G.R. No.

L-23145 November 29, 1968

TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary administrator-appellee,
vs.
BENGUET CONSOLIDATED, INC., oppositor-appellant.
Cirilo F. Asperillo, Jr., for ancillary administrator-appellee.
Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant.
FERNANDO, J.:
Confronted by an obstinate and adamant refusal of the domiciliary administrator, the County Trust Company of
New York, United States of America, of the estate of the deceased Idonah Slade Perkins, who died in New York City
on March 27, 1960, to surrender to the ancillary administrator in the Philippines the stock certificates owned by
her in a Philippine corporation, Benguet Consolidated, Inc., to satisfy the legitimate claims of local creditors, the
lower court, then presided by the Honorable Arsenio Santos, now retired, issued on May 18, 1964, an order of this
tenor: "After considering the motion of the ancillary administrator, dated February 11, 1964, as well as the
opposition filed by the Benguet Consolidated, Inc., the Court hereby (1) considers as lost for all purposes in
connection with the administration and liquidation of the Philippine estate of Idonah Slade Perkins the stock
certificates covering the 33,002 shares of stock standing in her name in the books of the Benguet Consolidated,
Inc., (2) orders said certificates cancelled, and (3) directs said corporation to issue new certificates in lieu thereof,
the same to be delivered by said corporation to either the incumbent ancillary administrator or to the Probate
Division of this Court."
1

From such an order, an appeal was taken to this Court not by the domiciliary administrator, the County Trust
Company of New York, but by the Philippine corporation, the Benguet Consolidated, Inc. The appeal cannot
possibly prosper. The challenged order represents a response and expresses a policy, to paraphrase Frankfurter,
arising out of a specific problem, addressed to the attainment of specific ends by the use of specific remedies, with
full and ample support from legal doctrines of weight and significance.
The facts will explain why. As set forth in the brief of appellant Benguet Consolidated, Inc., Idonah Slade Perkins,
who died on March 27, 1960 in New York City, left among others, two stock certificates covering 33,002 shares of
appellant, the certificates being in the possession of the County Trust Company of New York, which as noted, is the
domiciliary administrator of the estate of the deceased.
2
Then came this portion of the appellant's brief: "On
August 12, 1960, Prospero Sanidad instituted ancillary administration proceedings in the Court of First Instance of
Manila; Lazaro A. Marquez was appointed ancillary administrator, and on January 22, 1963, he was substituted by
the appellee Renato D. Tayag. A dispute arose between the domiciary administrator in New York and the ancillary
administrator in the Philippines as to which of them was entitled to the possession of the stock certificates in
question. On January 27, 1964, the Court of First Instance of Manila ordered the domiciliary administrator, County
Trust Company, to "produce and deposit" them with the ancillary administrator or with the Clerk of Court. The
domiciliary administrator did not comply with the order, and on February 11, 1964, the ancillary administrator
petitioned the court to "issue an order declaring the certificate or certificates of stocks covering the 33,002 shares
issued in the name of Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or] considered as lost."
3

It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is immaterial" as far as it is
concerned as to "who is entitled to the possession of the stock certificates in question; appellant opposed the
petition of the ancillary administrator because the said stock certificates are in existence, they are today in the
possession of the domiciliary administrator, the County Trust Company, in New York, U.S.A...."
4

It is its view, therefore, that under the circumstances, the stock certificates cannot be declared or considered as
lost. Moreover, it would allege that there was a failure to observe certain requirements of its by-laws before new
stock certificates could be issued. Hence, its appeal.
As was made clear at the outset of this opinion, the appeal lacks merit. The challenged order constitutes an
emphatic affirmation of judicial authority sought to be emasculated by the wilful conduct of the domiciliary
administrator in refusing to accord obedience to a court decree. How, then, can this order be stigmatized as
illegal?
As is true of many problems confronting the judiciary, such a response was called for by the realities of the
situation. What cannot be ignored is that conduct bordering on wilful defiance, if it had not actually reached it,
cannot without undue loss of judicial prestige, be condoned or tolerated. For the law is not so lacking in flexibility
and resourcefulness as to preclude such a solution, the more so as deeper reflection would make clear its being
buttressed by indisputable principles and supported by the strongest policy considerations.
It can truly be said then that the result arrived at upheld and vindicated the honor of the judiciary no less than that
of the country. Through this challenged order, there is thus dispelled the atmosphere of contingent frustration
brought about by the persistence of the domiciliary administrator to hold on to the stock certificates after it had,
as admitted, voluntarily submitted itself to the jurisdiction of the lower court by entering its appearance through
counsel on June 27, 1963, and filing a petition for relief from a previous order of March 15, 1963.
Thus did the lower court, in the order now on appeal, impart vitality and effectiveness to what was decreed. For
without it, what it had been decided would be set at naught and nullified. Unless such a blatant disregard by the
domiciliary administrator, with residence abroad, of what was previously ordained by a court order could be thus
remedied, it would have entailed, insofar as this matter was concerned, not a partial but a well-nigh complete
paralysis of judicial authority.
1. Appellant Benguet Consolidated, Inc. did not dispute the power of the appellee ancillary administrator to gain
control and possession of all assets of the decedent within the jurisdiction of the Philippines. Nor could it. Such a
power is inherent in his duty to settle her estate and satisfy the claims of local creditors.
5
As Justice Tuason
speaking for this Court made clear, it is a "general rule universally recognized" that administration, whether
principal or ancillary, certainly "extends to the assets of a decedent found within the state or country where it was
granted," the corollary being "that an administrator appointed in one state or country has no power over property
in another state or country."
6

It is to be noted that the scope of the power of the ancillary administrator was, in an earlier case, set forth by
Justice Malcolm. Thus: "It is often necessary to have more than one administration of an estate. When a person
dies intestate owning property in the country of his domicile as well as in a foreign country, administration is had
in both countries. That which is granted in the jurisdiction of decedent's last domicile is termed the principal
administration, while any other administration is termed the ancillary administration. The reason for the latter is
because a grant of administration does not ex proprio vigore have any effect beyond the limits of the country in
which it is granted. Hence, an administrator appointed in a foreign state has no authority in the [Philippines]. The
ancillary administration is proper, whenever a person dies, leaving in a country other than that of his last domicile,
property to be administered in the nature of assets of the deceased liable for his individual debts or to be
distributed among his heirs."
7

It would follow then that the authority of the probate court to require that ancillary administrator's right to "the
stock certificates covering the 33,002 shares ... standing in her name in the books of [appellant] Benguet
Consolidated, Inc...." be respected is equally beyond question. For appellant is a Philippine corporation owing full
allegiance and subject to the unrestricted jurisdiction of local courts. Its shares of stock cannot therefore be
considered in any wise as immune from lawful court orders.
Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue
8
finds application. "In the instant case,
the actual situs of the shares of stock is in the Philippines, the corporation being domiciled [here]." To the force of
the above undeniable proposition, not even appellant is insensible. It does not dispute it. Nor could it successfully
do so even if it were so minded.
2. In the face of such incontrovertible doctrines that argue in a rather conclusive fashion for the legality of the
challenged order, how does appellant, Benguet Consolidated, Inc. propose to carry the extremely heavy burden of
persuasion of precisely demonstrating the contrary? It would assign as the basic error allegedly committed by the
lower court its "considering as lost the stock certificates covering 33,002 shares of Benguet belonging to the
deceased Idonah Slade Perkins, ..."
9
More specifically, appellant would stress that the "lower court could not
"consider as lost" the stock certificates in question when, as a matter of fact, his Honor the trial Judge knew, and
does know, and it is admitted by the appellee, that the said stock certificates are in existence and are today in the
possession of the domiciliary administrator in New York."
10

There may be an element of fiction in the above view of the lower court. That certainly does not suffice to call for
the reversal of the appealed order. Since there is a refusal, persistently adhered to by the domiciliary administrator
in New York, to deliver the shares of stocks of appellant corporation owned by the decedent to the ancillary
administrator in the Philippines, there was nothing unreasonable or arbitrary in considering them as lost and
requiring the appellant to issue new certificates in lieu thereof. Thereby, the task incumbent under the law on the
ancillary administrator could be discharged and his responsibility fulfilled.
Any other view would result in the compliance to a valid judicial order being made to depend on the uncontrolled
discretion of the party or entity, in this case domiciled abroad, which thus far has shown the utmost persistence in
refusing to yield obedience. Certainly, appellant would not be heard to contend in all seriousness that a judicial
decree could be treated as a mere scrap of paper, the court issuing it being powerless to remedy its flagrant
disregard.
It may be admitted of course that such alleged loss as found by the lower court did not correspond exactly with the
facts. To be more blunt, the quality of truth may be lacking in such a conclusion arrived at. It is to be remembered
however, again to borrow from Frankfurter, "that fictions which the law may rely upon in the pursuit of legitimate
ends have played an important part in its development."
11

Speaking of the common law in its earlier period, Cardozo could state fictions "were devices to advance the ends
of justice, [even if] clumsy and at times offensive."
12
Some of them have persisted even to the present, that
eminent jurist, noting "the quasi contract, the adopted child, the constructive trust, all of flourishing vitality, to
attest the empire of "as if" today."
13
He likewise noted "a class of fictions of another order, the fiction which is a
working tool of thought, but which at times hides itself from view till reflection and analysis have brought it to the
light."
14

What cannot be disputed, therefore, is the at times indispensable role that fictions as such played in the law. There
should be then on the part of the appellant a further refinement in the catholicity of its condemnation of such
judicial technique. If ever an occasion did call for the employment of a legal fiction to put an end to the anomalous
situation of a valid judicial order being disregarded with apparent impunity, this is it. What is thus most obvious is
that this particular alleged error does not carry persuasion.
3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by its invoking one of the
provisions of its by-laws which would set forth the procedure to be followed in case of a lost, stolen or destroyed
stock certificate; it would stress that in the event of a contest or the pendency of an action regarding ownership of
such certificate or certificates of stock allegedly lost, stolen or destroyed, the issuance of a new certificate or
certificates would await the "final decision by [a] court regarding the ownership [thereof]."
15

Such reliance is misplaced. In the first place, there is no such occasion to apply such by-law. It is admitted that the
foreign domiciliary administrator did not appeal from the order now in question. Moreover, there is likewise the
express admission of appellant that as far as it is concerned, "it is immaterial ... who is entitled to the possession of
the stock certificates ..." Even if such were not the case, it would be a legal absurdity to impart to such a provision
conclusiveness and finality. Assuming that a contrariety exists between the above by-law and the command of a
court decree, the latter is to be followed.
It is understandable, as Cardozo pointed out, that the Constitution overrides a statute, to which, however, the
judiciary must yield deference, when appropriately invoked and deemed applicable. It would be most highly
unorthodox, however, if a corporate by-law would be accorded such a high estate in the jural order that a court
must not only take note of it but yield to its alleged controlling force.
The fear of appellant of a contingent liability with which it could be saddled unless the appealed order be set aside
for its inconsistency with one of its by-laws does not impress us. Its obedience to a lawful court order certainly
constitutes a valid defense, assuming that such apprehension of a possible court action against it could possibly
materialize. Thus far, nothing in the circumstances as they have developed gives substance to such a fear.
Gossamer possibilities of a future prejudice to appellant do not suffice to nullify the lawful exercise of judicial
authority.
4. What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with implications at war with
the basic postulates of corporate theory.
We start with the undeniable premise that, "a corporation is an artificial being created by operation of law...."
16
It
owes its life to the state, its birth being purely dependent on its will. As Berle so aptly stated: "Classically, a
corporation was conceived as an artificial person, owing its existence through creation by a sovereign power."
17
As
a matter of fact, the statutory language employed owes much to Chief Justice Marshall, who in the Dartmouth
College decision defined a corporation precisely as "an artificial being, invisible, intangible, and existing only in
contemplation of law."
18

The well-known authority Fletcher could summarize the matter thus: "A corporation is not in fact and in reality a
person, but the law treats it as though it were a person by process of fiction, or by regarding it as an artificial
person distinct and separate from its individual stockholders.... It owes its existence to law. It is an artificial person
created by law for certain specific purposes, the extent of whose existence, powers and liberties is fixed by its
charter."
19
Dean Pound's terse summary, a juristic person, resulting from an association of human beings granted
legal personality by the state, puts the matter neatly.
20

There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote from Friedmann, "is
the reality of the group as a social and legal entity, independent of state recognition and concession."
21
A
corporation as known to Philippine jurisprudence is a creature without any existence until it has received the
imprimatur of the state according to law. It is logically inconceivable therefore that it will have rights and privileges
of a higher priority than that of its creator. More than that, it cannot legitimately refuse to yield obedience to acts
of its state organs, certainly not excluding the judiciary, whenever called upon to do so.
As a matter of fact, a corporation once it comes into being, following American law still of persuasive authority in
our jurisdiction, comes more often within the ken of the judiciary than the other two coordinate branches. It
institutes the appropriate court action to enforce its right. Correlatively, it is not immune from judicial control in
those instances, where a duty under the law as ascertained in an appropriate legal proceeding is cast upon it.
To assert that it can choose which court order to follow and which to disregard is to confer upon it not autonomy
which may be conceded but license which cannot be tolerated. It is to argue that it may, when so minded, overrule
the state, the source of its very existence; it is to contend that what any of its governmental organs may lawfully
require could be ignored at will. So extravagant a claim cannot possibly merit approval.
5. One last point. In Viloria v. Administrator of Veterans Affairs,
22
it was shown that in a guardianship proceedings
then pending in a lower court, the United States Veterans Administration filed a motion for the refund of a certain
sum of money paid to the minor under guardianship, alleging that the lower court had previously granted its
petition to consider the deceased father as not entitled to guerilla benefits according to a determination arrived at
by its main office in the United States. The motion was denied. In seeking a reconsideration of such order, the
Administrator relied on an American federal statute making his decisions "final and conclusive on all questions of
law or fact" precluding any other American official to examine the matter anew, "except a judge or judges of the
United States court."
23
Reconsideration was denied, and the Administrator appealed.
In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of the opinion that the appeal
should be rejected. The provisions of the U.S. Code, invoked by the appellant, make the decisions of the U.S.
Veterans' Administrator final and conclusive when made on claims property submitted to him for resolution; but
they are not applicable to the present case, where the Administrator is not acting as a judge but as a litigant. There
is a great difference between actions against the Administrator (which must be filed strictly in accordance with the
conditions that are imposed by the Veterans' Act, including the exclusive review by United States courts), and
those actions where the Veterans' Administrator seeks a remedy from our courts and submits to their jurisdiction
by filing actions therein. Our attention has not been called to any law or treaty that would make the findings of the
Veterans' Administrator, in actions where he is a party, conclusive on our courts. That, in effect, would deprive our
tribunals of judicial discretion and render them mere subordinate instrumentalities of the Veterans'
Administrator."
It is bad enough as the Viloria decision made patent for our judiciary to accept as final and conclusive,
determinations made by foreign governmental agencies. It is infinitely worse if through the absence of any
coercive power by our courts over juridical persons within our jurisdiction, the force and effectivity of their orders
could be made to depend on the whim or caprice of alien entities. It is difficult to imagine of a situation more
offensive to the dignity of the bench or the honor of the country.
Yet that would be the effect, even if unintended, of the proposition to which appellant Benguet Consolidated
seems to be firmly committed as shown by its failure to accept the validity of the order complained of; it seeks its
reversal. Certainly we must at all pains see to it that it does not succeed. The deplorable consequences attendant
on appellant prevailing attest to the necessity of negative response from us. That is what appellant will get.
That is all then that this case presents. It is obvious why the appeal cannot succeed. It is always easy to conjure
extreme and even oppressive possibilities. That is not decisive. It does not settle the issue. What carries weight and
conviction is the result arrived at, the just solution obtained, grounded in the soundest of legal doctrines and
distinguished by its correspondence with what a sense of realism requires. For through the appealed order, the
imperative requirement of justice according to law is satisfied and national dignity and honor maintained.
WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the Court of First Instance, dated
May 18, 1964, is affirmed. With costs against oppositor-appelant Benguet Consolidated, Inc.




G.R. No. 171805 May 30, 2011
PHILIPPINE NATIONAL BANK, Petitioner,
vs.
MERELO B. AZNAR; MATIAS B. AZNAR III; JOSE L. AZNAR (deceased), represented by his heirs; RAMON A.
BARCENILLA; ROSARIO T. BARCENILLA; JOSE B. ENAD (deceased), represented by his heirs; and RICARDO
GABUYA (deceased), represented by his heirs, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 172021
MERELO B. AZNAR and MATIAS B. AZNAR III, Petitioners,
vs.
PHILIPPINE NATIONAL BANK, Respondent.
D E C I S I O N
LEONARDO-DE CASTRO, J.:
Before the Court are two petitions for review on certiorari under Rule 45 of the Rules of Court both seeking to
annul and set aside the Decision
1
dated September 29, 2005 as well as the Resolution
2
dated March 6, 2006 of the
Court of Appeals in CA-G.R. CV No. 75744, entitled "Merelo B. Aznar, Matias B. Aznar III, Jose L. Aznar (deceased)
represented by his heirs, Ramon A. Barcenilla (deceased) represented by his heirs, Rosario T. Barcenilla, Jose B.
Enad (deceased) represented by his heirs, and Ricardo Gabuya (deceased) represented by his heirs v. Philippine
National Bank, Jose Garrido and Register of Deeds of Cebu City." The September 29, 2005 Decision of the Court of
Appeals set aside the Decision
3
dated November 18, 1998 of the Regional Trial Court (RTC) of Cebu City, Branch 17,
in Civil Case No. CEB-21511. Furthermore, it ordered the Philippine National Bank (PNB) to pay Merelo B. Aznar;
Matias B. Aznar III; Jose L. Aznar (deceased), represented by his heirs; Ramon A. Barcenilla (deceased), represented
by his heirs; Rosario T. Barcenilla; Jose B. Enad (deceased), represented by his heirs; and Ricardo Gabuya
(deceased), represented by his heirs (Aznar, et al.), the amount of their lien based on the Minutes of the Special
Meeting of the Board of Directors
4
(Minutes) of the defunct Rural Insurance and Surety Company, Inc. (RISCO) duly
annotated on the titles of three parcels of land, plus legal interests from the time of PNBs acquisition of the
subject properties until the finality of the judgment but dismissing all other claims of Aznar, et al. On the other
hand, the March 6, 2006 Resolution of the Court of Appeals denied the Motion for Reconsideration subsequently
filed by each party.
The facts of this case, as stated in the Decision dated September 29, 2005 of the Court of Appeals, are as follows:
In 1958, RISCO ceased operation due to business reverses. In plaintiffs desire to rehabilitate RISCO, they
contributed a total amount of P212,720.00 which was used in the purchase of the three (3) parcels of land
described as follows:
"A parcel of land (Lot No. 3597 of the Talisay-Minglanilla Estate, G.L.R.O. Record No. 3732) situated in the
Municipality of Talisay, Province of Cebu, Island of Cebu. xxx containing an area of SEVENTY[-]EIGHT THOUSAND
ONE HUNDRED EIGHTY[-]FIVE SQUARE METERS (78,185) more or less. x x x" covered by Transfer Certificate of Title
No. 8921 in the name of Rural Insurance & Surety Co., Inc.";
"A parcel of land (Lot 7380 of the Talisay Minglanilla Estate, G.L.R.O. Record No. 3732), situated in the Municipality
of Talisay, Province of Cebu, Island of Cebu. xxx containing an area of THREE HUNDRED TWENTY[-]NINE
THOUSAND FIVE HUNDRED FORTY[-]SEVEN SQUARE METERS (329,547), more or less. xxx" covered by Transfer
Certificate of Title No. 8922 in the name of Rural Insurance & Surety Co., Inc." and
"A parcel of land (Lot 1323 of the subdivision plan Psd-No. 5988), situated in the District of Lahug, City of Cebu,
Island of Cebu. xxx containing an area of FIFTY[-]FIVE THOUSAND SIX HUNDRED FIFTY[-]THREE (55,653) SQUARE
METERS, more or less." covered by Transfer Certificate of Title No. 24576 in the name of Rural Insurance & Surety
Co., Inc."
After the purchase of the above lots, titles were issued in the name of RISCO. The amount contributed by plaintiffs
constituted as liens and encumbrances on the aforementioned properties as annotated in the titles of said lots.
Such annotation was made pursuant to the Minutes of the Special Meeting of the Board of Directors of RISCO
(hereinafter referred to as the "Minutes") on March 14, 1961, pertinent portion of which states:
x x x x
3. The President then explained that in a special meeting of the stockholders previously called for the purpose of
putting up certain amount of P212,720.00 for the rehabilitation of the Company, the following stockholders
contributed the amounts indicated opposite their names:
CONTRIBUTED SURPLUS
MERELO B. AZNAR P50,000.00
MATIAS B. AZNAR 50,000.00
JOSE L. AZNAR 27,720.00
RAMON A. BARCENILLA 25,000.00
ROSARIO T. BARCENILLA 25,000.00
JOSE B. ENAD 17,500.00
RICARDO GABUYA 17,500.00

212,720.00
x x x x
And that the respective contributions above-mentioned shall constitute as their lien or interest on the property
described above, if and when said property are titled in the name of RURAL INSURANCE & SURETY CO., INC.,
subject to registration as their adverse claim in pursuance of the Provisions of Land Registration Act, (Act No. 496,
as amended) until such time their respective contributions are refunded to them completely.
x x x x"
Thereafter, various subsequent annotations were made on the same titles, including the Notice of Attachment and
Writ of Execution both dated August 3, 1962 in favor of herein defendant PNB, to wit:
On TCT No. 8921 for Lot 3597:
Entry No. 7416-V-4-D.B. Notice of Attachment By the Provincial Sheriff of Cebu, Civil Case No. 47725, Court of
First Instance of Manila, entitled "Philippine National Bank, Plaintiff, versus Iluminada Gonzales, et al.,
Defendants", attaching all rights, interest and participation of the defendant Iluminada Gonzales and Rural
Insurance & Surety Co., Inc. of the two parcels of land covered by T.C.T. Nos. 8921, Attachment No. 330 and 185.
Date of Instrument August 3, 1962.
Date of Inscription August 3, 1962, 3:00 P.M.
Entry No. 7417-V-4-D.B. Writ of Execution By the Court of First Instance of Manila, commanding the Provincial
Sheriff of Cebu, of the lands and buildings of the defendants, to make the sum of Seventy[-]One Thousand Three
Hundred Pesos (P71,300.00) plus interest etc., in connection with Civil Case No. 47725, File No. T-8021.
Date of Instrument July 21, 1962.
Date of Inscription August 3, 1962, 3:00 P.M.
Entry No. 7512-V-4-D.B. Notice of Attachment By the Provincial Sheriff of Cebu, Civil Case Nos. IV-74065,
73929, 74129, 72818, in the Municipal Court of the City of Manila, entitled "Jose Garrido, Plaintiff, versus Rural
Insurance & Surety Co., Inc., et als., Defendants", attaching all rights, interests and participation of the defendants,
to the parcels of land covered by T.C.T. Nos. 8921 & 8922 Attachment No. 186, File No. T-8921.
Date of the Instrument August 16, 1962.
Date of Inscription August 16, 1962, 2:50 P.M.
Entry No. 7513-V-4-D.B. Writ of Execution By the Municipal Court of the City of Manila, commanding the
Provincial Sheriff of Cebu, of the lands and buildings of the defendants, to make the sum of Three Thousand Pesos
(P3,000.00), with interest at 12% per annum from July 20, 1959, in connection with Civil Case Nos. IV-74065,
73929, 74613 annotated above.
File No. T-8921
Date of the Instrument August 11, 1962.
Date of the Inscription August 16, 1962, 2:50 P.M.
On TCT No. 8922 for Lot 7380:
(Same as the annotations on TCT 8921)
On TCT No. 24576 for Lot 1328 (Corrected to Lot 1323-c per court order):
Entry No. 1660-V-7-D.B. Notice of Attachment by the Provincial Sheriff of Cebu, Civil Case No. 47725, Court of
First Instance of Manila, entitled "Philippine National Bank, Plaintiff, versus, Iluminada Gonzales, et al.,
Defendants", attaching all rights, interest, and participation of the defendants Iluminada Gonzales and Rural
Insurance & Surety Co., Inc. of the parcel of land herein described.
Attachment No. 330 & 185.
Date of Instrument August 3, 1962.
Date of Inscription August 3, 1962, 3:00 P.M.
Entry No. 1661-V-7-D.B. Writ of Execution by the Court of First Instance of Manila commanding the Provincial
Sheriff of Cebu, of the lands and buildings of the defendants to make the sum of Seventy[-]One Thousand Three
Hundred Pesos (P71,300.00), plus interest, etc., in connection with Civil Case No. 47725.
File No. T-8921.
Date of the Instrument July 21, 1962.
Date of the Inscription August 3, 1962 3:00 P.M.
Entry No. 1861-V-7-D.B. - Notice of Attachment By the Provincial Sheriff of Cebu, Civil Case Nos. IV-74065, 73929,
74129, 72613 & 72871, in the Municipal Court of the City of Manila, entitled "Jose Garrido, Plaintiff, versus Rural
Insurance & Surety Co., Inc., et als., Defendants", attaching all rights, interest and participation of the defendants,
to the parcel of land herein described.
Attachment No. 186.
File No. T-8921.
Date of the Instrument August 16, 1962.
Date of the Instription August 16, 1962 2:50 P.M.
Entry No. 1862-V-7-D.B. Writ of Execution by the Municipal Court of Manila, commanding the Provincial Sheriff
of Cebu, of the lands and buildings of the Defendants, to make the sum of Three Thousand Pesos (P3,000.00), with
interest at 12% per annum from July 20, 1959, in connection with Civil Case Nos. IV-74065, 73929, 74129, 72613 &
72871 annotated above.
File No. T-8921.
Date of the Instrument August 11, 1962.
Date of the Inscription August 16, 1962 at 2:50 P.M.
As a result, a Certificate of Sale was issued in favor of Philippine National Bank, being the lone and highest bidder
of the three (3) parcels of land known as Lot Nos. 3597 and 7380, covered by T.C.T. Nos. 8921 and 8922,
respectively, both situated at Talisay, Cebu, and Lot No. 1328-C covered by T.C.T. No. 24576 situated at Cebu City,
for the amount of Thirty-One Thousand Four Hundred Thirty Pesos (P31,430.00). Thereafter, a Final Deed of Sale
dated May 27, 1991 in favor of the Philippine National Bank was also issued and Transfer Certificate of Title No.
24576 for Lot 1328-C (corrected to 1323-C) was cancelled and a new certificate of title, TCT 119848 was issued in
the name of PNB on August 26, 1991.
This prompted plaintiffs-appellees to file the instant complaint seeking the quieting of their supposed title to the
subject properties, declaratory relief, cancellation of TCT and reconveyance with temporary restraining order and
preliminary injunction. Plaintiffs alleged that the subsequent annotations on the titles are subject to the prior
annotation of their liens and encumbrances. Plaintiffs further contended that the subsequent writs and processes
annotated on the titles are all null and void for want of valid service upon RISCO and on them, as stockholders.
They argued that the Final Deed of Sale and TCT No. 119848 are null and void as these were issued only after 28
years and that any right which PNB may have over the properties had long become stale.
Defendant PNB on the other hand countered that plaintiffs have no right of action for quieting of title since the
order of the court directing the issuance of titles to PNB had already become final and executory and their validity
cannot be attacked except in a direct proceeding for their annulment. Defendant further asserted that plaintiffs, as
mere stockholders of RISCO do not have any legal or equitable right over the properties of the corporation. PNB
posited that even if plaintiffs monetary lien had not expired, their only recourse was to require the
reimbursement or refund of their contribution.
5
1awphi1
Aznar, et al., filed a Manifestation and Motion for Judgment on the Pleadings
6
on October 5, 1998. Thus, the trial
court rendered the November 18, 1998 Decision, which ruled against PNB on the basis that there was an express
trust created over the subject properties whereby RISCO was the trustee and the stockholders, Aznar, et al., were
the beneficiaries or the cestui que trust. The dispositive portion of the said ruling reads:
WHEREFORE, judgment is hereby rendered as follows:
a) Declaring the Minutes of the Special Meeting of the Board of Directors of RISCO approved on March 14,
1961 (Annex "E," Complaint) annotated on the titles to subject properties on May 15, 1962 as an express
trust whereby RISCO was a mere trustee and the above-mentioned stockholders as beneficiaries being
the true and lawful owners of Lots 3597, 7380 and 1323;
b) Declaring all the subsequent annotations of court writs and processes, to wit: Entry No. 7416-V-4-D.B.,
7417-V-4-D.B., 7512-V-4-D.B., and 7513-V-4-D.B. in TCT No. 8921 for Lot 3597 and TCT No. 8922 for Lot
7380; Entry No. 1660-V-7-D.B., Entry No. 1661-V-7-D.B., Entry No. 1861-V-7-D.B., Entry No. 1862-V-7-D.B.,
Entry No. 4329-V-7-D.B., Entry No. 3761-V-7-D.B. and Entry No. 26522 v. 34, D.B. on TCT No. 24576 for Lot
1323-C, and all other subsequent annotations thereon in favor of third persons, as null and void;
c) Directing the Register of Deeds of the Province of Cebu and/or the Register of Deeds of Cebu City, as
the case may be, to cancel all these annotations mentioned in paragraph b) above the titles;
d) Directing the Register of Deeds of the Province of Cebu to cancel and/or annul TCTs Nos. 8921 and
8922 in the name of RISCO, and to issue another titles in the names of the plaintiffs; and
e) Directing Philippine National Bank to reconvey TCT No. 119848 in favor of the plaintiffs.
7

PNB appealed the adverse ruling to the Court of Appeals which, in its September 29, 2005 Decision, set aside the
judgment of the trial court. Although the Court of Appeals agreed with the trial court that a judgment on the
pleadings was proper, the appellate court opined that the monetary contributions made by Aznar, et al., to RISCO
can only be characterized as a loan secured by a lien on the subject lots, rather than an express trust. Thus, it
directed PNB to pay Aznar, et al., the amount of their contributions plus legal interest from the time of acquisition
of the property until finality of judgment.lawphil The dispositive portion of the decision reads:
WHEREFORE, premises considered, the assailed Judgment is hereby SET ASIDE.
A new judgment is rendered ordering Philippine National Bank to pay plaintiffs-appellees the amount of their lien
based on the Minutes of the Special Meeting of the Board of Directors duly annotated on the titles, plus legal
interests from the time of appellants acquisition of the subject properties until the finality of this judgment.
All other claims of the plaintiffs-appellees are hereby DISMISSED.
8

Both parties moved for reconsideration but these were denied by the Court of Appeals. Hence, each party filed
with this Court their respective petitions for review on certiorari under Rule 45 of the Rules of Court, which were
consolidated in a Resolution
9
dated October 2, 2006.
In PNBs petition, docketed as G.R. No. 171805, the following assignment of errors were raised:
I
THE COURT OF APPEALS ERRED IN AFFIRMING THE FINDINGS OF THE TRIAL COURT THAT A JUDGMENT ON
THE PLEADINGS WAS WARRANTED DESPITE THE EXISTENCE OF GENUINE ISSUES OF FACTS ALLEGED IN
PETITIONER PNBS ANSWER.
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE RIGHT OF RESPONDENTS TO REFUND
OR REPAYMENT OF THEIR CONTRIBUTIONS HAD NOT PRESCRIBED AND/OR THAT THE MINUTES OF THE
SPECIAL MEETING OF THE BOARD OF DIRECTORS OF RISCO CONSTITUTED AS AN EFFECTIVE ADVERSE
CLAIM.
III
THE COURT OF APPEALS ERRED IN NOT CONSIDERING THE DISMISSAL OF THE COMPLAINT ON GROUNDS
OF RES JUDICATA AND LACK OF CAUSE OF ACTION ALLEGED BY PETITIONER IN ITS ANSWER.
10

On the other hand, Aznar, et al.s petition, docketed as G.R. No. 172021, raised the following issue:
THE COURT OF APPEALS ERRED IN CONCLUDING THAT THE CONTRIBUTIONS MADE BY THE STOCKHOLDERS OF
RISCO WERE MERELY A LOAN SECURED BY THEIR LIEN OVER THE PROPERTIES, SUBJECT TO REIMBURSEMENT OR
REFUND, RATHER THAN AN EXPRESS TRUST.
11

Anent the first issue raised in G.R. No. 171805, PNB argues that a judgment on the pleadings was not proper
because its Answer,
12
which it filed during the trial court proceedings of this case, tendered genuine issues of fact
since it did not only deny material allegations in Aznar, et al.s Complaint
13
but also set up special and affirmative
defenses. Furthermore, PNB maintains that, by virtue of the trial courts judgment on the pleadings, it was denied
its right to present evidence and, therefore, it was denied due process.
The contention is meritorious.
The legal basis for rendering a judgment on the pleadings can be found in Section 1, Rule 34 of the Rules of Court
which states that "[w]here an answer fails to tender an issue, or otherwise admits the material allegations of the
adverse partys pleading, the court may, on motion of that party, direct judgment on such pleading. x x x."
Judgment on the pleadings is, therefore, based exclusively upon the allegations appearing in the pleadings of the
parties and the annexes, if any, without consideration of any evidence aliunde.
14
However, when it appears that
not all the material allegations of the complaint were admitted in the answer for some of them were either denied
or disputed, and the defendant has set up certain special defenses which, if proven, would have the effect of
nullifying plaintiffs main cause of action, judgment on the pleadings cannot be rendered.
15

In the case at bar, the Court of Appeals justified the trial courts resort to a judgment on the pleadings in the
following manner:
Perusal of the complaint, particularly, Paragraph 7 thereof reveals:
"7. That in their desire to rehabilitate RISCO, the above-named stockholders contributed a total amount of
PhP212,720.00 which was used in the purchase of the above-described parcels of land, which amount constituted
liens and encumbrances on subject properties in favor of the above-named stockholders as annotated in the titles
adverted to above, pursuant to the Minutes of the Special Meeting of the Board of Directors of RISCO approved on
March 14, 1961, a copy of which is hereto attached as Annex "E".
On the other hand, defendant in its Answer, admitted the aforequoted allegation with the qualification that the
amount put up by the stockholders was "used as part payment" for the properties. Defendant further averred that
plaintiffs liens and encumbrances annotated on the titles issued to RISCO constituted as "loan from the
stockholders to pay part of the purchase price of the properties" and "was a personal obligation of RISCO and was
thus not a claim adverse to the ownership rights of the corporation." With these averments, We do not find error
on the part of the trial court in rendering a judgment on the pleadings. For one, the qualification made by
defendant in its answer is not sufficient to controvert the allegations raised in the complaint. As to defendants
contention that the money contributed by plaintiffs was in fact a "loan" from the stockholders, reference can be
made to the Minutes of the Special Meeting of the Board of Directors, from which plaintiffs-appellees anchored
their complaint, in order to ascertain the true nature of their claim over the properties. Thus, the issues raised by
the parties can be resolved on the basis of their respective pleadings and the annexes attached thereto and do not
require further presentation of evidence aliunde.
16

However, a careful reading of Aznar, et al.s Complaint and of PNBs Answer would reveal that both parties raised
several claims and defenses, respectively, other than what was cited by the Court of Appeals, which requires the
presentation of evidence for resolution, to wit:
Complaint (Aznar, et al.) Answer (PNB)
11. That these subsequent annotations on the titles of the
properties in question are subject to the prior annotation of
liens and encumbrances of the above-named stockholders per
Entry No. 458-V-7-D.B. inscribed on TCT No. 24576 on May 15,
1962 and per Entry No. 6966-V-4-D.B. on TCT No. 8921 and
TCT No. 8922 on May 15, 1962;
10) Par. 11 is denied as the loan from the
stockholders to pay part of the purchase
price of the properties was a personal
obligation of RISCO and was thus not a
claim adverse to the ownership rights of
the corporation;
12. That these writs and processes annotated on the titles are
all null and void for total want of valid service upon RISCO and
the above-named stockholders considering that as early as
sometime in 1958, RISCO ceased operations as earlier stated,
and as early as May 15, 1962, the liens and encumbrances of
the above-named stockholders were annotated in the titles of
subject properties;
11) Par. 12 is denied as in fact notice to
RISCO had been sent to its last known
address at Plaza Goite, Manila;
13. That more particularly, the Final Deed of Sale (Annex "G")
and TCT No. 119848 are null and void as these were issued
only after 28 years and 5 months (in the case of the Final Deed
of Sale) and 28 years, 6 months and 29 days (in the case of TCT
119848) from the invalid auction sale on December 27, 1962,
hence, any right, if any, which PNB had over subject properties
had long become stale;
12) Par. 13 is denied for no law requires
the final deed of sale to be executed
immediately after the end of the
redemption period. Moreover, another
court of competent jurisdiction has
already ruled that PNB was entitled to a
final deed of sale;
14. That plaintiffs continue to have possession of subject
properties and of their corresponding titles, but they never
received any process concerning the petition filed by PNB to
have TCT 24576 over Lot 1323-C surrendered and/or
cancelled;
13) Par. 14 is denied as plaintiffs are not
in actual possession of the land and if
they were, their possession was as
trustee for the creditors of RISCO like
PNB;
15. That there is a cloud created on the aforementioned titles
of RISCO by reason of the annotate writs, processes and
proceedings caused by Jose Garrido and PNB which were
apparently valid or effective, but which are in truth and in fact
invalid and ineffective, and prejudicial to said titles and to the
rights of the plaintiffs, which should be removed and the titles
quieted.
17

14) Par. 15 is denied as the court orders
directing the issuance of titles to PNB in
lieu of TCT 24576 and TCT 8922 are valid
judgments which cannot be set aside in a
collateral proceeding like the instant
case.
18

Furthermore, apart from refuting the aforecited material allegations made by Aznar, et al., PNB also indicated in its
Answer the special and affirmative defenses of (a) prescription; (b) res judicata; (c) Aznar, et al., having no right of
action for quieting of title; (d) Aznar, et al.s lien being ineffective and not binding to PNB; and (e) Aznar, et al.s
having no personality to file the suit.
19

From the foregoing, it is indubitably clear that it was error for the trial court to render a judgment on the pleadings
and, in effect, resulted in a denial of due process on the part of PNB because it was denied its right to present
evidence. A remand of this case would ordinarily be the appropriate course of action. However, in the interest of
justice and in order to expedite the resolution of this case which was filed with the trial court way back in 1998, the
Court finds it proper to already resolve the present controversy in light of the existence of legal grounds that
would dispose of the case at bar without necessity of presentation of further evidence on the other disputed
factual claims and defenses of the parties.
A thorough and comprehensive scrutiny of the records would reveal that this case should be dismissed because
Aznar, et al., have no title to quiet over the subject properties and their true cause of action is already barred by
prescription.
At the outset, the Court agrees with the Court of Appeals that the agreement contained in the Minutes of the
Special Meeting of the RISCO Board of Directors held on March 14, 1961 was a loan by the therein named
stockholders to RISCO. We quote with approval the following discussion from the Court of Appeals Decision dated
September 29, 2005:
Careful perusal of the Minutes relied upon by plaintiffs-appellees in their claim, showed that their contributions
shall constitute as "lien or interest on the property" if and when said properties are titled in the name of RISCO,
subject to registration of their adverse claim under the Land Registration Act, until such time their respective
contributions are refunded to them completely.
It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its stipulation shall control. When the language
of the contract is explicit leaving no doubt as to the intention of the drafters thereof, the courts may not read into
it any other intention that would contradict its plain import.
The term lien as used in the Minutes is defined as "a discharge on property usually for the payment of some debt
or obligation. A lien is a qualified right or a proprietary interest which may be exercised over the property of
another. It is a right which the law gives to have a debt satisfied out of a particular thing. It signifies a legal claim or
charge on property; whether real or personal, as a collateral or security for the payment of some debt or
obligation." Hence, from the use of the word "lien" in the Minutes, We find that the money contributed by
plaintiffs-appellees was in the nature of a loan, secured by their liens and interests duly annotated on the titles.
The annotation of their lien serves only as collateral and does not in any way vest ownership of property to
plaintiffs.
20
(Emphases supplied.)
We are not persuaded by the contention of Aznar, et al., that the language of the subject Minutes created an
express trust.
Trust is the right to the beneficial enjoyment of property, the legal title to which is vested in another. It is a
fiduciary relationship that obliges the trustee to deal with the property for the benefit of the beneficiary. Trust
relations between parties may either be express or implied. An express trust is created by the intention of the
trustor or of the parties. An implied trust comes into being by operation of law.
21

Express trusts, sometimes referred to as direct trusts, are intentionally created by the direct and positive acts of
the settlor or the trustor - by some writing, deed, or will or oral declaration. It is created not necessarily by some
written words, but by the direct and positive acts of the parties.
22
This is in consonance with Article 1444 of the
Civil Code, which states that "[n]o particular words are required for the creation of an express trust, it being
sufficient that a trust is clearly intended."
In other words, the creation of an express trust must be manifested with reasonable certainty and cannot be
inferred from loose and vague declarations or from ambiguous circumstances susceptible of other
interpretations.
23

No such reasonable certitude in the creation of an express trust obtains in the case at bar. In fact, a careful scrutiny
of the plain and ordinary meaning of the terms used in the Minutes does not offer any indication that the parties
thereto intended that Aznar, et al., become beneficiaries under an express trust and that RISCO serve as trustor.
Indeed, we find that Aznar, et al., have no right to ask for the quieting of title of the properties at issue because
they have no legal and/or equitable rights over the properties that are derived from the previous registered owner
which is RISCO, the pertinent provision of the law is Section 2 of the Corporation Code (Batas Pambansa Blg. 68),
which states that "[a] corporation is an artificial being created by operation of law, having the right of succession
and the powers, attributes and properties expressly authorized by law or incident to its existence."
As a consequence thereof, a corporation has a personality separate and distinct from those of its stockholders and
other corporations to which it may be connected.
24
Thus, we had previously ruled in Magsaysay-Labrador v. Court
of Appeals
25
that the interest of the stockholders over the properties of the corporation is merely inchoate and
therefore does not entitle them to intervene in litigation involving corporate property, to wit:
Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote, conjectural,
consequential and collateral. At the very least, their interest is purely inchoate, or in sheer expectancy of a right in
the management of the corporation and to share in the profits thereof and in the properties and assets thereof on
dissolution, after payment of the corporate debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the property of the corporation, it does not
vest the owner thereof with any legal right or title to any of the property, his interest in the corporate property
being equitable or beneficial in nature. Shareholders are in no legal sense the owners of corporate property, which
is owned by the corporation as a distinct legal person.
26

In the case at bar, there is no allegation, much less any proof, that the corporate existence of RISCO has ceased
and the corporate property has been liquidated and distributed to the stockholders. The records only indicate that,
as per Securities and Exchange Commission (SEC) Certification
27
dated June 18, 1997, the SEC merely suspended
RISCOs Certificate of Registration beginning on September 5, 1988 due to its non-submission of SEC required
reports and its failure to operate for a continuous period of at least five years.
Verily, Aznar, et al., who are stockholders of RISCO, cannot claim ownership over the properties at issue in this
case on the strength of the Minutes which, at most, is merely evidence of a loan agreement between them and the
company. There is no indication or even a suggestion that the ownership of said properties were transferred to
them which would require no less that the said properties be registered under their names. For this reason, the
complaint should be dismissed since Aznar, et al., have no cause to seek a quieting of title over the subject
properties.
At most, what Aznar, et al., had was merely a right to be repaid the amount loaned to RISCO. Unfortunately, the
right to seek repayment or reimbursement of their contributions used to purchase the subject properties is already
barred by prescription.
Section 1, Rule 9 of the Rules of Court provides that when it appears from the pleadings or the evidence on record
that the action is already barred by the statute of limitations, the court shall dismiss the claim, to wit:
Defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived. However,
when it appears from the pleadings or the evidence on record that the court has no jurisdiction over the subject
matter, that there is another action pending between the same parties for the same cause, or that the action is
barred by a prior judgment or by statute of limitations, the court shall dismiss the claim. (Emphasis supplied.)
In Feliciano v. Canoza,
28
we held:
We have ruled that trial courts have authority and discretion to dismiss an action on the ground of prescription
when the parties pleadings or other facts on record show it to be indeed time-barred x x x; and it may do so on
the basis of a motion to dismiss, or an answer which sets up such ground as an affirmative defense; or even if the
ground is alleged after judgment on the merits, as in a motion for reconsideration; or even if the defense has not
been asserted at all, as where no statement thereof is found in the pleadings, or where a defendant has been
declared in default. What is essential only, to repeat, is that the facts demonstrating the lapse of the prescriptive
period, be otherwise sufficiently and satisfactorily apparent on the record; either in the averments of the
plaintiffs complaint, or otherwise established by the evidence.
29
(Emphasis supplied.)
The pertinent Civil Code provision on prescription which is applicable to the issue at hand is Article 1144(1), to wit:
The following actions must be brought within ten years from the time the right of action accrues:
1. Upon a written contract;
2. Upon an obligation created by law;
3. Upon a judgment. (Emphasis supplied.)
Moreover, in Nielson & Co., Inc. v. Lepanto Consolidated Mining Co.,
30
we held that the term "written contract"
includes the minutes of the meeting of the board of directors of a corporation, which minutes were adopted by the
parties although not signed by them, to wit:
Coming now to the question of prescription raised by defendant Lepanto, it is contended by the latter that the
period to be considered for the prescription of the claim regarding participation in the profits is only four years,
because the modification of the sharing embodied in the management contract is merely verbal, no written
document to that effect having been presented. This contention is untenable. The modification appears in the
minutes of the special meeting of the Board of Directors of Lepanto held on August 21, 1940, it having been made
upon the authority of its President, and in said minutes the terms of modification had been specified. This is
sufficient to have the agreement considered, for the purpose of applying the statute of limitations, as a written
contract even if the minutes were not signed by the parties (3 A.L.R., 2d, p. 831). It has been held that a writing
containing the terms of a contract if adopted by two persons may constitute a contract in writing even if the same
is not signed by either of the parties (3 A.L.R., 2d, pp. 812-813). Another authority says that an unsigned
agreement the terms of which are embodied in a document unconditionally accepted by both parties is a written
contract (Corbin on Contracts, Vol. I, p. 85).
31

Applied to the case at bar, the Minutes which was approved on March 14, 1961 is considered as a written contract
between Aznar, et al., and RISCO for the reimbursement of the contributions of the former. As such, the former
had a period of ten (10) years from 1961 within which to enforce the said written contract. However, it does not
appear that Aznar, et al., filed any action for reimbursement or refund of their contributions against RISCO or even
against PNB. Instead the suit that Aznar, et al., brought before the trial court only on January 28, 1998 was one to
quiet title over the properties purchased by RISCO with their contributions. It is unmistakable that their right of
action to claim for refund or payment of their contributions had long prescribed. Thus, it was reversible error for
the Court of Appeals to order PNB to pay Aznar, et al., the amount of their liens based on the Minutes with legal
interests from the time of PNBs acquisition of the subject properties.
In view of the foregoing, it is unnecessary for the Court to pass upon the other issues raised by the parties.
WHEREFORE, the petition of Aznar, et al., in G.R. No. 172021 is DENIED for lack of merit. The petition of PNB in
G.R. No. 171805 is GRANTED. The Complaint, docketed as Civil Case No. CEB-21511, filed by Aznar, et al., is hereby
DISMISSED. No costs



































G.R. No. 157549 May 30, 2011
DONNINA C. HALLEY, Petitioner,
vs.
PRINTWELL, INC., Respondent.
D E C I S I O N
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,
1
whereby the Court of Appeals(CA)
upheld thedecision of the Regional Trial Court, Branch 71, in Pasig City (RTC),
2
ordering 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,
3
had 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 No. of shares Total subscription Amount paid
Donnina C. Halley 35,000 P 350,000.00 P87,500.00
Roberto V. Cabrera, Jr. 18,000 P 180,000.00 P45,000.00
Albert T. Yu 18,000 P 180,000.00 P45,000.00
Zenaida V. Yu 2,000 P 20,000.00 P5,000.00
Rizalino C. Vineza 2,000 P 20,000.00 P5,000.00
TOTAL 75,000 P750,000.00 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 Unpaid Shares
Donnina C. Halley P 262,500.00
Roberto V. Cabrera, Jr. P135,000.00
Albert T. Yu P135,000.00
Zenaida V. Yu P15,000.00
Rizalino C. Vieza P15,000.00
TOTAL P 562,500.00
The defendants filed a consolidated answer,
6
averring 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. Date Name Amount
217 November 5, 1987 Albert T. Yu P 45,000.00
218 May 13, 1988 Albert T. Yu P 135,000.00
220 May 13, 1988 Roberto V. Cabrera, Jr. P 135,000.00
221 November 5, 1987 Roberto V. Cabrera, Jr. P 45,000.00
222 November 5, 1987 Zenaida V. Yu P 5,000.00
223 May 13, 1988 Zenaida V. Yu P 15,000.00
227 May 13, 1988 Donnina C. Halley 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 sheet
8
and
income statement
9
as 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 Unpaid Subscription
Donnina C. Halley P262,500.00
Roberto V. Cabrera, Jr. 135.000.00
Albert T. Yu 135,000.00
Zenaida V. Yu 15,000.00
Rizalino V. Vineza 15,000.00
--------------------------------
Total P562,500.00
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 Amount
Donnina C. Halley P149,955.65
Roberto V. Cabrera, Jr. 77,144.55
Albert T. Yu 77,144.55
Zenaida V. Yu 8,579.00
Rizalino V. Vineza 8,579.00
--------------------------------
Total P321,342.75
15

The RTC disposed as follows:
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 DEFENDANTS-APPELLANTS 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 Constitution
20
as
well as in Section 1,Rule 36 of the Rules of Court,
21
to 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 did not violate
the Constitution and the Rules of Court
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,"
23
but 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,
26
such separate and distinct personality is merely a fiction created by law for the sake of convenience and
to promote the ends of justice.
27
The 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.
29
It 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 co-defendants, 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.1avvphi1
III
Unpaid creditor may satisfy its claim from
unpaid subscriptions;stockholders must
prove full payment oftheir subscriptions
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,
33
was adopted in our
jurisdiction in Philippine Trust Co. v. Rivera,
34
where 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)
xxx
35

We clarify that the trust fund doctrineis not limited to reaching the stockholders unpaid subscriptions. 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.
36
All 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,
38
or fraudulently, to the prejudice of creditors.
39
The 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.
40
To
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.
43
Althougha 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.
45
Yet, 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.
46
The
delivery of a bill of exchange only produces the fact of payment when the bill has been encashed.
47
The following
passage fromBank of Philippine Islands v. Royeca
48
is 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,
49
and about whether the check was cleared and its amount paid
to BMPI.
50
In 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.
51
Specifically, 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.
52
That 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 for corporate debts isup
to the extentof their unpaid subscription
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.
53
In 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
55
incorporated 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 pay cost of suit in this appeal.



G.R. No. 174982 September 10, 2012
JOSE VICENTE ATILANO II, HEIRS OF CARLOS V. TAN represented by Conrad K. Tan, Carlos K. Tan, Camilo Karl K.
Tan, Carisa Rosenda T. Go, NELIDA F. ATILANO and ISIDRA K. TAN, Petitioners,
vs.
HON. JUDGE TIBING A. ASAALI, Presiding Judge of the Regional Trial Court of Zamboanga City and ATLANTIC
MERCHANDISING, INC., Respondents.
D E C I S I O N
PERLAS-BERNABE, J.:
This Petition for Review on Certiorari assails the May 27, 2005 Resolution
1
and September 6, 2006 Resolution
2
of
the Court of Appeals (CA) in CA-G.R. SP No. 00231 which dismissed the petition for certiorari filed by petitioners
Jose Vicente Atilano II, Heirs of Carlos V. Tan represented by Conrad K. Tan, Carlos K. Tan, Camilo Karl K. Tan, Carisa
Rosenda T. Go, Nelida F. Atilano and Isidra K. Tan for failure to comply with the rules of procedure.
The Factual Antecedents
Sometime in January 1990, private respondent Atlantic Merchandising, Inc. filed an action for revival of judgment
against Zamboanga Alta Consolidated, Inc. (ZACI) before the Regional Trial Court (RTC) of Zamboanga City, Branch
17, docketed as Civil Case No. 3776. In its January 31, 1991 Decision, the RTC revived the judgment in Civil Case No.
3049 and ordered ZACI to pay private respondent the amount of P 673,536.54 representing its principal obligation,
interest, attorney's fees and costs, plus 12% legal interest per annum computed from the time of the filing of the
complaint until the same is fully paid. ZACI was likewise directed to pay private respondent attorney's fees
equivalent to 15% of the unpaid amount as well as expenses of litigation and costs.
A writ of execution was issued to enforce the RTC's January 31, 1991 Decision but because it was returned
unsatisfied, private respondent sought the examination of ZACI's debtors, which included petitioners as its
stockholders. In the course of the proceedings, petitioners denied liability for any unpaid subscriptions with ZACI
and offered various documentary evidence to support their claim.
The RTC Ruling
In the proceedings before the RTC, petitioners offered official records from the Securities and Exchange
Commission (SEC) which revealed the following information
3
as of February 20, 1988 with respect to ZACI's
incorporators, their respective subscriptions:
Name Amount Subscribed Amount Paid-in
Jose Vicente F. Atilano II P 300,000.00 P 75,000.00
Carlos F. Tan 150,000.00 37,500.00
Arthur M. Lopez 150,000.00 37,500.00
Nelida F. Atilano 150,000.00 37,500.00
Isidra K. Tan 150,000.00 37,500.00
Mauro Tan 100,000.00 25,000.00
However, the RTC noted
4
that ZACI had folded up and ceased business operations as early as 1983, and when
inquiries regarding its paid-in capital were made in 1992, or almost ten (10) years later, no changes were reflected
in the company books.
Finding petitioners to be indebted to ZACI as its incorporators in the aggregate amount of P 750,000.00 by way of
unpaid stock subscriptions on the basis of the records of the SEC, the RTC, in its September 29, 2004
Decision,
5
ordered petitioners to settle their obligations to the capital stock of ZACI.
Petitioners' motion for reconsideration was denied in the RTC's December 9, 2004 Order.
6

The CA Ruling
Aggrieved, petitioners filed a petition for certiorari before the appellate court, imputing grave abuse of discretion
upon the RTC for failing to consider Section 43, Rule 39 of the Revised Rules of Court which substantially provides
for the proceedings that should be conducted when a third person allegedly indebted to a judgment debtor denies
the debt. However, the CA dismissed
7
their petition outright on the following grounds: (1) failure to attach certified
true copies of the assailed RTC Decision and Order; (2) only three out of four petitioners signed the verification and
certification of non-forum shopping; (3) the IBP Official Receipt Number of the counsel for petitioners was
outdated, violating Bar Matter No. 287; and (4) deficiency in the docket and other fees in the sum of P 1,530.00.
Petitioners sought reconsideration of the dismissal of their petition and substantially complied with the procedural
defects enumerated. However, in its September 6, 2006 Resolution,
8
the CA, while acknowledging petitioners'
compliance with the technical defects of their petition, nonetheless, denied petitioners' motion for
reconsideration, finding that the payment of the deficiency in the docket fee was made beyond the reglementary
period.
Issues Before The Court
In this petition for review, petitioners maintain that the CA's outright dismissal of their petition on procedural
grounds, despite substantial compliance, and the RTC Decision directing them to pay private respondent the
amount of their alleged unpaid stock subscriptions to ZACI, are tantamount to a denial of due process of law.
The Court's Ruling
The petition has merit.
Payment of the full amount of docket fees is an indispensable step to the perfection of an appeal, and the Court
acquires jurisdiction over any case only upon such payment.
9
Corollary to this, the Court has consistently held that
procedural rules are not to be disregarded simply because their non-observance may result in prejudice to a
partys substantive rights.
10

However, these same rules may be relaxed, for persuasive and weighty reasons, to relieve a litigant of an injustice
commensurate with his failure to comply with procedure.
11
Thus, in La Salette College v. Pilotin,
12
the Court
explained:
Notwithstanding the mandatory nature of the requirement of payment of appellate docket fees, we also recognize
that its strict application is qualified by the following: first, failure to pay those fees within the reglementary period
allows only discretionary, not automatic, dismissal; second, such power should be used by the court in conjunction
with its exercise of sound discretion in accordance with the tenets of justice and fair play, as well as with a great
deal of circumspection in consideration of all attendant circumstances.
After a judicious perusal of the records, the Court finds that compelling and substantial reasons exist in this case as
to justify the relaxation of procedural rules.
Records show that petitioners merely became involved in this case when, upon failure to execute the revived final
judgment in its favor in Civil Case No. 3776, respondent sought to examine the debtors of ZACI, the judgment
obligor, which included petitioners on the allegation that they had unpaid stock subscriptions to ZACI, as its
incorporators and stockholders. During the proceedings, petitioners vehemently denied any such liability or
indebtedness.
Under the circumstances, therefore, the RTC should have directed respondent to institute a separate action
against petitioners for the purpose of recovering their alleged indebtedness to ZACI, in accordance with Section 43,
Rule 39 of the Rules of Court, which provides:
Section 43. Proceedings when indebtedness denied or another person claims the property. If it appears that a
person or corporation, alleged to have property of the judgment obligor or to be indebted to him, claims an
interest in the property adverse to him or denies the debt, the court may authorize, by an order made to that
effect, the judgment obligee to institute an action against such person or corporation for the recovery of such
interest or debt, forbid a transfer or other disposition of such interest or debt within one hundred twenty (120)
days from notice of the order, and may punish disobedience of such order as for contempt. Such order may be
modified or vacated at any time by the court which issued it, or the court in which the action is brought, upon such
terms as may be just. (Emphasis supplied)
It is well-settled that no man shall be affected by any proceeding to which he is a stranger, and strangers to a case
are not bound by a judgment rendered by the court.
13
Execution of a judgment can only be issued against one who
is a party to the action, and not against one who, not being a party thereto, did not have his day in court.
14
Due
process dictates that a court decision can only bind a party to the litigation and not against innocent third parties.
15

In National Power Corporation v. Gonong,
16
the Court explained:
Execution may issue against such person or entity only upon an incontrovertible showing that the person or entity
in fact holds property belonging to the judgment debtor or is indeed a debtor of said judgment debtor, i.e., that
such holding of property, or the indebtedness, is not denied. In the event of such a denial, it is not, to repeat, within
the judge's power to order delivery of property allegedly belonging to the judgment debtor or the payment of the
alleged debt. A contrary rule would allow a court to adjudge substantive liability in a summary proceeding,
incidental merely to the process of executing a judgment, rather than in a trial on the merits, to be held only after
the party sought to be made liable has been properly summoned and accorded full opportunity to file the
pleadings permitted by the Rules in ventilation of his side. This would amount to a denial of due process of law.
[Emphasis and underscoring supplied]
Petitioners were total strangers to the civil case between ZACI and respondent, and to order them to settle an
obligation which they persistently denied would be tantamount to deprivation of their property without due
process of law. The only power of the RTC, in this case, is to make an order authorizing respondent to sue in the
proper court to recover an indebtedness in favor of ZACI. It has no jurisdiction to summarily try the question of
whether petitioners were truly indebted to ZACI when such indebtedness is denied.
17
On this note, it bears
stressing that stock subscriptions are considered a debt of the stockholder to the corporation.
18

Under this factual backdrop, the CA, therefore, should have exercised its sound judicial discretion when it
dismissed petitioners' certiorari action.1wphi1
It should have carefully weighed, with circumspection and prudence, the issues and grievances that petitioners
have raised vis-a-vis the procedural defect of their petition. Records show that petitioners had fully paid the
deficiency in the docket fee in the sum of PI ,530.00
19
notwithstanding the fact that it was made beyond the
reglementary period under the rules. What is significant, however, is that petitioners have fully complied with all
the deficiencies enumerated by theCA in its assailed May 27, 2005 Resolution.
Considered in this light, the Court, therefore, deems it in the interest of substantial justice and petitioners'
constitustionally-guaranteed right to due process to relax the rules of procedure in order to prevent an apparent
travesty of justice in this case.
WHEREFORE, the instant petition is GRANTED and the assailed May 27, 2005 and September 6, 2006 Resolutions
of the Court of Appeals are SET ASIDE. The September 29, 2004 Decision and December 9, 2004 Order of the RTC
are likewise NULLIFIED, without prejudice to the institution of a separate action against petitioners in accordance
with Section 43, Rule 39 ofthe Rules of Court.




G.R. No. 108734 May 29, 1996
CONCEPT BUILDERS, INC., petitioner,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and Norberto Marabe; Rodolfo Raquel,
Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogelio Salut, Emilio
Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve,
Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and
Ruben Robalos, respondents.

HERMOSISIMA, JR., J.:p
The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter
ego of a person or of another corporation. Where badges of fraud exist; where public convenience is defeated;
where a wrong is sought to be justified thereby, the corporate fiction or the notion of legal entity should come to
naught. The law in these instances will regard the corporation as a mere association of persons and, in case of two
corporations, merge them into one.
Thus, where a sister corporation is used as a shield to evade a corporation's subsidiary liability for damages, the
corporation may not be heard to say that it has a personality separate and distinct from the other corporation. The
piercing of the corporate veil comes into play.
This special civil action ostensibly raises the question of whether the National Labor Relations Commission
committed grave abuse of discretion when it issued a "break-open order" to the sheriff to be enforced against
personal property found in the premises of petitioner's sister company.
Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road, Valenzuela,
Metro Manila, is engaged in the construction business. Private respondents were employed by said company as
laborers, carpenters and riggers.
On November, 1981, private respondents were served individual written notices of termination of employment by
petitioner, effective on November 30, 1981. It was stated in the individual notices that their contracts of
employment had expired and the project in which they were hired had been completed.
Public respondent found it to be, the fact, however, that at the time of the termination of private respondent's
employment, the project in which they were hired had not yet been finished and completed. Petitioner had to
engage the services of sub-contractors whose workers performed the functions of private respondents.
Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment of
their legal holiday pay, overtime pay and thirteenth-month pay against petitioner.
On December 19, 1984, the Labor Arbiter rendered judgment
1
ordering petitioner to reinstate private respondents
and to pay them back wages equivalent to one year or three hundred working days.
On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed the motion for reconsideration
filed by petitioner on the ground that the said decision had already become final and executory.
2

On October 16, 1986, the NLRC Research and Information Department made the finding that private respondents'
back wages amounted to P199,800.00.
3

On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision,
dated December 19, 1984. The writ was partially satisfied through garnishment of sums from petitioner's debtor,
the Metropolitan Waterworks and Sewerage Authority, in the amount of P81,385.34. Said amount was turned over
to the cashier of the NLRC.
On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect from
herein petitioner the sum of P117,414.76, representing the balance of the judgment award, and to reinstate
private respondents to their former positions.
On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of execution on petitioner
through the security guard on duty but the service was refused on the ground that petitioner no longer occupied
the premises.
On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a second alias writ of
execution.
The said writ had not been enforced by the special sheriff because, as stated in his progress report, dated
November 2, 1989:
1. All the employees inside petitioner's premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they
were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by respondent;
2. Levy was made upon personal properties he found in the premises;
3. Security guards with high-powered guns prevented him from removing the properties he had levied upon.
4

The said special sheriff recommended that a "break-open order" be issued to enable him to enter petitioner's
premises so that he could proceed with the public auction sale of the aforesaid personal properties on November
7, 1989.
On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the
properties sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-
President.
On November 23, 1989, private respondents filed a "Motion for Issuance of a Break-Open Order," alleging that
HPPI and petitioner corporation were owned by the same incorporator/stockholders. They also alleged that
petitioner temporarily suspended its business operations in order to evade its legal obligations to them and that
private respondents were willing to post an indemnity bond to answer for any damages which petitioner and HPPI
may suffer because of the issuance of the break-open order.
In support of their claim against HPPI, private respondents presented duly certified copies of the General
Informations Sheet, dated May 15, 1987, submitted by petitioner to the Securities Exchange Commission (SEC) and
the General Information Sheet, dated May 25, 1987, submitted by HPPI to the Securities and Exchange
Commission.
The General Information Sheet submitted by the petitioner revealed the following:
1. Breakdown of Subscribed Capital
Name of Stockholder Amount Subscribed
HPPI P 6,999,500.00
Antonio W. Lim 2,900,000.00
Dennis S. Cuyegkeng 300.00
Elisa C. Lim 100,000.00
Teodulo R. Dino 100.00
Virgilio O. Casino 100.00
2. Board of Directors
Antonio W. Lim Chairman
Dennis S. Cuyegkeng Member
Elisa C. Lim Member
Teodulo R. Dino Member
Virgilio O. Casino Member
3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the President
Elisa O. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road
Valenzuela, Metro Manila.
5

On the other hand, the General Information Sheet of HPPI revealed the following:
1. Breakdown of Subscribed Capital
Name of Stockholder Amount Subscribed
Antonio W. Lim P 400,000.00
Elisa C. Lim 57,700.00
AWL Trading 455,000.00
Dennis S. Cuyegkeng 40,100.00
Teodulo R. Dino 100.00
Virgilio O. Casino 100.00
2. Board of Directors
Antonio W. Lim Chairman
Elisa C. Lim Member
Dennis S. Cuyegkeng Member
Virgilio O. Casino Member
Teodulo R. Dino Member
3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the President
Elisa C. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road, Valenzuela, Metro Manila.
6

On February 1, 1990, HPPI filed an Opposition to private respondents' motion for issuance of a break-open order,
contending that HPPI is a corporation which is separate and distinct from petitioner. HPPI also alleged that the two
corporations are engaged in two different kinds of businesses, i.e., HPPI is a manufacturing firm while petitioner
was then engaged in construction.
On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents' motion for break-open
order.
Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside the order of the Labor
Arbiter, issued a break-open order and directed private respondents to file a bond. Thereafter, it directed the
sheriff to proceed with the auction sale of the properties already levied upon. It dismissed the third-party claim for
lack of merit.
Petitioner moved for reconsideration but the motion was denied by the NLRC in a Resolution, dated December 3,
1992.
Hence, the resort to the present petition.
Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the execution of its decision
despite a third-party claim on the levied property. Petitioner further contends, that the doctrine of piercing the
corporate veil should not have been applied, in this case, in the absence of any showing that it created HPPI in
order to evade its liability to private respondents. It also contends that HPPI is engaged in the manufacture and
sale of steel, concrete and iron pipes, a business which is distinct and separate from petitioner's construction
business. Hence, it is of no consequence that petitioner and HPPI shared the same premises, the same President
and the same set of officers and subscribers.
7

We find petitioner's contention to be unmeritorious.
It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its
stockholders and from other corporations to which it may be connected.
8
But, this separate and distinct
personality of a corporation is merely a fiction created by law for convenience and to promote justice.
9
So, when
the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect fraud or
defend crime, or is used as a device to defeat the labor laws,
10
this separate personality of the corporation may be
disregarded or the veil of corporate fiction pierced.
11
This is true likewise when the corporation is merely an
adjunct, a business conduit or an alter ego of another corporation.
12

The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and
circumstances of each case. No hard and fast rule can be accurately laid down, but certainly, there are some
probative factors of identity that will justify the application of the doctrine of piercing the corporate veil, to wit:
1. Stock ownership by one or common ownership of both corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business.
13

The SEC en banc explained the "instrumentality rule" which the courts have applied in disregarding the separate
juridical personality of corporations as follows:
Where one corporation is so organized and controlled and its affairs are conducted so that it is,
in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the
"instrumentality" may be disregarded. The control necessary to invoke the rule is not majority or
even complete stock control but such domination of instances, policies and practices that the
controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but
a conduit for its principal. It must be kept in mind that the control must be shown to have been
exercised at the time the acts complained of took place. Moreover, the control and breach of
duty must proximately cause the injury or unjust loss for which the complaint is made.
The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows:
1. Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its
own;
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate
the violation of a statutory or other positive legal duty or dishonest and unjust act in
contravention of plaintiff's legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of.
The absence of any one of these elements prevents "piercing the corporate veil." In applying the
"instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form,
with how the corporation operated and the individual defendant's relationship to that
operation.
14

Thus the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a sham or a
subterfuge is purely one of fact.
15

In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations on April 29, 1986,
it filed an Information Sheet with the Securities and Exchange Commission on May 15, 1987, stating that its office
address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant,
submitted on the same day, a similar information sheet stating that its office address is at 355 Maysan Road,
Valenzuela, Metro Manila.
Furthermore, the NLRC stated that:
Both information sheets were filed by the same Virgilio O. Casio as the corporate secretary of
both corporations. It would also not be amiss to note that both corporations had
the same president, thesame board of directors, the same corporate officers, and substantially
the same subscribers.
From the foregoing, it appears that, among other things, the respondent (herein petitioner) and
the third-party claimant shared the same address and/or premises. Under this circumstances,
(sic) it cannot be said that the property levied upon by the sheriff were not of respondents.
16

Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of back
wages and to bar their reinstatement to their former positions. HPPI is obviously a business conduit of petitioner
corporation and its emergence was skillfully orchestrated to avoid the financial liability that already attached to
petitioner corporation.
The facts in this case are analogous to Claparols v. Court of Industrial Relations,
1
7 where we had the occasion to
rule:
Respondent court's findings that indeed the Claparols Steel and Nail Plant, which ceased
operation of June 30, 1957, was SUCCEEDED by the Claparols Steel Corporation effective the next
day, July 1, 1957, up to December 7, 1962, when the latter finally ceased to operate, were not
disputed by petitioner. It is very clear that the latter corporation was a continuation and
successor of the first entity . . . . Both predecessors and successor were owned and controlled by
petitioner Eduardo Claparols and there was no break in the succession and continuity of the
same business. This "avoiding-the-liability" scheme is very patent, considering that 90% of the
subscribed shares of stock of the Claparols Steel Corporation (the second corporation) was
owned by respondent . . . Claparols himself, and all the assets of the dissolved Claparols Steel and
Nail plant were turned over to the emerging Claparols Steel Corporation.
It is very obvious that the second corporation seeks the protective shield of a corporate fiction
whose veil in the present case could, and should, be pierced as it was deliberately and
maliciously designed to evade its financial obligation to its employees.
In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject of the execution,
private respondents had no other recourse but to apply for a break-open order after the third-party claim of HPPI
was dismissed for lack of merit by the NLRC. This is in consonance with Section 3, Rule VII of the NLRC Manual of
Execution of Judgment which provides that:
Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his
representative entry to the place where the property subject of execution is located or kept, the
judgment creditor may apply to the Commission or Labor Arbiter concerned for a break-open
order.
Furthermore, our perusal of the records shows that the twin requirements of due notice and hearing were
complied with. Petitioner and the third-party claimant were given the opportunity to submit evidence in support of
their claim.
Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open order issued by
the Labor Arbiter.
Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial agencies supported by
substantial evidence are binding on this Court and are entitled to great respect, in the absence of showing of grave
abuse of a discretion.
18

WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23, 1992 and
December 3, 1992, are AFFIRMED.


G.R. No. 159108 June 18, 2012
GOLD LINE TOURS, INC., Petitioner,
vs.
HEIRS OF MARIA CONCEPCION LACSA, Respondents.
D E C I S I O N
BERSAMIN, J.:
The veil of corporate existence of a corporation is a fiction of law that should not defeat the ends of justice.
Petitioner seeks to reverse the decision promulgated on October 30, 2002
1
and the resolution promulgated on
June 25, 2003,
2
whereby the Court of Appeals (CA) upheld the orders issued on August 2, 2001
3
and October 22,
2001
4
by the Regional Trial Court (RTC), Branch 51, in Sorsogon in Civil Case No. 93-5917 entitled Heirs of
Concepcion Lacsa, represented by Teodoro Lacsa v. Travel & Tours Advisers, Inc., et al. authorizing the
implementation of the writ of execution against petitioner despite its protestation of being a separate and
different corporate personality from Travel & Tours Advisers, Inc. (defendant in Civil Case No. 93-5917).
In the orders assailed in the CA, the RTC declared petitioner and Travel & Tours Advisers, Inc. to be one and the
same entity, and ruled that the levy of petitioners property to satisfy the final and executory decision rendered on
June 30, 1997 against Travel & Tours Advisers, Inc. in Civil Case No. 93-5917
5
was valid even if petitioner had not
been impleaded as a party.
Antecedents
On August 2, 1993, Ma. Concepcion Lacsa (Concepcion) and her sister, Miriam Lacsa (Miriam), boarded a Goldline
passenger bus with Plate No. NXM-105 owned and operated by Travel &Tours Advisers, Inc. They were enroute
from Sorsogon to Cubao, Quezon City.
6
At the time, Concepcion, having just obtained her degree of Bachelor of
Science in Nursing at the Ago Medical and Educational Center, was proceeding to Manila to take the nursing
licensure board examination.
7
Upon reaching the highway at Barangay San Agustin in Pili, Camarines Sur, the
Goldline bus, driven by Rene Abania (Abania), collided with a passenger jeepney with Plate No. EAV-313 coming
from the opposite direction and driven by Alejandro Belbis.
8
As a result, a metal part of the jeepney was detached
and struck Concepcion in the chest, causing her instant death.
9

On August 23, 1993, Concepcions heirs, represented by Teodoro Lacsa, instituted in the RTC a suit against Travel &
Tours Advisers Inc. and Abania to recover damages arising from breach of contract of carriage.
10
The complaint,
docketed as Civil Case No. 93-5917 and entitled Heirs of Concepcion Lacsa, represented by Teodoro Lacsa v. Travel
& Tours Advisers, Inc. (Goldline) and Rene Abania, alleged that the collision was due to the reckless and imprudent
manner by which Abania had driven the Goldline bus.
11

In support of the complaint, Miriam testified that Abania had been occasionally looking up at the video monitor
installed in the front portion of the Goldline bus despite driving his bus at a fast speed;
12
that in Barangay San
Agustin, the Goldline bus had collided with a service jeepney coming from the opposite direction while in the
process of overtaking another bus;
13
that the impact had caused the angle bar of the jeepney to detach and to go
through the windshield of the bus directly into the chest of Concepcion who had then been seated behind the
drivers seat;
14
that concerned bystanders had hailed another bus to rush Concepcion to the Ago Foundation
Hospital in Naga City because the Goldline bus employees and her co-passengers had ignored Miriams cries for
help;
15
and that Concepcion was pronounced dead upon arrival at the hospital.
16

To refute the plaintiffs allegations, the defendants presented SPO1 Pedro Corporal of the Philippine National
Police Station in Pili, Camarines Sur, and William Cheng, the operator of the Goldline bus.
17
SPO1 Corporal opined
that based on his investigation report, the driver of the jeepney had been at fault for failing to observe
precautionary measures to avoid the collision;
18
and suggested that criminal and civil charges should be brought
against the operator and driver of the jeepney.
19
On his part, Cheng attested that he had exercised the required
diligence in the selection and supervision of his employees; and that he had been engaged in the transportation
business since 1980 with the use of a total of 60 units of Goldline buses, employing about 100 employees
(including drivers, conductors, maintenance personnel, and mechanics);
20
that as a condition for regular
employment, applicant drivers had undergone a one-month training period and a six-month probationary period
during which they had gotten acquainted with Goldlines driving practices and demeanor;
21
that the employees
had come under constant supervision, rendering improbable the claim that Abania, who was a regular employee,
had been glancing at the video monitor while driving the bus;
22
that the incident causing Concepcions death was
the first serious incident his (Cheng) transportation business had encountered, because the rest had been only
minor traffic accidents;
23
and that immediately upon being informed of the accident, he had instructed his
personnel to contact the family of Concepcion.
24

The defendants blamed the death of Concepcion to the recklessness of Bilbes as the driver of the jeepney, and of
its operator, Salvador Romano;
25
and that they had consequently brought a third-party complaint against the
latter.
26

After trial, the RTC rendered its decision dated June 30, 1997, disposing:
ACCORDINGLY, judgment is hereby rendered:
(1) Finding the plaintiffs entitled to damages for the death of Ma. Concepcion Lacsa in violation of the
contract of carriage;
(2) Ordering defendant Travel & Tours Advisers, Inc. (Goldline) to pay plaintiffs:
a. P30,000.00 expenses for the wake;
b. P 6,000.00 funeral expenses;
c. P50,000.00 for the death of Ma. Concepcion Lacsa;
d. P150,000.00 for moral damages;
e. P20,000.00 for exemplary damages;
f. P8,000.00 for attorneys fees;
g. P2,000.00 for litigation expenses;
h. Costs of suit.
(3) Ordering the dismissal of the case against Rene Abania;
(4) Ordering the dismissal of the third-party complaint.
SO ORDERED.
27

The RTC found that a contract of carriage had been forged between Travel & Tours Advisers, Inc. and Concepcion
as soon as she had boarded the Goldline bus as a paying passenger; that Travel & Tours Advisers, Inc. had then
become duty-bound to safely transport her as its passenger to her destination; that due to Travel & Tours Advisers,
Inc.s inability to perform its duty, Article 1786 of the Civil Code created against it the disputable presumption that
it had been at fault or had been negligent in the performance of its obligations towards the passenger; that Travel
& Tours Advisers, Inc. failed to disprove the presumption of negligence; and that a rigid selection of employees
was not sufficient to exempt Travel & Tours Advisers, Inc. from the obligation of exercising extraordinary diligence
to ensure that its passenger was carried safely to her destination.
Aggrieved, the defendants appealed to the CA.
On June 11, 1998,
28
the CA dismissed the appeal for failure of the defendants to pay the docket and other lawful
fees within the required period as provided in Rule 41, Section 4 of the Rules of Court (1997). The dismissal
became final, and entry of judgment was made on July 17, 1998.
29

Thereafter, the plaintiffs moved for the issuance of a writ of execution to implement the decision dated June 30,
1997.
30
The RTC granted their motion on January 31, 2000,
31
and issued the writ of execution on February 24,
2000.
32

On May 10, 2000, the sheriff implementing the writ of execution rendered a Sheriffs Partial Return,
33
certifying
that the writ of execution had been personally served and a copy of it had been duly tendered to Travel & Tours
Advisers, Inc. or William Cheng, through his secretary, Grace Miranda, and that Cheng had failed to settle the
judgment amount despite promising to do so. Accordingly, a tourist bus bearing Plate No. NWW-883 was levied
pursuant to the writ of execution.
The plaintiffs moved to cite Cheng in contempt of court for failure to obey a lawful writ of the RTC.
34
Cheng filed
his opposition.
35
Acting on the motion to cite Cheng in contempt of court, the RTC directed the plaintiffs to file a
verified petition for indirect contempt on February 19, 2001.
36

On April 20, 2001, petitioner submitted a so-called verified third party claim,
37
claiming that the tourist bus bearing
Plate No. NWW-883 be returned to petitioner because it was the owner; that petitioner had not been made a
party to Civil Case No. 93-5917; and that petitioner was a corporation entirely different from Travel & Tours
Advisers, Inc., the defendant in Civil Case No. 93-5917.
It is notable that petitioners Articles of Incorporation was amended on November 8, 1993,
38
shortly after the filing
of Civil Case No. 93-5917 against Travel & Tours Advisers, Inc.
Respondents opposed petitioners verified third-party claim on the following grounds, namely: (a) the third-party
claim did not comply with the required notice of hearing as required by Rule 15, Sections 4 and 5 of the Rules of
Court; (b) Travel & Tours Advisers, Inc. and petitioner were identical entities and were both operated and managed
by the same person, William Cheng; and (c) petitioner was attempting to defraud its creditors respondents herein
hence, the doctrine of piercing the veil of corporate entity was squarely applicable.
39

On August 2, 2001, the RTC dismissed petitioners verified third-party claim, observing that the identity of Travel &
Tours Adivsers, Inc. could not be divorced from that of petitioner considering that Cheng had claimed to be the
operator as well as the President/Manager/incorporator of both entities; and that Travel & Tours Advisers, Inc. had
been known in Sorsogon as Goldline.
40

Petitioner moved for reconsideration,
41
but the RTC denied the motion on October 22, 2001.
42

Thence, petitioner initiated a special civil action for certiorari in the CA,
43
asserting:
THE RESPONDENT HONORABLE RTC JUDGE HAD ACTED WITHOUT JURISDICTION OR COMMITTED GRAVE ABUSE
OF DISCRETION AMOUNTING TO LACK OF JURISDICTION IN ISSUING THE: (A) ORDER DATED 2 AUGUST 2001, COPY
OF WHICH IS HERETO ATTACHED AS ANNEX A, DISMISSING HEREIN PETITIONERS THIRD PARTY CLAIM; AND (B)
ORDER DATED 22 OCTOBER 2001, COPY OF WHICH IS HERETO ATTACHED AS ANNEX B DENYING SAID PETITIONERS
MOTION FOR RECONSIDERATION; AND THAT THERE IS NO APPEAL, OR ANY PLAIN, SPEEDY AND ADEQUATE
REMEDY AVAILABLE TO SAID PETITIONER.
On October 30, 2002, the CA promulgated its decision dismissing the petition for certiorari,
44
holding as follows:
The petition lacks merit.
As stated in the decision supra, William Ching disclosed during the trial of the case that defendant Travel & Tours
Advisers, Inc. (Goldline), of which he is an officer, is operating sixty (60) units of Goldline buses. That the Goldline
buses are used in the operations of defendant company is obvious from Mr. Chengs admission. The Amended
Articles of Incorporation of Gold Line Tours, Inc. disclose that the following persons are the original incorporators
thereof: Antonio O. Ching, Maribel Lim Ching, witness William Ching, Anita Dy Ching and Zosimo Ching. (Rollo, pp.
105-106) We see no reason why defendant company would be using Goldline buses in its operations unless the
two companies are actually one and the same.
Moreover, the name Goldline was added to defendants name in the Complaint. There was no objection from
William Ching who could have raised the defense that Gold Line Tours, Inc. was in no way liable or involved.
Indeed, it appears to this Court that rather than Travel & Tours Advisers, Inc., it is Gold Line Tours, Inc., which
should have been named party defendant.
Be that as it may, We concur in the trial courts finding that the two companies are actually one and the same,
hence the levy of the bus in question was proper.
WHEREFORE, for lack of merit, the petition is DISMISSED and the assailed Orders are AFFIRMED.
SO ORDERED.
Petitioner filed a motion for reconsideration,
45
which the CA denied on June 25, 2003.
46

Hence, this appeal, in which petitioner faults the CA for holding that the RTC did not act without jurisdiction or
grave abuse of discretion in finding that petitioner and Travel & Tours Advisers, Inc., the defendant in Civil Case No.
5917, were one and same entity, and for sustaining the propriety of the levy of the tourist bus with Plate No.
NWW-883 in satisfaction of the writ of execution.
47

In the meantime, respondents filed in the RTC a motion to direct the sheriff to implement the writ of execution in
view of the non-issuance of any restraining order either by this Court or the CA.
48
On February 23, 2007, the RTC
granted the motion and directed the sheriff to sell the Goldline tourist bus with Plate No. NWW-883 through a
public auction.
49

Issue
Did the CA rightly find and conclude that the RTC did not gravely abuse its discretion in denying petitioners
verified third-party claim?
Ruling
We find no reason to reverse the assailed CA decision.
In the order dated August 2, 2001, the RTC rendered its justification for rejecting the third-party claim of petitioner
in the following manner:
x x x
The main contention of Third Party Claimant is that it is the owner of the Bus and therefore, it should not be seized
by the sheriff because the same does not belong to the defendant Travel & Tours Advises, Inc. (GOLDLINE) as the
third party claimant and defendant are two separate corporation with separate juridical personalities. Upon the
other hand, this Court had scrutinized the documents submitted by the Third party Claimant and found out that
William Ching who claimed to be the operator of the Travel & Tours Advisers, Inc. (GOLDLINE) is also the
President/Manager and incorporator of the Third Party Claimant Goldline Tours Inc. and he is joined by his co-
incorporators who are "Ching" and "Dy" thereby this Court could only say that these two corporations are one and
the same corporations. This is of judicial knowledge that since Travel & Tours Advisers, Inc. came to Sorsogon it has
been known as GOLDLINE.
This Court is not persuaded by the proposition of the third party claimant that a corporation has an existence
separate and/or distinct from its members insofar as this case at bar is concerned, for the reason that whenever
necessary for the interest of the public or for the protection of
enforcement of their rights, the notion of legal entity should not and is not to be used to defeat public
convenience, justify wrong, protect fraud or defend crime.
Apposite to the case at bar is the case of Palacio vs. Fely Transportation Co., L-15121, May 31, 1962, 5 SCRA 1011
where the Supreme Court held:
"Where the main purpose in forming the corporation was to evade ones subsidiary liability for damages in a
criminal case, the corporation may not be heard to say that it has a personality separate and distinct from its
members, because to allow it to do so would be to sanction the use of fiction of corporate entity as a shield to
further an end subversive of justice (La Campana Coffee Factory, et al. v. Kaisahan ng mga Manggagawa, etc., et
al., L-5677, May 25, 1953). The Supreme Court can even substitute the real party in interest in place of the
defendant corporation in order to avoid multiplicity of suits and thereby save the parties unnecessary expenses
and delay. (Alfonso vs. Villamor, 16 Phil. 315)."
This is what the third party claimant wants to do including the defendant in this case, to use the separate and
distinct personality of the two corporation as a shield to further an end subversive of justice by avoiding the
execution of a final judgment of the court.
50

As we see it, the RTC had sufficient factual basis to find that petitioner and Travel and Tours Advisers, Inc. were
one and the same entity, specifically: (a) documents submitted by petitioner in the RTC showing that William
Cheng, who claimed to be the operator of Travel and Tours Advisers, Inc., was also the President/Manager and an
incorporator of the petitioner; and (b) Travel and Tours Advisers, Inc. had been known in Sorsogon as Goldline. On
its part, the CA cogently observed:
As stated in the (RTC) decision supra, William Ching disclosed during the trial of the case that defendant Travel &
Tours Advisers, Inc. (Goldline), of which he is an officer, is operating sixty (60) units of Goldline buses. That the
Goldline buses are used in the operations of
defendant company is obvious from Mr. Chengs admission. The Amended Articles of Incorporation of Gold Line
Tours, Inc. disclose that the following persons are the original incorporators thereof: Antonio O. Ching, Maribel Lim
Ching, witness William Ching, Anita Dy Ching and Zosimo Ching. (Rollo, pp. 105-108) We see no reason why
defendant company would be using Goldline buses in its operations unless the two companies are actually one and
the same.
Moreover, the name Goldline was added to defendants name in the Complaint. There was no objection from
William Ching who could have raised the defense that Gold Line Tours, Inc. was in no way liable or involved. Indeed
it appears to this Court that rather than Travel & Tours Advisers, Inc. it is Gold Line Tours, Inc., which should have
been named party defendant.
Be that as it may, We concur in the trial courts finding that the two companies are actually one and the same,
hence the levy of the bus in question was proper.
51

The RTC thus rightly ruled that petitioner might not be shielded from liability under the final judgment through the
use of the doctrine of separate corporate identity. Truly, this fiction of law could not be employed to defeat the
ends of justice.
But petitioner continues to challenge the RTC orders by insisting that the evidence to establish its identity with
Travel and Tours Advisers, Inc. was insufficient.
We cannot agree with petitioner. As already stated, there was sufficient evidence that petitioner and Travel and
Tours Advisers, Inc.1wphi1 were one and the same entity. Moreover, we remind that a petition for the writ of
certiorari neither deals with errors of judgment nor extends to a mistake in the appreciation of the contending
parties evidence or in the evaluation of their relative weight.
52
It is timely to remind that the petitioner in a special
civil action for certiorari commenced against a trial court that has jurisdiction over the proceedings bears the
burden to demonstrate not merely reversible error, but grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of the respondent trial court in issuing the impugned order.
53
The term grave abuse of
discretion is defined as a capricious and whimsical exercise of judgment so patent and gross as to amount to an
evasion of a positive duty or a virtual refusal to perform a duty enjoined by law, as where the power is exercised in
an arbitrary and despotic manner because of passion or hostility.
54
Mere abuse of discretion is not enough; it must
be grave.
55
Yet, here, petitioner did not discharge its burden because it failed to demonstrate that the CA erred in
holding that the RTC had not committed grave abuse of discretion. A review of the records shows, indeed, that the
RTC correctly rejected petitioners third-party claim. Hence, the rejection did not come within the domain of the
writ of certioraris limiting requirement of excess or lack of jurisdiction.
56

WHEREFORE, the Court DENIES the petition for review on certiorari, and AFFIRMS the decision promulgated by the
Court of Appeals on October 30, 2002. Costs of suit to be paid by petitioner.

G.R. No. 170782 June 22, 2009
SIAIN ENTERPRISES, INC., Petitioner,
vs.
CUPERTINO REALTY CORP. and EDWIN R. CATACUTAN, Respondents.
D E C I S I O N
NACHURA, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision of the
Court of Appeals in CA-G.R. CV No. 71424
1
which affirmed the decision of the Regional Trial Court, Branch 29, Iloilo
City in Civil Case No. 23244.
2

On April 10, 1995, petitioner Siain Enterprises, Inc. obtained a loan of P37,000,000.00 from respondent Cupertino
Realty Corporation (Cupertino) covered by a promissory note signed by both petitioners and Cupertinos
respective presidents, Cua Le Leng and Wilfredo Lua. The promissory note authorizes Cupertino, as the creditor, to
place in escrow the loan proceeds of P37,000,000.00 with Metropolitan Bank & Trust Company to pay off
petitioners loan obligation with Development Bank of the Philippines (DBP). To secure the loan, petitioner, on the
same date, executed a real estate mortgage over two (2) parcels of land and other immovables, such as equipment
and machineries.
Two (2) days thereafter, or on April 12, 1995, the parties executed an amendment to promissory note which
provided for a seventeen percent (17%) interest per annum on the P37,000,000.00 loan.
3
The amendment to
promissory note was likewise signed by Cua Le Leng and Wilfredo Lua on behalf of petitioner and Cupertino,
respectively.
On August 16, 1995, Cua Le Leng signed a second promissory note in favor of Cupertino for P160,000,000.00. Cua
Le Leng signed the second promissory note as maker, on behalf of petitioner, and as co-maker, liable to Cupertino
in her personal capacity. This second promissory note provides:
PROMISSORY NOTE
AMOUNT DATE: AUGUST 16, 1995
ONE HUNDRED SIXTY MILLION PESOS
(PHP 160,000,000.00)
FOR VALUE RECEIVED, after one (1) year from this date on or August 16, 1996, WE, SIAIN ENTERPRISES INC. with
Metro Manila office address at 306 J.P. Rizal St., Mandaluyong City, represented herein by its duly authorized
President, Ms. LELENG CUA, (a copy of her authority is hereto attached as Annex "A") and Ms. LELENG CUA in her
personal capacity, a resident of ILOILO CITY, jointly and severally, unconditionally promise to pay CUPERTINO
REALTY CORPORATION, or order, an existing corporation duly organized under Philippine laws, the amount/sum of
ONE HUNDRED SIXTY MILLION PESOS (PHP 160,000,000.00), Philippine Currency, without further need of any
demand, at the office of CUPERTINO REALTY CORPORATION;
The amount/sum of ONE HUNDRED SIXTY MILLION PESOS (PHP 160,000,000.00) shall earn a compounding interest
of 30% per annum which interest shall be payable to CUPERTINO REALTY CORPORATION at its above given address
ON THE FIRST DAY OF EVERY MONTH WITHOUT THE NEED OF DEMAND.
In case We fail to pay the principal amount of this note at maturity or in the event of bankruptcy or insolvency,
receivership, levy of execution, garnishment or attachment or in case of conviction for a criminal offense carrying
with it the penalty of civil interdiction or in any of the cases covered by Article 1198 of the Civil Code of the
Philippines, then the entire principal of this note and other interests and penalties due thereon shall, at the option
of CUPERTINO REALTY CORPORATION, immediately become due and payable and We jointly and severally agree to
pay additionally a penalty at the rate of THREE PERCENT (3%) per month on the total amount/sum due until fully
paid. Furthermore, We jointly and severally agree to pay an additional sum equivalent to 20% of the total amount
due but in no case less than PHP 100,000.00 as and for attorneys fees in addition to expenses and costs of suit.
We hereby authorize and empower CUPERTINO REALTY CORPORATION at its option at any time, without notice, to
apply to the payment of this note and or any other particular obligation or obligations of all or any one of us to
CUPERTINO REALTY CORPORATION, as it may select, irrespective of the dates of maturity, whether or not said
obligations are then due, any and all moneys, checks, securities and things of value which are now or which may
hereafter be in its hand on deposit or otherwise to the credit of, or belonging to, both or any one of us, and
CUPERTINO REALTY CORPORATION is hereby authorized to sell at public or private sale such checks, securities, or
things of value for the purpose of applying the proceeds thereof to such payments of this note.
We hereby expressly consent to any extension and/or renewals hereof in whole or in part and/or partial payment
on account which may be requested by and granted to us or any one of us for the payment of this note as long as
the remaining unpaid balance shall earn an interest of THREE percent (3%) a month until fully paid. Such renewals
or extensions shall, in no case, be understood as a novation of this note or any provision thereof and We will
thereby continue to be liable for the payment of this note.
We submit to the jurisdiction of the Courts of the City of Manila or of the place of execution of this note, at the
option of CUPERTINO REALTY CORPORATION without divesting any other court of the its jurisdiction, for any legal
action which may arise out of this note. In case of judical execution of this obligation, or any part of it, we hereby
waive all our rights under the provisions of Rule 39, section 12 of the Rules of Court.
We, who are justly indebted to CUPERTINO REALTY CORPORATION, agree to execute respectively a real estate
mortgage and a pledge or a chattel mortgage covering securities to serve as collaterals for this loan and to execute
likewise an irrevocable proxy to allow representatives of the creditor to be able to monitor acts of management so
as to prevent any premature call of this loan. We further undertake to execute any other kind of document which
CUPERTINO REALTY CORPORATION may solely believe is necessary in order to effect any security over any
collateral.
For this purpose, Ms. LELENG CUA, upon the foregoing promissory note, has this 16th day of Aug 1995, pledged
her shares of stocks in SIAIN ENTERPRISES, INC., worth PHP 1,800,000.00 which she hereby confesses as
representing 80% of the total outstanding shares of the said company.
In default of payment of said note or any part thereof at maturity, Ms. LELENG CUA hereby authorizes CUPERTINO
REALTY CORPORATION or its assigns, to dispose of said security or any part thereof at public sale. The proceeds of
such sale or sales shall, after payment of all expenses and commissions attending said sale or sales, be applied to
this promissory note and the balance, if any, after payment of this promissory note and interest thereon, shall be
returned to the undersigned, her heirs, successors and administrators; it shall be optional for the owner of the
promissory note to bid for and purchase the securities or any part thereof.
SIAIN ENTERPRISES, INC.
(signed)
LELENG CUA
In her personal capacity
CO-MAKER
By:
(signed)
LELENG CUA
MAKER
WITNESSES:
(signed)
EDGARDO LUA
(signed)
ROSE MARIE RAGODON
4

Parenthetically, on even date, the parties executed an amendment of real estate mortgage, providing in pertinent
part:
WHEREAS, on 10 April 1995, the [petitioner] executed, signed and delivered a Real Estate Mortgage to and in favor
of [Cupertino] on certain real estate properties to secure the payment to [Cupertino] of a loan in the amount of
THIRTY SEVEN MILLION PESOS (P37,000,000.00) Philippine Currency, granted by [Cupertino] was ratified (sic) on 10
April 1995 before Constancio Mangoba, Jr., Notary Public in Makati City, as Doc. No. 242; in Page No. 50; Book No.,
XVI; Series of 1995, and duly recorded in the Office of the Register of Deeds for the said City of Iloilo;
WHEREAS, the [petitioner] has increased its loan payable to [Cupertino] which now amounts to ONE HUNDRED
NINETY SEVEN MILLION PESOS (197,000,000.00); and
WHEREAS, the [petitioner] and [Cupertino] intend to amend the said Real Estate Mortgage in order to reflect the
current total loan secured by the said Real Estate Mortgage;
NOW, THEREFORE, for and in consideration of the foregoing premises, the parties hereto have agreed and by these
presents do hereby agree to amend said Real Estate Mortgage dated 10 April 1995 mentioned above by
substituting the total amount of the loan secured by said Real Estate Mortgage from P37,000,000.00
toP197,000,000.00.
It is hereby expressly understood that with the foregoing amendment, all other terms and conditions of said Real
Estate Mortgage dated 10 April 1995 are hereby confirmed, ratified and continued to be in full force and effect,
and that this agreement be made an integral part of said Real Estate Mortgage.
5

Curiously however, and contrary to the tenor of the foregoing loan documents, petitioner, on March 11, 1996,
through counsel, wrote Cupertino and demanded the release of the P160,000,000.00 loan increase covered by the
amendment of real estate mortgage.
6
In the demand letter, petitioners counsel stated that despite repeated
verbal demands, Cupertino had yet to release the P160,000,000.00 loan. On May 17, 1996, petitioner demanded
anew from Cupertino the release of the P160,000,000.00 loan.
7

In complete refutation, Cupertino, likewise through counsel, responded and denied that it had yet to release
theP160,000,000.00 loan. Cupertino maintained that petitioner had long obtained the proceeds of the aforesaid
loan. Cupertino declared petitioners demand as made to "abscond from a just and valid obligation," a mere
afterthought, following Cupertinos letter demanding payment of the P37,000,000.00 loan covered by the first
promissory note which became overdue on March 5, 1996.
Not surprisingly, Cupertino instituted extrajudicial foreclosure proceedings over the properties subject of the
amended real estate mortgage. The auction sale was scheduled on October 11, 1996 with respondent Notary
Public Edwin R. Catacutan commissioned to conduct the same. This prompted petitioner to file a complaint with a
prayer for a restraining order to enjoin Notary Public Catacutan from proceeding with the public auction.
The following are the parties conflicting claims, summarized by the RTC, and quoted verbatim by the CA in its
decision:
"The verified complaint alleges that [petitioner] is engaged in the manufacturing and retailing/wholesaling
business. On the other hand, Cupertino is engaged in the realty business. That on April 10, 1995, [petitioner]
executed a Real Estate Mortgage over its real properties covered by Transfer Certificates of title Nos. T-75109 and
T-73481 ("the mortgage properties") of the Register of Deeds of Iloilo in favor of Cupertino to secure the formers
loan obligation to the latter in the amount of Php37,000,000.00. That it has been the agreement between
[petitioner] and Cupertino that the aforesaid loan will be non-interest bearing. Accordingly, the parties saw to it
that the promissory note (evidencing their loan agreement) did not provide any stipulation with respect to
interest. On several occasions thereafter, [petitioner] made partial payments to Cupertino in respect of the
aforesaid loan obligation by the former to the latter in the total amount of Php7,985,039.08, thereby leaving a
balance of Php29,014,960.92. On August 16, 1995, [petitioner] and Cupertino executed an amendment of Real
Estate Mortgage (Annex "C") increasing the total loan covered by the aforesaid REM from Php37,000,000.00 to
P197,000,000.00. This amendment to REM was executed preparatory to the promised release by Cupertino of
additional loan proceeds to [petitioner] in the total amount of Php160,000,000.00. However, despite the execution
of the said amendment to REM and its subsequent registration with the Register of Deeds of Iloilo City and
notwithstanding the clear agreement between [petitioner] and Cupertino and the latter will release and deliver to
the former the aforesaid additional loan proceeds of P160,000,000.00 after the signing of pertinent documents
and the registration of the amendment of REM, Cupertino failed and refused to release the said additional amount
for no apparent reason at all, contrary to its repeated promises which [petitioner] continuously relied on. On
account of Cupertinos unfulfilled promises, *petitioner+ repeatedly demanded from Cupertino the release and/or
delivery of the said Php160,000,000.00 to the former. However, Cupertino still failed and refused and continuously
fails and refuses to release and/or deliver the Php160,000,000.00 to [petitioner]. When [petitioner] tendered
payment of the amount of Php29,014,960.92 which is the remaining balance of the Php37,000,000.00 loan subject
of the REM, in order to discharge the same, Cupertino unreasonably and unjustifiably refused acceptance thereof
on the ground that the previous payment amounting to Php7,985,039.08, was applied by Cupertino to alleged
interests and not to principal amount, despite the fact that, as earlier stated, the aforesaid loan by agreement of
the parties, is non-interest bearing. Worst, unknown to [petitioner], Cupertino was already making arrangements
with [respondent] Notary Public for the extrajudicial sale of the mortgage properties even as [petitioner] is more
than willing to pay the Php29,014,960.92 which is the remaining balance of the Php37,000,000.00 loan and
notwithstanding Cupertinos unjustified refusal and failure to deliver to *petitioner+ the amount of
Php160,000,000.00. In fact, a notarial sale of the mortgaged properties is already scheduled on 04 October 1996
by [respondent] Notary Public at his office located at Rm. 100, Iloilo Casa Plaza, Gen Luna St., Iloilo City. In view of
the foregoing, Cupertino has no legal right to foreclose the mortgaged properties. In any event, Cupertino cannot
extrajudicially cause the foreclosure by notarial sale of the mortgage properties by [respondent] Notary Public as
there is nothing in the REM (dated 10 April 1995) or in the amendment thereto that grants Cupertino the said
right.
x x x x
"[Respondents] finally filed an answer to the complaint, alleging that the loan have (sic) an interest of 17% per
annum: that no payment was ever made by [petitioner], that [petitioner] has already received the amount of the
loan prior to the execution of the promissory note and amendment of Real Estate Mortgage, xxx.
"[Petitioner] filed a supplemental complaint alleging subsequent acts made by defendants causing the subsequent
auction sale and registering the Certificates of Auction Sale praying that said auction sale be declared null and void
and ordering the Register of Deeds to cancel the registration and annotation of the Certificate of Notarial Sale."
Thereafter, the Pre-Trial conference was set. Both parties submitted their respective Brief and the following facts
were admitted, viz:
1. Execution of the mortgage dated April 10, 1995;
2. Amendment of Real Estate Mortgage dated August 16, 1995;
3. Execution of an Extra-Judicial Foreclosure by the [Cupertino];
4. Existence of two (2) promissory notes;
5. Existence but not the contents of the demand letter March 11, 1996 addressed to Mr. Wilfredo Lua and
receipt of the same by [Cupertino]; and
6. Notice of Extra-Judicial Foreclosure Sale."
For failing to arrive at an amicable settlement, trial on the merits ensued. The parties presented oral and
documentary evidence to support their claims and contentions. [Petitioner] insisted that she never received the
proceeds of Php160,000,000.00, thus, the foreclosure of the subject properties is null and void. [Cupertino] on the
other hand claimed otherwise.
8

After trial, the RTC rendered a decision dismissing petitioners complaint and ordering it to pay
CupertinoP100,000.00 each for actual and exemplary damages, and P500,000.00 as attorneys fees. The RTC
recalled and set aside its previous order declaring the notarial foreclosure of the mortgaged properties as null and
void. On appeal, the CA, as previously adverted to, affirmed the RTCs ruling.
In dismissing petitioners complaint and finding for Cupertino, both the lower courts upheld the validity of the
amended real estate mortgage. The RTC found, as did the CA, that although the amended real estate mortgage fell
within the exceptions to the parol evidence rule under Section 9, Rule 130 of the Rules of Court, petitioner still
failed to overcome and debunk Cupertinos evidence that the amended real estate mortgage had a consideration,
and petitioner did receive the amount of P160,000,000.00 representing its incurred obligation to Cupertino. Both
courts ruled that as between petitioners bare denial and negative evidence of non-receipt of theP160,000,000.00,
and Cupertinos affirmative evidence on the existence of the consideration, the latter must be given more weight
and value. In all, the lower courts gave credence to Cupertinos evidence that theP160,000,000.00 proceeds were
the total amount received by petitioner and its affiliate companies over the years from Wilfredo Lua, Cupertinos
president. In this regard, the lower courts applied the doctrine of "piercing the veil of corporate fiction" to
preclude petitioner from disavowing receipt of the P160,000,000.00 and paying its obligation under the amended
real estate mortgage.
Undaunted, petitioner filed this appeal insisting on the nullity of the amended real estate mortgage. Petitioner is
adamant that the amended real estate mortgage is void as it did not receive the agreed consideration therefor
i.e.P160,000,000.00. Petitioner avers that the amended real estate mortgage does not accurately reflect the
agreement between the parties as, at the time it signed the document, it actually had yet to receive the amount
ofP160,000,000.00. Lastly, petitioner asseverates that the lower courts erroneously applied the doctrine of
"piercing the veil of corporate fiction" when both gave credence to Cupertinos evidence showing that petitioners
affiliates were the previous recipients of part of the P160,000,000.00 indebtedness of petitioner to Cupertino.
We are in complete accord with the lower courts rulings.
Well-entrenched in jurisprudence is the rule that factual findings of the trial court, especially when affirmed by the
appellate court, are accorded the highest degree of respect and are considered conclusive between the parties.
9
A
review of such findings by this Court is not warranted except upon a showing of highly meritorious circumstances,
such as: (1) when the findings of a trial court are grounded entirely on speculation, surmises or conjectures; (2)
when a lower courts inference from its factual findings is manifestly mistaken, absurd or impossible; (3) when
there is grave abuse of discretion in the appreciation of facts; (4) when the findings of the appellate court go
beyond the issues of the case, or fail to notice certain relevant facts which, if properly considered, will justify a
different conclusion; (5) when there is a misappreciation of facts; (6) when the findings of fact are conclusions
without mention of the specific evidence on which they are based, are premised on the absence of evidence, or
are contradicted by evidence on record.
10
None of these exceptions necessitating a reversal of the assailed
decision obtains in this instance.
Conversely, we cannot subscribe to petitioners faulty reasoning.
First. All the loan documents, on their face, unequivocally declare petitioners indebtedness to Cupertino:
1. Promissory Note dated April 10, 1995, prefaced with a "[f]or value received," and the escrow
arrangement for the release of the P37,000,000.00 obligation in favor of DBP, another creditor of
petitioner.
2. Mortgage likewise dated April 10, 1995 executed by petitioner to secure its P37,000,000.00 loan
obligation with Cupertino.
3. Amendment to Promissory Note for P37,000,000.00 dated April 12, 1995 which tentatively sets the
interest rate at seventeen percent (17%) per annum.
4. Promissory Note dated August 16, 1995, likewise prefaced with "[f]or value received," and
unconditionally promising to pay Cupertino P160,000,000.00 with a stipulation on compounding interest
at thirty percent (30%) per annum. The Promissory Note requires, among others, the execution of a real
estate mortgage to serve as collateral therefor. In case of default in payment, petitioner, specifically,
through its president, Cua Le Leng, authorizes Cupertino to "dispose of said security or any part thereof at
[a] public sale."
5. Amendment of Real Estate Mortgage also dated August 16, 1995 with a recital that the mortgagor,
herein petitioner, has increased its loan payable to the mortgagee, Cupertino, from P37,000,000.00
toP197,000,000.00. In connection with the increase in loan obligation, the parties confirmed and ratified
the Real Estate Mortgage dated April 10, 1995.
Unmistakably, from the foregoing chain of transactions, a presumption has arisen that the loan documents were
supported by a consideration.
Rule 131, Section 3 of the Rules of Court specifies that a disputable presumption is satisfactory if uncontradicted
and not overcome by other evidence. Corollary thereto, paragraphs (r) and (s) thereof and Section 24 of the
Negotiable Instruments Law read:
SEC. 3. Disputable presumptions. The following presumptions are satisfactory if uncontradicted, but may be
contradicted and overcome by other evidence:
x x x x
(r) That there was sufficient consideration for a contract;
(s) That a negotiable instrument was given or indorsed for a sufficient consideration;
x x x
SEC. 24. Presumption of consideration. Every negotiable instrument is deemed prima facie to have been issued
for a valuable consideration; and every person whose signature appears thereon to have become a party thereto
for value.
Second. The foregoing notwithstanding, petitioner insists that the Amended Real Estate Mortgage was not
supported by a consideration, asserting non-receipt of the P160,000,000.00 loan increase reflected in the
Amended Real Estate Mortgage. However, petitioners bare-faced assertion does not even dent, much less,
overcome the aforesaid presumptions on consideration for a contract. As deftly pointed out by the trial court:
x x x In this case, this Court finds that the [petitioner] has not been able to establish its claim of non-receipt by a
preponderance of evidence. Rather, the Court is inclined to give more weight and credence to the affirmative and
straightforward testimony of [Cupertino] explaining in plain and categorical words that the Php197,000,000.00
loan represented by the amended REM was the total sum of the debit memo, the checks, the real estate mortgage
and the amended real estate mortgage, the pledges of jewelries, the trucks and the condominiums plus the
interests that will be incurred which all in all amounted to Php197,000,000.00. It is a basic axiom in this jurisdiction
that as between the plaintiffs negative evidence of denial and the defendants affirmative evidence on the
existence of the consideration, the latter must be given more weight and value. Moreover, *Cupertinos+ foregoing
testimony on the existence of the consideration of the Php160,000,000.00 promissory note has never been refuted
nor denied by the [petitioner], who while initially having manifested that it will present rebuttal evidence
eventually failed to do so, despite all available opportunities accorded to it. By such failure to present rebutting
evidence, *Cupertinos+ testimony on the existence of the consideration of the amended real estate mortgage does
not only become impliedly admitted by the [petitioner], more significantly, to the mind of this Court, it is a clear
indication that *petitioner+ has no counter evidence to overcome and defeat the *Cupertinos+ evidence on the
matter. Otherwise, there is no logic for [petitioner] to withhold it if available. Assuming that indeed it exists, it may
be safely assumed that such evidence having been willfully suppressed is adverse if produced.
The presentation by [petitioner] of its cash Journal Receipt Book as proof that it did not receive the proceeds of the
Php160,000,000.00 promissory note does not likewise persuade the Court. In the first place, the subject cash
receipt journal only contained cash receipts for the year 1995. But as appearing from the various checks and debit
memos issued by Wilfredo Lua and his wife, Vicky Lua and from the formers unrebutted testimony in Court, the
issuance of the checks, debit memos, pledges of jewelries, condominium units, trucks and the other components
of the Php197,000,000.00 amended real estate mortgage had all taken place prior to the year 1995, hence, they
could not have been recorded therein. What is more, the said cash receipt journal appears to be prepared solely at
the behest of the [petitioner], hence, can be considered as emanating from a "poisonous tree" therefore self-
serving and cannot be given any serious credibility.
11

Significantly, petitioner asseverates that the parol evidence rule, which excludes other evidence, apart from the
written agreement, to prove the terms agreed upon by the parties contained therein,
12
is not applicable to the
Amended Real Estate Mortgage. Both the trial and appellate courts agreed with petitioner and did not apply the
parol evidence rule. Yet, despite the allowance to present evidence and prove the invalidity of the Amended Real
Estate Mortgage, petitioner still failed to substantiate its claim of non-receipt of the proceeds of
theP160,000,000.00 loan increase.
Moreover, petitioner was the plaintiff in the trial court, the party that brought suit against respondent.
Accordingly, it had the burden of proof, the duty to present a preponderance of evidence to establish its
claim.
13
However, petitioners evidence consisted only of a barefaced denial of receipt and a vaguely drawn theory
that in their previous loan transaction with respondent covered by the first promissory note, it did not receive the
proceeds of the P37,000,000.00. Petitioner conveniently ignores that this particular promissory note secured by
the real estate mortgage was under an escrow arrangement and taken out to pay its obligation to DBP. Thus,
petitioner, quite obviously, would not be in possession of the proceeds of the loan. Contrary to petitioners
contention, there is no precedent to explain its stance that respondent undertook to release the P160,000,000.00
loan only after it had first signed the Amended Real Estate Mortgage.1avvphi1
Third. Petitioner bewails the lower courts application of the doctrine of "piercing the veil of corporate fiction."
As a general rule, a corporation will be deemed a separate legal entity until sufficient reason to the contrary
appears.
14
But the rule is not absolute. A corporations separate and distinct legal personality may be disregarded
and the veil of corporate fiction pierced when the notion of legal entity is used to defeat public convenience,
justify wrong, protect fraud, or defend crime.
15

In this case, Cupertino presented overwhelming evidence that petitioner and its affiliate corporations had received
the proceeds of the P160,000,000.00 loan increase which was then made the consideration for the Amended Real
Estate Mortgage. We quote with favor the RTCs and the CAs disquisitions on this matter:
That the checks, debit memos and the pledges of the jewelries, condominium units and trucks were constituted
not exclusively in the name of [petitioner] but also either in the name of Yuyek Manufacturing Corporation, Siain
Transport, Inc., Cua Leleng and Alberto Lim is of no moment. For the facts established in the case at bar has
convinced the Court of the propriety to apply the principle known as "piercing the veil of the corporate entity" by
virtue of which, the juridical personalities of the various corporations involved are disregarded and the ensuing
liability of the corporation to attach directly to its responsible officers and stockholders. x x x
x x x x
The conjunction of the identity of the [petitioner] corporation in relation to Siain Transport, Inc. (Siain Transport),
Yuyek Manufacturing Corp. (Yuyek), as well as the individual personalities of Cua Leleng and Alberto Lim has been
indubitably shown in the instant case by the following established considerations, to wit:
1. Siain and Yuyek have [a] common set of [incorporators], stockholders and board of directors;
2. They have the same internal bookkeeper and accountant in the person of Rosemarie Ragodon;
3. They have the same office address at 306 Jose Rizal St., Mandaluyong City;
4. They have the same majority stockholder and president in the person of Cua Le Leng; and
5. In relation to Siain Transport, Cua Le Leng had the unlimited authority by and on herself, without
authority from the Board of Directors, to use the funds of Siain Trucking to pay the obligation incurred by
the [petitioner] corporation.
Thus, it is crystal clear that [petitioner] corporation, Yuyek and Siain Transport are characterized by oneness of
operations vested in the person of their common president, Cua Le Leng, and unity in the keeping and
maintenance of their corporate books and records through their common accountant and bookkeeper, Rosemarie
Ragodon. Consequently, these corporations are proven to be the mere alter-ego of their president Cua Leleng, and
considering that Cua Leleng and Alberto Lim have been living together as common law spouses with three children,
this Court believes that while Alberto Lim does not appear to be an officer of Siain and Yuyek, nonetheless, his
receipt of certain checks and debit memos from Willie Lua and Victoria Lua was actually for the account of his
common-law wife, Cua Leleng and her alter ego corporations. While this Court agrees with Siain that a corporation
has a personality separate and distinct from its individual stockholders or members, this legal fiction cannot,
however, be applied to its benefit in this case where to do so would result to injustice and evasion of a valid
obligation, for well settled is the rule in this jurisdiction that the veil of corporate fiction may be pierced when it is
used as a shield to further an end subversive of justice, or for purposes that could not have been intended by the
law that created it; or to justify wrong, or for evasion of an existing obligation. Resultantly, the obligation incurred
and/or the transactions entered into either by Yuyek, or by Siain Trucking, or by Cua Leleng, or by Alberto Lim with
Cupertino are deemed to be that of the [petitioner] itself.
The same principle equally applies to Cupertino. Thus, while it appears that the issuance of the checks and the
debit memos as well as the pledges of the condominium units, the jewelries, and the trucks had occurred prior to
March 2, 1995, the date when Cupertino was incorporated, the same does not affect the validity of the subject
transactions because applying again the principle of piercing the corporate veil, the transactions entered into by
Cupertino Realty Corporation, it being merely the alter ego of Wilfredo Lua, are deemed to be the latters personal
transactions and vice-versa.
16

x x x x
x x x Firstly. As can be viewed from the extant record of the instant case, Cua Leleng is the majority stockholder of
the three (3) corporations namely, Yuyek Manufacturing Corporation, Siain Transport, Inc., and Siain Enterprises
Inc., at the same time the President thereof. Second. Being the majority stockholder and the president, Cua Le leng
has the unlimited power, control and authority without the approval from the board of directors to obtain for and
in behalf of the [petitioner] corporation from [Cupertino] thereby mortgaging her jewelries, the condominiums of
her common law husband, Alberto Lim, the trucks registered in the name of *petitioner+ corporations sister
company, Siain Transport Inc., the subject lots registered in the name of [petitioner] corporation and her oil mill
property at Iloilo City. And, to apply the proceeds thereof in whatever way she wants, to the prejudice of the
public.
As such, [petitioner] corporation is now estopped from denying the above apparent authorities of Cua Le Leng who
holds herself to the public as possessing the power to do those acts, against any person who dealt in good faith as
in the case of Cupertino.
17

WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No.
71424 is AFFIRMED. Costs against the petitioner.

G.R. No. L-47673 October 10, 1946
KOPPEL (PHILIPPINES), INC., plaintiff-appellant,
vs.
ALFREDO L. YATCO, Collector of Internal Revenue, defendant-appellee.
Padilla, Carlos and Fernando for appellant.
Office of the Solicitor General Ozaeta, First Assistant Solicitor General Reyes and.
Office of the Solicitor General Reyes and Solicitor Caizanes for appellee.

HILADO, J.:
This is an appeal by Koppel (Philippines), Inc., from the judgment of the Court of First Instance of Manila in civil
case No. 51218 of said court dismissing said corporation's complaint for the recovery of the sum of P64,122.51
which it had paid under protest to the Collector of Internal Revenue on October 30, 1936, as merchant sales tax.
The main facts of the case were stipulated in the court below as follows:
AGREED STATEMENT OF FACTS
Now come the plaintiff by attorney Eulogio P. Revilla and the defendant by the Solicitor General and
undersigned Assistant Attorney of the Bureau of Justice and, with leave of this Honorable Court, hereby
respectfully stipulated and agree to the following facts, to wit:
I. That plaintiff is a corporation duly organized and existing under and by virtue of the laws of the
Philippines, with principal office therein at the City of Manila, the capital stock of which is divided into
thousand (1,000) shares of P100 each. The Koppel Industrial Car and Equipment company, a corporation
organized and existing under the laws of the State of Pennsylvania, United States of America, and not
licensed to do business in the Philippines, owned nine hundred and ninety-five (995) shares out of the
total capital stock of the plaintiff from the year 1928 up to and including the year 1936, and the remaining
five (5) shares only were and are owned one each by officers of the plaintiff corporation.
II. That plaintiff, at all times material to this case, was and now is duly licensed to engage in business as a
merchant and commercial broker in the Philippines; and was and is the holder of the corresponding
merchant's and commercial broker's privilege tax receipts.
III. That the defendant Collector of Internal revenue is now Mr. Bibiano L. Meer in lieu of Mr. Alfredo L.
Yatco.
IV. That during the period from January 1, 1929, up to and including December 31, 1932, plaintiff
transacted business in the Philippines in the following manner, with the exception of the transactions
which are described in paragraphs V and VI of this stipulation:
When a local buyer was interested in the purchase of railway materials, machinery, and supplies, it asked
for price quotations from plaintiff. Atypical form of such request is attached hereto and made a part
hereof as Exhibit A. (Exhibit A represents typical transactions arising from written requests for quotations,
while Exhibits B to G, inclusive, are typical transactions arising from verbal requests for quotation.)
Plaintiff then cabled for the quotation desired for Koppel Industrial Car and Equipment Company. A
sample of the pertinent cable is hereto attached and made a part hereof as Exhibit B. Koppel Industrial
Car and Equipment Company answered by cable quoting its cost price, usually A. C. I. F. Manila cost price,
which was later followed by a letter of confirmation. A sample of the said cable quotation and of the
letter of confirmation are hereto attached and made a part hereof as Exhibits C and C-1. Plaintiff,
however, quoted by Koppel Industrial Car and Equipment Company. Copy of the plaintiff's letter to
purchaser is hereto attached and made a part hereof as Exhibit D. On the basis of these quotations,
orders were placed by the local purchasers, copies of which orders are hereto attached as Exhibits E and
E-1.
A cable was then sent to Koppel Industrial Car and Equipment company giving instructions to ship the
merchandise to Manila forwarding the customer's order. Sample of said cable is hereto attached as
Exhibit F. The bills of lading were usually made to "order" and indorsed in blank with notation to the
effect that the buyer be notified of the shipment of the goods covered in the bills of lading; commercial
invoices were issued by Koppel Industrial Car and Equipment Company in the names of the purchasers
and certificates of insurance were likewise issued in their names, or in the name of Koppel Industrial Car
and Equipment Company but indorsed in blank and attached to drafts drawn by Koppel Industrial Car and
Equipment Company on the purchasers, which were forwarded through foreign banks to local banks.
Samples of the bills of lading are hereto attached as Exhibits F-1, I-1, I-2 and I-3. Bills of ladings, Exhibits I-
1, I-2 and I-3, may equally have been employed, but said Exhibits I-1, I-2 and I-3 have no connection with
the transaction covered by Exhibits B to G, inclusive. The purchasers secured the shipping papers by
arrangement with the banks, and thereupon received and cleared the shipments. If the merchandise were
of European origin, and if there was not sufficient time to forward the documents necessary for clearance,
through foreign banks to local banks, to the purchasers, the Koppel Industrial Car and Equipment
company did, in many cases, send the documents directly from Europe to plaintiff with instructions to
turn these documents over to the purchasers. In many cases, where sales was effected on the basis of C. I.
F. Manila, duty paid, plaintiff advanced the sums required for the payment of the duty, and these sums, so
advanced, were in every case reimbursed to plaintiff by Koppel Industrial Car and Equipment Company.
The price were payable by drafts agreed upon in each case and drawn by Koppel Industrial Car and
Equipment Company on respective purchasers through local banks, and payments were made to the
banks by the purchasers on presentation and delivery to them of the above-mentioned shipping
documents or copies thereof. A sample of said drafts is hereto attached as Exhibit G. Plaintiff received by
way of compensation a percentage of the profits realized on the above transactions as fixed in paragraph
6 of the plaintiff's contract with Koppel Industrial Car and Equipment Company, which contract is hereto
attached as Exhibit H, and suffered its corresponding share in the losses resulting from some of the
transactions.
That the total gross sales from January 1, 1929, up to and including December 31, 1932, effected in the
foregoing manner and under the above specified conditions, amount to P3, 596,438.84.
V. That when a local sugar central was interested in the purchase of railway materials, machinery and
supplies, it secured quotations from, and placed the corresponding orders with, the plaintiff in
substantially the same manner as outlined in paragraph IV of this stipulation, with the only difference that
the purchase orders which were agreed to by the central and the plaintiff are similar to the sample hereto
attached and made a part hereof as Exhibit I. Typical samples of the bills of lading covering the herein
transaction are hereto attached and made a part hereto as Exhibits I-1, I-2 and I-3. The value of the sales
carried out in the manner mentioned in this paragraph is P133,964.98.
VI. That sometime in February, 1929, Miguel J. Ossorio, of Manila, Philippines, placed an option with
Koppel Industrial Car and Equipment Company, through plaintiff, to purchase within three months a pair
of Atlas-Diesel Marine Engines. Koppel Industrial Car and Equipment Company purchased said Diesel
Engines in Stockholm, Sweden, for $16,508.32. The suppliers drew a draft for the amount of $16,508.32
on the Koppel Industrial Car and Equipment Company, which paid the amount covered by the draft. Later,
Miguel J. Ossorio definitely called the deal off, and as Koppel Industrial Car and Equipment Company
could not ship to or draw on said Mr. Miguel J. Ossorio, it in turn drew another draft on plaintiff for the
same amount at six months sight, with the understanding that Koppel Industrial Car and Equipment
Company would reimburse plaintiff when said engines were disposed of. Plaintiff honored the draft and
debited the said sum of $16,508.32 to merchandise account. The engines were left stored at Stockholm,
Sweden. On April 1, 1930, a new local buyer, Mr. Cesar Barrios, of Iloilo, Philippines, was found and the
same engines were sold to him for $21,000 (P42,000) C. I. F. Hongkong. The engines were shipped to
Hongkong and a draft for $21,000 was drawn by Koppel Industrial Car and Equipment Company on Mr.
Cesar Barrios. After the draft was fully paid by Mr. Barrios, Koppel Industrial Car and Equipment Company
reimbursed plaintiff with cost price of $16,508.32 and credited it with $1,152.95 as its share of the profit
on the transaction. Exhibits J and J-1 are herewith attached and made integral parts of this stipulation
with particular reference to paragraph VI hereof.
VII. That plaintiff's share in the profits realized out of these transactions described in paragraphs IV, V and
VI hereof totaling P3,772,403.82, amounts to P132,201.30; and that plaintiff within the time provided by
law returned the aforesaid amount P132,201.30 for the purpose of the commercial broker's 4 per cent tax
and paid thereon the sum P5,288.05 as such tax.
VIII. That defendant demanded of the plaintiff the sum of P64,122.51 as the merchants' sales tax of 1%
per cent on the amount of P3,772,403.82, representing the total gross value of the sales mentioned in
paragraphs IV, V and VI hereof, including the 25 per cent surcharge for the late payment of the said tax,
which tax and surcharge were determined after the amount of P5,288.05 mentioned in paragraph VI
hereof was deducted.
IX. That plaintiff, on October 30, 1936, paid under protest said sum of P64,122.51 in order to avoid further
penalties, levy and distraint proceedings.
X. That defendant, on November 10, 1936, overruled plaintiff's protest, and defendant has failed and
refused and still fails and refuses, notwithstanding demands by plaintiff, to return to the plaintiff said sum
of P64,122.51 or any part thereof.
x x x x x x x x x
That the parties hereby reserve the right to present additional evidence in support of their
respective contentions.
Manila, Philippines, December 26, 1939
(Sgd.) ROMAN OZAETA
Solicitor General
(Sgd.) ANTONIO CAIZARES
Assistant Attorney
(Sgd.) E. P. REVILLA
Attorney for the Plaintiff
3rd Floor, Perez Samanillo Bldg., Manila
Both parties adduced some oral evidence in clarification of or addition to their agreed statement of facts.
A preponderance of evidence has established, besides the facts thus stipulated, the following:
(a) The shares of stock of plaintiff corporation were and are all owned by Koppel Industries Car
and Equipment Company of Pennsylvania, U. S. A., exceptive which were necessary to qualify the
Board of Directors of said plaintiff corporation;
(b) In the transactions involved herein the plaintiff corporation acted as the representative of
Koppel Industrial Car and Equipment Company only, and not as the agent of both the latter
company and the respective local purchasers plaintiff's principal witness, A.H. Bishop, its
resident Vice-President, in his testimony invariably referred to Koppel Industrial Car and
Equipment Co. as "our principal" 9 t. s. n., pp. 10, 11, 12, 19, 75), except that at the bottom of
page 10 to the top of page 11, the witness stated that they had "several principal" abroad but
that "our principal abroad was, for the years in question, Koppel Industrial Car and Equipment
Company," and on page 68, he testified that what he actually said was ". . . but
our principal abroad" and not "our principal abroad" as to which it is very significant that
neither this witness nor any other gave the name of even a single other principal abroad of the
plaintiff corporation;
(c) The plaintiff corporation bore alone incidental expenses as, for instance, cable expenses-
not only those of its own cables but also those of its "principal" (t.s.n., pp. 52, 53);
(d) the plaintiff's "share in the profits" realized from the transactions in which it intervened was
left virtually in the hands of Koppel Industrial Car and Equipment Company (t.s.n., p. 51);
(e) Where drafts were not paid by the purchasers, the local banks were instructed not to protest
them but to refer them to plaintiff which was fully empowered by Koppel Industrial Car and
Equipment company to instruct the banks with regards to disposition of the drafts and
documents (t.s.n., p. 50; Exhibit G);lawphil.net
(f) Where the goods were European origin, consular invoices, bill of lading, and, in general, the
documents necessary for clearance were sent directly to plaintiff (t.s.n., p. 14);
(g) If the plaintiff had in stock the merchandise desired by local buyers, it immediately filled the
orders of such local buyers and made delivery in the Philippines without the necessity of cabling
its principal in America either for price quotations or confirmation or rejection of that agreed
upon between it and the buyer (t.s.n., pp. 39-43);
(h) Whenever the deliveries made by Koppel Industrial Car and Equipment Company were
incomplete or insufficient to fill the local buyer's orders, plaintiff used to make good the
deficiencies by deliveries from its own local stock, but in such cases it charged its principal only
the actual cost of the merchandise thus delivered by it from its stock and in such transactions
plaintiff did not realize any profit (t.s.n., pp. 53-54);
(i) The contract of sale involved herein were all perfected in the Philippines.
Those described in paragraph IV of the agreed statement of facts went through the following process: (1)
"When a local buyer was interested in the purchase of railway materials, machinery, and supplies, it asked
for price quotations from plaintiff"; (2) "Plaintiff then cabled for the quotation desired from Koppel
Industrial Car and Equipment Company"; (3) "Plaintiff, however, quoted to the purchaser a selling price
above the figures quoted by Koppel Industrial Car and Equipment Company"; (4) "On the basis of these
quotations, orders were placed by the local purchasers . . ."
Those described in paragraph V of said agreed statement of facts were transacted "in substantially the
same manner as outlined in paragraph IV."
As to the single transaction described in paragraph VI of the same agreed statement of facts, discarding
the Ossorio option which anyway was called off, "On April 1, 1930, a new local buyer, Mr. Cesar Barrios, of
Iloilo, Philippines, was found and the same engines were sold to him for $21,000(P42,000) C.I.F.
Hongkong." (Emphasis supplied.).
(j) Exhibit H contains the following paragraph:
It is clearly understood that the intent of this contract is that the broker shall perform only the functions
of a broker as set forth above, and shall not take possession of any of the materials or equipment applying
to said orders or perform any acts or duties outside the scope of a broker; and in no sense shall this
contract be construed as granting to the broker the power to represent the principal as its agent or to
make commitments on its behalf.
The Court of First Instance held for the defendant and dismissed plaintiff's complaint with costs to it.
Upon this appeal, seven errors are assigned to said judgment as follows:.
1. That the court a quo erred in not holding that appellant is a domestic corporation distinct and separate
from, and not a mere branch of Koppel Industrial Car and Equipment Co.;
2. the court a quo erred in ignoring the ruling of the Secretary of Finance, dated January 31, 1931, Exhibit
M;
3. the court a quo erred in not holding that a character of a broker is determined by the nature of the
transaction and not by the basis or measure of his compensation;
4. The court a quo erred in not holding that appellant acted as a commercial broker in the transactions
covered under paragraph VI of the agreed statement of facts;
5. The court a quo erred in not holding that appellant acted as a commercial broker in the transactions
covered under paragraph v of the agreed statement of facts;
6. The court a quo erred in not holding that appellant acted as a commercial broker in the sole transaction
covered under paragraph VI of the agreed statement of facts;
7. the court a quo erred in dismissing appellant's complaint.
The lower court found and held that Koppel (Philippines), Inc. is a mere dummy or brach ("hechura") of Koppel
industrial Car and Equipment Company. The lower court did not deny legal personality to Koppel (Philippines), Inc.
for any and all purposes, but in effect its conclusion was that, in the transactions involved herein, the public
interest and convenience would be defeated and what would amount to a tax evasion perpetrated, unless resort is
had to the doctrine of "disregard of the corporate fiction."
I. In its first assignment of error appellant submits that the trial court erred in not holding that it is a domestic
corporation distinct and separate from and not a mere branch of Koppel Industrial Car and Equipment Company. It
contends that its corporate existence as Philippine corporation can not be collaterally attacked and that the
Government is estopped from so doing. As stated above, the lower court did not deny legal personality to
appellant for any and all purposes, but held in effect that in the transaction involved in this case the public interest
and convenience would be defeated and what would amount to a tax evasion perpetrated, unless resort is had to
the doctrine of "disregard of the corporate fiction." In other words, in looking through the corporate form to the
ultimate person or corporation behind that form, in the particular transactions which were involved in the case
submitted to its determination and judgment, the court did so in order to prevent the contravention of the local
internal revenue laws, and the perpetration of what would amount to a tax evasion, inasmuch as it considered
and in our opinion, correctly that appellant Koppel (Philippines), Inc. was a mere branch or agency or dummy
("hechura") of Koppel Industrial Car and Equipment Co. The court did not hold that the corporate personality of
Koppel (Philippines), Inc., would also be disregarded in other cases or for other purposes. It would have had no
power to so hold. The courts' action in this regard must be confined to the transactions involved in the case at bar
"for the purpose of adjudging the rights and liabilities of the parties in the case. They have no jurisdiction to do
more." (1 Flethcer, Cyclopedia of Corporation, Permanent ed., p. 124, section 41.)
A leading and much cited case puts it as follows:
If any general rule can be laid down, in the present state of authority, it is that a corporation will be
looked upon as a legal entity as a general rule, and until sufficient reason to the contrary appears; but,
when the notion of legal entity is used to defeat public convinience, justify wrong, protect fraud, or
defend crime, the law will regard the corporation as an association of persons. (1 Fletcher Cyclopedia of
Corporation [Permanent Edition], pp. 135, 136; United States vs. Milwaukee Refrigeration Transit Co., 142
Fed., 247, 255, per Sanborn, J.)
In his second special defense appellee alleges "that the plaintiff was and is in fact a branch or subsidiary of Koppel
Industrial Car and Equipment Co., a Pennsylvania corporation not licensed to do business in the Philippines but
actually doing business here through the plaintiff; that the said foreign corporation holds 995 of the 1,000 shares
of the plaintiff's capital stock, the remaining five shares being held by the officers of the plaintiff herein in order to
permit the incorporation thereof and to enable its aforesaid officers to act as directors of the plaintiff corporation;
and that plaintiff was organized as a Philippine corporation for the purpose of evading the payment by its parent
foreign corporation of merchants' sales tax on the transactions involved in this case and others of similar nature."
By most courts the entity is normally regarded but is disregarded to prevent injustice, or the distortion or
hiding of the truth, or to let in a just defense. (1 Fletcher, Cyclopedia of Corporation, Permanent Edition,
pp. 139,140; emphasis supplied.)
Another rule is that, when the corporation is the mere alter ego, or business conduit of a person, it may
de disregarded." (1 Fletcher, Cyclopedia of Corporation, Permanent Edition, p. 136.)
Manifestly, the principle is the same whether the "person" be natural or artificial.
A very numerous and growing class of cases wherein the corporate entity is disregarded is that (it is so
organized and controlled, and its affairs are so conducted, as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation)." (1 Fletcher, Cyclopedia of Corporation, Permanent
ed., pp. 154, 155.)
While we recognize the legal principle that a corporation does not lose its entity by the ownership of the
bulk or even the whole of its stock, by another corporation (Monongahela Co. vs. Pittsburg Co., 196 Pa.,
25; 46 Atl., 99; 79 Am. St. Rep., 685) yet it is equally well settled and ignore corporate forms." (Colonial
Trust Co. vs. Montello Brick Works, 172 Fed., 310.)
Where it appears that two business enterprises are owned, conducted and controlled by the same
parties, both law and equity will, when necessary to protect the rights of third persons, disregard the legal
fiction that two corporations are distinct entities, and treat them as identical. (Abney vs. Belmont Country
Club Properties, Inc., 279 Pac., 829.)
. . . the legal fiction of distinct corporate existence will be disregarded in a case where a corporation is so
organized and controlled and its affairs are so conducted, as to make it merely an instrumentality or
adjunct of another corporation. (Hanter vs. Baker Motor Vehicle Co., 190 Fed., 665.)
In United States vs. Lehigh Valley R. Co. 9220 U.S., 257; 55 Law. ed., 458, 464), the Supreme Court of the United
States disregarded the artificial personality of the subsidiary coal company in order to avoid that the parent
corporation, the Lehigh Valley R. Co., should be able, through the fiction of that personality, to evade the
prohibition of the Hepburn Act against the transportation by railroad companies of the articles and commodities
described therein.
Chief Justice White, speaking for the court, said:
. . . Coming to discharge this duty it follows, in view of the express prohibitions of the commodities clause,
it must be held that while the right of a railroad company as a stockholder to use its stock ownership for
the purpose of a bona fide separate administration of the affairs of a corporation in which it has a stock
interest may not be denied, the use of such stock ownership in substance for the purpose of destroying
the entity of a producing, etc., corporation, and commingling its affairs in administration with the affairs
of the railroad company, so as to make the two corporations virtually one, brings the railroad company so
voluntarily acting as to such producing, etc., corporation within the prohibitions of the commodities
clause. In other words, that by operation and effect of the commodities clause there is duty cast upon a
railroad company proposing to carry in interstate commerce the product of a producing, etc., corporation
in which it has a stock interest, not to abuse such power so as virtually to do by indirection that which the
commodities clause prohibits, a duty which plainly would be violated by the unnecessary commingling
of the affairs of the producing company with its own, so as to cause them to be one and inseparable.
Corrobarative authorities can be cited in support of the same proposition, which we deem unnecessary to mention
here.
From the facts hereinabove stated, as established by a preponderance of the evidence , particularly those narrated
in paragraph (a), (b), (c), (d), (e),(f), (h), (i), and (j) after the agreed statement of facts, we find that, in so far as the
sales involved herein are concerned, Koppel (Philippines), Inc., and Koppel Industrial Car and Equipment company
are to all intents and purposes one and the same; or, to use another mode of expression, that, as regards those
transactions, the former corporation is a mere branch, subsidiary or agency of the latter. To our mind, this is
conclusively borne out by the fact, among others, that the amount of he so-called "share in the profits" of Koppel
(Philippines), Inc., was ultimately left to the sole, unbridled control of Koppel Industrial Car and Equipment
Company. If, in their relations with each other, Koppel (Philippines), Inc., was considered and intended to function
as a bona fide separate corporation, we can not conceive how this arrangement could have been adopted, for if
there was any factor in its business as to which it would in that case naturally have been opposed to being thus
controlled, it must have been precisely the amount of profit which it could endeavor and hope to earn. No group
of businessmen could be expected to organize a mercantile corporation the ultimate end of which could only be
profit if the amount of that profit were to be subjected to such a unilateral control of another corporation,
unless indeed the former has previously been designed by the incorporators to serve as a mere subsidiary, branch
or agency of the latter. Evidently, Koppel Industrial Car and Equipment Company made us of its ownership of the
overwhelming majority 99.5% of the capital stock of the local corporation to control the operations of the
latter to such an extent that it had the final say even as to how much should be allotted to said local entity in the
so-called sharing in the profits. We can not overlook the fact that in the practical working of corporate
organizations of the class to which these two entities belong, the holder or holders of the controlling part of the
capital stock of the corporation, particularly where the control is determined by the virtual ownership of the
totality of the shares, dominate not only the selection of the Board of Directors but, more often than not, also the
action of that Board. Applying this to the instant case, we can not conceive how the Philippine corporation could
effectively go against the policies, decisions, and desires of the American corporation with regards to the scheme
which was devised through the instrumentality of the contract Exhibit H, as well as all the other details of the
system which was adopted in order to avoid paying the 1 per cent merchants sales tax. Neither can we conceive
how the Philippine corporation could avoid following the directions of the American corporation held 99.5 per cent
of the capital stock of the Philippine corporation. In the present instance, we note that Koppel (Philippines), Inc.,
was represented in the Philippines by its "resident Vice-President." This fact necessarily leads to the inference that
the corporation had at least a Vice-President, and presumably also a President, who were not resident in the
Philippines but in America, where the parent corporation is domiciled. If Koppel (Philippines), Inc., had been
intended to operate as a regular domestic corporation in the Philippines, where it was formed, the record and the
evidence do not disclose any reason why all its officers should not reside and perform their functions in the
Philippines.
Other facts appearing from the evidence, and presently to be stated, strengthen our conclusion, because they can
only be explained if the local entity is considered as a mere subsidiary, branch or agency of the parent
organization. Plaintiff charged the parent corporation no more than actual cost without profit whatsoever for
merchandise allegedly of its own to complete deficiencies of shipments made by said parent corporation (t.s.n.,
pp. 53, 54) a fact which could not conceivably have been the case if plaintiff had acted in such transactions as an
entirely independent entity doing business for profit, of course with the American concern. There has been
no attempt even to explain, if the latter situation really obtained, why these two corporations should have thus
departed from the ordinary course of business. Plaintiff was charged by the American corporation with the cost
even of the latter's cable quotations from ought that appears from the evidence, this can only be
comprehended by considering plaintiff as such a subsidiary, branch or agency of the parent entity, in which case it
would be perfectly understandable that for convenient accounting purposes and the easy determination of the
profits or losses of the parent corporation's Philippines should be charged against the Philippine office and set off
against its receipts, thus separating the accounts of said branch from those which the central organization might
have in other countries. The reference to plaintiff by local banks, under a standing instruction of the parent
corporation, of unpaid drafts drawn on Philippine customers by said parent corporation, whenever said customers
dishonored the drafts, and the fact that the American corporation had previously advised said banks that plaintiff
in those cases was "fully empowered to instruct (the banks) with regard to the disposition of the drafts and
documents" (t.s.n., p. 50), in the absence of any other satisfactory explanation naturally give rise to the inference
that plaintiff was a subsidiary, branch or agency of the American concern, rather than an independent corporation
acting as a broker. For, without such positive explanation, this delegation of power is indicative of the relations
between central and branch offices of the same business enterprise, with the latter acting under instructions
already given by the former. Far from disclosing a real separation between the two entities, particularly in regard
to the transactions in question, the evidence reveals such commongling and interlacing of their activities as to
render even incomprehensible certain accounting operations between them, except upon the basis that the
Philippine corporation was to all intents and purposes a mere subsidiary, branch, or agency of the American parent
entity. Only upon this basis can it be comprehended why it seems not to matter at all how much profit would be
allocated to plaintiff, or even that no profit at all be so allocated to it, at any given time or after any given period.
As already stated above, under the evidence the sales in the Philippines of the railway materials, machinery and
supplies imported here by Koppel Industrial Car and Equipment Company could have been as conviniently and
efficiently transacted and handled if not more so had said corporation merely established a branch or agency
in the Philippines and obtained license to do business locally; and if it had done so and said sales had been effected
by such branch or agency, there seems to be no dispute that the 1 per cent merchants' sales tax then in force
would have been collectible. So far as we can discover, there would be only one, but very important, difference
between the two schemes a difference in tax liability on the ground that the sales were made through another
and distinct corporation, as alleged broker, when we have seen that this latter corporation is virtually owned by
the former, or that they practically one and the same, is to sanction a circumvention of our tax laws, and permit a
tax evasion of no mean proportions and the consequent commission of a grave injustice to the Government. Not
only this; it would allow the taxpayer to do by indirection what the tax laws prohibited to be done directly (non-
payment of legitimate taxes), paraphrasing the United States Supreme Court in United States vs. Lehigh Valley R.
Co., supra.
The act of one corporation crediting or debiting the other for certain items, expenses or even merchandise sold or
disposed of, is perfectly compatible with the idea of the domestic entity being or acting as a mere branch, agency
or subsidiary of the parent organization. Such operations were called for any way by the exigencies or convenience
of the entire business. Indeed, accounting operation such as these are invitable, and have to be effected in the
ordinary course of business enterprise extends its trade to another land through a branch office, or through
another scheme amounting to the same thing.
If plaintiff were to act as broker in the Philippines for any other corporation, entity or person, distinct from Koppel
Industrial Car and Equipment company, an entirely different question will arise, which, however, we are not called
upon, nor in a position, to decide.
As stated above, Exhibit H contains to the following paragraph:
It is clearly understood that the intent of this contract is that the broker shall perform only the functions
of a broker as set forth above, and shall not take possession of any of the materials or equipment applying
to said orders or perform any acts or duties outside the scope of a broker; and in no sense shall this
contract be construed as granting to the broker the power to represent the principal as its agent or to
make commitments on its behalf.
The foregoing paragraph, construed in the light of other facts noted elsewhere in this decision, betrays, we think a
deliberate intent, through the medium of a scheme devised with great care, to avoid the payment of precisely the
1 per cent merchants' sales tax in force in the Philippines before, at the time of, and after, the making of the said
contract Exhibit H. If this were to be allowed, the payment of a tax, which directly could not have been avoided,
could be evaded by indirection, consideration being had of the aforementioned peculiar relations between the said
American and local corporations. Such evasion, involving as it would, a violation of the former Internal Revenue
Law, would even fall within the penal sanction of section 2741 of the Revised Administrative Code. Which only
goes to show the illegality of the whole scheme. We are not here concerned with the impossibility of collecting the
merchants' sales tax, as a mere incidental consequence of transactions legal in themselves and innocent in their
purpose. We are dealing with a scheme the primary, not to say the sole, object of which the evasion of the
payment of such tax. It is this aim of the scheme that makes it illegal.
We have said above that the contracts of sale involved herein were all perfected in the Philippines. From the facts
stipulated in paragraph IV of the agreed statement of facts, it clearly appears that the Philippine purchasers had to
wait for Koppel Industrial Car and Equipment Company to communicate its cost prices to Koppel (Philippines), Inc.,
were perfected in the Philippines. In those cases where no such price quotations from the American corporation
were needed, of course, the sales effected in those cases described in paragraph V of the agreed statement of
facts were, as expressed therein, transacted "in substantially the same manner as outlined in paragraph VI." Even
the single transaction described in paragraph VI of the agreed statement of facts was also perfected in the
Philippines, because the contracting parties were here and the consent of each was given here. While it is true that
when the contract was thus perfected in the Philippines the pair of Atlas-Diesel Marine Engines were in Sweden
and the agreement was to deliver them C.I.F. Hongkong, the contract of sale being consensual perfected by
mere consent (Civil Code, article 1445; 10 Manresa, 4th ed., p. 11), the location of the property and the place of
delivery did not matter in the question of where the agreement was perfected.
In said paragraph VI, we read the following, as indicating where the contract was perfected, considering
beforehand that one party, Koppel (Philippines),Inc., which in contemplation of law, as to that transaction, was the
same Koppel Industrial Car Equipment Co., was in the Philippines:
. . . on April 1, 1930, a new local buyer Mr. Cesar Barrios, of Iloilo, Philippines, was found and the same
engines were sold to him for $21,000 (P42,000) C.I.F. Hongkong . . . (Emphasis supplied.)
Under the revenue law in force when the sales in question took place, the merchants' sales tax attached upon the
happening of the respective sales of the "commodities, goods, wares, and merchandise" involved, and we are
clearly of opinion that such "sales" took place upon the perfection of the corresponding contracts. If such
perfection took place in the Philippines, the merchants' sales tax then in force here attached to the transactions.
Even if we should consider that the Philippine buyers in the cases covered by paragraph IV and V of the agreed
statement of facts, contracted with Koppel Industrial Car and Equipment company, we will arrive at the same final
result. It can not be denied in that case that said American corporation contracted through Koppel (Philippines),
Inc., which was in the Philippines. The real transaction in each case of sale, in final effect, began with an offer of
sale from the seller, said American corporation, through its agent, the local corporation, of the railway materials,
machinery, and supplies at the prices quoted, and perfected or completed by the acceptance of that offer by the
local buyers when the latter, accepting those prices, placed their orders. The offer could not correctly be said to
have been made by the local buyers when they asked for price quotations, for they could not rationally be taken to
have bound themselves to buy before knowing the prices. And even if we should take into consideration the fact
that the american corporation contracted, at least partly, through correspondence, according to article 54 of the
Code of Commerce, the respective contracts were completed from the time of the acceptance by the local buyers,
which happened in the Philippines.
Contracts executed through correspondence shall be completed from the time an answer is
made accepting the proposition or the conditions by which the latter may be modified." (Code of
Commerce, article 54; emphasis supplied.)
A contract is as a rule considered as entered into at the place where the place it is performed. So where
delivery is regarded as made at the place of delivery." (13 C. J., 580-81, section 581.)
(In the consensual contract of sale delivery is not needed for its perfection.)
II. Appellant's second assignment of error can be summarily disposed of. It is clear that the ruling of the Secretary
of Finance, Exhibit M, was not binding upon the trial court, much less upon this tribunal, since the duty and power
of interpreting the laws is primarily a function of the judiciary. (Ortua vs. Singson Encarnacion, 59 Phil., 440, 444.)
Plaintiff cannot be excused from abiding by this legal principle, nor can it properly be heard to say that it relied on
the Secretary's ruling and that, therefore, the courts should not now apply an interpretation at variance therewith.
The rule of stare decisis is undoubtedly entitled to more respect in the construction of statutes than the
interpretations given by officers of the administrative branches of the government, even those entrusted with the
administration of particular laws. But this court, in Philippine Trust Company and Smith, Bell and Co. vs.
Mitchell(59 Phil., 30, 36), said:
. . . The rule of stare decisis is entitled to respect. Stability in the law, particularly in the business field, is
desirable. But idolatrous reverence for precedent, simply as precedent, no longer rules. More important
than anything else is that court should be right. . . .
III. In the view we take of the case, and after the disposition made above of the first assignment of error, it
becomes unnecessary to make any specific ruling on the third, fourth, fifth, sixth, and seventh assignments of
error, all of which are necessarily disposed of adversely to appellant's contention.
Wherefore, he judgment appealed from is affirmed, with costs of both instances against appellant. So ordered.
Moran, C.J., Paras, Feria, Pablo, Bengzon, Briones, and Tuason, JJ., concur.

Separate Opinions
PERFECTO, J., concurring:
We fully agree with the well-written decision penned by Mr. Justice Hilado in this case. We only wish to add that
the ingenious device of evading the payment of taxes, is not a new one. It is only one of the manifold
manifestations of the shrewdness of the masterminds behind some powerful corporations who, without ay
compunction, do not stop at adopting any scheme by which the controlling capitalists may get even richer and
richer, sometimes at government expense, sometimes by squeezing credulous or ignorant small shareholders,
sometimes with the exploitation of the helpless public at large, and sometimes at great sacrifice of all the three
entities.
The system of corporation combines, of holding and subsidiary corporations, of spreading and interlocking
companies, has no well developed and has grown so powerful that even the wisest government had been unable
to defend itself and protect the people from the crushing tentacles of the moneyed octopuses. It is true that in the
United States of America anti trusts laws were enacted but, notwithstanding their ability and wisdom, the
Americans were unable to stave off the effects of the bankruptcy of the pyramid of holding and interlocking
companies built around the tragic figure of Samuel Insull.
That Philippine Government, that Filipino consumers, that Filipino public at large, had already been victims of the
evil effects of such a system has been conclusively proved in the scandalous illegalities and irregularities disclosed
in the investigation made by the first National Assembly, through its Committee on Rate Reducing of Public
Utilities. In said investigation, it was revealed that, by a system of holding and interlocking companies, by their
manipulation of books of accounts, our government was defrauded of enormous amounts in taxes and millions of
pesos were unjustly squeezed from the public.
It is high time that alarm be sounded so that our government and our public may avoid being further victimized
and this country turned into a puppet at the mercy of moneyed tycoons who are not stopped by any scruple to
attain their unquenchable thristiness for more money and for power and domination. All liberal-minded people
must fight not only against political imperialism, but also against economic or financial imperialism, in fact, against
any kind of imperialism. The call for eternal vigilance must be heeded by all, including tribunals, if the survival of
our people must not be jeopardized by artful corporations and unscrupulous financiers.







G.R. No. 166282 February 13, 2013
HEIRS OF FE TAN UY (Represented by her heir, Mauling Uy Lim), Petitioners,
vs.
INTERNATIONAL EXCHANGE BANK, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - - x
G.R. No. 166283
GOLDKEYDEVELOPMENT CORPORATION, Petitioner,
vs.
INTERNATIONAL EXCHANGE BANK, Respondent.
D E C I S I O N
MENDOZA, J.:
Before the Court are two consolidated petitions for review on certiorari under Rule 45 of the 1997 Revised Rules of
Civil Procedure, assailing the August 16, 2004 Decision
1
and the December 2, 2004 Resolution
2
of the Court of
Appeals (CA) in CA-G.R. CV No. 69817 entitled "International Exchange Bank v. Hammer Garments Corp., et al."
The Facts
On several occasions, from June 23, 1997 to September 3, 1997, respondent International Exchange Bank (iBank),
granted loans to Hammer Garments Corporation (Hammer), covered by promissory notes and deeds of
assignment, in the following amounts:
3

Date of Promissory Note Amount
June 23, 1997 P 5,599,471.33
July 24, 1997 2,700,000.00
July 25, 1997 2,300,000.00
August 1, 1997 2,938,505.04
August 1, 1997 3,361,494.96
August 14, 1997 980,000.00
August 21, 1997 2,527,200.00
August 21, 1997 3,146,715.00
September 3, 1997 1,385,511.75
Total P24,938,898.08
These were made pursuant to the Letter-Agreement,
4
dated March 23, 1996, between iBank and Hammer,
represented by its President and General Manager, Manuel Chua (Chua) a.k.a. Manuel Chua Uy Po Tiong, granting
Hammer a P 25 Million-Peso Omnibus Line.
5
The loans were secured by a P 9 Million-Peso Real Estate
Mortgage
6
executed on July 1, 1997 by Goldkey Development Corporation (Goldkey) over several of its properties
and a P 25 Million-Peso Surety Agreement
7
signed by Chua and his wife, Fe Tan Uy (Uy), on April 15, 1996.
As of October 28, 1997, Hammer had an outstanding obligation of P25,420,177.62 to iBank.
8
Hammer defaulted in
the payment of its loans, prompting iBank to foreclose on Goldkeys third-party Real Estate Mortgage. The
mortgaged properties were sold for P 12 million during the foreclosure sale, leaving an unpaid balance of P
13,420,177.62.
9
For failure of Hammer to pay the deficiency, iBank filed a Complaint
10
for sum of money on
December 16, 1997 against Hammer, Chua, Uy, and Goldkey before the Regional Trial Court, Makati City(RTC).
11

Despite service of summons, Chua and Hammer did not file their respective answers and were declared in default.
In her separate answer, Uy claimed that she was not liable to iBank because she never executed a surety
agreement in favor of iBank. Goldkey, on the other hand, also denies liability, averring that it acted only as a third-
party mortgagor and that it was a corporation separate and distinct from Hammer.
12

Meanwhile, iBank applied for the issuance of a writ of preliminary attachment which was granted by the RTC in its
December 17, 1997 Order.
13
The Notice of Levy on Attachment of Real Properties, dated July 15, 1998, covering
the properties under the name of Goldkey, was sent by the sheriff to the Registry of Deeds of Quezon City.
14

The RTC, in its Decision,
15
dated December 27, 2000, ruled in favor of iBank. While it made the pronouncement
that the signature of Uy on the Surety Agreement was a forgery, it nevertheless held her liable for the outstanding
obligation of Hammer because she was an officer and stockholder of the said corporation. The RTC agreed with
Goldkey that as a third-party mortgagor, its liability was limited to the properties mortgaged. It came to the
conclusion, however, that Goldkey and Hammer were one and the same entity for the following reasons: (1) both
were family corporations of Chua and Uy, with Chua as the President and Chief Operating Officer; (2) both
corporations shared the same office and transacted business from the same place, (3) the assets of Hammer and
Goldkey were co-mingled; and (4) when Chua absconded, both Hammer and Goldkey ceased to operate. As such,
the piercing of the veil of corporate fiction was warranted. Uy, as an officer and stockholder of Hammer and
Goldkey, was found liable to iBank together with Chua, Hammer and Goldkey for the deficiency of P13,420,177.62.
Aggrieved, the heirs of Uy and Goldkey (petitioners) elevated the case to the CA. On August 16, 2004, it
promulgated its decision affirming the findings of the RTC. The CA found that iBank was not negligent in evaluating
the financial stability of Hammer. According to the appellate court, iBank was induced to grant the loan because
petitioners, with intent to defraud the bank, submitted a falsified Financial Report for 1996 which incorrectly
declared the assets and cashflow of Hammer.
16
Because petitioners acted maliciously and in bad faith and used the
corporate fiction to defraud iBank, they should be treated as one and the same as Hammer.
17

Hence, these petitions filed separately by the heirs of Uy and Goldkey. On February 9, 2005, this Court ordered the
consolidation of the two cases.
18

The Issues
Petitioners raise the following issues:
Whether or not a trial court, under the facts of this case, can go out of the issues raised by the pleadings;
19

Whether or not there is guilt by association in those cases where the veil of corporate fiction may be
pierced;
20
and
Whether or not the "alter ego" theory in disregarding the corporate personality of a corporation is applicable to
Goldkey.
21

Simplifying the issues in this case, the Court must resolve the following: (1) whether Uy can be held liable to iBank
for the loan obligation of Hammer as an officer and stockholder of the said corporation; and (2) whether Goldkey
can be held liable for the obligation of Hammer for being a mere alter ego of the latter.
The Courts Ruling
The petitions are partly meritorious.
Uy is not liable; The piercing of the
veil of corporate fiction is not justified
The heirs of Uy argue that the latter could not be held liable for being merely an officer of Hammer and Goldkey
because it was not shown that she had committed any actionable wrong
22
or that she had participated in the
transaction between Hammer and iBank. They further claim that she had cut all ties with Hammer and her
husband long before the execution of the loan.
23

The Court finds in favor of Uy.
Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a legal personality
separate and distinct from those acting for and in its behalf and, in general, from the people comprising it.
Following this principle, obligations incurred by the corporation, acting through its directors, officers and
employees, are its sole liabilities. A director, officer or employee of a corporation is generally not held personally
liable for obligations incurred by the corporation.
24
Nevertheless, this legal fiction may be disregarded if it is used
as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, or to confuse legitimate issues.
25
This is consistent with the provisions of the
Corporation Code of the Philippines, which states:
Sec. 31. Liability of directors, trustees or officers. Directors or trustees who wilfully and knowingly vote for or
assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing
the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such
directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other persons.
Solidary liability will then attach to the directors, officers or employees of the corporation in certain circumstances,
such as:
1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote for or
assent to patently unlawful acts of the corporation; (b) act in bad faith or with gross negligence in
directing the corporate affairs; and (c) are guilty of conflict of interest to the prejudice of the corporation,
its stockholders or members, and other persons;
2. When a director or officer has consented to the issuance of watered stocks or who, having knowledge
thereof, did not forthwith file with the corporate secretary his written objection thereto;
3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and
solidarily liable with the corporation; or
4. When a director, trustee or officer is made, by specific provision of law, personally liable for his
corporate action.
26

Before a director or officer of a corporation can be held personally liable for corporate obligations, however, the
following requisites must concur: (1) the complainant must allege in the complaint that the director or officer
assented to patently unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad
faith; and (2) the complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith.
27

While it is true that the determination of the existence of any of the circumstances that would warrant the piercing
of the veil of corporate fiction is a question of fact which cannot be the subject of a petition for review on
certiorari under Rule 45, this Court can take cognizance of factual issues if the findings of the lower court are not
supported by the evidence on record or are based on a misapprehension of facts.
28

In this case, petitioners are correct to argue that it was not alleged, much less proven, that Uy committed an act as
an officer of Hammer that would permit the piercing of the corporate veil. A reading of the complaint reveals that
with regard to Uy, iBank did not demand that she be held liable for the obligations of Hammer because she was a
corporate officer who committed bad faith or gross negligence in the performance of her duties such that the
lifting of the corporate mask would be merited. What the complaint simply stated is that she, together with her
errant husband Chua, acted as surety of Hammer, as evidenced by her signature on the Surety Agreement which
was later found by the RTC to have been forged.
29

Considering that the only basis for holding Uy liable for the payment of the loan was proven to be a falsified
document, there was no sufficient justification for the RTC to have ruled that Uy should be held jointly and
severally liable to iBank for the unpaid loan of Hammer. Neither did the CA explain its affirmation of the RTCs
ruling against Uy. The Court cannot give credence to the simplistic declaration of the RTC that liability would attach
directly to Uy for the sole reason that she was an officer and stockholder of Hammer.
At most, Uy could have been charged with negligence in the performance of her duties as treasurer of Hammer by
allowing the company to contract a loan despite its precarious financial position. Furthermore, if it was true, as
petitioners claim, that she no longer performed the functions of a treasurer, then she should have formally
resigned as treasurer to isolate herself from any liability that could result from her being an officer of the
corporation. Nonetheless, these shortcomings of Uy are not sufficient to justify the piercing of the corporate veil
which requires that the negligence of the officer must be so gross that it could amount to bad faith and must be
established by clear and convincing evidence. Gross negligence is one that is characterized by the lack of the
slightest care, acting or failing to act in a situation where there is a duty to act, wilfully and intentionally with a
conscious indifference to the consequences insofar as other persons may be affected.
30

It behooves this Court to emphasize that the piercing of the veil of corporate fiction is frowned upon and can only
be done if it has been clearly established that the separate and distinct personality of the corporation is used to
justify a wrong, protect fraud, or perpetrate a deception.
31
As aptly explained in Philippine National Bank v.
Andrada Electric & Engineering Company:
32

Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court should
be mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was misused to such
an extent that injustice, fraud, or crime was committed against another, in disregard of its rights. The wrongdoing
must be clearly and convincingly established; it cannot be presumed. Otherwise, an injustice that was never
unintended may result from an erroneous application.
33

Indeed, there is no showing that Uy committed gross negligence. And in the absence of any of the aforementioned
requisites for making a corporate officer, director or stockholder personally liable for the obligations of a
corporation, Uy, as a treasurer and stockholder of Hammer, cannot be made to answer for the unpaid debts of the
corporation.
Goldkey is a mere alter ego of Hammer
Goldkey contends that it cannot be held responsible for the obligations of its stockholder, Chua.
34
Moreover, it
theorizes that iBank is estopped from expanding Goldkeys liability beyond the real estate mortgage.
35
It adds that
it did not authorize the execution of the said mortgage.
36
Finally, it passes the blame on to iBank for failing to
exercise the requisite due diligence in properly evaluating Hammers creditworthiness before it was extended an
omnibus line.
37

The Court disagrees with Goldkey.
There is no reason to discount the findings of the CA that iBank duly inspected the viability of Hammer and
satisfied itself that the latter was a good credit risk based on the Financial Statement submitted. In addition, iBank
required that the loan be secured by Goldkeys Real Estate Mortgage and the Surety Agreement with Chua and Uy.
The records support the factual conclusions made by the RTC and the CA.
To the Courts mind, Goldkeys argument, that iBank is barred from pursuing Goldkey for the satisfaction of the
unpaid obligation of Hammer because it had already limited its liability to the real estate mortgage, is completely
absurd. Goldkey needs to be reminded that it is being sued not as a consequence of the real estate mortgage, but
rather, because it acted as an alter ego of Hammer. Accordingly, they must be treated as one and the same entity,
making Goldkey accountable for the debts of Hammer.
In fact, it is Goldkey who is now precluded from denying the validity of the Real Estate Mortgage. In its Answer
with Affirmative Defenses and Compulsory Counterclaim, dated January 5, 1998, it already admitted that it acted
as a third-party mortgagor to secure the obligation of Hammer to iBank.
38
Thus, it cannot, at this late stage,
question the due execution of the third-party mortgage.
Similarly, Goldkey is undoubtedly mistaken in claiming that iBank is seeking to enforce an obligation of Chua. The
records clearly show that it was Hammer, of which Chua was the president and a stockholder, which contracted a
loan from iBank. What iBank sought was redress from Goldkey by demanding that the veil of corporate fiction be
lifted so that it could not raise the defense of having a separate juridical personality to evade liability for the
obligations of Hammer.
Under a variation of the doctrine of piercing the veil of corporate fiction, when two business enterprises are
owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the
rights of third parties, disregard the legal fiction that two corporations are distinct entities and treat them as
identical or one and the same.
39

While the conditions for the disregard of the juridical entity may vary, the following are some probative factors of
identity that will justify the application of the doctrine of piercing the corporate veil, as laid down in Concept
Builders, Inc. v NLRC:
40

(1) Stock ownership by one or common ownership of both corporations;
(2) Identity of directors and officers;
(3) The manner of keeping corporate books and records, and
(4) Methods of conducting the business.
41

These factors are unquestionably present in the case of Goldkey and Hammer, as observed by the RTC, as follows:
1. Both corporations are family corporations of defendants Manuel Chua and his wife Fe Tan Uy. The other
incorporators and shareholders of the two corporations are the brother and sister of Manuel Chua (Benito Ng Po
Hing and Nenita Chua Tan) and the sister of Fe Tan Uy, Milagros Revilla. The other incorporator/share holder is
Manling Uy, the daughter of Manuel Chua Uy Po Tiong and Fe Tan Uy.
The stockholders of Hammer Garments as of March 23, 1987, aside from spouses Manuel and Fe Tan Uy are:
Benito Chua, brother Manuel Chua, Nenita Chua Tan, sister of Manuel Chua and Tessie See Chua Tan. On March 8,
1988, the shares of Tessie See Chua Uy were assigned to Milagros T. Revilla, thereby consolidating the shares in
the family of Manuel Chua and Fe Tan Uy.
2. Hammer Garments and Goldkey share the same office and practically transact their business from the same
place.
3. Defendant Manuel Chua is the President and Chief Operating Officer of both corporations. All business
transactions of Goldkey and Hammer are done at the instance of defendant Manuel Chua who is authorized to do
so by the corporations.
The promissory notes subject of this complaint are signed by him as Hammers President and General Manager.
The third-party real estate mortgage of defendant Goldkey is signed by him for Goldkey to secure the loan
obligation of Hammer Garments with plaintiff "iBank". The other third-party real estate mortgages which Goldkey
executed in favor of the other creditor banks of Hammer are also assigned by Manuel Chua.
4. The assets of Goldkey and Hammer are co-mingled. The real properties of Goldkey are mortgaged to secure
Hammers obligation with creditor banks.
The proceed of at least two loans which Hammer obtained from plaintiff "iBank", purportedly to finance its export
to Wal-Mart are instead used to finance the purchase of a managers check payable to Goldkey. The defendants
claim that Goldkey is a creditor of Hammer to justify its receipt of the Managers check is not substantiated by
evidence. Despite subpoenas issued by this Court, Goldkey thru its treasurer, defendant Fe Tan Uy and or its
corporate secretary Manling Uy failed to produce the Financial Statement of Goldkey.
5. When defendant Manuel Chua "disappeared", the defendant Goldkey ceased to operate despite the claim that
the other "officers" and stockholders like Benito Chua, Nenita Chua Tan, Fe Tan Uy, Manling Uy and Milagros T.
Revilla are still around and may be able to continue the business of Goldkey, if it were different or distinct from
Hammer which suffered financial set back.
42

Based on the foregoing findings of the RTC, it was apparent that Goldkey was merely an adjunct of Hammer and,
as such, the legal fiction that it has a separate personality from that of Hammer should be brushed aside as they
are, undeniably, one and the same.
WHEREFORE, the petition are PARTLY GRANTED. The August 16, 2004 Decision and the December 2, 2004
Resolution of the Court of Appeals in CA-G.R. CV No. 69817, are hereby MODIFIED. Fe Tan Uy is released from any
liability arising from the debts incurred by Hammer from iBank. Hammer Garments Corporation, Manuel Chua Uy
Po Tiong and Goldkey Development Corporation are jointly and severally liable to pay International Exchange Bank
the sum of P13,420,177.62 representing the unpaid loan obligation of Hammer as of December 12, 1997 plus
interest. No costs.