red Cross Society. The national headquarters of this Corporation shall be located in Metropolitan Manila. (Emphasis supplied) In Feliciano v. Commission on Audit,23 the Court explained the constitutional provision prohibiting Congress from creating private corporations in this wise: We begin by explaining the general framework under the fundamental law. The Constitution recognizes two classes of corporations. The first refers to private corporations created under a general law. The second refers to government-owned or controlled corporations created by special charters. Section 16, Article XII of the Constitution provides: Sec. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability. The Constitution emphatically prohibits the creation of private corporations except by general law applicable to all citizens. The purpose of this constitutional provision is to ban private corporations created by special charters, which historically gave certain individuals, families or groups special privileges denied to other citizens.

In short, Congress cannot enact a law creating a private corporation with a special charter. Such legislation would be unconstitutional. Private corporations may exist only under a general law. If the corporation is private, it must necessarily exist under a general law. Stated differently, only corporations created under a general law can qualify as private corporations. Under existing laws, the general law is the Corporation Code, except that the Cooperative Code governs the incorporation of cooperatives. The Constitution authorizes Congress to create government-owned or controlled corporations through special charters. Since private corporations cannot have special charters, it follows that Congress can create corporations with special charters only if such corporations are governmentowned or controlled.24 (Emphasis supplied) In Feliciano, the Court held that the Local Water Districts are government-owned or controlled corporations since they exist by virtue of Presidential Decree No. 198, which constitutes their special charter. The seed capital assets of the Local Water Districts, such as waterworks and sewerage facilities, were public property which were managed, operated by or under the control of the city, municipality or province before the assets were transferred to the Local Water Districts. The Local Water Districts also receive subsidies and loans from the Local Water Utilities Administration (LWUA). In fact, under the 2009 General Appropriations Act,25 the LWUA has a budget amounting to P400,000,000 for its subsidy requirements.26 There is no private capital invested in the Local Water Districts. The capital assets and operating funds of the Local Water Districts all come from the government, either through transfer of assets, loans, subsidies or the income from such assets or funds. The government also controls the Local Water Districts because the municipal or city mayor, or the provincial governor, appoints all the board directors of the Local Water Districts. Furthermore, the board directors and other personnel of the Local Water Districts are government employees subject to civil service laws and anti-graft laws. Clearly, the Local Water Districts are considered government-owned or controlled corporations not only because of their creation by special charter but also because the government in fact owns and controls the Local Water Districts. Just like the Local Water Districts, the PNRC was created through a special charter. However, unlike the Local Water Districts, the elements of government ownership and control are clearly lacking in the PNRC. Thus, although the PNRC is created by a special charter, it cannot be considered a government-owned or controlled corporation in the absence of the essential elements of ownership and control by the government. In creating the PNRC as a corporate entity, Congress was in fact creating a private corporation. However, the constitutional prohibition against the creation of private corporations by special charters provides no exception even for non-profit or charitable corporations. Consequently, the PNRC Charter, insofar as it creates the PNRC as a private corporation and grants it corporate powers,27 is void for being unconstitutional. Thus, Sections 28 29 30 31 1, 2, 3, 4(a), 5,32 6,33 7,34 8,35 9,36 10,37 11,38 12,39 and 1340 of the PNRC Charter, as amended, are void. The other provisions41 of the PNRC Charter remain valid as they can be considered as a recognition by the State that the unincorporated PNRC is the local National Society of the International Red Cross and Red Crescent Movement, and thus entitled to the benefits, exemptions and privileges set forth in the PNRC Charter. The other provisions of the PNRC Charter implement the Philippine Governments treaty obligations under Article 4(5) of the Statutes of the International Red Cross and Red Crescent Movement, which provides that to be recognized as a National Society, the Society must be "duly recognized by the legal government of its country on the basis of the Geneva Conventions and of the national legislation as a voluntary aid society, auxiliary to the public authorities in the humanitarian field."

In sum, we hold that the office of the PNRC Chairman is not a government office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution. However, since the PNRC Charter is void insofar as it creates the PNRC as a private corporation, the PNRC should incorporate under the Corporation Code and register with the Securities and Exchange Commission if it wants to be a private corporation. WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a government office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution. We also declare that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of the Charter of the Philippine National Red Cross, or Republic Act No. 95, as amended by Presidential Decree Nos. 1264 and 1643, are VOID because they create the PNRC as a private corporation or grant it corporate powers. SO ORDERED. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 173207 February 14, 2008

PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK (now BANCO DE OROEPCI, INC.), petitioner, vs. DENNIS CUSTODIO, WILFREDO D. GLIANE, and ROLANDO FRANCISCO, respondents. DECISION CARPIO MORALES, J.: At the time material to the present case, respondent Dennis Custodio (Custodio) had a door-to-door dollar remittance business. Respondent Wilfredo D. Gliane (Gliane) was one of his agents in Saudi Arabia. As agent of Custodio, Gliane collected dollars from overseas workers in Saudi Arabia to be remitted to their beneficiaries in the Philippines. In their transactions, Custodio and Gliane availed of the services of the Express Padala desk of petitioner Philippine Commercial and International Bank (PCIB), now Banco de Oro-EPCI, Inc.,1 at its affiliate bank, the Al Rahji Bank in Saudi Arabia. The procedure they adopted in remitting dollars was to course them through regular clients of PCIB who, having established a good relationship with the bank, enjoyed special foreign exchange rates with it. One of those clients was respondent Rolando Francisco (Francisco) who maintained joint accounts, including those with his wife and Erlinda Chua (Erlinda). On March 12, 1997, Francisco and his wife,2 purportedly on behalf of ROL-ED Traders Group Corporation (ROL-ED), a company said to be owned and controlled by Francisco, entered into a Foreign Bills Purchase Line Agreement (FBPLA)3 in the amount of P70 Million Pesos with the PCIBGreenhills bank which would purchase checks and demand drafts, among other things, drawn on

"U.S. Bank," the proceeds of which would be advanced to Francisco by the bank without going through the regular 23-day clearing period. Under the FBPLA, the spouses made the following undertaking: If a check is returned/dishonored for any reason whatsoever, we shall immediately, without need of demand, pay [the bank] the amount of the check, together with the interest at the rate of ** percent (%) per annum x x x and penalty at the rate of twelve percent (12%) per annum, computed from the date of purchase of the check to the date of full payment. ** - prevailing market rate The amount of returned and dishonored checks, together with interest, penalty and other charges, shall bedebited from any of our accounts with any of [the banks] branches, and if the credit balance thereof is insufficient, we undertake to pay [the bank] the deficiency immediately.4 (Underscoring supplied) And they authorized the PCIB-Greenhills x x x at [its] option and without notice, to set-off or apply to the payment of any dishonored/returned check, interest, penalty and other charges, any and all monies which may be in [its] hands on deposit or otherwise belonging to us.5 (Underscoring supplied) Francisco deposited four dollar checks totaling US$651,000 in his joint account with Erlinda at the PCIB-Greenhills. The checks were cleared and paid by Chase Manhattan Bank, but they were subsequently dishonored for insufficient funds.6 Chase Manhattan Bank thus debited the amount of the dishonored checks from the account of PCIB-Greenhills which it maintained with it.7 Having received notice of the debiting by Chase Manhattan Bank of US$651,000 from its account, PCIB-Greenhills debited US$85,000 from Francisco and Erlindas joint account as partial payment of the US$651,000 dishonored checks.8 In the meantime or on May 17, 1998, Gliane remitted US$42,300 to the above-said joint account of Francisco at the PCIB-Greenhills. Before that, however, Francisco himself had asked Custodio to desist from remitting dollars to him from Saudi Arabia because PCIB-Greenhills had imposed a higher exchange rate on him (Francisco). Having gotten wind of Glianes remittance of dollars to the joint account of Francisco, Custodio instructed Gliane to request, as the latter did, for the amendment of the designated beneficiary from Francisco to Belarmino Cortez and/or Rhodora Cruz who maintained a joint account in PCIBGreenhills. PCIBs affiliate bank in Saudi Arabia transmitted the request to PCIB -Ermita, Manila which in turn transmitted it to PCIB-Greenhills. At the time the request for change of beneficiary was received, however, PCIB-Greenhills had set off the US$42,300 remitted by Gliane against Franciscos remaining balance of his obligation under the FBPLA (US$651,000 minus the US$85,000 earlier debited or US$566,000). The Area Manager for PCIB-Chinese Banking Group, Marilyn Tan (Marilyn), to whom Custodio attributed the instruction to set-off the US$42,300 remittance against Franciscos obligation to PCIBGreenhills, explained to Custodio that the amendment was no longer feasible as the US$42,300 remitted by Gliane had already been applied as partial payment of his (Franciscos) outstanding

obligation with PCIB-Greenhills. She thus advised Custodio to take the matter up with Francisco as she did not know of any arrangement between him and Francisco. Custodio and Gliane thereafter filed on July 1, 1998 a complaint against PCIB, Marilyn and Francisco, for specific performance and damages before the Regional Trial Court (RTC) of Makati, to recover the US$42,300, damages and attorneys fees.9 They alleged that PCIB failed to perform its obligation to deliver the sum of money they remitted through it to their beneficiaries,10 and that Francisco wrongfully appropriated or consented to the appropriation of the aforesaid remittance as payment of his loan account with the bank.11 PCIB and Marilyn filed their Answer12 with Cross-claim against Francisco. Francisco did file his Answer with Compulsory Counterclaim13 beyond the reglementary period but the trial court admitted it in the interest of substantial justice.14 Francisco and his counsel did not participate in the pre-trial15 and in the trial on the merits. He was thereupon deemed to have waived his right to present evidence.16 By Decision of January 30, 2002, Branch 134 of the Makati RTC, finding that PCIB was negligent and that Francisco, albeit not negligent, may not be unjustly enriched, found them jointly and severally liable to pay Custodio and Gliane damages, attorneys fees and costs. Thus the decision disposed: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against defendants PCIB and Francisco. Defendants PCIB and Francisco are hereby directed to pay the plaintiffs,jointly and severally, as follows: 1. US$42,300.00 as actual damages; 2. P50,000.00 as exemplary damages; 3. P30,000.00 as attorneys fees; 4. cost of suit. Defendants counterclaim is dismissed. SO ORDERED.17 (Emphasis and underscoring supplied) PCIB at once filed a Notice of Appeal.18 Francisco surfaced and filed a Motion for Reconsideration,19 raising the following arguments why he could not be held solidarily liable with PCIB: Defendant FRANCISCO cannot be held liable under the transaction in question considering that it was found out in the decision itself that there was no finding of fault or negligence on the part of FRANCISCO. (see decision p. 8.)20 It cannot also be said that FRANCISCO benefited from the said act of PCIBank because, according to the findings of this Honorable Court, the payment of the obligation of the defendant FRANCISCO out of US $4[2],300.00 is void. And if such application of payment by PCIBank is void, no valid payment was made. Therefore, FRANCISCO

was never benefited from the invalid and void payment. The decision further state[s]: "There being no objection as to the beneficiary of the US $42,300.00 which was erroneously credited to the account of defendant FRANCISCO who was unauthorized to receive the same, no valid payment was made and the defendant PCIB as debtor was not released from its obligation to return the equivalent amount. (see decision p. 7.)21 (Emphasis in the original; underscoring supplied) Custodio and Gliane filed a Motion for Partial Reconsideration22 of the trial courts decision, praying for an additional monetary award of legal interest "on the amount of US$42,3000 from May 17, 1998 up to the date PCIB, Inc. actually settles the same, and reasonable amount in the award of damages and attorneys fees."23 By Order of April 26, 2002, the trial court granted the respective motions for reconsideration of Francisco and of Custodio and Gliane, disposing as follows: WHEREFORE, modified as indicated above, the dispositive portion of this Courts Decision dated January 30, 2002 should be read as follows: "WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against defendants PCIB and Francisco, as follows: 1) Defendant PCIB is hereby directed to pay the plaintiffs the amount of US$ 42,300.00 plus 12% interest per annum from May 29, 1988 as actual damages with the right of reimbursement of the amount of US$42,300.00 against defendant Francisco; and 2) Defendant PCIB is likewise adjudged to pay plaintiffs further sums of: a) Php 50,000.00 as exemplary damages; b) Php 30,000.00 as attorneys fees; c) Cost of suit. Defendants counterclaim is dismissed. SO ORDERED." SO ORDERED.24 (Emphasis in the original; italics and underscoring supplied) It bears noting that while the trial court, in the above-quoted dispositive portion of the order modifying its original decision, held PCIB solely liable to pay US$42,300 to Custodio and Gliane, it decreed that PCIB had the right of reimbursement of the amount from Francisco. PCIB filed a Notice of Appeal Ad Cautelam,25 indicating therein that it was likewise appealing the trial courts April 26, 2002 Order modifying its original decision. The Court of Appeals, by Decision26 of August 11, 2004, granted the appeal of PCIB and accordingly reversed the trial courts April 26, 2002 Order-modified decision. It freed PCIB of any liability and held Francisco solely liableto Custodio and Gliane. And it deleted the award of exemplary damages, attorneys fees and costs. In so deciding, the trial court ruled:

The record belies [the] finding of negligence on the part of appellant bank. Defendant Francisco and appellees are privy to an agreement whereby appellees dollar remittance shall be coursed through Franciscos account to obtain higher exchange rates. In his testimony before the trial Court, appellee Custodio admitted using defendant Francisco as a pretend-beneficiary to enjoy higher exchange rates on his remittances.27 xxxx x x x Defendant Francisco was unjustly enriched when the US$42,300.00 remittance was credited in his favor by appellant bank. The obligation to restitute the said amount clearly falls on him.28 x x x xxxx Anent the imposition of exemplary damages, We find the award to be sorely lacking in basis. There is no showing that appellant PCIB or defendant Francisco acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. Neither is there any showing of bad faith. x x x29 xxxx The award of attorneys fees and costs of suit likewise finds no factual and legal support. x x x30 (Emphasis and underscoring supplied) Thus the appellate court disposed in its August 11, 2004 Decision: WHEREFORE, the appealed judgment is hereby REVERSED and SET ASIDE. A new one is entered ordering defendant Rolando Francisco to pay the plaintiffs-appellees Dennis Custodio and Alfredo Gliane the sum of US$42,300.00 or its peso equivalent at the time of payment with legal interest at 6% per annum from finality of this Decision until its satisfaction.31 (Underscoring supplied) Francisco filed a Motion for Reconsideration32 of the appellate courts decision in which he, for the first time on appeal, claimed that it was ROL-ED which entered into the FBPLA with PCIBGreenhills: A close examination of the FBLA xxx shows that the said agreement is one between ROLED Traders Group Corporation (ROL-ED) and the bank and not with Francisco. This is also true in the other agreements presented by the bank as its evidence. As such, defendant Francisco is not a party to these agreements. They cannot be used against him. He has a separate and distinct personality from that of ROL-ED. Consequently, the funds of the appellees could not be applied to Francisco[s] debt on the basis of the Foreign Bills Purchase Line Agreement because the latter is not a party thereto. True, it was defendant Francisco who signed for the corporation as its signatory but his participation therein is only in a representative capacity and binds only the corporation and not his own private affairs such as a conduit of appellees funds. The funds were originally directed to "Rolando Francisco" not to "ROL-ED TRADERS GROUP CORPORATION."33 (Emphasis and underscoring supplied);

In the same motion, Francisco argued that no evidence was presented to prove that the bank indeed credited the amount of US$42,300 to his bank account and applied it against his obligation.34 Custodio and Gliane filed too a Motion for Reconsideration,35 arguing that I. THE DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE BANK AND HEREIN PLAINTIFFS-APPELLEES EMANATE[S] NOT ONLY FROM THE AMENDMENT REQUEST BUT ALSO FROM THE BANKS UNDERTAKING UNDER THE "EXPRESS PADALA" SCHEME. II. PLAINTIFF-APPELLEES SHOULD STILL BE CONSIDERED THE OWNER OF THE FUNDS IN THE LIGHT OF THE AMENDMENT REQUEST.36 Custodio and Gliane later filed a Supplemental Motion for Reconsideration37 questioning the appellate courts reduction of the interest and deletion of the award of exemplary damages, attorneys fees, and costs. Crediting Franciscos argument that it was ROL-ED, which he merely represented, that entered into the FBPLA with PCIB, the appellate court, by AMENDED DECISION 38 of October 25, 2005, set aside its earlier decision andreinstated the trial courts January 30, 2002 decision, as amended by its Order dated April 26, 2002. PCIB filed a Motion for Reconsideration39 which the Court of Appeals denied. 40 Hence, its present Petition for Review41 on Certiorari, contending that the Court of Appeals erred A. x x x in issuing an Amended Decision without any Motion for Reconsideration to prompt it; B. x x x in taking into consideration new matters which were not put to fore before the lower court and in lending credence to Franciscos bare assertions that he and ROL-ED are not one and the same[;] C. x x x in ruling that [E]PCIB was negligent in carrying out its obligations under the Express Padala facility; D. x x x in not ruling that PCIB compensation took place between [E]PCIB and Francisco; E. x x x in disregarding that the root cause of this case was the deceitful scheme hatched by Gliane, Custodio, and Francisco against [E]PCIB.42 (Emphasis and underscoring supplied) To PCIB, it was error for the appellate court to entertain Franciscos motion for reconsideration of its original decision, he not having appealed the modified decision of the trial court, hence, the same had, to him, become final. While a party who has not appealed cannot obtain from the appellate court any affirmative relief other than the ones granted in the appealed decision,43 an appellee, like Francisco in the appellate court level, can advance any argument that he may deem necessary to defeat the appellants claim or to uphold the decision that is being disputed.44 It bears recalling at this juncture that while the modified decision of the trial court held PCIB solely liable to Custodio and Gliane, it went on to hold that PCIB had the "right of reimbursement of the amount of US$42,300.00 against defendant Francisco."45

No doubt, PCIB prayed in its Cross-Claim46 against Francisco that, among other things, "[i]n the unlikely event that PCIB and [Marilyn] are adjudged liable for the claims of the plaintiff[s], the other defendant herein, Rolando Francisco, should be held liable to reimburse PCIBank and [Marilyn] for whatever amounts they may be required to pay the plaintiffs." The trial court did not, however, order Francisco to reimburse PCIB. It merely stated that PCIB had the right of reimbursement from Francisco. Parenthetically, the Court of Appeals erred in considering Franciscos belated invocation of his separate personality from ROL-ED to justify his freedom from liability. As earlier noted, Francisco raised this argument for the first time in his motion for reconsideration of the appellate courts original Decision. Points of law, theories, issues and arguments not adequately brought to the attention of the trial court ordinarily will not be considered by a reviewing court as they cannot be raised for the first time on appeal because this would be offensive to the basic rules of fair play, justice, and due process.47 It would be unfair to the adverse party who would have no opportunity to present further evidence material to the new theory which it could have done had it been aware of it at the time of the hearing before the trial court.48 Furthermore, in his Answer with Compulsory Counterclaim, Francisco claimed that "[h]e never instructed nor authorized the defendant bank to apply the U.S. dollar remittances to pay his loan obligation with the said bank"49 (emphasis and underscoring supplied). He echoed this claim in his Motion for Reconsideration that he filed also before the trial court, viz: A close and serious reading of the aforesaid decision will clearly show that there is absolutely no evidence that FRANCISCO directed nor authorized PCIBank to apply the US $42,300.00 remitted by the plaintiffs through PCIBank to his own loan account with PCIBank. xxxx It cannot also be said that FRANCISCO benefited from the said act of PCIBank because, according to the findings of this Honorable Court, the payment of the obligation of the defendant FRANCISCO out of US $ 4[2],300.00 is void. x x x50 (Emphasis in the original; underscoring supplied) Francisco thus virtually admitted in these two cited pleadings that the loan to which the US$42,300 remittance was applied was his. As the object of pleadings is to draw the lines of battle, so to speak, between the litigants and to indicate fairly the nature of the claims or defenses of both parties, a party cannot subsequently take a position contrary to, or inconsistent, with his pleadings.51 Unless a party alleges palpable mistake or denies such admission, judicial admissions cannot be controverted.52 Therefore, as the US$42,300 remittance was applied to, by his own admission, Franciscos loan, the set-off was valid. Parenthetically too, while Francisco claims that the loan in question was that of ROL-ED and not his, he, as earlier stated, deposited the US$651,000 checks in his joint account with Erlinda and not in the account of ROL-ED.53 At all events, while a corporation is clothed with a personality separate and distinct from the persons composing it, the veil of separate corporate personality may be lifted when it is used as a shield to confuse legitimate issues, or where lifting the veil is necessary to achieve equity or for the protection

of the creditors.54 In the case at bar, there can be no mistake that Francisco belatedly invoked the separate identity of ROL-ED to evade his liability to PCIB. On the failure of PCIB to comply with Glianes request for amendment of beneficiary, Gliane and Custodio failed to prove that the request for amendment was communicated to PCIB within reasonable time. The testimonies55 of Marilyn and Allen Alcantara (Alcantara), the PCIB Remittance Officer for the Middle East, that PCIB received the amendatory request after the set-off was not refuted. Thus, Alcantara explained that PCIB-Greenhills received the amendatory request on May 19, 1998, local time, after the said request underwent authentication procedures. The entry reflecting the debiting of the US$85,000 against Franciscos account with PCIB-Greenhills is dated May 19, 1998, 4:45 P.M, local time.56 Gliane and Custodio argue that "it is of standard operating policy of any banking institutions that the regular "holding period" of money transfers is more or less three (3) days."57 They failed to prove, however, that PCIB had that policy, or that the contract under the Express Padala service of PCIB provided for a three-day holding period. Furthermore, PCIB could not be faulted for the dispatch with which it credited the US$42,300 to Franciscos account. As it argued: Equitable agrees with [the Court of Appeals] that the services offered by a banking institution are imbued with public interest. It is precisely with this principle in mind that Equitable effected the transfer of funds the quickest time practicable. Equitable is mindful of the fact that any delay in the remittance of money could be disastrous for the beneficiaries interest. It is unfortunate for the plaintiffs-appellees, however, that their beneficiary and by May 19, 1998, after the transfer had been effected, the rightful owner of the amounts remitted had several outstanding obligations with Equitable. Obligations which Equitable, as Franciscos creditor, had the right to seek payment for.58 (Emphasis and underscoring supplied) Gliane and Custodio themselves admit that time was of the essence in PCIBs discharge of its obligation under its Express Padala service: x x x [W]hen petitioners personnel in Saudi Arabia [marketed] and [e]nticed respondents Custodio and Gliane to course their money remittances through petitioner bank, they fully assured respondents of a special privilege, one of which is the speed of transfer and as a matter of fact respondents money transfers are always noted with the word "PRIORITY".59 (Capitalization and emphasis in the original; underscoring supplied) WHEREFORE, the petition is GRANTED. The Amended Decision of the Court of Appeals dated October 25, 2005 is REVERSED and SET ASIDE, and its August 11, 2004 Decision REINSTATED. SO ORDERED. Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-22962 September 28, 1972

PILAR N. BORROMEO, MARIA B. PUTONG, FEDERICO V. BORROMEO, JOSE BORROMEO, CONSUELO B. MORALES and CANUTO V. BORROMEO, JR., petitioners, vs. COURT OF APPEALS and JOSE A. VILLAMOR, (Deceased) Substituted by FELISA VILLAMOR, ROSARIO V. LIAO LAMCO, MANUEL VILLAMOR, AMPARO V. COTTON, MIGUEL VILLAMOR and CARMENCITA VILLAMOR, respondents. Filiberto Leonardo for petitioners. Ramon Duterte for private respondents.

FERNANDO, J.:p The point pressed on us by private respondents, 1 in this petition for review of a decision of the Court of Appeals in the interpretation of a stipulation which admittedly is not free from ambiguity, there being a mention of a waiver of the defense of prescription, is not calculated to elicit undue judicial sympathy. For if accorded acceptance, a creditor, now represented by his heirs, 2 who, following the warm and generous impulse of friendship, came to the rescue of a debtor from a serious predicament of his own making would be barred from recovering the money loaned. Thus the promptings of charity, unfortunately not often persuasive enough, would be discredited. It is unfortunate then that respondent Court of Appeals did not see it that way. For its decision to be upheld would be to subject the law to such a scathing indictment. A careful study of the relevant facts in the light of applicable doctrines calls for the reversal of its decision. The facts as found by the Court of Appeals follow: "Before the year 1933, defendant [Jose A. Villamor] was a distributor of lumber belonging to Mr. Miller who was the agent of the Insular Lumber Company in Cebu City. Defendant being a friend and former classmate of plaintiff [Canuto O. Borromeo] used to borrow from the latter certain amounts from time to time. On one occasion with some pressing obligation to settle with Mr. Miller, defendant borrowed from plaintiff a large sum of money for which he mortgaged his land and house in Cebu City. Mr. Miller filed civil action against the defendant and attached his properties including those mortgaged to plaintiff, inasmuch as the deed of mortgage in favor of plaintiff could not be registered because not properly drawn up. Plaintiff then pressed the defendant for settlement of his obligation, but defendant instead offered to execute a document promising to pay his indebtedness even after the lapse of ten years. Liquidation was made and defendant was found to be indebted to plaintiff in the sum of P7,220.00, for which defendant signed a promissory note therefor on November 29, 1933 with interest at the rate of 12% per annum, agreeing to pay 'as soon as I have money'. The note further stipulates that defendant 'hereby relinquish, renounce, or otherwise waive my rights to the prescriptions established by our Code of Civil Procedure for the collection or recovery of the above sum of P7,220.00. ... at any time even after the lapse of ten years from the date of this instrument'. After the execution of the document, plaintiff limited himself to verbally requesting defendant to settle his indebtedness from time to time. Plaintiff did not file any complaint against the defendant within ten years from the execution of the document as there was no property registered in defendant's name, who furthermore assured him that he could collect even after the lapse of ten years. After the last war, plaintiff made various oral demands, but defendants failed to settle his account, hence the present complaint for collection." 3 It was then noted in the decision under review that the Court of First Instance of Cebu did sentence the original defendant, the deceased Jose A. Villamor, to pay Canuto O. Borromeo, now represented by petitioners, the sum of P7,220.00 within ninety days from the date of the receipt of such decision with interest at the rate of 12% per annum from the expiration of such ninety-day period. That was the judgment reversed by the Court of Appeals in its decision of

March 7, 1964, now the subject of this petition for review. The legal basis was the lack of validity of the stipulation amounting to a waiver in line with the principle "that a person cannot renounce future prescription." 4 The rather summary and curt disposition of the crucial legal question of respondent Court in its fivepage decision, regrettably rising not too-far-above the superficial level of analysis hardly commends itself for approval. In the first place, there appeared to be undue reliance on certain words employed in the written instrument executed by the parties to the total disregard of their intention. That was to pay undue homage to verbalism. That was to ignore the warning of Frankfurter against succumbing to the vice of literalism in the interpretation of language whether found in a constitution, a statute, or a contract. Then, too, in effect it would nullify what ought to have been evident by a perusal that is not-too-cursory, namely, that the creditor moved by ties of friendship was more than willing to give the debtor the utmost latitude as to when his admittedly scanty resources will allow him to pay. He was not renouncing any right; he was just being considerate, perhaps excessively so. Under the view of respondent Court, however, what had been agreed upon was in effect voided. That was to run counter to the well-settled maxim that between two possible interpretations, that which saves rather than destroys is to be preferred. What vitiates most the appealed decision, however, is that it would amount not to just negating an agreement duly entered into but would put a premium on conduct that is hardly fair and could be characterized as duplicitous. Certainly, it would reflect on a debtor apparently bent all the while on repudiating his obligation. Thus he would be permitted to repay an act of kindness with base ingratitude. Since as will hereafter be shown, there is, on the contrary, the appropriate construction of the wording that found its way in the document, one which has all the earmarks of validity and at the same time is in consonance with the demands of justice and morality, the decision on appeal, as was noted at the outset, must be reversed. 1. The facts rightly understood argue for the reversal of the decision arrived at by respondent Court of Appeals. Even before the event that gave rise to the loan in question, the debtor, the late Jose A. Villamor, being a friend and a former classmate, used to borrow from time to time various sums of money from the creditor, the late Canuto O. Borromeo. Then faced with the need to settle a pressing obligation with a certain Miller, he did borrow from the latter sometime in 1933 what respondent Court called "a large sum of money for which he mortgaged his land and house in Cebu City." 5 It was noted that this Miller did file a suit against him, attaching his properties including those he did mortgage to the late Borromeo, there being no valid objection to such a step as the aforesaid mortgage, not being properly drawn up, could not be registered. Mention was then made of the late Borromeo in his lifetime seeking the satisfaction of the sum due with Villamor unable to pay, but executing a document promising "to pay his indebtedness even after the lapse of ten years." 6 It is with such a background that the words employed in the instrument of November 29, 1933 should be viewed. There is nothing implausible in the view that such language renouncing the debtor's right to the prescription established by the Code of Civil Procedure should be given the meaning, as noted in the preceding sentence of the decision of respondent Court, that the debtor could be trusted to pay even after the termination of the ten-year prescriptive period. For as was also made clear therein, there had been since then verbal requests on the part of the creditor made to the debtor for the settlement of such a loan. Nor was the Court of Appeals unaware that such indeed was within the contemplation of the parties as shown by this sentence in its decision: "Plaintiff did not file any complaint against the defendant within ten years from the execution of the document as there was no property registered in defendant's name who furthermore assured him that he could collect even after the lapse of ten years." 7 2. There is much to be said then for the contention of petitioners that the reference to the prescriptive period is susceptible to the construction that only after the lapse thereof could the demand be made for the payment of the obligation. Whatever be the obscurity occasioned by the words is illumined when the light arising from the relationship of close friendship between the parties as well as the unsuccessful effort to execute a mortgage, taken in connection with the various oral

demands made, is thrown on them. Obviously, it did not suffice for the respondent Court of Appeals. It preferred to reach a conclusion which for it was necessitated by the strict letter of the law untinged by any spirit of good morals and justice, which should not be alien to legal norms. Even from the standpoint of what for some is strict legalism, the decision arrived at by the Court of Appeals calls for disapproval. It is a fundamental principle in the interpretation of contracts that while ordinarily the literal sense of the words employed is to be followed, such is not the case where they "appear to be contrary to the evident intention of the contracting parties," which "intention shall prevail." 8 Such a codal provision has been given full force and effect since the leading case of Reyes v. Limjap, 9 a 1910 decision. Justice Torres, who penned the above decision, had occasion to reiterate such a principle when he spoke for the Court in De la Vega v. Ballilos 10 thus: "The contract entered into by the contracting parties which has produced between them rights and obligations is in fact one of antichresis, for article 1281 of the Civil Code prescribes among other things that if the words should appear to conflict with the evident intent of the contracting parties, the intent shall prevail." 11 In Abella v. Gonzaga, 12 this Court through the then Justice Villamor, gave force to such a codal provision when he made clear that the inevitable conclusion arrived at was "that although in the contract Exhibit A the usual words 'lease,' 'lessee,' and 'lessor' were employed, that is no obstacle to holding, as we do hereby hold, that said contract was a sale on installments, for such was the evident intention of the parties in entering into said contract. 13 Only lately inNielson and Company v. Lepanto Consolidated Mining Company, 14 this Court, with Justice Zaldivar, as ponente, after stressing the primordial rule that in the construction and interpretation of a document, the intention of the parties must be sought, went on to state: "This is the basic rule in the interpretation of contracts because all other rules are but ancillary to the ascertainment of the meaning intended by the parties. And once this intention has been ascertained it becomes an integral part of the contract as though it had been originally expressed therein in unequivocal terms ... ." 15 While not directly in point, what was said by Justice Labrador in Tumaneng v. Abad 16 is relevant: "There is no question that the terms of the contract are not clear on the period of redemption. But the intent of the parties thereto is the law between them, and it must be ascertained and enforced." 17 Nor is it to be forgotten, following what was first announced in Velasquez v. Teodoro 18 that "previous, simultaneous and subsequent acts of the parties are properly cognizable indicia of their true intention." 19 There is another fundamental rule in the interpretation of contracts specifically referred to in Kasilag v. Rodriguez,20 as "not less important" 21 than other principles which "is to the effect that the terms, clauses and conditions contrary to law, morals and public order should be separated from the valid and legal contract when such separation can be made because they are independent of the valid contract which expresses the will of the contracting parties. Manresa, commenting on article 1255 of the Civil Code and stating the rule of separation just mentioned, gives his views as follows: 'On the supposition that the various pacts, clauses, or conditions are valid, no difficulty is presented; but should they be void, the question is as to what extent they may produce the nullity of the principal obligation. Under the view that such features of the obligation are added to it and do not go to its essence, a criterion based upon the stability of juridical relations should tend to consider the nullity as confined to the clause or pact suffering therefrom, except in cases where the latter, by an established connection or by manifest intention of the parties, is inseparable from the principal obligation, and is a condition, juridically speaking, of that the nullity of which it would also occasion.' ... The same view prevails in the Anglo-American law as condensed in the following words: 'Where an agreement founded on a legal consideration contains several promises, or a promise to do several things, and a part only of the things to be done are illegal, the promises which can be separated, or the promise, so far as it can be separated, from the illegality, may be valid. The rule is that a lawful promise made for a lawful consideration is not invalid merely because an unlawful promise was made at the same time and for the same consideration, and this rule applies, although the invalidity is due to violation of a statutory provision, unless the statute expressly or by necessary implication declares the entire contract void. ..."22

Nor is it to be forgotten that as early as Compania Agricola Ultramar v. Reyes, 23 decided in 1904, the then Chief Justice Arellano in a concurring opinion explicitly declared: "It is true that contracts are not what the parties may see fit to call them, but what they really are as determined by the principles of law." 24 Such a doctrine has been subsequently adhered to since then. As was rephrased by Justice Recto in Aquino v. Deala: 25 "The validity of these agreements, however, is one thing, while the juridical qualification of the contract resulting therefrom is very distinctively another." 26 In a recent decision, Shell Company of the Phils., Ltd. vs. Firemen's Insurance Co. of Newark, 27 this court, through Justice Padilla, reaffirmed the doctrine thus: "To determine the nature of a contract courts do not have or are not bound to rely upon the name or title given it by the contracting parties, should there be a controversy as to what they really had intended to enter into, but the way the contracting parties do or perform their respective obligations, stipulated or agreed upon may be shown and inquired into, and should such performance conflict with the name or title given the contract by the parties, the former must prevail over the latter." 28 Is it not rather evident that since even the denomination of the entire contract itself is not conclusively determined by what the parties call it but by the law, a stipulation found therein should likewise be impressed with the characterization the law places upon it? What emerges in the light of all the principles set forth above is that the first ten years after November 29, 1933 should not be counted in determining when the action of creditor, now represented by petitioners, could be filed. From the joint record on appeal, it is undoubted that the complaint was filed on January 7, 1953. If the first ten-year period was to be excluded, the creditor had until November 29, 1953 to start judicial proceedings. After deducting the first ten-year period which expired on November 29, 1943, there was the additional period of still another ten years. 29 Nor could there be any legal objection to the complaint by the creditor Borromeo of January 7, 1953 embodying not merely the fixing of the period within which the debtor Villamor was to pay but likewise the collection of the amount that until then was not paid. An action combining both features did receive the imprimatur of the approval of this Court. As was clearly set forth in Tiglao v. The Manila Railroad Company: 30 "There is something to defendant's contention that in previous cases this Court has held that the duration of the term should be fixed in a separate action for that express purpose. But we think the lower court has given good reasons for not adhering to technicalities in its desire to do substantial justice." 31 The justification became even more apparent in the latter portion of the opinion of Justice Alex Reyes for this Court: "We may add that defendant does not claim that if a separate action were instituted to fix the duration of the term of its obligation, it could present better proofs than those already adduced in the present case. Such separate action would, therefore, be a mere formality and would serve no purpose other than to delay." 32 There is no legal obstacle then to the action for collection filed by the creditor. Moreover, the judgment of the lower court, reversed by the respondent Court of Appeals, ordering the payment of the amount due is in accordance with law. 3. There is something more to be said about the stress in the Tiglao decision on the sound reasons for not adhering to technicalities in this Court's desire to do substantial justice. The then Justice, now Chief Justice, Concepcion expressed a similar thought in emphasizing that in the determination of the rights of the contracting parties "the interest of justice and equity be not ignored." 33 This is a principle that dates back to the earliest years of this Court. The then Chief Justice Bengzon in Arrieta v. Bellos, 34 invoked equity. Mention has been made of "practical and substantial justice," 35 "[no] sacrifice of the substantial rights of a litigant in the altar of sophisticated technicalities with impairment of the sacred principles of justice," 36 "to afford substantial justice" 37 and "what equity demands." 38 There has been disapproval when the result reached is "neither fair, nor equitable." 39 What is to be avoided is an interpretation that "may work injustice rather than promote justice." 40 What appears to be most obvious is that the decision of respondent Court of Appeals under review offended most grievously against the above fundamental postulate that underlies all systems of law.

WHEREFORE, the decision of respondent Court of Appeals of March 7, 1964 is reversed, thus giving full force and effect to the decision of the lower court of November 15, 1956. With costs against private respondents. Concepcion, C.J., Zaldivar, Castro, Teehankee, Barredo, Makasiar, Antonio and Esguerra, JJ., concur. Makalintal, J., is on leave.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 158086 February 14, 2008

ASJ CORPORATION and ANTONIO SAN JUAN, petitioners, vs. SPS. EFREN & MAURA EVANGELISTA, respondents. DECISION QUISUMBING, J.: For review on certiorari is the Decision1 dated April 30, 2003 of the Court of Appeals in CA-G.R. CV No. 56082, which had affirmed the Decision2 dated July 8, 1996 of the Regional Trial Court (RTC) of Malolos, Bulacan, Branch 9 in Civil Case No. 745-M-93. The Court of Appeals, after applying the doctrine of piercing the veil of corporate fiction, held petitioners ASJ Corporation (ASJ Corp.) and Antonio San Juan solidarily liable to respondents Efren and Maura Evangelista for the unjustified retention of the chicks and egg by-products covered by Setting Report Nos. 108 to 113.3 The pertinent facts, as found by the RTC and the Court of Appeals, are as follows: Respondents, under the name and style of R.M. Sy Chicks, are engaged in the large-scale business of buying broiler eggs, hatching them, and selling their hatchlings (chicks) and egg by-products4 in Bulacan and Nueva Ecija. For the incubation and hatching of these eggs, respondents availed of the hatchery services of ASJ Corp., a corporation duly registered in the name of San Juan and his family. Sometime in 1991, respondents delivered to petitioners various quantities of eggs at an agreed service fee of 80 centavos per egg, whether successfully hatched or not. Each delivery was reflected in a "Setting Report" indicating the following: the number of eggs delivered; the date of setting or the date the eggs were delivered and laid out in the incubators; the date of candling or the date the eggs, through a lighting system, were inspected and determined if viable or capable of being hatched into chicks; and the date of hatching, which is also the date respondents would pick-up the chicks and by-products. Initially, the service fees were paid upon release of the eggs and byproducts to respondents. But as their business went along, respondents delays on their payments

were tolerated by San Juan, who just carried over the balance, as there may be, into the next delivery, out of keeping goodwill with respondents. From January 13 to February 3, 1993, respondents had delivered to San Juan a total of 101,3[50]5 eggs, detailed as follows:6 Date Set 1/13/1993 1/20/1993 1/22/1993 1/28/1993 1/30/1993 2/3/1993 SR Number SR 108 SR 109 SR 110 SR 111 SR 112 SR 113 TOTAL No. of delivered 32,566 eggs 21,485 eggs 7,213 eggs 14,495 eggs 15,346 eggs 10,24[5] eggs 101,350 eggs
7

eggs Date Pick-up date

hatched/

February 3, 1993 February 10, 1993 February 12, 1993 February 18, 1993 February 20, 1993 February 24, 1993

On February 3, 1993, respondent Efren went to the hatchery to pick up the chicks and by-products covered by Setting Report No. 108, but San Juan refused to release the same due to respondents failure to settle accrued service fees on several setting reports starting from Setting Report No. 90. Nevertheless, San Juan accepted from Efren 10,245 eggs covered by Setting Report No. 113 and P15,000.008 in cash as partial payment for the accrued service fees. On February 10, 1993, Efren returned to the hatchery to pick up the chicks and by-products covered by Setting Report No. 109, but San Juan again refused to release the same unless respondents fully settle their accounts. In the afternoon of the same day, respondent Maura, with her son Anselmo, tendered P15,000.009 to San Juan, and tried to claim the chicks and by-products. She explained that she was unable to pay their balance because she was hospitalized for an undisclosed ailment. San Juan accepted the P15,000.00, but insisted on the full settlement of respondents accounts before releasing the chicks and by-products. Believing firmly that the total value of the eggs delivered was more than sufficient to cover the outstanding balance, Maura promised to settle their accounts only upon proper accounting by San Juan. San Juan disliked the idea and threatened to impound their vehicle and detain them at the hatchery compound if they should come back unprepared to fully settle their accounts with him. On February 11, 1993, respondents directed their errand boy, Allan Blanco, to pick up the chicks and by-products covered by Setting Report No. 110 and also to ascertain if San Juan was still willing to settle amicably their differences. Unfortunately, San Juan was firm in his refusal and reiterated his threats on respondents. Fearing San Juans threats, respondents never went back to the hatchery. The parties tried to settle amicably their differences before police authorities, but to no avail. Thus, respondents filed with the RTC an action for damages based on petitioners retention of the chicks and by-products covered by Setting Report Nos. 108 to 113. On July 8, 1996, the RTC ruled in favor of respondents and made the following findings: (1) as of Setting Report No. 107, respondents owed petitioners P102,336.80;10 (2) petitioners withheld the release of the chicks and by-products covered by Setting Report Nos. 108-113;11 and (3) the retention of the chicks and by-products was unjustified and accompanied by threats and intimidations on respondents.12 The RTC disregarded the corporate fiction of ASJ Corp.,13 and held it and San Juan solidarily liable to respondents for P529,644.80 as actual damages, P100,000.00 as

moral damages, P50,000.00 as attorneys fees, plus interests and costs of suit. The decretal portion of the decision reads: WHEREFORE, based on the evidence on record and the laws/jurisprudence applicable thereon, judgment is hereby rendered ordering the defendants to pay, jointly and severally, unto the plaintiffs the amounts ofP529,644.80, representing the value of the hatched chicks and by-products which the plaintiffs on the average expected to derive under Setting Reports Nos. 108 to 113, inclusive, with legal interest thereon from the date of this judgment until the same shall have been fully paid, P100,000.00 as moral damages and P50,000.00 as attorneys fees, plus the costs of suit. SO ORDERED.14 Both parties appealed to the Court of Appeals. Respondents prayed for an additional award of P76,139.00 as actual damages for the cost of other unreturned by-products and P1,727,687.52 as unrealized profits, while petitioners prayed for the reversal of the trial courts entire decision. On April 30, 2003, the Court of Appeals denied both appeals for lack of merit and affirmed the trial courts decision, with the slight modification of including an award of exemplary damages of P10,000.00 in favor of respondents. The Court of Appeals, applying the doctrine of piercing the veil of corporate fiction, considered ASJ Corp. and San Juan as one entity, after finding that there was no bona fide intention to treat the corporation as separate and distinct from San Juan and his wife Iluminada. The fallo of the Court of Appeals decision reads: WHEREFORE, in view of the foregoing, the Decision appealed from is hereby AFFIRMED, with the slight modification that exemplary damages in the amount of P10,000.00 are awarded to plaintiffs. Costs against defendants. SO ORDERED.15 Hence, the instant petition, assigning the following errors: I. THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING, AS DID THE COURT A QUO, THAT PETITIONERS WITHHELD/OR FAILED TO RELEASE THE CHICKS AND BY-PRODUCTS COVERED BY SETTING REPORT NOS. 108 AND 109. II. THE HONORABLE COURT OF APPEALS ERRED IN ADMITTING THE HEARSAY TESTIMONY OF MAURA EVANGELISTA SUPPORTIVE OF ITS FINDINGS THAT PETITIONERS WITHHELD/OR FAILED TO RELEASE THE CHICKS AND BY-PRODUCTS COVERED BY SETTING REPORT NOS. 108 AND 109. III. THE HONORABLE COURT OF APPEALS, AS DID THE COURT A QUO, ERRED IN NOT FINDING THAT RESPONDENTS FAILED TO RETURN TO THE PLANT TO GET THE

CHICKS AND BY-PRODUCTS COVERED BY SETTING REPORT NOS. 110, 111, 112 AND 113. IV. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING, AS DID THE COURT A QUO, THAT THE PIERCING OF THE VEIL OF CORPORATE ENTITY IS JUSTIFIED, AND CONSEQUENTLY HOLDING PETITIONERS JOINTLY AND SEVERALLY LIABLE TO PAY RESPONDENTS THE SUM OF P529,644.[80]. V. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONERS HAVE VIOLATED THE PRINCIPLES ENUNCIATED IN ART. 19 OF THE NEW CIVIL CODE AND CONSEQUENTLY IN AWARDING MORAL DAMAGES, EXEMPLARY DAMAGES AND ATTORNEYS FEES. VI. THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING PETITIONERS COUNTERCLAIM.16 Plainly, the issues submitted for resolution are: First, did the Court of Appeals err when (a) it ruled that petitioners withheld or failed to release the chicks and by-products covered by Setting Report Nos. 108 and 109; (b) it admitted the testimony of Maura; (c) it did not find that it was respondents who failed to return to the hatchery to pick up the chicks and by-products covered by Setting Report Nos. 110 to 113; and (d) it pierced the veil of corporate fiction and held ASJ Corp. and Antonio San Juan as one entity? Second, was it proper to hold petitioners solidarily liable to respondents for the payment of P529,644.80 and other damages? In our view, there are two sets of issues that the petitioners have raised. The first set is factual. Petitioners seek to establish a set of facts contrary to the factual findings of the trial and appellate courts. However, as well established in our jurisprudence, only errors of law are reviewable by this Court in a petition for review under Rule 45.17 The trial court, having had the opportunity to personally observe and analyze the demeanor of the witnesses while testifying, is in a better position to pass judgment on their credibility.18 More importantly, factual findings of the trial court, when amply supported by evidence on record and affirmed by the appellate court, are binding upon this Court and will not be disturbed on appeal.19 While there are exceptional circumstances20 when these findings may be set aside, none of them is present in this case. Based on the records, as well as the parties own admissions, the following facts were uncontroverted: (1) As of Setting Report No. 107, respondents were indebted to petitioners for P102,336.80 as accrued service fees for Setting Report Nos. 90 to 107;21 (2) Petitioners, based on San Juans own admission,22 did not release the chicks and by-products covered by Setting Report Nos. 108 and 109 for failure of respondents to fully settle their previous accounts; and (3) Due to San Juans threats, respondents never returned to the hatchery to pick up those covered by Setting Report Nos. 110 to 113.23 Furthermore, although no hard and fast rule can be accurately laid down under which the juridical personality of a corporate entity may be disregarded, the following probative factors of identity justify

the application of the doctrine of piercing the veil of corporate fiction24 in this case: (1) San Juan and his wife own the bulk of shares of ASJ Corp.; (2) The lot where the hatchery plant is located is owned by the San Juan spouses; (3) ASJ Corp. had no other properties or assets, except for the hatchery plant and the lot where it is located; (4) San Juan is in complete control of the corporation; (5) There is no bona fide intention to treat ASJ Corp. as a different entity from San Juan; and (6) The corporate fiction of ASJ Corp. was used by San Juan to insulate himself from the legitimate claims of respondents, defeat public convenience, justify wrong, defend crime, and evade a corporations subsidiary liability for damages.25 These findings, being purely one of fact,26 should be respected. We need not assess and evaluate the evidence all over again where the findings of both courts on these matters coincide. On the second set of issues, petitioners contend that the retention was justified and did not constitute an abuse of rights since it was respondents who failed to comply with their obligation. Respondents, for their part, aver that all the elements on abuse of rights were present. They further state that despite their offer to partially satisfy the accrued service fees, and the fact that the value of the chicks and by-products was more than sufficient to cover their unpaid obligations, petitioners still chose to withhold the delivery. The crux of the controversy, in our considered view, is simple enough. Was petitioners retention of the chicks and by-products on account of respondents failure to pay the corresponding service fees unjustified? While the trial and appellate courts had the same decisions on the matter, suffice it to say that a modification is proper. Worth stressing, petitioners act of withholding the chicks and byproducts is entirely different from petitioners unjustifiable acts of threatening respondents. The retention had legal basis; the threats had none. To begin with, petitioners obligation to deliver the chicks and by-products corresponds to three dates: the date of hatching, the delivery/pick-up date and the date of respondents payment. On several setting reports, respondents made delays on their payments, but petitioners tolerated such delay. When respondents accounts accumulated because of their successive failure to pay on several setting reports, petitioners opted to demand the full settlement of respondents accounts as a condition precedent to the delivery. However, respondents were unable to fully settle their accounts. Respondents offer to partially satisfy their accounts is not enough to extinguish their obligation. Under Article 124827 of the Civil Code, the creditor cannot be compelled to accept partial payments from the debtor, unless there is an express stipulation to that effect. More so, respondents cannot substitute or apply as their payment the value of the chicks and by-products they expect to derive because it is necessary that all the debts be for the same kind, generally of a monetary character. Needless to say, there was no valid application of payment in this case. Furthermore, it was respondents who violated the very essence of reciprocity in contracts, consequently giving rise to petitioners right of retention. This case is clearly one among the species of non-performance of a reciprocal obligation. Reciprocal obligations are those which arise from the same cause, wherein each party is a debtor and a creditor of the other, such that the performance of one is conditioned upon the simultaneous fulfillment of the other.28 From the moment one of the parties fulfills his obligation, delay by the other party begins.29 Since respondents are guilty of delay in the performance of their obligations, they are liable to pay petitioners actual damages of P183,416.80, computed as follows: From respondents outstanding balance of P102,336.80, as of Setting Report No. 107, we add the corresponding services fees of P81,080.0030 for Setting Report Nos. 108 to 113 which had remain unpaid.

Nonetheless, San Juans subsequent acts of threatening respondents should not remain among those treated with impunity. Under Article 1931 of the Civil Code, an act constitutes an abuse of right if the following elements are present: (a) the existence of a legal right or duty; (b) which is exercised in bad faith; and (c) for the sole intent of prejudicing or injuring another.32 Here, while petitioners had the right to withhold delivery, the high-handed and oppressive acts of petitioners, as aptly found by the two courts below, had no legal leg to stand on. We need not weigh the corresponding pieces of evidence all over again because factual findings of the trial court, when adopted and confirmed by the appellate court, are binding and conclusive and will not be disturbed on appeal.33 Since it was established that respondents suffered some pecuniary loss anchored on petitioners abuse of rights, although the exact amount of actual damages cannot be ascertained, temperate damages are recoverable. In arriving at a reasonable level of temperate damages of P408,852.10, which is equivalent to the value of the chicks and by-products, which respondents, on the average, are expected to derive, this Court was guided by the following factors: (a) award of temperate damages will cover only Setting Report Nos. 109 to 113 since the threats started only on February 10 and 11, 1993, which are the pick-up dates for Setting Report Nos. 109 and 110; the rates of (b) 41% and (c) 17%, representing the average rates of conversion of broiler eggs into hatched chicks and egg by-products as tabulated by the trial court based on available statistical data which was unrebutted by petitioners; (d) 68,784 eggs,34 or the total number of broiler eggs under Setting Report Nos. 109 to 113; and (e)P14.00 and (f) P1.20, or the then unit market price of the chicks and by-products, respectively. Thus, the temperate damages of P408,852.10 is computed as follows: [b X (d X e) + c X (d X f)] 41% X (68,784 eggs X P14) 17% X (68,784 eggs X P1.20) [P394,820.16 + P14,031.94] = = = = Temperate Damages P394,820.16 P 14,031.94 P408,852.10

At bottom, we agree that petitioners conduct flouts the norms of civil society and justifies the award of moral and exemplary damages. As enshrined in civil law jurisprudence: Honeste vivere, non alterum laedere et jus suum cuique tribuere. To live virtuously, not to injure others and to give everyone his due.35 Since exemplary damages are awarded, attorneys fees are also proper. Article 2208 of the Civil Code provides that: In the absence of stipulation, attorneys fees and expenses of litigation, other than judicial costs, cannot be recovered, except: (1) When exemplary damages are awarded; xxxx WHEREFORE, the petition is PARTLY GRANTED. The Decision dated April 30, 2003 of the Court of Appeals in CA-G.R. CV No. 56082 is hereby MODIFIED as follows: a. Respondents are ORDERED to pay petitioners P183,416.80 as actual damages, with interest of 6% from the date of filing of the complaint until fully paid, plus legal interest of 12% from the finality of this decision until fully paid.

b. The award of actual damages of P529,644.80 in favor of respondents is hereby REDUCED to P408,852.10, with legal interest of 12% from the date of finality of this judgment until fully paid. c. The award of moral damages, exemplary damages and attorneys fees of P100,000.00, P10,000.00,P50,000.00, respectively, in favor of respondents is hereby AFFIRMED. d. All other claims are hereby DENIED. No pronouncement as to costs. SO ORDERED. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 131723 December 13, 2007

MANILA ELECTRIC COMPANY, petitioner, vs. T.E.A.M. ELECTRONICS CORPORATION, TECHNOLOGY ELECTRONICS ASSEMBLY and MANAGEMENT PACIFIC CORPORATION; and ULTRA ELECTRONICS INSTRUMENTS, INC., respondents. DECISION NACHURA, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking the reversal of the Decision1of the Court of Appeals (CA) dated June 18, 1997 and its Resolution 2 dated December 3, 1997 in CA-G.R. CV No. 40282 denying the appeal filed by petitioner Manila Electric Company. The facts of the case, as culled from the records, are as follows: Respondent T.E.A.M. Electronics Corporation (TEC) was formerly known as NS Electronics (Philippines), Inc. before 1982 and National Semi-Conductors (Phils.) before 1988. TEC is wholly owned by respondent Technology Electronics Assembly and Management Pacific Corporation (TPC). On the other hand, petitioner Manila Electric Company (Meralco) is a utility company supplying electricity in the Metro Manila area. Petitioner and NS Electronics (Philippines), Inc., the predecessor-in-interest of respondent TEC, were parties to two separate contracts denominated as Agreements for the Sale of Electric Energy under the following account numbers: 09341-1322-163 and 09341-1812-13.4 Under the aforesaid agreements, petitioner undertook to supply TEC's building known as Dyna Craft International Manila (DCIM) located at Electronics Avenue, Food Terminal Complex, Taguig, Metro Manila, with electric power. Another contract was entered into for the supply of electric power to TEC's NS Building under Account No. 19389-0900-10.

In September 1986, TEC, under its former name National Semi-Conductors (Phils.) entered into a Contract of Lease5 with respondent Ultra Electronics Industries, Inc. (Ultra) for the use of the former's DCIM building for a period of five years or until September 1991. Ultra was, however, ejected from the premises on February 12, 1988 by virtue of a court order, for repeated violation of the terms and conditions of the lease contract. On September 28, 1987, a team of petitioner's inspectors conducted a surprise inspection of the electric meters installed at the DCIM building, witnessed by Ultra's6 representative, Mr. Willie Abangan. The two meters covered by account numbers 09341-1322-16 and 09341-1812-13, were found to be allegedly tampered with and did not register the actual power consumption in the building. The results of the inspection were reflected in the Service Inspection Reports7 prepared by the team. In a letter dated November 25, 1987, petitioner informed TEC of the results of the inspection and demanded from the latter the payment of P7,040,401.01 representing its unregistered consumption from February 10, 1986 until September 28, 1987, as a result of the alleged tampering of the meters.8 TEC received the letters on January 7, 1988. Since Ultra was in possession of the subject building during the covered period, TEC's Managing Director, Mr. Bobby Tan, referred the demand letter to Ultra9 which, in turn, informed TEC that its Executive Vice-President had met with petitioner's representative. Ultra further intimated that assuming that there was tampering of the meters, petitioner's assessment was excessive.10 For failure of TEC to pay the differential billing, petitioner disconnected the electricity supply to the DCIM building on April 29, 1988. TEC demanded from petitioner the reconnection of electrical service, claiming that it had nothing to do with the alleged tampering but the latter refused to heed the demand. Hence, TEC filed a complaint on May 27, 1988 before the Energy Regulatory Board (ERB) praying that electric power be restored to the DCIM building.11 The ERB immediately ordered the reconnection of the service but petitioner complied with it only on October 12, 1988 after TEC paid P1,000,000.00, under protest. The complaint before the ERB was later withdrawn as the parties deemed it best to have the issues threshed out in the regular courts. Prior to the reconnection, or on June 7, 1988, petitioner conducted a scheduled inspection of the questioned meters and found them to have been tampered anew.12 Meanwhile, on April 25, 1988, petitioner conducted another inspection, this time, in TEC's NS Building. The inspection allegedly revealed that the electric meters were not registering the correct power consumption. Petitioner, thus, sent a letter dated June 18, 1988 demanding payment of P280,813.72 representing the differential billing.13 TEC denied petitioner's allegations and claim in a letter dated June 29, 1988.14 Petitioner, thus, sent TEC another letter demanding payment of the aforesaid amount, with a warning that the electric service would be disconnected in case of continued refusal to pay the differential billing.15 To avert the impending disconnection of electrical service, TEC paid the above amount, under protest.16 On January 13, 1989, TEC and TPC filed a complaint for damages against petitioner and Ultra17 before the Regional Trial Court (RTC) of Pasig. The case was raffled to Branch 162 and was docketed as Civil Case No. 56851.18 Upon the filing of the parties' answer to the complaint, pre-trial was scheduled. At the pre-trial, the parties agreed to limit the issues, as follows: 1. Whether or not the defendant Meralco is liable for the plaintiffs' disconnection of electric service at DCIM Building.

2. Whether or not the plaintiff is liable for (sic) the defendant for the differential billings in the amount ofP7,040,401.01. 3. Whether or not the plaintiff is liable to defendant for exemplary damages.19 For failure of the parties to reach an amicable settlement, trial on the merits ensued. On June 17, 1992, the trial court rendered a Decision in favor of respondents TEC and TPC, and against respondent Ultra and petitioner. The pertinent portion of the decision reads: WHEREFORE, judgment is hereby rendered in this case in favor of the plaintiffs and against the defendants as follows: (1) Ordering both defendants Meralco and ULTRA Electronics Instruments, Inc. to jointly and severally reimburse plaintiff TEC actual damages in the amount of ONE MILLION PESOS with legal rate of interest from the date of the filing of this case on January 19, 1989 until the said amount shall have been fully paid; (2) Ordering defendant Meralco to pay to plaintiff TEC the amount of P280,813.72 as actual damages with legal rate of interest also from January 19, 1989; (3) Ordering defendant Meralco to pay to plaintiff TPC the amount of P150,000.00 as actual damages with interest at legal rate from January 19, 1989; (4) Condemning defendant Meralco to pay both plaintiffs moral damages in the amount pfP500,000.00; (5) Condemning defendant Meralco to pay both plaintiffs corrective and/or exemplary damages in the amount of P200,000.00; (6) Ordering defendant Meralco to pay attorney's fees in the amount of P200,000.00 Costs against defendant Meralco. SO ORDERED.20 The trial court found the evidence of petitioner insufficient to prove that TEC was guilty of tampering the meter installations. The deformed condition of the meter seal and the existence of an opening in the wire duct leading to the transformer vault did not, in themselves, prove the alleged tampering, especially since access to the transformer was given only to petitioner's employees.21 The sudden drop in TEC's (or Ultra's) electric consumption did not, per se, show meter tampering. The delay in the sending of notice of the results of the inspection was likewise viewed by the court as evidence of inefficiency and arbitrariness on the part of petitioner. More importantly, petitioner's act of disconnecting the DCIM building's electric supply constituted bad faith and thus makes it liable for damages.22 The court further denied petitioner's claim of differential billing primarily on the ground of equitable negligence.23 Considering that TEC and TPC paid P1,000,000.00 to avert the disconnection of electric power; and because Ultra manifested to settle the claims of petitioner, the court imposed solidary liability on both Ultra and petitioner for the payment of the P1,000,000.00. Ultra and petitioner appealed to the CA which affirmed the RTC decision, with a modification of the amount of actual damages and interest thereon. The dispositive portion of the CA decision dated June 18, 1997, states:

WHEREFORE, this Court renders judgment affirming in toto the Decision rendered by the trial court with the slight modification that the interest at legal rate shall be computed from January 13, 1989 and that Meralco shall pay plaintiff T.E.A.M. Electronics Corporation and Technology Electronics Assembly and Management Pacific Corporation the sum of P150,000.00 per month for five (5) months for actual damages incurred when it was compelled to lease a generator set with interest at the legal rate from the above-stated date. SO ORDERED.24 The appellate court agreed with the RTC's conclusion. In addition, it considered petitioner negligent for failing to discover the alleged defects in the electric meters; in belatedly notifying TEC and TPC of the results of the inspection; and in disconnecting the electric power without prior notice. Petitioner now comes before this Court in this petition for review on certiorari contending that: The Court of Appeals committed grievous errors and decided matters of substance contrary to law and the rulings of this Honorable Court: 1. In finding that the issue in the case is whether there was deliberate tampering of the metering installations at the building owned by TEC. 2. In not finding that the issue is: whether or not, based on the tampered meters, whether or not petitioner is entitled to differential billing, and if so, how much. 3. In declaring that petitioner ME RALCO had the burden of proof to show by clear and convincing evidence that with respect to the tampered meters that TEC and/or TPC authored their tampering. 4. In finding that petitioner Meralco should not have held TEC and/or TPC responsible for the acts of Ultra. 5. In finding that TEC should not be held liable for the tampering of this electric meter in its DCIM Building. 6. In finding that there was no notice of disconnection. 7. In finding that petitioner MERALCO was negligent in informing TEC of the alleged tampering. 8. In making the finding that it is difficult to believe that when petitioner MERALCO inspected on June 7, 1988 the meter installations, they were found to be tampered. 9. In declaring that petitioner MERALCO estopped from claiming any tampering of the meters. 10. In finding that "the method employed by MERALCO to as certain (sic) the 'correct' amount of electricity consumed is questionable"; 11. In declaring that MERALCO all throughout its dealings with TEC took on an "attitude" which is oppressive, wanton and reckless.

12. In declaring that MERALCO acted arbitrarily in inspecting TEC's DCIM building and the NS building. 13. In declaring that respondents TEC and TPC are entitled to the damages which it awarded. 14. In not declaring that petitioner is entitled to the differential bill. 15. In not declaring that respondents are liable to petitioner for exemplary damages, attorney's fee and expenses for litigation.25 The petition must fail. The issues for resolution can be summarized as follows: 1) whether or not TEC tampered with the electric meters installed at its DCIM and NS buildings; 2) If so, whether or not it is liable for the differential billing as computed by petitioner; and 3) whether or not petitioner was justified in disconnecting the electric power supply in TEC's DCIM building. Petitioner insists that the tampering of the electric meters installed at the DCIM and NS buildings owned by respondent TEC has been established by overwhelming evidence, as specifically shown by the shorting devices found during the inspection. Thus, says petitioner, tampering of the meter is no longer an issue. It is obvious that petitioner wants this Court to revisit the factual findings of the lower courts. Wellestablished is the doctrine that under Rule 45 of the Rules of Court, only questions of law, not of fact, may be raised before the Court. We would like to stress that this Court is not a trier of facts and may not re-examine and weigh anew the respective evidence of the parties. Factual findings of the trial court, especially those affirmed by the Court of Appeals, are binding on this Court.26 Looking at the record, we note that petitioner claims to have discovered three incidences of metertampering; twice in the DCIM building on September 28, 1987 and June 7, 1988; and once in the NS building on April 24, 1988. The first instance was supposedly discovered on September 28, 1987. The inspector allegedly found the presence of a short circuiting device and saw that the meter seal was deformed. In addition, petitioner, through the Supervising Engineer of its Special Billing Analysis Department,27 claimed that there was a sudden and unexplainable drop in TEC's electrical consumption starting February 10, 1986. On the basis of the foregoing, petitioner concluded that the electric meters were tampered with. However, contrary to petitioner's claim that there was a drastic and unexplainable drop in TEC's electric consumption during the affected period, the Pattern of TEC's Electrical Consumption28 shows that the sudden drop is not peculiar to the said period. Noteworthy is the observation of the RTC in this wise: In fact, in Account No. 09341-1812-13 (heretofore referred as Account/Meter No. 2), as evidenced by Exhibits "35" and "35-A," there was likewise a sudden drop of electrical consumption from the year 1984 which recorded an average 141,300 kwh/month to 1985 which recorded an average kwh/month at 87,600 or a difference-drop of 53,700 kwh/month; from 1985's 87,600 recorded consumption, the same dropped to 18,600 kwh/month or a difference-drop of 69,000 kwh/month. Surely, a drop of 53,700 could be equally categorized

as a sudden drop amounting to 69,000 which, incidentally, the Meralco claimed as "unexplainable. x x x.29 The witnesses for petitioner who testified on the alleged tampering of the electric meters, declared that tampering is committed by consumers to prevent the meter from registering the correct amount of electric consumption, and result in a reduced monthly electric bill, while continuing to enjoy the same power supply. Only the registration of actual electric energy consumption, not the supply of electricity, is affected when a meter is tampered with.30 The witnesses claimed that after the inspection, the tampered electric meters were corrected, so that they would register the correct consumption of TEC. Logically, then, after the correction of the allegedly tampered meters, the customer's registered consumption would go up. In this case, the period claimed to have been affected by the tampered electric meters is from February 1986 until September 1987. Based on petitioner's Billing Record31 (for the DCIM building), TEC's monthly electric consumption on Account No. 9341-1322-16 was between 4,500 and 27,000 kwh.32 Account No. 9341-1812-13 showed a monthly consumption between 9,600 and 34,200 kwh.33 It is interesting to note that, after correction of the allegedly tampered meters, TEC's monthly electric consumption from October 1987 to February 1988 (the last month that Ultra occupied the DCIM building) was between 8,700 and 24,300 kwh in its first account, and 16,200 to 46,800 kwh on the second account. Even more revealing is the fact that TEC's meters registered 9,300 kwh and 19,200 kwh consumption on the first and second accounts, respectively, a month prior to the inspection. On the first month after the meters were corrected, TEC's electric consumption registered at 9,300 kwh and 22,200 kwh on the respective accounts. These figures clearly show that there was no palpably drastic difference between the consumption before and after the inspection, casting a cloud of doubt over petitioner's claim of meter-tampering. Indeed, Ultra's explanation that the corporation was losing; thus, it had lesser consumption of electric power appear to be the more plausible reason for the drop in electric consumption. Petitioner likewise claimed that when the subject meters were again inspected on June 7, 1988, they were found to have been tampered anew. The Court notes that prior to the inspection, TEC was informed about it; and months before the inspection, there was an unsettled controversy between TEC and petitioner, brought about by the disconnection of electric power and the non-payment of differential billing. We are more disposed to accept the trial court's conclusion that it is hard to believe that a customer previously apprehended for tampered meters and assessed P7 million would further jeopardize itself in the eyes of petitioner.34 If it is true that there was evidence of tampering found on September 28, 1987 and again on June 7, 1988, the better view would be that the defective meters were not actually corrected after the first inspection. If so, then Manila Electric Company v. Macro Textile Mills Corporation35 would apply, where we said that we cannot sanction a situation wherein the defects in the electric meter are allowed to continue indefinitely until suddenly, the public utilities demand payment for the unrecorded electricity utilized when they could have remedied the situation immediately. Petitioner's failure to do so may encourage neglect of public utilities to the detriment of the consuming public. Corollarily, it must be underscored that petitioner has the imperative duty to make a reasonable and proper inspection of its apparatus and equipment to ensure that they do not malfunction, and the due diligence to discover and repair defects therein. Failure to perform such duties constitutes negligence.36 By reason of said negligence, public utilities run the risk of forfeiting amounts originally due from their customers.37 As to the alleged tampering of the electric meter in TEC's NS building, suffice it to state that the allegation was not proven, considering that the meters therein were enclosed in a metal cabinet the metal seal of which was unbroken, with petitioner having sole access to the said meters.38

In view of the negative finding on the alleged tampering of electric meters on TEC's DCIM and NS buildings, petitioner's claim of differential billing was correctly denied by the trial and appellate courts. With greater reason, therefore, could petitioner not exercise the right of immediate disconnection. The law in force at the time material to this controversy was Presidential Decree (P.D.) No. 40139 issued on March 1, 1974.40 The decree penalized unauthorized installation of water, electrical or telephone connections and such acts as the use of tampered electrical meters. It was issued in answer to the urgent need to put an end to illegal activities that prejudice the economic well-being of both the companies concerned and the consuming public.41P.D. 401 granted the electric companies the right to conduct inspections of electric meters and the criminal prosecution42 of erring consumers who were found to have tampered with their electric meters. It did not expressly provide for more expedient remedies such as the charging of differential billing and immediate disconnection against erring consumers. Thus, electric companies found a creative way of availing themselves of such remedies by inserting into their service contracts (or agreements for the sale of electric energy) a provision for differential billing with the option of disconnection upon non-payment by the erring consumer. The Court has recognized the validity of such stipulations.43 However, recourse to differential billing with disconnection was subject to the prior requirement of a 48-hour written notice of disconnection.44 Petitioner, in the instant case, resorted to the remedy of disconnection without prior notice. While it is true that petitioner sent a demand letter to TEC for the payment of differential billing, it did not include any notice that the electric supply would be disconnected. In fine, petitioner abused the remedies granted to it under P.D. 401 and Revised General Order No. 1 by outrightly depriving TEC of electrical services without first notifying it of the impending disconnection. Accordingly, the CA did not err in affirming the RTC decision. As to the damages awarded by the CA, we deem it proper to modify the same. Actual damages are compensation for an injury that will put the injured party in the position where it was before the injury. They pertain to such injuries or losses that are actually sustained and susceptible of measurement. Except as provided by law or by stipulation, a party is entitled to adequate compensation only for such pecuniary loss as is duly proven. Basic is the rule that to recover actual damages, not only must the amount of loss be capable of proof; it must also be actually proven with a reasonable degree of certainty, premised upon competent proof or the best evidence obtainable.45 Respondent TEC sufficiently established, and petitioner in fact admitted, that the former paid P1,000,000.00 andP280,813.72 under protest, the amounts representing a portion of the latter's claim of differential billing. With the finding that no tampering was committed and, thus, no differential billing due, the aforesaid amounts should be returned by petitioner, with interest, as ordered by the Court of Appeals and pursuant to the guidelines set forth by the Court.46 However, despite the appellate court's conclusion that no tampering was committed, it held Ultra solidarily liable with petitioner for P1,000,000.00, only because the former, as occupant of the building, promised to settle the claims of the latter. This ruling is erroneous. Ultra's promise was conditioned upon the finding of defect or tampering of the meters. It did not acknowledge any culpability and liability, and absent any tampered meter, it is absurd to make the lawful occupant liable. It was petitioner who received the P1 million; thus, it alone should be held liable for the return of the amount. TEC also sufficiently established its claim for the reimbursement of the amount paid as rentals for the generator set it was constrained to rent by reason of the illegal disconnection of electrical service. The official receipts and purchase orders submitted by TEC as evidence sufficiently show

that such rentals were indeed made. However, the amount of P150,000.00 per month for five months, awarded by the CA, is excessive. Instead, a total sum ofP150,000.00, as found by the RTC, is proper. As to the payment of exemplary damages and attorney's fees, we find no cogent reason to disturb the same. Exemplary damages are imposed by way of example or correction for the public good in addition to moral, temperate, liquidated, or compensatory damages.47 In this case, to serve as an example that before a disconnection of electrical supply can be effected by a public utility, the requisites of law must be complied with we affirm the award of P200,000.00 as exemplary damages. With the award of exemplary damages, the award of attorney's fees is likewise proper, pursuant to Article 220848 of the Civil Code. It is obvious that TEC needed the services of a lawyer to argue its cause through three levels of the judicial hierarchy. Thus, the award ofP200,000.00 is in order.49 We, however, deem it proper to delete the award of moral damages. TEC's claim was premised allegedly on the damage to its goodwill and reputation.50 As a rule, a corporation is not entitled to moral damages because, not being a natural person, it cannot experience physical suffering or sentiments like wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is when the corporation has a reputation that is debased, resulting in its humiliation in the business realm.51 But in such a case, it is imperative for the claimant to present proof to justify the award. It is essential to prove the existence of the factual basis of the damage and its causal relation to petitioner's acts.52 In the present case, the records are bereft of any evidence that the name or reputation of TEC/TPC has been debased as a result of petitioner's acts. Besides, the trial court simply awarded moral damages in the dispositive portion of its decision without stating the basis thereof. WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 40282 dated June 18, 1997 and its Resolution dated December 3, 1997 are AFFIRMED with the following MODIFICATIONS: (1) the award of P150,000.00 per month for five months as reimbursement for the rentals of the generator set isREDUCED to P150,000.00; and (2) the award of P500,000.00 as moral damages is hereby DELETED. SO ORDERED. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 157549 May 30, 2011

DONNINA C. HALLEY, Petitioner, vs. PRINTWELL, INC., Respondent. DECISION BERSAMIN, J:

Stockholders of a corporation are liable for the debts of the corporation up to the extent of their unpaid subscriptions. They cannot invoke the veil of corporate identity as a shield from liability, because the veil may be lifted to avoid defrauding corporate creditors. Weaffirm with modification the decisionpromulgated on August 14, 2002,1whereby the Court of Appeals(CA) upheld thedecision of the Regional Trial Court, Branch 71, in Pasig City (RTC),2ordering the defendants (including the petitioner)to pay to Printwell, Inc. (Printwell) the principal sum of P291,342.76 plus interest. Antecedents The petitioner wasan incorporator and original director of Business Media Philippines, Inc. (BMPI), which, at its incorporation on November 12, 1987,3had an authorized capital stock of P3,000,000.00 divided into 300,000 shares each with a par value of P10.00,of which 75,000 were initially subscribed, to wit: Subscriber Donnina C. Halley Roberto V. Cabrera, Jr. Albert T. Yu Zenaida V. Yu Rizalino C. Vineza TOTAL No. of shares 35,000 18,000 18,000 2,000 2,000 75,000 Total subscription P 350,000.00 P 180,000.00 P 180,000.00 P 20,000.00 P 20,000.00 P750,000.00 Amount paid P87,500.00 P45,000.00 P45,000.00 P5,000.00 P5,000.00 P187,500.00

Printwellengaged in commercial and industrial printing.BMPI commissioned Printwell for the printing of the magazine Philippines, Inc. (together with wrappers and subscription cards) that BMPI published and sold. For that purpose, Printwell extended 30-day credit accommodations to BMPI. In the period from October 11, 1988 until July 12, 1989, BMPI placedwith Printwell several orders on credit, evidenced byinvoices and delivery receipts totalingP316,342.76.Considering that BMPI paidonlyP25,000.00,Printwell suedBMPIon January 26, 1990 for the collection of the unpaid balance ofP291,342.76 in the RTC.4 On February 8, 1990,Printwell amended thecomplaint in order to implead as defendants all the original stockholders and incorporators to recover on theirunpaid subscriptions, as follows:5 Name Donnina C. Halley Roberto V. Cabrera, Jr. Albert T. Yu Zenaida V. Yu Rizalino C. Vieza TOTAL Unpaid Shares P 262,500.00 P135,000.00 P135,000.00 P15,000.00 P15,000.00 P 562,500.00

The defendants filed a consolidated answer,6averring that they all had paid their subscriptions in full; that BMPI had a separate personality from those of its stockholders; thatRizalino C. Vieza had assigned his fully-paid up sharesto a certain Gerardo R. Jacinto in 1989; andthat the directors and stockholders of BMPI had resolved to dissolve BMPI during the annual meetingheld on February 5, 1990. To prove payment of their subscriptions, the defendantstockholderssubmitted in evidenceBMPI official receipt (OR) no. 217, OR no. 218, OR no. 220,OR no. 221, OR no. 222, OR no. 223, andOR no. 227,to wit: Receipt No. 217 218 220 221 222 223 227 Date November 5, 1987 May 13, 1988 May 13, 1988 November 5, 1987 November 5, 1987 May 13, 1988 May 13, 1988 Name Albert T. Yu Albert T. Yu Roberto V. Cabrera, Jr. Roberto V. Cabrera, Jr. Zenaida V. Yu Zenaida V. Yu Donnina C. Halley Amount P 45,000.00 P 135,000.00 P 135,000.00 P 45,000.00 P 5,000.00 P 15,000.00 P 262,500.00

In addition, the stockholderssubmitted other documentsin evidence, namely:(a) an audit report dated March 30, 1989 prepared by Ilagan, Cepillo & Associates (submitted to the SEC and the BIR);7(b) BMPIbalance sheet8 and income statement9as of December 31, 1988; (c) BMPI income tax return for the year 1988 (stamped "received" by the BIR);10(d) journal vouchers;11(e) cash deposit slips;12 and(f)Bank of the Philippine Islands (BPI) savings account passbookin the name of BMPI.13 Ruling of the RTC On November 3, 1993, the RTC rendereda decision in favor of Printwell, rejecting the allegation of payment in full of the subscriptions in view of an irregularity in the issuance of the ORs and observingthat the defendants had used BMPIs corporate personality to evade payment and create injustice, viz: The claim of individual defendants that they have fully paid their subscriptions to defend[a]nt corporation, is not worthy of consideration, because: a) in the case of defendants-spouses Albert and Zenaida Yu, it will be noted that the alleged payment made on May 13, 1988 amounting to P135,000.00, is covered by Official Receipt No. 218 (Exh. "2"), whereas the alleged payment made earlier on November 5, 1987, amounting to P5,000.00, is covered by Official Receipt No. 222 (Exh. "3"). This is cogent proof that said receipts were belatedly issued just to suit their theory since in the ordinary course of business, a receipt issued earlier must have serial numbers lower than those issued on a later date. But in the case at bar, the receipt issued on November 5, 1987 has serial numbers (222) higher than those issued on a later date (May 13, 1988). b) The claim that since there was no call by the Board of Directors of defendant corporation for the payment of unpaid subscriptions will not be a valid excuse to free individual defendants from liability. Since the individual defendants are members of the Board of Directors of defendantcorporation, it

was within their exclusive power to prevent the fulfillment of the condition, by simply not making a call for the payment of the unpaid subscriptions. Their inaction should not work to their benefit and unjust enrichment at the expense of plaintiff. Assuming arguendo that the individual defendants have paid their unpaid subscriptions, still, it is very apparent that individual defendants merely used the corporate fiction as a cloak or cover to create an injustice; hence, the alleged separate personality of defendant corporation should be disregarded (Tan Boon Bee & Co., Inc. vs. Judge Jarencio, G.R. No. 41337, 30 June 1988).14 Applying the trust fund doctrine, the RTC declared the defendant stockholders liable to Printwell pro rata, thusly: Defendant Business Media, Inc. is a registered corporation (Exhibits "A", "A-1" to "A-9"), and, as appearing from the Articles of Incorporation, individual defendants have the following unpaid subscriptions: Names Donnina C. Halley Unpaid Subscription P262,500.00

Roberto V. Cabrera, Jr. 135.000.00 Albert T. Yu Zenaida V. Yu Rizalino V. Vineza -------------------------------Total P562,500.00 135,000.00 15,000.00 15,000.00

and it is an established doctrine that subscriptions to the capital stock of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims (Philippine National Bank vs. Bitulok Sawmill, Inc., 23 SCRA 1366) and, in fact, a corporation has no legal capacity to release a subscriber to its capital stock from the obligation to pay for his shares, and any agreement to this effect is invalid (Velasco vs. Poizat, 37 Phil. 802). The liability of the individual stockholders in the instant case shall be pro-rated as follows: Names Donnina C. Halley Amount P149,955.65

Roberto V. Cabrera, Jr. 77,144.55 Albert T. Yu Zenaida V. Yu Rizalino V. Vineza -------------------------------77,144.55 8,579.00 8,579.00

Total The RTC disposed as follows:

P321,342.7515

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants, ordering defendants to pay to plaintiff the amount of P291,342.76, as principal, with interest thereon at 20% per annum, from date of default, until fully paid, plus P30,000.00 as attorneys fees, plus costs of suit. Defendants counterclaims are ordered dismissed for lack of merit. SO ORDERED.16 Ruling of the CA All the defendants, except BMPI, appealed. Spouses Donnina and Simon Halley, andRizalinoVieza defined the following errors committed by the RTC, as follows: I. THE TRIAL COURT ERRED IN HOLDING APPELLANTS-STOCKHOLDERS LIABLE FOR THE LIABILITIES OF THE DEFENDANT CORPORATION. II. ASSUMING ARGUENDO THAT APPELLANTS MAY BE LIABLE TO THE EXTENT OF THEIR UNPAID SUBSCRIPTION OF SHARES OF STOCK, IF ANY, THE TRIAL COURT NONETHELESS ERRED IN NOT FINDING THAT APPELLANTS-STOCKHOLDERS HAVE, AT THE TIME THE SUIT WAS FILED, NO SUCH UNPAID SUBSCRIPTIONS. On their part, Spouses Albert and Zenaida Yu averred: I. THE RTC ERRED IN REFUSING TO GIVE CREDENCE AND WEIGHT TO DEFENDANTSAPPELLANTS SPOUSES ALBERT AND ZENAIDA YUS EXHIBITS 2 AND 3 DESPITE THE UNREBUTTED TESTIMONY THEREON BY APPELLANT ALBERT YU AND THE ABSENCE OF PROOF CONTROVERTING THEM. II. THE RTC ERRED IN HOLDING DEFENDANTS-APPELLANTS SPOUSES ALBERT AND ZENAIDA YU PERSONALLY LIABLE FOR THE CONTRACTUAL OBLIGATION OF BUSINESS MEDIA PHILS., INC. DESPITE FULL PAYMENT BY SAID DEFENDANTS-APPELLANTS OF THEIR RESPECTIVE SUBSCRIPTIONS TO THE CAPITAL STOCK OF BUSINESS MEDIA PHILS., INC. Roberto V. Cabrera, Jr. argued:

I. IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO APPLY THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE PERSONALITY IN ABSENCE OF ANY SHOWING OF EXTRA-ORDINARY CIRCUMSTANCES THAT WOULD JUSTIFY RESORT THERETO. II. IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO RULE THAT INDIVIDUAL DEFENDANTS ARE LIABLE TO PAY THE PLAINTIFF-APPELLEES CLAIM BASED ON THEIR RESPECTIVE SUBSCRIPTION. NOTWITHSTANDING OVERWHELMING EVIDENCE SHOWING FULL SETTLEMENT OF SUBSCRIBED CAPITAL BY THE INDIVIDUAL DEFENDANTS. On August 14, 2002, the CA affirmed the RTC, holding that the defendants resort to the corporate personality would createan injustice becausePrintwell would thereby be at a loss against whom it would assert the right to collect, viz: Settled is the rule that when the veil of corporate fiction is used as a means of perpetrating fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievements or perfection of monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals (First Philippine International Bank vs. Court of Appeals, 252 SCRA 259). Moreover, under this doctrine, the corporate existence may be disregarded where the entity is formed or used for non-legitimate purposes, such as to evade a just and due obligations or to justify wrong (Claparols vs. CIR, 65 SCRA 613). In the case at bench, it is undisputed that BMPI made several orders on credit from appellee PRINTWELL involving the printing of business magazines, wrappers and subscription cards, in the total amount of P291,342.76 (Record pp. 3-5, Annex "A") which facts were never denied by appellants stockholders that they owe appellee the amount of P291,342.76. The said goods were delivered to and received by BMPI but it failed to pay its overdue account to appellee as well as the interest thereon, at the rate of 20% per annum until fully paid. It was also during this time that appellants stockholders were in charge of the operation of BMPI despite the fact that they were not able to pay their unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view of the unpaid subscriptions, BMPI failed to pay appellee of its liability, hence appellee in order to protect its right can collect from the appellants stockholders regarding their unpaid subscriptions. To deny appellee from recovering from appellants would place appellee in a limbo on where to assert their right to collect from BMPI since the stockholders who are appellants herein are availing the defense of corporate fiction to evade payment of its obligations.17 Further, the CA concurred with the RTC on theapplicability of thetrust fund doctrine, under which corporate debtors might look to the unpaid subscriptions for the satisfaction of unpaid corporate debts, stating thus: It is an established doctrine that subscription to the capital stock of a corporation constitute a fund to which creditors have a right to look up to for satisfaction of their claims, and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts (PNB vs. Bitulok Sawmill, 23 SCRA 1366). Premised on the above-doctrine, an inference could be made that the funds, which consists of the payment of subscriptions of the stockholders, is where the creditors can claim monetary

considerations for the satisfaction of their claims. If these funds which ought to be fully subscribed by the stockholders were not paid or remain an unpaid subscription of the corporation then the creditors have no other recourse to collect from the corporation of its liability. Such occurrence was evident in the case at bar wherein the appellants as stockholders failed to fully pay their unpaid subscriptions, which left the creditors helpless in collecting their claim due to insufficiency of funds of the corporation. Likewise, the claim of appellants that they already paid the unpaid subscriptions could not be given weight because said payment did not reflect in the Articles of Incorporations of BMPI that the unpaid subscriptions were fully paid by the appellants stockholders. For it is a rule that a stockholder may be sued directly by creditors to the extent of their unpaid subscriptions to the corporation (Keller vs. COB Marketing, 141 SCRA 86). Moreover, a corporation has no power to release a subscription or its capital stock, without valuable consideration for such releases, and as against creditors, a reduction of the capital stock can take place only in the manner and under the conditions prescribed by the statute or the charter or the Articles of Incorporation. (PNB vs. Bitulok Sawmill, 23 SCRA 1366).18 The CAdeclared thatthe inconsistency in the issuance of the ORs rendered the claim of full payment of the subscriptions to the capital stock unworthy of consideration; andheld that the veil of corporate fiction could be pierced when it was used as a shield to perpetrate a fraud or to confuse legitimate issues, to wit: Finally, appellants SPS YU, argued that the fact of full payment for the unpaid subscriptions was incontrovertibly established by competent testimonial and documentary evidence, namely Exhibits "1", "2", "3" & "4", which were never disputed by appellee, clearly shows that they should not be held liable for payment of the said unpaid subscriptions of BMPI. The reliance is misplaced. We are hereby reproducing the contents of the above-mentioned exhibits, to wit: Exh: "1" YU Official Receipt No. 217 dated November 5, 1987 amounting to P45,000.00 allegedly representing the initial payment of subscriptions of stockholder Albert Yu. Exh: "2" YU Official Receipt No. 218 dated May 13, 1988 amounting to P135,000.00 allegedly representing full payment of balance of subscriptions of stockholder Albert Yu. (Record p. 352). Exh: "3" YU Official Receipt No. 222 dated November 5, 1987 amounting to P5,000.00 allegedly representing the initial payment of subscriptions of stockholder Zenaida Yu. Exh: "4" YU Official Receipt No. 223 dated May 13, 1988 amounting to P15,000.00 allegedly representing the full payment of balance of subscriptions of stockholder Zenaida Yu. (Record p. 353). Based on the above exhibits, we are in accord with the lower courts findings that the claim of the individual appellants that they fully paid their subscription to the defendant BMPI is not worthy of consideration, because, in the case of appellants SPS. YU, there is an inconsistency regarding the issuance of the official receipt since the alleged payment made on May 13, 1988 amounting to P135,000.00 was covered by Official Receipt No. 218 (Record, p. 352), whereas the alleged payment made earlier on November 5, 1987 amounting to P5,000.00 is covered by Official Receipt No. 222 (Record, p. 353). Such issuance is a clear indication that said receipts were belatedly issued just to suit their claim that they have fully paid the unpaid subscriptions since in the ordinary course of business, a receipt is issued earlier must have serial numbers lower than those issued on

a later date. But in the case at bar, the receipt issued on November 5, 1987 had a serial number (222) higher than those issued on May 13, 1988 (218). And even assuming arguendo that the individual appellants have paid their unpaid subscriptions, still, it is very apparent that the veil of corporate fiction may be pierced when made as a shield to perpetuate fraud and/or confuse legitimate issues. (Jacinto vs. Court of Appeals, 198 SCRA 211).19 Spouses Halley and Vieza moved for a reconsideration, but the CA denied their motion for reconsideration. Issues Only Donnina Halley has come to the Court to seek a further review, positing the following for our consideration and resolution, to wit: I. THE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE DECISION THAT DID NOTSTATE THE FACTS AND THE LAW UPON WHICH THE JUDGMENT WAS BASED BUT MERELY COPIED THE CONTENTS OF RESPONDENTS MEMORANDUM ADOPTING THE SAME AS THE REASON FOR THE DECISION II. THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE REGIONAL TRIAL COURT WHICH ESSENTIALLY ALLOWED THE PIERCING OF THE VEIL OF CORPORATE FICTION III. THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE TRUST FUND DOCTRINE WHEN THE GROUNDS THEREFOR HAVE NOT BEEN SATISFIED. On the first error, the petitioner contends that the RTC lifted verbatim from the memorandum of Printwell; and submits that the RTCthereby violatedthe requirement imposed in Section 14, Article VIII of the Constitution20 as well as in Section 1,Rule 36 of the Rules of Court,21to the effect that a judgment or final order of a court should state clearly and distinctly the facts and the law on which it is based. The petitioner claims that the RTCs violation indicated that the RTC did not analyze the case before rendering its decision, thus denying her the opportunity to analyze the decision; andthat a suspicion of partiality arose from the fact that the RTC decision was but a replica of Printwells memorandum.She cites Francisco v. Permskul,22 in which the Court has stated that the reason underlying the constitutional requirement, that every decision should clearly and distinctly state the facts and the law on which it is based, is to inform the reader of how the court has reached its decision and thereby give the losing party an opportunity to study and analyze the decision and enable such party to appropriately assign the errors committed therein on appeal. On the second and third errors, the petitioner maintains that the CA and the RTC erroneously pierced the veil of corporate fiction despite the absence of cogent proof showing that she, as stockholder of BMPI, had any hand in transacting with Printwell; thatthe CA and the RTC failed to appreciate the evidence that she had fully paid her subscriptions; and the CA and the RTCwrongly relied on the articles of incorporation in determining the current list of unpaid subscriptions despite the articles of incorporationbeing at best reflectiveonly of the pre-incorporation status of BMPI.

As her submissions indicate, the petitioner assails the decisions of the CA on: (a) the propriety of disregarding the separate personalities of BMPI and its stockholdersby piercing the thin veil that separated them; and (b) the application of the trust fund doctrine. Ruling The petition for review fails. I The RTC the Constitution and the Rules of Court

did

not

violate

The contention of the petitioner, that the RTC merely copied the memorandum of Printwell in writing its decision, and did not analyze the records on its own, thereby manifesting a bias in favor of Printwell, is unfounded. It is noted that the petition for review merely generally alleges that starting from its page 5, the decision of the RTC "copied verbatim the allegations of herein Respondents in its Memorandum before the said court," as if "the Memorandum was the draft of the Decision of the Regional Trial Court of Pasig,"23but fails to specify either the portions allegedly lifted verbatim from the memorandum, or why she regards the decision as copied. The omission renders thepetition for review insufficient to support her contention, considering that the mere similarityin language or thought between Printwells memorandum and the trial courts decisiondid not necessarily justify the conclusion that the RTC simply lifted verbatim or copied from thememorandum. It is to be observed in this connection that a trial or appellate judge may occasionally viewa partys memorandum or brief as worthy of due consideration either entirely or partly. When he does so, the judgemay adopt and incorporatein his adjudicationthe memorandum or the parts of it he deems suitable,and yet not be guilty of the accusation of lifting or copying from the memorandum. 24 This isbecause ofthe avowed objective of the memorandum to contribute in the proper illumination and correct determination of the controversy.Nor is there anything untoward in the congruence of ideas and views about the legal issues between himself and the party drafting the memorandum.The frequency of similarities in argumentation, phraseology, expression, and citation of authorities between the decisions of the courts and the memoranda of the parties, which may be great or small, can be fairly attributable tothe adherence by our courts of law and the legal profession to widely knownor universally accepted precedents set in earlier judicial actions with identical factual milieus or posing related judicial dilemmas. We also do not agree with the petitioner that the RTCs manner of writing the decisiondeprivedher ofthe opportunity to analyze its decisionas to be able to assign errors on appeal. The contrary appears, considering that she was able to impute and assignerrors to the RTCthat she extensively discussed in her appeal in the CA, indicating her thorough analysis ofthe decision of the RTC. Our own readingof the trial courts decision persuasively shows that the RTC did comply with the requirements regarding the content and the manner of writing a decision prescribed in the Constitution and the Rules of Court. The decision of the RTC contained clear and distinct findings of facts, and stated the applicablelaw and jurisprudence, fully explaining why the defendants were being held liable to the plaintiff. In short, the reader was at once informed of the factual and legal reasons for the ultimate result. II Corporate personality not to be used to foster injustice

Printwell impleaded the petitioner and the other stockholders of BMPI for two reasons, namely: (a) to reach the unpaid subscriptions because it appeared that such subscriptions were the remaining visible assets of BMPI; and (b) to avoid multiplicity of suits.25 The petitionersubmits that she had no participation in the transaction between BMPI and Printwell;that BMPI acted on its own; and that shehad no hand in persuading BMPI to renege on its obligation to pay. Hence, she should not be personally liable. We rule against the petitioners submission. Although a corporation has a personality separate and distinct from those of its stockholders, directors, or officers,26such separate and distinct personality is merely a fiction created by law for the sake of convenience and to promote the ends of justice.27The corporate personality may be disregarded, and the individuals composing the corporation will be treated as individuals, if the corporate entity is being used as a cloak or cover for fraud or illegality;as a justification for a wrong; as an alter ego, an adjunct, or a business conduit for the sole benefit of the stockholders. 28 As a general rule, a corporation is looked upon as a legal entity, unless and until sufficient reason to the contrary appears. Thus,the courts always presume good faith, andfor that reason accord prime importance to the separate personality of the corporation, disregarding the corporate personality only after the wrongdoing is first clearly and convincingly established.29It thus behooves the courts to be careful in assessing the milieu where the piercing of the corporate veil shall be done.30 Although nowhere in Printwells amended complaint or in the testimonies Printwell offered can it be read or inferred from that the petitioner was instrumental in persuading BMPI to renege onits obligation to pay; or that sheinduced Printwell to extend the credit accommodation by misrepresenting the solvency of BMPI toPrintwell, her personal liability, together with that of her codefendants, remainedbecause the CA found her and the other defendant stockholders to be in charge of the operations of BMPI at the time the unpaid obligation was transacted and incurred, to wit: In the case at bench, it is undisputed that BMPI made several orders on credit from appellee PRINTWELL involving the printing of business magazines, wrappers and subscription cards, in the total amount of P291,342.76 (Record pp. 3-5, Annex "A") which facts were never denied by appellants stockholders that they owe(d) appellee the amount of P291,342.76. The said goods were delivered to and received by BMPI but it failed to pay its overdue account to appellee as well as the interest thereon, at the rate of 20% per annum until fully paid. It was also during this time that appellants stockholders were in charge of the operation of BMPI despite the fact that they were not able to pay their unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view of the unpaid subscriptions, BMPI failed to pay appellee of its liability, hence appellee in order to protect its right can collect from the appellants stockholders regarding their unpaid subscriptions. To deny appellee from recovering from appellants would place appellee in a limbo on where to assert their right to collect from BMPI since the stockholders who are appellants herein are availing the defense of corporate fiction to evade payment of its obligations.31 It follows, therefore, that whether or not the petitioner persuaded BMPI to renege on its obligations to pay, and whether or not she induced Printwell to transact with BMPI were not gooddefensesin the suit.
1avv phi 1

III Unpaid creditor may satisfy its unpaid subscriptions;stockholders prove full payment oftheir subscriptions

claim

from must

Both the RTC and the CA applied the trust fund doctrineagainst the defendant stockholders, including the petitioner. The petitionerargues, however,that the trust fund doctrinewas inapplicablebecause she had already fully paid her subscriptions to the capital stock of BMPI. She thus insiststhat both lower courts erred in disregarding the evidence on the complete payment of the subscription, like receipts, income tax returns, and relevant financial statements. The petitioners argumentis devoid of substance. The trust fund doctrineenunciates a xxx rule that the property of a corporation is a trust fund for the payment of creditors, but such property can be called a trust fund only by way of analogy or metaphor. As between the corporation itself and its creditors it is a simple debtor, and as between its creditors and stockholders its assets are in equity a fund for the payment of its debts.32 The trust fund doctrine, first enunciated in the American case of Wood v. Dummer,33was adopted in our jurisdiction in Philippine Trust Co. v. Rivera,34where thisCourt declared that: It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts. (Velasco vs. Poizat, 37 Phil., 802) xxx35 We clarify that the trust fund doctrineis not limited to reaching the stockholders unpaid subsc riptions. The scope of the doctrine when the corporation is insolvent encompasses not only the capital stock, but also other property and assets generally regarded in equity as a trust fund for the payment of corporate debts.36All assets and property belonging to the corporation held in trust for the benefit of creditors thatwere distributed or in the possession of the stockholders, regardless of full paymentof their subscriptions, may be reached by the creditor in satisfaction of its claim. Also, under the trust fund doctrine,a corporation has no legal capacity to release an original subscriber to its capital stock from the obligation of paying for his shares, in whole or in part,37 without a valuable consideration,38or fraudulently, to the prejudice of creditors.39The creditor is allowed to maintain an action upon any unpaid subscriptions and thereby steps into the shoes of the corporation for the satisfaction of its debt.40To make out a prima facie case in a suit against stockholders of an insolvent corporation to compel them to contribute to the payment of its debts by making good unpaid balances upon their subscriptions, it is only necessary to establish that thestockholders have not in good faith paid the par value of the stocks of the corporation.41 The petitionerposits that the finding of irregularity attending the issuance of the receipts (ORs) issued to the other stockholders/subscribers should not affect her becauseher receipt did not suffer similar irregularity. Notwithstanding that the RTC and the CA did not find any irregularity in the OR issued in her favor,we still cannot sustain the petitioners defense of full payment of her subscription. In civil cases, theparty who pleads payment has the burden of proving it, that even where the plaintiff must allege nonpayment, the general rule is that the burden rests on the defendant to prove

payment, rather than on the plaintiff to prove nonpayment. In other words, the debtor bears the burden of showing with legal certainty that the obligation has been discharged by payment.42 Apparently, the petitioner failed to discharge her burden. A receipt is the written acknowledgment of the fact of payment in money or other settlement between the seller and the buyer of goods, thedebtor or thecreditor, or theperson rendering services, and theclient or thecustomer.43Althougha receipt is the best evidence of the fact of payment, it isnot conclusive, but merely presumptive;nor is it exclusive evidence,considering thatparole evidence may also establishthe fact of payment.44 The petitioners ORNo. 227,presentedto prove the payment of the balance of her subscription, indicated that her supposed payment had beenmade by means of a check. Thus, to discharge theburden to prove payment of her subscription, she had to adduce evidence satisfactorily proving that her payment by check wasregardedas payment under the law. Paymentis defined as the delivery of money.45Yet, because a check is not money and only substitutes for money, the delivery of a check does not operate as payment and does not discharge the obligation under a judgment.46The delivery of a bill of exchange only produces the fact of payment when the bill has been encashed.47The following passage fromBank of Philippine Islands v. Royeca48is enlightening: Settled is the rule that payment must be made in legal tender. A check is not legal tender and, therefore, cannot constitute a valid tender of payment. Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized. To establish their defense, the respondents therefore had to present proof, not only that they delivered the checks to the petitioner, but also that the checks were encashed. The respondents failed to do so. Had the checks been actually encashed, the respondents could have easily produced the cancelled checks as evidence to prove the same. Instead, they merely averred that they believed in good faith that the checks were encashed because they were not notified of the dishonor of the checks and three years had already lapsed since they issued the checks. Because of this failure of the respondents to present sufficient proof of payment, it was no longer necessary for the petitioner to prove non-payment, particularly proof that the checks were dishonored. The burden of evidence is shifted only if the party upon whom it is lodged was able to adduce preponderant evidence to prove its claim. Ostensibly, therefore, the petitioners mere submission of the receipt issued in exchange of the check did not satisfactorily establish her allegation of full payment of her subscription. Indeed, she could not even inform the trial court about the identity of her drawee bank,49and about whether the check was cleared and its amount paid to BMPI.50In fact, she did not present the check itself. Theincome tax return (ITR) and statement of assets and liabilities of BMPI, albeit presented, had no bearing on the issue of payment of the subscription because they did not by themselves prove payment. ITRsestablish ataxpayers liability for taxes or a taxpayers claim for refund. In the same manner, the deposit slips and entries in the passbook issued in the name of BMPI were hardly relevant due to their not reflecting the alleged payments.

It is notable, too, that the petitioner and her co-stockholders did not support their allegation of complete payment of their respective subscriptions with the stock and transfer book of BMPI. Indeed, books and records of a corporation (including the stock and transfer book) are admissible in evidence in favor of or against the corporation and its members to prove the corporate acts, its financial status and other matters (like the status of the stockholders), and are ordinarily the best evidence of corporate acts and proceedings.51Specifically, a stock and transfer book is necessary as a measure of precaution, expediency, and convenience because it provides the only certain and accurate method of establishing the various corporate acts and transactions and of showing the ownership of stock and like matters.52That she tendered no explanation why the stock and transfer book was not presented warrants the inference that the book did not reflect the actual payment of her subscription. Nor did the petitioner present any certificate of stock issued by BMPI to her. Such a certificate covering her subscription might have been a reliable evidence of full payment of the subscriptions, considering that under Section 65 of the Corporation Code a certificate of stock issues only to a subscriber who has fully paid his subscription. The lack of any explanation for the absence of a stock certificate in her favor likewise warrants an unfavorable inference on the issue of payment. Lastly, the petitioner maintains that both lower courts erred in relying on the articles of incorporationas proof of the liabilities of the stockholders subscribing to BMPIs stocks, averring that the articles of incorporationdid not reflect the latest subscription status of BMPI. Although the articles of incorporation may possibly reflect only the pre-incorporation status of a corporation, the lower courts reliance on that document to determine whether the original subscribersalready fully paid their subscriptions or not was neither unwarranted nor erroneous. As earlier explained, the burden of establishing the fact of full payment belonged not to Printwell even if it was the plaintiff, but to the stockholders like the petitioner who, as the defendants, averredfull payment of their subscriptions as a defense. Their failure to substantiate their averment of full payment, as well as their failure to counter the reliance on the recitals found in the articles of incorporation simply meant their failure or inability to satisfactorily prove their defense of full payment of the subscriptions. To reiterate, the petitionerwas liablepursuant to the trust fund doctrine for the corporate obligation of BMPI by virtue of her subscription being still unpaid. Printwell, as BMPIs creditor,had a right to reachher unpaid subscription in satisfaction of its claim. IV Liability of stockholders to the extentof their unpaid subscription

for

corporate

debts

isup

The RTC declared the stockholders pro rata liable for the debt(based on the proportion to their shares in the capital stock of BMPI); and held the petitionerpersonally liable onlyin the amount of P149,955.65. We do not agree. The RTC lacked the legal and factual support for its prorating the liability. Hence, we need to modify the extent of the petitioners personal liability to Printwell. The prevailing rule is that a stockholder is personally liable for the financial obligations of the corporation to the extent of his unpaid subscription.53In view ofthe petitioners unpaid subscription being worth P262,500.00, shewas liable up to that amount.

Interest is also imposable on the unpaid obligation. Absent any stipulation, interest is fixed at 12% per annum from the date the amended complaint was filed on February 8, 1990 until the obligation (i.e., to the extent of the petitioners personal liability of P262,500.00) is fully paid.54 Lastly, we find no basis togrant attorneys fees, the award for which must be supported by findings of fact and of law as provided under Article 2208 of the Civil Code 55incorporated in the body of decision of the trial court. The absence of the requisite findings from the RTC decision warrants the deletion of the attorneys fees. ACCORDINGLY, we deny the petition for review on certiorari;and affirm with modification the decision promulgated on August 14, 2002by ordering the petitionerto pay to Printwell, Inc. the sum of P262,500.00, plus interest of 12% per annum to be computed from February 8, 1990 until full payment. The petitioner shall paycost of suit in this appeal. SO ORDERED. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 95940 July 24, 1996 PANTRANCO NORTH EXPRESS, INC., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and URBANO SUIGA, respondents.

PANGANIBAN, J.:p Is a Collective Bargaining Agreement provision allowing compulsory retirement before age 60 but after twenty five years of service legal and enforceable? Who has jurisdiction over a case involving such a question the labor arbiter or arbitrators authorized by such CBA? The foregoing questions are presented in the instant petition for Certiorari seeking the nullification of the Resolution 1 promulgated September 28, 1990 by the National Labor Relations Commission 2 in an illegal dismissal case brought by private respondent. In its assailed Resolution, the public respondent affirmed the decision of the Labor Arbiter Ricardo N. Olairez dated March 26, 1990 3 declaring that the compulsory retirement of private respondent constituted illegal dismissal, ordering his reinstatement and granting him backwages. The Antecedent Facts Private respondent was hired by petitioner in 1964 as a bus conductor. He eventually joined the Pantranco Employees Association-PTGWO. He continued the petitioner's employ until August 12,

1989, when he was retired at the age of fifty-two (52) after having rendered twenty five years' service. The basis of his retirement was the compulsory retirement provision of the collective bargaining agreement between the petitioner and the aforenamed union. Private respondent received P49,300.00 as retirement pay. On February 15, 1990, private respondent filed a complaint 4 for illegal dismissal against petitioner with the Sub-Regional Arbitration Branch of the respondent Commission in Dagupan City. The complaint was consolidated with two other cases of illegal dismissal 5 having similar facts and issues, filed by the other employees, non-union members. After hearings were held and position papers submitted, on March 26, 1990, Labor Arbiter Olairez rendered his decision, the dispositive portion of which reads: WHEREFORE, with all the foregoing considerations, we find the three complainants illegally and unjustly dismissed and we hereby order the respondent to reinstate them to their former or substantially equivalent positions without loss of seniority rights with full backwages and other benefits, computed as follows: xxx xxx xxx 3. Urbano Suiga P 27,375.00 Backwages, Aug. March 31/90 (P3,650.00 x 7.5 mos.) 16/89 to

1,368.75 13th month pay for 1989 (P16,425.00 over 12) P 28,743.75 2,874.37 10% attorney's fees P 31,618.12 Total as of March 31/90 plus additional backwages and other benefits but not to exceed 3 years and the corresponding attorney's fees. The amounts already received by complainants shall be considered as advanced payment of their retirement pay which shall be deducted when they shall actually retire or (be) separated from the service. The order of reinstatement is immediately executory even pending appeal. Petitioner appealed to public respondent, which issued the questioned Resolution affirming the labor arbiter's decision in toto. Hence, this petition. The Issues Petitioner raises the following issues for decision:

I. The National Labor Relations Commission gravely abused its discretion in holding that the Labor Arbiter has jurisdiction over the case. II. Assuming that the Labor Arbiter has jurisdiction over the case, the National Labor Relations Commission gravely abused its discretion in affirming the Labor Arbiter's decision that private respondent Urbano Zuniga (sic) was illegally dismissed. Of course, it is obvious that the underlying and pivotal issue is whether the CBA stipulation on compulsory retirement after twenty-five years of service is legal and enforceable. If it is, private respondent has been validly retired. Otherwise, petitioner is guilty of illegal dismissal. The answer to said question will settle the issue of the validity of the questioned resolution of the public respondent. The Court's Ruling On the key issue, the Court finds the petition meritorious, thus warranting reversal of the questioned Resolution. First Issue: Jurisdiction of Labor Arbiter Petitioner contends that the labor arbiter had no jurisdiction because the dispute concerns a provision of the CBA and its interpretation. It claims that the case falls under the jurisdiction of the voluntary arbitrator or panel of arbitrators under Article 261 of the Labor Code, which provides: Art. 261. Jurisdiction of Voluntary Arbitrators or Panel of Voluntary Arbitrators. The Voluntary Arbitrator or panel of Voluntary Arbitrators shall have original and exclusive jurisdiction to hear and decide all unresolved grievances arising from the interpretation or implementation of the Collective Bargaining Agreement and those arising from the interpretation or enforcement of company personnel policies referred to in the immediately preceding Article. Accordingly, violations of a Collective Bargaining Agreement, except those which are gross in character, shall no longer be treated as unfair labor practice and shall be resolved as grievances under the Collective Bargaining Agreement. For purposes of this Article, gross violations of a Collective Bargaining Agreement shall mean flagrant and/or malicious refusal to comply with the economic provisions of such agreement. The Commission, its Regional Offices and the Regional Directors of the Department of Labor and Employment shall not entertain disputes, grievances or matters under the exclusive and original jurisdiction of the Voluntary Arbitrator or panel of Voluntary Arbitrators and shall immediately dispose and refer the same to the Grievance Machinery or Voluntary Arbitration provided in the Collective Bargaining Agreement. The Labor Arbiter believed otherwise. In his decision 6 , he stated,: In our honest opinion we have jurisdiction over the complaint on the following grounds: First, this is a complaint of illegal dismissal of which original and exclusive jurisdiction under Article 217 has been conferred to the Labor Arbiters. The interpretation has been conferred to the Labor Arbiters. The interpretation of the CBA or enforcement of the company policy is only corollary to the complaint of illegal dismissal. Otherwise, an employee who was on AWOL, or who committed offenses contrary to the

personnel policies (sic) can no longer file a case of illegal dismissal because the discharge is premised on the interpretation or enforcement of the company policies (sic). Second, Respondent voluntarily submitted the case to the jurisdiction of this labor tribunal. It adduced arguments to the legality of its act, whether such act may be retirement and/or dismissal, and prayed for reliefs on the merits of the case. A litigant cannot pray for reliefs on the merits and at the same time attacks (sic) the jurisdiction of the tribunal. A person cannot have one's cake and eat it too. . . . The Court agrees with the public respondent's affirmance of the arbiter's decision in respect of the question of jurisdiction. In Sanyo Philippines Workers Union psslU vs. Caizares, 7 a case cited by the petitioner, this Court ruled: . . . Hence, only disputes involving the union and the company shall be referred to the grievance machinery or voluntary arbitrators. In the instant case, both the union and the company are united or have come to an agreement regarding the dismissal of private respondents. No grievance between them exists which could be brought to a grievance machinery. The problem or dispute in the present case is between the union and the company on the one hand and some union and non-union members who were dismissed, on the other hand. The dispute has to be settled before an impartial body. The grievance machinery with members designated by the union and the company cannot be expected to be impartial against the dismissed employees. Due process demands that the dismissed workers grievances be ventilated before an impartial body. Since there has already been an actual termination, the matter falls within the jurisdiction of the Labor Arbiter. Applying the same rationale to the case at the bar, it cannot be said that the "dispute" is between the union and petitioner company because both have previously agreed upon the provision on "compulsory retirement" as embodied in the CBA. Also, it was only private respondent on his own who questioned the compulsory retirement. Thus, the case is properly denominated as a "termination dispute" which comes under the jurisdiction of labor arbiters. Therefore, public respondent did not commit a grave abuse of discretion in upholding the jurisdiction of the labor arbiter over this case. Second Compulsory Not Illegal Dismissal Issue: Private Retirement Respondent's Is

The bone of contention in this case is the provision on compulsory retirement after 25 years of service. Article XI, Section 1(e)(5) of the May 2, 1989 Collective Bargaining Agreement 8 between petitioner company and the union states: Sec. 1. The COMPANY shall formulate a retirement plan with the following main features: xxx xxx xxx

(e) The COMPANY agrees to grant the retirement benefits herein provided to regular employees who may be separated from the COMPANY for any of the following reasons: xxx xxx xxx (5) Upon reaching the age of sixty (60) years or upon the completing twenty-five (25) years of service to the COMPANY, whichever comes first, and the employee shall be compulsorily retired and paid the retirement benefits herein provided. Petitioner contends that the aforequoted provision is valid an in consonance with Article 287 of the Labor Code. The respondent Commission holds otherwise. The said Code provides: 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 or other agreement. The Solicitor General, in his Manifestation in Lieu of Comment, 9 agrees with petitioner's contention that the law leaves to the employer and employees the fixing of the age of retirement. He cites Section 13, Rule I, Book VI of the Omnibus Rules Implementing the Labor Code, which reads: Retirement In the absence of any collective bargaining agreement or other applicable agreement concerning terms and conditions of employment which provides for retirement at an older age, an employee may be retired upon reaching the age of sixty (60) years. Arguing that the law on compulsory retirement age is open-ended, as indicated by the use of the word "may", the Solicitor General maintains that there is no prohibition against parties fixing a lower age for retirement. 10 Additionally, the Solicitor General and the petitioner contend that a CBA provision lowering compulsory retirement age to less than sixty (60) is not contrary to law because it does not diminish the employee's benefits. Rather, they argue that early retirement constitutes a reward of employment, and therefore, retirement pursuant to the CBA provision in question cannot be considered a dismissal following this Court's ruling in Soberano vs. Clave, 10a the relevant portions of which read as follows: Retirement and dismissal are entirely different from each other. Retirement is the result of a bilateral act of the parties, a voluntary agreement between the employer and the employees whereby the latter after reaching a certain age agrees and/or consents to severe his employment with the former. On the other hand, dismissal refers to the unilateral act of the employer in terminating services of an employee with or without cause. In fine, in the case of dismissal, it is only the employer who decides when to terminate the services of an employee. . . . Moreover, concomitant with the provisions on retirement in a Labor Agreement is a stipulation regarding

retirement benefits pertaining to a retired employee. Here again, the retirement benefits are subject to stipulation by the parties unlike in dismissals where separation pay is fixed by law in cases of dismissals without just cause. Evident, therefore, from the foregoing is that retirements which are agreed upon by the employer and the employee in their collective bargaining agreement are not dismissals. . . . To further fortify the aforesaid conclusion, it is noteworthy that even the New Labor Code recognizes this distinction when it treats retirement from service under a separate title from that of a dismissal or termination of employment, aside from expressly recognizing the right of the employer to retire any employee who has reached the retirement age established in the collective bargaining agreement or other applicable employment contract and the latter to receive such retirement benefits as he may have earned under existing laws and any collective bargaining or other agreement (Art. 277, New Labor Code). We agree with petitioner and the Solicitor General. Art. 287 of the Labor Code as worded permits employers and employees to fix the applicable retirement age at below 60 years. Moreover, providing for early retirement does not constitute diminution of benefits. In almost all countries today, early retirement, i.e., before age 60, is considered a reward for services rendered since it enables an employee to reap the fruits of his labor particularly retirement benefits, whether lump-sum or otherwise at an earlier age, when said employee, in presumably better physical and mental condition, can enjoy them better and longer. As a matter of fact, one of the advantages of early retirement is that the corresponding retirement benefits, usually consisting of a substantial cash windfall, can early on be put to productive and profitable uses by way of income-generating investments, thereby affording a more significant measure of financial security and independence for the retiree who, up till then, had to contend with life's vicissitudes within the parameters of his fortnightly or weekly wages. Thus we are now seeing many CBA's with such early retirement provisions. And the same cannot be considered a diminution of employment benefits. It is also further argued that, being a union member, private respondent is bound by the CBA because its terms and conditions constitute the law between the parties. 11 The parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. 12 It binds not only the union but also its members. 13 Thus, the Solicitor General14 said: Private respondent cannot therefore claim illegal dismissal when he was compulsorily retired after rendering twenty-five (25) years of service since his retirement is in accordance with the CBA. We again concur with the Solicitor General's position. A CBA incorporates the agreement reached after negotiations between employer and bargaining agent with respect to terms and conditions of employment. A CBA is not an ordinary contract. "(A)s a labor contract within the contemplation of Article 1700 of the Civil Code of the Philippines which governs the relations between labor and capital, (it) is not merely contractual in nature but impressed with public interest, thus it must yield to the common good. As such, it must be construed liberally rather than narrowly and technically, and the courts must place a practical and realistic construction upon it, giving due consideration to the context in which it is negotiated and purpose which it is intended to serve. 15 Being a product of negotiation, the CBA between the petitioner and the union intended the provision on compulsory retirement to be beneficial to the employees-union members, including herein private respondent. When private respondent ratified the CBA with the union, he not only agreed to the CBA but also agreed to conform to and abide by its provisions. Thus, it cannot be said that he was illegally dismissed when the CBA provision on compulsory retirement was applied to his case.

Incidentally, we call attention to Republic Act No. 7641, known as "The Retirement Pay Law", which went into effect on January 7, 1993. Although passed many years after the compulsory retirement of herein private respondent, nevertheless, the said statute sheds light on the present discussion when it amended Art. 287 of the Labor Code, to make it read as follows: Art. 287. Retirement Any employee may be retired upon reaching the retirement age established in the collective bargaining agreement or other applicable employment contract. xxx xxx xxx 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 . . . . The aforequoted provision makes clear the intention of spirit of the law to give employers and employees a free hand to determine and agree upon the terms and conditions of retirement. Providing in a CBA for compulsory retirement of employees after twenty-five (25) years of service is legal and enforceable so long as the parties agree to be governed by such CBA. The law presumes that employees know what they want and what is good for them absent any showing that fraud or intimidation was employed to secure their consent thereto. On this point then, public respondent committed a grave abuse of discretion in affirming the decision of the labor arbiter. The compulsory retirement of private respondent effected in accordance with the CBA is legal and binding. WHEREFORE, premises considered, the petition is granted and the questioned Resolution is hereby set aside. No costs. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 166405 August 6, 2008

CLAUDE P. BAUTISTA, petitioner, vs. AUTO PLUS TRADERS, INCORPORATED and COURT OF APPEALS (Twenty-First Division),respondents. DECISION QUISUMBING, J.:

This petition for review on certiorari assails the Decision 1 dated August 10, 2004 of the Court of Appeals in CA-G.R. CR No. 28464 and the Resolution2 dated October 29, 2004, which denied petitioner's motion for reconsideration. The Court of Appeals affirmed the February 24, 2004 Decision and May 11, 2004 Order of the Regional Trial Court (RTC), Davao City, Branch 16, in Criminal Case Nos. 52633-03 and 52634-03. The antecedent facts are as follows: Petitioner Claude P. Bautista, in his capacity as President and Presiding Officer of Cruiser Bus Lines and Transport Corporation, purchased various spare parts from private respondent Auto Plus Traders, Inc. and issued two postdated checks to cover his purchases. The checks were subsequently dishonored. Private respondent then executed an affidavit-complaint for violation of Batas PambansaBlg. 223 against petitioner. Consequently, two Informations for violation of BP Blg. 22 were filed with the Municipal Trial Court in Cities (MTCC) of Davao City against the petitioner. These were docketed as Criminal Case Nos. 102,004-B-2001 and 102,005-B-2001. The Informations4 read: Criminal Case No. 102,004-B-2001: The undersigned accuses the above-named accused for violation of Batas Pambansa Bilang 22, committed as follows: That on or about December 15, 2000, in the City of Davao, Philippines, and within the jurisdiction of this Honorable Court, the above-mentioned accused, knowing fully well that he had no sufficient funds and/or credit with the drawee bank, wilfully, unlawfully and feloniously issued and made out Rural Bank of Digos, Inc. Check No. 058832, dated December 15, 2000, in the amount of P151,200.00, in favor of Auto Plus Traders, Inc., but when said check was presented to the drawee bank for encashment, the same was dishonored for the reason "DRAWN AGAINST INSUFFICIENT FUNDS" and despite notice of dishonor and demands upon said accused to make good the check, accused failed and refused to make payment to the damage and prejudice of herein complainant. CONTRARY TO LAW. Criminal Case No. 102,005-B-2001: The undersigned accuses the above-named accused for violation of Batas Pambansa Bilang 22, committed as follows: That on or about October 30, 2000, in the City of Davao, Philippines, and within the jurisdiction of this Honorable Court, the above-mentioned accused, knowing fully well that he had no sufficient funds and/or credit with the drawee bank, wilfully, unlawfully and feloniously issued and made

out Rural Bank of Digos, Inc. Check No. 059049, dated October 30, 2000, in the amount of P97,500.00, in favor of Auto Plus Traders, [Inc.], but when said check was presented to the drawee bank for encashment, the same was dishonored for the reason "DRAWN AGAINST INSUFFICIENT FUNDS" and despite notice of dishonor and demands upon said accused to make good the check, accused failed and refused to make payment, to the damage and prejudice of herein complainant. CONTRARY TO LAW. Petitioner pleaded not guilty. Trial on the merits ensued. After the presentation of the prosecution's evidence, petitioner filed a demurrer to evidence. On April 21, 2003, the MTCC granted the demurrer, thus: WHEREFORE, the demurrer to evidence is granted, premised on reasonable doubt as to the guilt of the accused. Cruiser Bus Line[s] and Transport Corporation, through the accused is directed to pay the complainant the sum of P248,700.00 representing the value of the two checks, with interest at the rate of 12% per annum to be computed from the time of the filing of these cases in Court, until the account is paid in full; ordering further Cruiser Bus Line[s] and Transport Corporation, through the accused, to reimburse complainant the expense representing filing fees amounting toP1,780.00 and costs of litigation which this Court hereby fixed at P5,000.00. SO ORDERED.5 Petitioner moved for partial reconsideration but his motion was denied. Thereafter, both parties appealed to the RTC. On February 24, 2004, the trial court ruled: WHEREFORE, the assailed Order dated April 21, 2003 is hereby MODIFIED to read as follows: Accused is directed to pay and/or reimburse the complainant the following sums: (1) P248,700.00 representing the value of the two checks, with interest at the rate of 12% per annum to be computed from the time of the filing of these cases in Court, until the account is paid in full; (2) P1,780.00 for filing fees and P5,000.00 as cost of litigation. SO ORDERED.6 Petitioner moved for reconsideration, but his motion was denied on May 11, 2004. Petitioner elevated the case to the Court of Appeals, which affirmed the February 24, 2004 Decision and May 11, 2004 Order of the RTC: WHEREFORE, premises considered, the instant petition is DENIED. The assailed Decision of the Regional Trial Court, Branch 16, Davao City, dated February 24, 2004 and its Order dated May 11, 2004 are AFFIRMED.

SO ORDERED.7 Petitioner now comes before us, raising the sole issue of whether the Court of Appeals erred in upholding the RTC's ruling that petitioner, as an officer of the corporation, is personally and civilly liable to the private respondent for the value of the two checks. 8 Petitioner asserts that BP Blg. 22 merely pertains to the criminal liability of the accused and that the corporation, which has a separate personality from its officers, is solely liable for the value of the two checks. Private respondent counters that petitioner should be held personally liable for both checks. Private respondent alleged that petitioner issued two postdated checks: a personal check in his name for the amount of P151,200 and a corporation check under the account of Cruiser Bus Lines and Transport Corporation for the amount of P97,500. According to private respondent, petitioner, by issuing his check to cover the obligation of the corporation, became an accommodation party. Under Section 29 9 of the Negotiable Instruments Law, an accommodation party is liable on the instrument to a holder for value. Private respondent adds that petitioner should also be liable for the value of the corporation check because instituting another civil action against the corporation would result in multiplicity of suits and delay. At the outset, we note that private respondent's allegation that petitioner issued a personal check disputes the factual findings of the MTCC. The MTCC found that the two checks belong to Cruiser Bus Lines and Transport Corporation while the RTC found that one of the checks was a personal check of the petitioner. Generally this Court, in a petition for review on certiorari under Rule 45 of the Rules of Court, has no jurisdiction over questions of facts. But, considering that the findings of the MTCC and the RTC are at variance,10 we are compelled to settle this issue. A perusal of the two check return slips11 in conjunction with the Current Account Statements12 would show that the check for P151,200 was drawn against the current account of Claude Bautista while the check for P97,500 was drawn against the current account of Cruiser Bus Lines and Transport Corporation. Hence, we sustain the factual finding of the RTC. Nonetheless, we find the appellate court in error for affirming the decision of the RTC holding petitioner liable for the value of the checks considering that petitioner was acquitted of the crime charged and that the debts are clearly corporate debts for which only Cruiser Bus Lines and Transport Corporation should be held liable. Juridical entities have personalities separate and distinct from its officers and the persons composing it.13 Generally, the stockholders and officers are not personally liable for the obligations of the corporation except only when the veil of corporate fiction is being used as a cloak or cover for fraud or illegality, or to work injustice. 14 These situations, however, do not exist in this case. The evidence shows that it is Cruiser Bus Lines and Transport Corporation that has obligations to Auto Plus Traders, Inc. for tires.

There is no agreement that petitioner shall be held liable for the corporation's obligations in his personal capacity. Hence, he cannot be held liable for the value of the two checks issued in payment for the corporation's obligation in the total amount of P248,700. Likewise, contrary to private respondent's contentions, petitioner cannot be considered liable as an accommodation party for Check No. 58832. Section 29 of the Negotiable Instruments Law defines an accommodation party as a person "who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person." As gleaned from the text, an accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for the purpose of lending his name or credit to some other person.15 An accommodation party lends his name to enable the accommodated party to obtain credit or to raise money; he receives no part of the consideration for the instrument but assumes liability to the other party/ies thereto.16 The first two elements are present here, however there is insufficient evidence presented in the instant case to show the presence of the third requisite. All that the evidence shows is that petitioner signed Check No. 58832, which is drawn against his personal account. The said check,dated December 15, 2000, corresponds to the value of 24 sets of tires received by Cruiser Bus Lines and Transport Corporation on August 29, 2000.17 There is no showing of when petitioner issued the check and in what capacity. In the absence of concrete evidence it cannot just be assumed that petitioner intended to lend his name to the corporation. Hence, petitioner cannot be considered as an accommodation party. Cruiser Bus Lines and Transport Corporation, however, remains liable for the checks especially since there is no evidence that the debts covered by the subject checks have been paid. WHEREFORE, the petition is GRANTED. The Decision dated August 10, 2004 and the Resolution dated October 29, 2004 of the Court of Appeals in CA-G.R. CR No. 28464 are REVERSED and SET ASIDE. Criminal Case Nos. 52633-03 and 52634-03 are DISMISSED, without prejudice to the right of private respondent Auto Plus Traders, Inc., to file the proper civil action against Cruiser Bus Lines and Transport Corporation for the value of the two checks. No pronouncement as to costs. SO ORDERED.
Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

G.R. No. 151413

February 13, 2008

CAGAYAN VALLEY DRUG CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent. DECISION VELASCO, JR., J.: The Case This petition for review under Rule 45 of the Rules of Court seeks the recall of the August 31, 2000 Resolution1 of the Court of Appeals (CA) in CA-G.R. SP No. 59778, which dismissed petitioner Cagayan Valley Drug Corporations petition for review of the April 26, 2000 Decision2 of the Court of Tax Appeals (CTA) in C.T.A. Case No. 5581 on the ground of defective verification and certification against forum shopping. The Facts Petitioner, a corporation duly organized and existing under Philippine laws, is a duly licensed retailer of medicine and other pharmaceutical products. It operates two drugstores, one in Tuguegarao, Cagayan, and the other in Roxas, Isabela, under the name and style of "Mercury Drug." Petitioner alleged that in 1995, it granted 20% sales discounts to qualified senior citizens on purchases of medicine pursuant to Republic Act No. (RA) 74323 and its implementing rules and regulations. In compliance with Revenue Regulation No. (RR) 2-94, petitioner treated the 20% sales discounts granted to qualified senior citizens in 1995 as deductions from the gross sales in order to arrive at the net sales, instead of treating them as tax credit as provided by Section 4 of RA 7432. On December 27, 1996, however, petitioner filed with the Bureau of Internal Revenue (BIR) a claim for tax refund/tax credit of the full amount of the 20% sales discount it granted to senior citizens for the year 1995, allegedly totaling to PhP 123,083 in accordance with Sec. 4 of RA 7432. The BIRs inaction on petitioners claim for refund/tax credit compelled petitioner to file on March 18, 1998 a petition for review before the CTA docketed as C.T.A. Case No. 5581 in order to forestall the two-year prescriptive period provided under Sec. 2304 of the 1977 Tax Code, as amended. Thereafter, on March 31, 2000, petitioner amended its petition for review. The Ruling of the Court of Tax Appeals On April 26, 2000, the CTA rendered a Decision dismissing the petition for review for lack of merit.5 The CTA sustained petitioners contention that pursuant to Sec. 4 of RA 7432, the 20% sales discounts petitioner extended to qualified senior citizens in 1995 should be treated as tax credit and not as deductions from the gross sales as erroneously interpreted in RR 2-94. The CTA reiterated its consistent holdings that RR 2-94 is an invalid administrative interpretation of the law it purports to implement as it contravenes and does not conform to the standards RA 7432 prescribes.

Notwithstanding petitioners entitlement to a tax credit from the 20% sales discounts it extended t o qualified senior citizens in 1995, the CTA nonetheless dismissed petitioners action for refund or tax credit on account of petitioners net loss in 1995. First, the CTA rejected the refund as it is clear that RA 7432 only grants the 20% sales discounts extended to qualified senior citizens as tax credit and not as tax refund. Second, in rejecting the tax credit, the CTA reasoned that while petitioner may be qualified for a tax credit, it cannot be so extended to petitioner on account of its net loss in 1995. The CTA ratiocinated that on matters of tax credit claim, the government applies the amount determined to be reimbursable after proper verification against any sum that may be due and collectible from the taxpayer. However, if no tax has been paid or if no amount is due and collectible from the taxpayer, then a tax credit is unavailing. Moreover, it held that before allowing recovery for claims for a refund or tax credit, it must first be established that there was an actual collection and receipt by the government of the tax sought to be recovered. In the instant case, the CTA found that petitioner did not pay any tax by virtue of its net loss position in 1995. Petitioners Motion for Reconsideration was likewise denied through the appellate tax court s June 30, 2000 Resolution.6 The Ruling of the Court of Appeals Aggrieved, petitioner elevated the matter before the CA, docketed as CA-G.R. SP No. 59778. On August 31, 2000, the CA issued the assailed Resolution7 dismissing the petition on procedural grounds. The CA held that the person who signed the verification and certification of absence of forum shopping, a certain Jacinto J. Concepcion, President of petitioner, failed to adduce proof that he was duly authorized by the board of directors to do so. As far as the CA was concerned, the main issue was whether or not the verification and certification of non-forum shopping signed by the President of petitioner is sufficient compliance with Secs. 4 and 5, Rule 7 of the 1997 Rules of Civil Procedure. The verification and certification in question reads: I, JACINTO J. CONCEPCION, of legal age with office address at 2nd Floor, Mercury Drug Corporation, No. 7 Mercury Ave, Bagumbayan, Quezon City, under oath, hereby state that: 1. I am the President of Cagayan Valley Drug Corporation, Petitioner in the above-entitled case and am duly authorized to sign this Verification and Certification of Absence of Forum Shopping by the Board of Director. xxxx The CA found no sufficient proof to show that Concepcion was duly authorized by the Board of Directors of petitioner. The appellate court anchored its disposition on our ruling in Premium Marble Resources, Inc. v. Court of Appeals (Premium), that "[i]n the absence of an authority from the Board of Directors, no person, not even the officers of the corporation, can validly bind the corporation."8 Hence, we have this petition. The Issues

Petitioner raises two issues: first, whether petitioners president can sign the subject verification and certification sans the approval of its Board of Directors. And second, whether the CTA committed reversible error in denying and dismissing petitioners action for refund or tax credit in C.T.A. Case No. 5581. The Courts Ruling The petition is meritorious. Premium not applicable As regards the first issue, we find the CA to have erroneously relied on Premium. In said case, the issue tackled was not on whether the president of Premium Marble Resources, Inc. was authorized to sign the verification and certification against forum shopping, but rather on which of the two sets of officers, both claiming to be the legal board of directors of Premium, have the authority to file the suit for and in behalf of the company. The factual antecedents and issues in Premium are not on all fours with the instant case and is, therefore, not applicable. With respect to an individual litigant, there is no question that litigants must sign the sworn verification and certification unless they execute a power of attorney authorizing another person to sign it. With respect to a juridical person, Sec. 4, Rule 7 on verification and Sec. 5, Rule 7 on certification against forum shopping are silent as to who the authorized signatory should be. Said rules do not indicate if the submission of a board resolution authorizing the officer or representative is necessary. Corporate powers exercised through board of directors It must be borne in mind that Sec. 23, in relation to Sec. 25 of the Corporation Code, clearly enunciates that all corporate powers are exercised, all business conducted, and all properties controlled by the board of directors. A corporation has a separate and distinct personality from its directors and officers and can only exercise its corporate powers through the board of directors. Thus, it is clear that an individual corporate officer cannot solely exercise any corporate power pertaining to the corporation without authority from the board of directors. This has been our constant holding in cases instituted by a corporation. In a slew of cases, however, we have recognized the authority of some corporate officers to sign the verification and certification against forum shopping. In Mactan-Cebu International Airport Authority v. CA, we recognized the authority of a general manager or acting general manager to sign the verification and certificate against forum shopping;9 in Pfizer v. Galan, we upheld the validity of a verification signed by an "employment specialist" who had not even presented any proof of her authority to represent the company;10 in Novelty Philippines, Inc., v. CA, we ruled that a personnel officer who signed the petition but did not attach the authority from the company is authorized to sign the verification and non-forum shopping certificate;11 and in Lepanto Consolidated Mining Company v. WMC Resources International Pty. Ltd. (Lepanto), we ruled that the Chairperson of the Board and President of the Company can sign the verification and certificate against non-forum shopping even without the submission of the boards authorization.12 In sum, we have held that the following officials or employees of the company can sign the verification and certification without need of a board resolution: (1) the Chairperson of the Board of Directors, (2) the President of a corporation, (3) the General Manager or Acting General Manager, (4) Personnel Officer, and (5) an Employment Specialist in a labor case.

While the above cases do not provide a complete listing of authorized signatories to the verification and certification required by the rules, the determination of the sufficiency of the authority was done on a case to case basis. The rationale applied in the foregoing cases is to justify the authority of corporate officers or representatives of the corporation to sign the verification or certificate against forum shopping, being "in a position to verify the truthfulness and correctness of the allegations in the petition."13 Authority from board of directors required In Philippine Airlines v. Flight Attendants and Stewards Association of the Philippines, we ruled that only individuals vested with authority by a valid board resolution may sign the certificate of nonforum shopping on behalf of a corporation. The action can be dismissed if the certification was submitted unaccompanied by proof of the signatorys authority.14 We believe that appending the board resolution to the complaint or petition is the better procedure to obviate any question on the authority of the signatory to the verification and certification. The required submission of the board resolution is grounded on the basic precept that corporate powers are exercised by the board of directors,15 and not solely by an officer of the corporation. Hence, the power to sue and be sued in any court or quasi-judicial tribunal is necessarily lodged with the said board. There is substantial compliance with Rule 7, Secs. 4 and 5 In the case at bar, we so hold that petitioner substantially complied with Secs. 4 and 5, Rule 7 of the 1997 Revised Rules on Civil Procedure. First, the requisite board resolution has been submitted albeit belatedly by petitioner.Second, we apply our ruling in Lepanto with the rationale that the President of petitioner is in a position to verify the truthfulness and correctness of the allegations in the petition. Third, the President of petitioner has signed the complaint before the CTA at the inception of this judicial claim for refund or tax credit. Consequently, the petition in CA-G.R. SP No. 59778 ought to be reinstated. However, in view of the enactment of RA 9282 which made the decisions of the CTA appealable to this Court, we will directly resolve the second issue which is a purely legal one. Petitioner entitled to tax credit The pith of the dispute between petitioner and respondent is whether petitioner is entitled to a tax refund or tax credit of 20% sales discount granted to senior citizens under RA 7432 or whether the discount should be treated as a deduction from gross income. This issue is not new, as the Court has resolved several cases involving the very same issue. In Commissioner of Internal Revenue v. Central Luzon Drug Corporation (Central Luzon),16 we held that private drug companies are entitled to a tax credit for the 20% sales discounts they granted to qualified senior citizens under RA 7432 and nullified Secs. 2.i and 4 of RR 2-94. In Bicolandia Drug Corporation (formerly Elmas Drug Corporation) v. Commissioner of Internal Revenue,17 we ruled that petitioner therein is entitled to a tax credit of the "cost" or the full 20% sales discounts it granted pursuant to RA 7432. In the related case of Commissioner of Internal Revenue v. Bicolandia Drug Corporation,18 we likewise ruled that respondent drug company was entitled to a tax credit, and we struck down RR 2-94 to be null and void for failing to conform with the law it sought to implement. A perusal of the April 26, 2000 CTA Decision shows that the appellate tax court correctly ruled that the 20% sales discounts petitioner granted to qualified senior citizens should be deducted from petitioners income tax due and not from petitioners gross sales as erroneously provided in RR 2 -94.

However, the CTA erred in denying the tax credit to petitioner on the ground that petitioner had suffered net loss in 1995, and ruling that the tax credit is unavailing. Net loss in a taxable year does not preclude grant of tax credit It is true that petitioner did not pay any tax in 1995 since it suffered a net loss for that taxable year. This fact, however, without more, does not preclude petitioner from availing of its statutory right to a tax credit for the 20% sales discounts it granted to qualified senior citizens. The law then applicable on this point is clear and without any qualification. Sec. 4 (a) of RA 7432 pertinently provides: Sec. 4. Privileges for the Senior citizens.The senior citizens shall be entitled to the following: a) the grant of twenty percent (20%) discount from all establishments relative to utilization of transportation services, hotels and similar lodging establishments, restaurants and recreation centers and purchase of medicines anywhere in the country: Provided, That private establishments may claim the cost as tax credit. (Emphasis ours.) The fact that petitioner suffered a net loss in 1995 will not make the tax credit due to petitioner unavailable. This is the core issue resolved in Central Luzon, where we ruled that the net loss for a taxable year does not bar the grant of the tax credit to a taxpayer pursuant to RA 7432 and that prior tax payments are not required for such grant. We explained: Although this tax credit benefit is available, it need not be used by losing ventures, since there is no tax liability that calls for its application. Neither can it be reduced to nil by the quick yet callow stroke of an administrative pen, simply because no reduction of taxes can instantly be effected. By its nature, the tax credit may still be deducted from a future, not a present, tax liability, without which it does not have any use. x x x xxxx While a tax liability is essential to the availment or use of any tax credit, prior tax payments are not. On the contrary, for the existence or grant solely of such credit, neither a tax liability nor a prior tax payment is needed. The Tax Code is in fact replete with provisions granting or allowing tax credits, even though no taxes have been previously paid.19 It is thus clear that petitioner is entitled to a tax credit for the full 20% sales discounts it extended to qualified senior citizens for taxable year 1995. Considering that the CTA has not disallowed the PhP 123,083 sales discounts petitioner claimed before the BIR and CTA, we are constrained to grant them as tax credit in favor of petitioner. Consequently, petitioners appeal before the CA in CA-G.R. SP No. 59778 must be granted, and, necessarily, the April 26, 2000 CTA Decision in C.T.A. Case No. 5581 reversed and set aside. WHEREFORE, the petition is GRANTED. The August 31, 2000 CA Resolution in CA-G.R. SP No. 59778 isANNULLED AND SET ASIDE. The April 26, 2000 CTA Decision in C.T.A. Case No. 5581 dismissing petitioners claim for tax credit is accordingly REVERSED AND SET ASIDE. The Commissioner of Internal Revenue isORDERED to issue a Tax Credit Certificate in the name of petitioner in the amount of PhP 123,083. No costs. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SPECIAL THIRD DIVISION G.R. No. 148444 September 3, 2009

ASSOCIATED BANK (now UNITED OVERSEAS BANK [PHILS.]), Petitioner, vs. SPOUSES RAFAEL and MONALIZA PRONSTROLLER, Respondents. SPOUSES EDUARDO and MA. PILAR VACA, Intervenors. RESOLUTION NACHURA, J.: For resolution are the Motion for Reconsideration1 filed by petitioner Associated Bank (now United Overseas Bank [Phils.]) and Motion for Leave to Intervene2 filed by Spouses Eduardo and Ma. Pilar Vaca (spouses Vaca). After a thorough examination of petitioners motion for reconsideration, together with its voluminous attachments, it is readily apparent that no new issues are raised and the arguments presented are a mere rehash of what have been discussed in its pleadings, all of which have been considered and found unmeritorious in the July 14, 2008 Decision.3 Be that as it may, we would like to reiterate that the second letter-agreement modified the first one entered into by petitioner, through Atty. Jose Soluta, Jr. (Atty. Soluta). In previously allowing Atty. Soluta to enter into the first letter-agreement without a board resolution expressly authorizing him, petitioner had clothed him with apparent authority to modify the same via the second letteragreement.4 As early as June 1993, respondents already requested a modification of the earlier agreement such that the full payment should be made upon receipt of this Courts decision confirming petitioners right to the subject property. Instead of acting on the request, the Board of Directors deferred action on it. It was only after one year and after the banks reorganization that the board rejected respondents request. We cannot, therefore, blame respondents for believing that the second letteragreement signed by Atty. Soluta was petitioners action on their request.5 We also would like to stress that the first letter-agreement was not rescinded by respondents failure to deposit in escrow their full payment simply because the date of full payment had already been modified by the later agreement. Neither was the second letter-agreement rescinded by respondents new offer because the offer was made only to demonstrate their capacity to purchase the subject property.6 In our Decision, we affirmed the factual findings of the Court of Appeals (CA) because they were amply supported by the evidence on record. Well-established is the rule that if there is no showing of error in the appreciation of facts by the CA, this Court treats them as conclusive. The conclusions of law that the appellate court drew from those facts are likewise accurate and convincing.7

Hence, we deny with finality petitioners motion for reconsideration. No further pleadings will be entertained. After the promulgation of the July 14, 2008 Decision, spouses Vaca filed a Motion for Leave to Intervene alleging that they are the registered owners of the subject property and are thus real parties-in-interest. They add that they stand to be deprived of their family home without having been given their day in court. They also contend that the Court should order petitioner to reimburse the spouses Vaca the amount received from the latter. The Motion for Leave to Intervene must be denied. Section 2, Rule 19 of the Rules of Court, provides: SEC. 2. Time to intervene. The motion to intervene may be filed at any time before rendition of judgment by the trial court. A copy of the pleading-in-intervention shall be attached to the motion and served on the original parties.8 Obviously, the spouses Vacas motion for leave to intervene before this Court was belatedly filed. The purpose of intervention is to enable a stranger to an action to become a party to protect his interest, and the court, incidentally, to settle all conflicting claims.9 The spouses Vaca are not strangers to the action. Their legal interest in the litigation springs from the sale of the subject property by petitioner in their favor during the pendency of this case. As transferee pendente lite, the spouses Vaca are the successors-in-interest of the transferor, the petitioner, who is already a party to the action. Thus, the applicable provision is Section 19, Rule 3 of the Rules of Court, governing transfers of interest pendente lite. It provides: SEC. 19. Transfer of interest. In case of any transfer of interest, the action may be continued by or against the original party, unless the court upon motion directs the person to whom the interest is transferred to be substituted in the action or joined with the original party. In Natalia Realty, Inc. v. Court of Appeals,10 citing Santiago Land Development Corporation v. Court of Appeals,11we have ruled that: [A] transferee pendente lite of the property in litigation does not have a right to intervene. We held that a transferee stands exactly in the shoes of his predecessor-in-interest, bound by the proceedings and judgment in the case before the rights were assigned to him. It is not legally tenable for a transferee pendente lite to still intervene. Essentially, the law already considers the transferee joined or substituted in the pending action, commencing at the exact moment when the transfer of interest is perfected between the original party-transferor and the transferee pendente lite.12
1avvphi1

That the Certificate of Title covering the subject property is in the name of the spouses Vaca is of no moment. It is noteworthy that a notice of lis pendens was timely annotated on petitioners title. This was done prior to the sale of the property to the spouses Vaca, the cancellation of petitioners title, and the issuance of the new Transfer Certificate of Title in the name of the spouses. By virtue of the notice of lis pendens, the spouses Vaca are bound by the outcome of the litigation subject of the lis pendens. Their interest is subject to the incidents or results of the pending suit, and their Certificate of Title will afford them no special protection.13

Lastly, the spouses Vacas claim for reimbursement, if any, must be ventilated in a separate action against petitioner. To allow the intervention would unduly delay and prejudice the rights especially of respondents who have been deprived of the subject property for so long. IN LIGHT OF THE FOREGOING, we deny petitioners motion for reconsideration and the Spouses Vacas Motion for Intervention. SO ORDERED. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 162772 March 14, 2008

MERLIZA A. MUOZ, Petitioner, vs. PEOPLE OF THE PHILIPPINES, Respondent. DECISION AUSTRIA-MARTINEZ, J.: By way of a Petition for Review on Certiorari under Rule 45 of the Rules of Court, Merliza A. Muoz (petitioner) assails the November 19, 2003 Resolution1 of the Court of Appeals (CA) sustaining her conviction for violation ofBatas Pambansa Bilang 22 (B.P. Blg. 22); and the March 10, 2004 CA Resolution2 denying her Motion for Reconsideration. The antecedent facts are as stated by the trial courts. Petitioner is the wife of Ludolfo P. Muoz Jr. (Ludolfo), owner and operator of L.P. Munoz Construction (Muoz Construction). On August 3, 2000, Ludolfo took a loan of P500,000.00, at 5% interest, from Sunwest Construction and Development Corporation (Sunwest). Ludolfo issued to Sunwest a Development Bank of the Philippines (DBP) check, postdated September 3, 2000, for P500,000.00.3 On September 3, 2000, Ludolfo sought an extension of his loan by replacing the DBP check with Rizal Commercial Banking Corporation (RCBC) Check No. 0000057285 for P500,000.00, drawn by petitioner4 and postdated December 3, 2000. Sunwest accepted the replacement check.5 On February 5, 2001 Sunwest deposited the RCBC check with the Bank of the Philippine Islands (BPI), Legaspi City,6 which presented it to the drawee bank RCBC, but the latter dishonored the check for insufficiency of funds.7Thus, on February 8, 2001, Sunwest sent by registered mail a letter addressed to Ludolfo, informing him of the dishonor of the RCBC check and demanding that he make good the check or pay the amount thereof within five days from receipt of said notice.8 The letter was received on the same day by Eden Barnedo at the postal address "L.P. Muoz, Jr. [sic] Construction, Fernando Avenue, Doa Maria Subd., Daraga, Albay."9

On March 14, 2001, Sunwest sent by registered mail another letter, this time addressed to petitioner, informing her of the dishonor of the RCBC check and demanding that she pay the said check within five days from receipt of the letter.10 The letter was received on March 20, 2001 by Eden Barnedo at the postal address, "Fernando Avenue, Doa Maria Subd., Daraga, Albay".11 In her March 20, 2001 reply to Sunwest, petitioner explained that Sunwest and Muoz Construction had mutual claims against each other: Muoz Construction had a claim against Sunwest for P10,000,000.00, including a 15% advance payment, for two river control projects, while Sunwest had a claim against Muoz Construction forP500,000.00. Given that the claim of Muoz Construction was bigger than that of Sunwest, petitioner treated the first claim as having automatically offset, covered or paid the second claim as represented by the amount of the RCBC check. This explains why petitioner did "not give emphasis" anymore to the RCBC check, the amount of which she considered as having been already settled. Petitioner reminded Sunwest that it was made aware of the offsetting of the amount of the RCBC check as early as February 15, 2001.12 Upon a criminal complaint13 filed by Elizaldy S. Co, Sunwest president, an Information14 was filed by the City Prosecutor before the Municipal Trial Court in Cities (MTCC), Legaspi City, charging petitioner with violation of B.P. Blg. 22. Petitioner entered a plea of "Not Guilty."15 After trial, the MTCC rendered a Decision dated August 19, 2003,16 finding petitioner guilty beyond reasonable doubt of the crime charged, and sentencing her to pay a fine of P200,000.00; to pay Sunwest P500,000.00, representing the amount of RCBC Check No. 0000057285, plus interest thereon at the rate of 12% per annum computed from April 23, 2001, the date of the filing of the information, until fully paid; and to pay the costs. 17 On appeal by petitioner, the Regional Trial Court (RTC), Legaspi City, in a Decision dated October 16, 2003, affirmed the MTCC Decision in toto.18 Petitioner filed a Petition for Review with the CA but the latter dismissed it outright in the November 19, 2003 Resolution assailed herein, citing the following grounds: (a) Failure to attach or incorporate an Affidavit of Service as required under Section 13, Rule 13 in relation to Section 3, Rule 42 of the 1997 Rules of Civil Procedure, as amended; and (b) Failure to furnish copy of the petition and its annexes to the Office of the Solicitor General which is the counsel of the People of the Philippines.19 With the denial by the CA of her Motion for Reconsideration, petitioner is now before the Court raising the following issues: Whether or not the Fifth Division of the Court of Appeals gravely erred in dismissing the petition for review filed by herein petitioner purely on technical grounds. Whether or not the court a quo gravely erred in convicting the petitioner notwithstanding the fact that the criminal complaint was filed by an unauthorized representative of the private complainant corporation. Whether or not the court a quo gravely erred in convicting the petitioner notwithstanding the fact that the prosecution failed to prove the element of knowledge of insufficiency of funds in or credit with the drawee bank on the part of the petitioner.

Whether or not the court a quo gravely erred when it held the petitioner civilly liable notwithstanding the absence of authority of Elizaldy S. Co to file the instant case for and in behalf of the private complainant corporation.20 The Court finds no merit in the Petition. Except in criminal cases in which the penalty imposed is reclusion perpetua or death, an appeal is not a matter of right but of sound judicial discretion. It may be availed of only in the manner provided by law and the rules.21 Rule 42 prescribes the following requirements for the filing with the CA of a petition for review from a decision of the RTC: Section 1. How appeal taken; time for filing. A party desiring to appeal from a decision of the Regional Trial Court rendered in the exercise of its appellate jurisdiction may file a verified petition for review with the Court of Appeals, paying at the same time to the clerk of said Court the corresponding docket and other lawful fees, depositing the amount of P500.00 for costs, and furnishing the Regional Trial Court and the adverse party with a copy of the petition. The petition shall be filed and served within fifteen (15) days from notice of the decision sought to be reviewed or of the denial of petitioners motion for new trial or reconsideration filed in due time after judgment. Upon proper motion and the payment of the full amount of the docket and other lawful fees and the deposit for costs before the expiration of the reglementary period, the Court of Appeals may grant an additional period of fifteen (15) days only within which to file the petition for review. No further extension shall be granted except for the most compelling reason and in no case to exceed fifteen (15) days. (Emphasis supplied.) Clearly, therefore, the timeliness of a petition depends not only on its seasonable filing but also on the prompt service of copy thereof on the adverse party and the RTC. Thus, the petition must be accompanied by proof of service as prescribed under Rule 13, viz: Section 13. Proof of service. Proof of personal service shall consist of a written admission of the party served, or the official return of the server, or the affidavit of the party serving, containing a full statement of the date, place and manner of service. If the service is by ordinary mail, proof thereof shall consist of an affidavit of the person mailing of facts showing compliance with section 7 of this Rule. If service is made by registered mail, proof shall be made by such affidavit and the registry receipt issued by the mailing office. The registry return card shall be filed immediately upon its receipt by the sender, or in lieu thereof the unclaimed letter together with the certified or sworn copy of the notice given by the postmaster to the addressee. Failure to serve copy of the petition on the adverse party or to show proof of service thereof is a fatal defect,22 for which the petition can be dismissed under Section 3, Rule 42, thus: Section 3. Effect of failure to comply with requirements. The failure of the petitioner to comply with any of the foregoing requirements regarding the payment of the docket and other lawful fees, the deposit for costs, proof of service of the petition, and the contents of and the documents which should accompany the petition shall be sufficient ground for the dismissal thereof. In the present case, petitioner failed to serve copy of her petition on the Solicitor General as counsel of the adverse party, the People of the Philippines.23 Hence, the CA did not commit any reversible error in dismissing her petition.24

Petitioner did not even show substantial compliance with the requirement of service of pleading.25 Although she served copy of her Petition for Review on Assistant City Prosecutor Catalino C. Serrano, the latter was no longer counsel of the adverse party when the case was brought to the CA, nor was he specifically deputized or designated by the Solicitor General to represent him or receive notices for him.26 Hence, service on the Assistant City Prosecutor did not amount to service on the Solicitor General.27 However, petitioner argues that, rather than dismiss her petition, the CA should have advised her to correct the deficiency or taken the initiative of furnishing the Solicitor General with a copy of the petition and requiring the latter to comment on it.28 Furthermore, petitioner appeals for liberality in the treatment of her appeal, so that it may be decided on the merits rather than on technicality.29 It is true that oftentimes the Court applied the rules with flexibility in order that the merits of a case will be fully adjudicated upon, not-withstanding its technical imperfections.30 But what impels the Court to do so is neither a party's empty invocations of liberality nor its mechanical correction of the imperfections.31 Rather, only a clear showing of prima facie merit of the petition will persuade the Court to take the extraordinary effort of setting aside its rules to give way to the imperfect petition.32 After all, the rationale for liberality is to bring to light the merits of the petition, unobstructed by mere deficiencies in its form, such that if the petition has not an iota of merit in it, then there is nothing for the Court to bring to light at all. In the present case, while upon motion for reconsideration, petitioner supplied what were lacking in her petition for review filed with the CA,33 she utterly failed to convince the Court that the substantial grounds cited therein fartranscend its technical deficiencies as would justify the resolution of her petition on its merits rather than form. A cursory assessment of the arguments of petitioner is necessary. First, petitioner insists that the criminal case filed against her, as well as the civil case that was deemed instituted with it, should have been dismissed for lack of authority of Elizaldy Co to file the same on behalf of Sunwest, the payee of the RCBC check.34 The issue of whether a corporate officer may bring suit on behalf of his corporation for violation of B.P. Blg. 22 is not novel. In Tam Wing Tak v. Makasiar,35 the Court affirmed the dismissal of a criminal case for violation of B.P. Blg. 22 for lack of authority of the private complainant, thus: Second, it is not disputed in the instant case that Concord, a domestic corporation, was the payee of the bum check, not petitioner. Therefore, it is Concord, as payee of the bounced check, which is the injured party. Since petitioner was neither a payee nor a holder of the bad check, he had neither the personality to sue nor a cause of action against Vic Ang Siong. Under Section 36 of the Corporation Code, read in relation to Section 23, it is clear that where a corporation is an injured party, its power to sue is lodged with its board of directors or trustees. Note that petitioner failed to show any proof that he was authorized or deputized or granted specific powers by Concord's board of director to sue Victor And Siong for and on behalf of the firm. Clearly, petitioner as a minority stockholder and member of the board of directors had no such power or authority to sue on Concord's behalf. x x x36 (Emphasis supplied) We applied the same rule just recently to Ilusorio v. Ilusorio,37 which involved a criminal complaint for robbery and qualified trespass. However, it bears emphasis that in both cases, the deficiency in the complaint was challenged by the accused at the preliminary investigation stage, or before he entered a plea upon arraignment. On

the contrary, in the present case, petitioner questioned the authority of Elizaldy Co after arraignment and completion of the prosecution's presentation of evidence. Thus, she is barred from raising such objection under Section 9, Rule 117 of the Rules of Court, to wit: Section 9. Failure to move to quash or to allege any ground therefor. The failure of the accused to assert any ground of a motion to quash before he pleads to the complaint or information, either because he did not file a motion to quash or failed to allege the same in said motion, shall be deemed a waiver of any objections except those based on the grounds provided for in paragraphs (a), (b), (g), and (i) of section 3 of this Rule. The deficiency in the complaint/information arising from the lack of authority of Elizaldy Co was not jurisdictional. It did not detract from the unquestioned authority of the Assistant City Prosecutor to file the Information, nor impair the jurisdiction of the MTCC to act on the same.38 Second, petitioner harps on the purported lack of notice to her of the dishonor of the RCBC check. This contention flies in the face of documentary evidence consisting of the March 20, 2001 letter of petitioner to Sunwest where she expressly acknowledged receiving the March 14, 2001 notice of dishonor of the RCBC check.39 In fine, for deficiency in form and for lack of showing that her appeal to the CA was meritorious, the petition for review of petitioner was correctly dismissed by the CA. WHEREFORE, the petition is DENIED. Costs against petitioner. SO ORDERED.