CORPORATION CASES FOR November 22, 2014

G.R. No. L-19118

January 30, 1965

MARIANO A. ALBERT, plaintiff-appellant,

vs.
UNIVERSITY PUBLISHING CO., INC., defendant-appellee.
Uy & Artiaga and Antonio M. Molina for plaintiff-appellant.
Aruego, Mamaril & Associates for defendant-appellees.
BENGZON, J.P., J.:
No less than three times have the parties here appealed to this Court.
In Albert vs. University Publishing Co., Inc., L-9300, April 18, 1958, we found plaintiff
entitled to damages (for breach of contract) but reduced the amount from P23,000.00 to
P15,000.00.
Then in Albert vs. University Publishing Co., Inc., L-15275, October 24, 1960, we held that
the judgment for P15,000.00 which had become final and executory, should be executed
to its full amount, since in fixing it, payment already made had been considered.
Now we are asked whether the judgment may be executed against Jose M. Aruego,
supposed President of University Publishing Co., Inc., as the real defendant.
Fifteen years ago, on September 24, 1949, Mariano A. Albert sued University Publishing
Co., Inc. Plaintiff allegedinter alia that defendant was a corporation duly organized and
existing under the laws of the Philippines; that on July 19, 1948, defendant, through Jose
M. Aruego, its President, entered into a contract with plaintifif; that defendant had thereby
agreed to pay plaintiff P30,000.00 for the exclusive right to publish his revised
Commentaries on the Revised Penal Code and for his share in previous sales of the book's
first edition; that defendant had undertaken to pay in eight quarterly installments of
P3,750.00 starting July 15, 1948; that per contract failure to pay one installment would
render the rest due; and that defendant had failed to pay the second installment.
Defendant admitted plaintiff's allegation of defendant's corporate existence; admitted the
execution and terms of the contract dated July 19, 1948; but alleged that it was plaintiff
who breached their contract by failing to deliver his manuscript. Furthermore, defendant
counterclaimed for damages.1wph1.t
Plaintiff died before trial and Justo R. Albert, his estate's administrator, was substituted for
him.
The Court of First Instance of Manila, after trial, rendered decision on April 26, 1954,
stating in the dispositive portion

IN VIEW OF ALL THE FOREGOING, the Court renders judgment in favor of the plaintiff and
against the defendant the University Publishing Co., Inc., ordering the defendant to pay
the administrator Justo R. Albert, the sum of P23,000.00 with legal [rate] of interest from
the date of the filing of this complaint until the whole amount shall have been fully paid.
The defendant shall also pay the costs. The counterclaim of the defendant is hereby
dismissed for lack of evidence.
As aforesaid, we reduced the amount of damages to P15,000.00, to be executed in full.
Thereafter, on July 22, 1961, the court a quo ordered issuance of an execution writ against
University Publishing Co., Inc. Plaintiff, however, on August 10, 1961, petitioned for a writ
of execution against Jose M. Aruego, as the real defendant, stating, "plaintiff's counsel and
the Sheriff of Manila discovered that there is no such entity as University Publishing Co.,
Inc." Plaintiff annexed to his petition a certification from the securities and Exchange
Commission dated July 31, 1961, attesting: "The records of this Commission do not show
the registration of UNIVERSITY PUBLISHING CO., INC., either as a corporation or
partnership." "University Publishing Co., Inc." countered by filing, through counsel (Jose M.
Aruego's own law firm), a "manifestation" stating that "Jose M. Aruego is not a party to this
case," and that, therefore, plaintiff's petition should be denied.
Parenthetically, it is not hard to decipher why "University Publishing Co., Inc.," through
counsel, would not want Jose M. Aruego to be considered a party to the present case:
should a separate action be now instituted against Jose M. Aruego, the plaintiff will have to
reckon with the statute of limitations.
The court a quo denied the petition by order of September 9, 1961, and from this, plaintiff
has appealed.
The fact of non-registration of University Publishing Co., Inc. in the Securities and
Exchange Commission has not been disputed. Defendant would only raise the point that
"University Publishing Co., Inc.," and not Jose M. Aruego, is the party defendant; thereby
assuming that "University Publishing Co., Inc." is an existing corporation with an
independent juridical personality. Precisely, however, on account of the non-registration it
cannot be considered a corporation, not even a corporation de facto (Hall vs. Piccio, 86
Phil. 603). It has therefore no personality separate from Jose M. Aruego; it cannot be sued
independently.
The corporation-by-estoppel doctrine has not been invoked. At any rate, the same is
inapplicable here. Aruego represented a non-existent entity and induced not only the
plaintiff but even the court to believe in such representation. He signed the contract as
"President" of "University Publishing Co., Inc.," stating that this was "a corporation duly
organized and existing under the laws of the Philippines," and obviously misled plaintiff
(Mariano A. Albert) into believing the same. One who has induced another to act upon his
wilful misrepresentation that a corporation was duly organized and existing under the law,
cannot thereafter set up against his victim the principle of corporation by estoppel
(Salvatiera vs. Garlitos, 56 O.G. 3069).

"University Publishing Co., Inc." purported to come to court, answering the complaint and
litigating upon the merits. But as stated, "University Publishing Co., Inc." has no
independent personality; it is just a name. Jose M. Aruego was, in reality, the one who
answered and litigated, through his own law firm as counsel. He was in fact, if not, in
name, the defendant.
Even with regard to corporations duly organized and existing under the law, we have in
many a case pierced the veil of corporate fiction to administer the ends of justice. * And
in Salvatiera vs. Garlitos, supra, p. 3073, we ruled: "A person acting or purporting to act on
behalf of a corporation which has no valid existence assumes such privileges and
obligations and becomes personally liable for contracts entered into or for other acts
performed as such agent." Had Jose M. Aruego been named as party defendant instead of,
or together with, "University Publishing Co., Inc.," there would be no room for debate as to
his personal liability. Since he was not so named, the matters of "day in court" and "due
process" have arisen.
In this connection, it must be realized that parties to a suit are "persons who have a right
to control the proceedings, to make defense, to adduce and cross-examine witnesses, and
to appeal from a decision" (67 C.J.S. 887) and Aruego was, in reality, the person who
had and exercised these rights. Clearly, then, Aruego had his day in court as the real
defendant; and due process of law has been substantially observed.
By "due process of law" we mean " "a law which hears before it condemns; which proceeds
upon inquiry, and renders judgment only after trial. ... ." (4 Wheaton, U.S. 518, 581.)"; or,
as this Court has said, " "Due process of law" contemplates notice and opportunity to be
heard before judgment is rendered, affecting one's person or property" (Lopez vs. Director
of Lands, 47 Phil. 23, 32)." (Sicat vs. Reyes, L-11023, Dec. 14, 1956.) And it may not be
amiss to mention here also that the "due process" clause of the Constitution is designed to
secure justice as a living reality; not to sacrifice it by paying undue homage to formality.
For substance must prevail over form. It may now be trite, but none the less apt, to quote
what long ago we said in Alonso vs. Villamor, 16 Phil. 315, 321-322:
A litigation is not a game of technicalities in which one, more deeply schooled and skilled
in the subtle art of movement and position, entraps and destroys the other. It is, rather, a
contest in which each contending party fully and fairly lays before the court the facts in
issue and then, brushing side as wholly trivial and indecisive all imperfections of form and
technicalities of procedure, asks that Justice be done upon the merits. Lawsuits, unlike
duels, are not to be won by a rapier's thrust. Technicality, when it deserts its proper office
as an aid to justice and becomes its great hindrance and chief enemy, deserves scant
consideration from courts. There should be no vested rights in technicalities.
The evidence is patently clear that Jose M. Aruego, acting as representative of a nonexistent principal, was the real party to the contract sued upon; that he was the one who
reaped the benefits resulting from it, so much so that partial payments of the
consideration were made by him; that he violated its terms, thereby precipitating the suit

in question; and that in the litigation he was the real defendant. Perforce, in line with the
ends of justice, responsibility under the judgment falls on him.
We need hardly state that should there be persons who under the law are liable to Aruego
for reimbursement or contribution with respect to the payment he makes under the
judgment in question, he may, of course, proceed against them through proper remedial
measures.
PREMISES CONSIDERED, the order appealed from is hereby set aside and the case
remanded ordering the lower court to hold supplementary proceedings for the purpose of
carrying the judgment into effect against University Publishing Co., Inc. and/or Jose M.
Aruego. So ordered.
Adm. Matter No. R-181-P

July 31, 1987

ADELIO C. CRUZ, complainant,

vs.
QUITERIO L. DALISAY, Deputy Sheriff, RTC, Manila, respondents.
RESOLUTION

FERNAN, J.:
In a sworn complaint dated July 23, 1984, Adelio C. Cruz charged Quiterio L. Dalisay,
Senior Deputy Sheriff of Manila, with "malfeasance in office, corrupt practices and serious
irregularities" allegedly committed as follows:
1. Respondent sheriff attached and/or levied the money belonging to complainant Cruz
when he was not himself the judgment debtor in the final judgment of NLRC NCR Case No.
8-12389-91 sought to be enforced but rather the company known as "Qualitrans
Limousine Service, Inc.," a duly registered corporation; and,
2. Respondent likewise caused the service of the alias writ of execution upon complainant
who is a resident of Pasay City, despite knowledge that his territorial jurisdiction covers
Manila only and does not extend to Pasay City.
In his Comments, respondent Dalisay explained that when he garnished complainant's
cash deposit at the Philtrust bank, he was merely performing a ministerial duty. While it is
true that said writ was addressed to Qualitrans Limousine Service, Inc., yet it is also a fact
that complainant had executed an affidavit before the Pasay City assistant fiscal stating
that he is the owner/president of said corporation and, because of that declaration, the
counsel for the plaintiff in the labor case advised him to serve notice of garnishment on
the Philtrust bank.

On November 12, 1984, this case was referred to the Executive Judge of the Regional Trial
Court of Manila for investigation, report and recommendation.
Prior to the termination of the proceedings, however, complainant executed an affidavit of
desistance stating that he is no longer interested in prosecuting the case against
respondent Dalisay and that it was just a "misunderstanding" between them. Upon
respondent's motion, the Executive Judge issued an order dated May 29, 1986
recommending the dismissal of the case.
It has been held that the desistance of complainant does not preclude the taking of
disciplinary action against respondent. Neither does it dissuade the Court from imposing
the appropriate corrective sanction. One who holds a public position, especially an office
directly connected with the administration of justice and the execution of judgments, must
at all times be free from the appearance of impropriety. 1
We hold that respondent's actuation in enforcing a judgment against complainant who is
not the judgment debtor in the case calls for disciplinary action. Considering the
ministerial nature of his duty in enforcing writs of execution, what is incumbent upon him
is to ensure that only that portion of a decision ordained or decreed in the dispositive part
should be the subject of execution.2 No more, no less. That the title of the case specifically
names complainant as one of the respondents is of no moment as execution must conform
to that directed in the dispositive portion and not in the title of the case.
The tenor of the NLRC judgment and the implementing writ is clear enough. It directed
Qualitrans Limousine Service, Inc. to reinstate the discharged employees and pay them
full backwages. Respondent, however, chose to "pierce the veil of corporate entity"
usurping a power belonging to the court and assumed improvidently that since the
complainant is the owner/president of Qualitrans Limousine Service, Inc., they are one and
the same. It is a well-settled doctrine both in law and in equity that as a legal entity, a
corporation has a personality distinct and separate from its individual stockholders or
members. The mere fact that one is president of a corporation does not render the
property he owns or possesses the property of the corporation, since the president, as
individual, and the corporation are separate entities. 3
Anent the charge that respondent exceeded his territorial jurisdiction, suffice it to say that
the writ of execution sought to be implemented was dated July 9, 1984, or prior to the
issuance of Administrative Circular No. 12 which restrains a sheriff from enforcing a court
writ outside his territorial jurisdiction without first notifying in writing and seeking the
assistance of the sheriff of the place where execution shall take place.
ACCORDINGLY, we find Respondent Deputy Sheriff Quiterio L. Dalisay NEGLIGENT in the
enforcement of the writ of execution in NLRC Case-No. 8-12389-91, and a fine equivalent
to three [3] months salary is hereby imposed with a stern warning that the commission of
the same or similar offense in the future will merit a heavier penalty. Let a copy of this
Resolution be filed in the personal record of the respondent.

SO ORDERED.
G.R. No. L-67626 April 18, 1989
JOSE REMO, JR., petitioner,
vs.
THE HON. INTERMEDIATE APPELLATE COURT and E.B. MARCHA TRANSPORT
COMPANY, INC., represented by APIFANIO B. MARCHA, respondents.
Orbos, Cabusora, Dumlao & Sta. Ana for petitioner.

GANCAYCO, J.:
A corporation is an entity separate and distinct from its stockholders. While not in fact and
in reality a person, the law treats a corporation 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. 1
However, the corporate fiction or the notion of legal entity may be disregarded when it "is
used to defeat public convenience, justify wrong, protect fraud, or defend crime" in which
instances "the law will regard the corporation as an association of persons, or in case of
two corporations, will merge them into one." The corporate fiction may also be
disregarded when it is the "mere alter ego or business conduit of a person." 2 There are
many occasions when this Court pierced the corporate veil because of its use to protect
fraud and to justify wrong. 3 The herein petition for review of a. resolution of the
Intermediate Appellate Court dated February 8, 1984 seeking the reversal thereof and the
reinstatement of its earlier decision dated June 30, 1983 in AC-G.R. No. 68496-R 4 calls for
the application of the foregoing principles.
In the latter part of December, 1977 the board of directors of Akron Customs Brokerage
Corporation (hereinafter referred to as Akron), composed of petitioner Jose Remo, Jr.,
Ernesto Baares, Feliciano Coprada, Jemina Coprada, and Dario Punzalan with Lucia
Lacaste as Secretary, adopted a resolution authorizing the purchase of thirteen (13) trucks
for use in its business to be paid out of a loan the corporation may secure from any
lending institution. 5
Feliciano Coprada, as President and Chairman of Akron, purchased thirteen trucks from
private respondent on January 25, 1978 for and in consideration of P525,000.00 as
evidenced by a deed of absolute sale. 6 In a side agreement of the same date, the parties
agreed on a downpayment in the amount of P50,000.00 and that the balance of
P475,000.00 shall be paid within sixty (60) days from the date of the execution of the
agreement. The parties also agreed that until said balance is fully paid, the down payment
of P50,000.00 shall accrue as rentals of the 13 trucks; and that if Akron fails to pay the
balance within the period of 60 days, then the balance shall constitute as a chattel

mortgage lien covering said cargo trucks and the parties may allow an extension of 30
days and thereafter private respondent may ask for a revocation of the contract and the
reconveyance of all said trucks. 7
The obligation is further secured by a promissory note executed by Coprada in favor of
Akron. It is stated in the promissory note that the balance shall be paid from the proceeds
of a loan obtained from the Development Bank of the Philippines (DBP) within sixty (60)
days. 8 After the lapse of 90 days, private respondent tried to collect from Coprada but the
latter promised to pay only upon the release of the DBP loan. Private respondent sent
Coprada a letter of demand dated May 10, 1978. 9 In his reply to the said letter, Coprada
reiterated that he was applying for a loan from the DBP from the proceeds of which
payment of the obligation shall be made. 10
Meanwhile, two of the trucks were sold under a pacto de retro sale to a certain Mr. Bais of
the Perpetual Loans and Savings Bank at Baclaran. The sale was authorized by a board
resolution made in a meeting held on March 15, 1978. 11
Upon inquiry, private respondent found that no loan application was ever filed by Akron
with DBP. 12
In the meantime, Akron paid rentals of P500.00 a day pursuant to a subsequent
agreement, from April 27, 1978 (the end of the 90-day period to pay the balance) to May
31, 1978. Thereafter, no more rental payments were made.
On June 17, 1978, Coprada wrote private respondent begging for a grace period of until
the end of the month to pay the balance of the purchase price; that he will update the
rentals within the week; and in case he fails, then he will return the 13 units should private
respondent elect to get back the same. 13 Private respondent, through counsel, wrote
Akron on August 1, 1978 demanding the return of the 13 trucks and the payment of
P25,000.00 back rentals covering the period from June 1 to August 1, 1978. 14
Again, Coprada wrote private respondent on August 8, 1978 asking for another grace
period of up to August 31, 1978 to pay the balance, stating as well that he is expecting the
approval of his loan application from a certain financing company, and that ten (10) trucks
have been returned to Bagbag, Novaliches. 15 On December 9, 1978, Coprada informed
private respondent anew that he had returned ten (10) trucks to Bagbag and that a
resolution was passed by the board of directors confirming the deed of assignment to
private respondent of P475,000 from the proceeds of a loan obtained by Akron from the
State Investment House, Inc. 16
In due time, private respondent filed a compliant for the recovery of P525,000.00 or the
return of the 13 trucks with damages against Akron and its officers and directors, Feliciano
Coprada, Dario D. Punzalan, Jemina Coprada, Lucia Lacaste, Wilfredo Layug, Arcadio de la
Cruz, Francisco Clave, Vicente Martinez, Pacifico Dollario and petitioner with the then Court
of First Instance of Rizal. Only petitioner answered the complaint denying any participation

in the transaction and alleging that Akron has a distinct corporate personality. He was,
however, declared in default for his failure to attend the pre-trial.
In the meanwhile, petitioner sold all his shares in Akron to Coprada. It also appears that
Akron amended its articles of incorporation thereby changing its name to Akron Transport
International, Inc. which assumed the liability of Akron to private respondent.
After an ex parte reception of the evidence of the private respondent, a decision was
rendered on October 28, 1980, the dispositive part of which reads as follows:
Finding the evidence sufficient to prove the case of the plaintiff, judgment is hereby
rendered in favor of the plaintiff and against the defendants, ordering them jointly and
severally to pay;
a the purchase price of the trucks in the amount of P525,000.00 with ... legal rate (of
interest) from the filing of the complaint until the full amount is paid;
b rentals of Bagbag property at P1,000.00 a month from August 1978 until the premises
is cleared of the said trucks;
c attorneys fees of P10,000.00, and
d costs of suit.
The P50,000.00 given as down payment shall pertain as rentals of the trucks from June 1
to August 1, 1978 which is P25,000.00 (see demand letter of Atty. Aniano Exhibit "T") and
the remaining P25,000.00 shall be from August 1, 1978 until the trucks are removed
totally from the place." 17
A motion for new trial filed by petitioner was denied so he appealed to the then
Intermediate Appellate Court (IAC) wherein in due course a decision was rendered on June
30, 1 983 setting aside the said decision as far as petitioner is concemed. However, upon
a motion for reconsideration filed by private respondent dent, the IAC, in a resolution
dated February 8,1984, set aside the decision dated June 30, 1983. The appellate court
entered another decision affirming the appealed decision of the trial court, with costs
against petitioner.
Hence, this petition for review wherein petitioner raises the following issues:
I. The Intermediate Appellate Court (IAC) erred in disregarding the corporate fiction and in
holding the petitioner personally liable for the obligation of the Corporation which decision
is patently contrary to law and the applicable decision thereon.
II. The Intermediate Appellate Court (IAC) committed grave error of law in its decision by
sanctioning the merger of the personality of the corporation with that of the petitioner
when the latter was held liable for the corporate debts. 18

We reverse.
The environmental facts of this case show that there is no cogent basis to pierce the
corporate veil of Akron and hold petitioner personally liable for its obligation to private
respondent. While it is true that in December, 1977 petitioner was still a member of the
board of directors of Akron and that he participated in the adoption of a resolution
authorizing the purchase of 13 trucks for the use in the brokerage business of Akron to be
paid out of a loan to be secured from a lending institution, it does not appear that said
resolution was intended to defraud anyone and more particularly private respondent. It
was Coprada, President and Chairman of Akron, who negotiated with said respondent for
the purchase of 13 cargo trucks on January 25, 1978. It was Coprada who signed a
promissory note to guarantee the payment of the unpaid balance of the purchase price out
of the proceeds of a loan he supposedly sought from the DBP. The word "WE' in the said
promissory note must refer to the corporation which Coprada represented in the execution
of the note and not its stockholders or directors. Petitioner did not sign the said promissory
note so he cannot be personally bound thereby.
Thus, if there was any fraud or misrepresentation that was foisted on private respondent in
that there was a forthcoming loan from the DBP when it fact there was none, it is Coprada
who should account for the same and not petitioner.
As to the sale through pacto de retro of the two units to a third person by the corporation
by virtue of a board resolution, petitioner asserts that he never signed said resolution. Be
that as it may, the sale is not inherently fraudulent as the 13 units were sold through a
deed of absolute sale to Akron so that the corporation is free to dispose of the same. Of
course, it was stipulated that in case of default in payment to private respondent of the
balance of the consideration, a chattel mortgage lien shag be constituted on the 13 units.
Nevertheless, said mortgage is a prior lien as against the pacto de retro sale of the 2 units.
As to the amendment of the articles of incorporation of Akron thereby changing its name
to Akron Transport International, Inc., petitioner alleges that the change of corporate name
was in order to include trucking and container yard operations in its customs brokerage of
which private respondent was duly informed in a letter. 19Indeed, the new corporation
confirmed and assumed the obligation of the old corporation. There is no indication of an
attempt on the part of Akron to evade payment of its obligation to private respondent.
There is the fact that petitioner sold his shares in Akron to Coprada during the pendency of
the case. Since petitioner has no personal obligation to private respondent, it is his
inherent right as a stockholder to dispose of his shares of stock anytime he so desires.
Mention is also made of the alleged "dumping" of 10 units in the premises of private
respondent at Bagbag, Novaliches which to the mind of the Court does not prove fraud
and instead appears to be an attempt on the part of Akron to attend to its obligations as
regards the said trucks. Again petitioner has no part in this.

If the private respondent is the victim of fraud in this transaction, it has not been clearly
shown that petitioner had any part or participation in the perpetration of the same. Fraud
must be established by clear and convincing evidence. If at all, the principal character on
whom fault should be attributed is Feliciano Coprada, the President of Akron, whom private
respondent dealt with personally all through out. Fortunately, private respondent obtained
a judgment against him from the trial court and the said judgment has long been final and
executory.
WHEREFORE, the petition is GRANTED. The questioned resolution of the Intermediate
Appellate Court dated February 8,1984 is hereby set aside and its decision dated June
30,1983 setting aside the decision of the trial court dated October 28, 1980 insofar as
petitioner is concemed is hereby reinstated and affirmed, without costs.
SO ORDERED.
G.R. No. 88013 March 19, 1990
SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK, respondents.
Don P. Porcuincula for petitioner.
San Juan, Gonzalez, San Agustin & Sinense for private respondent.

CRUZ, J.:
We are concerned in this case with the question of damages, specifically moral and
exemplary damages. The negligence of the private respondent has already been
established. All we have to ascertain is whether the petitioner is entitled to the said
damages and, if so, in what amounts.
The parties agree on the basic facts. The petitioner is a private corporation engaged in the
exportation of food products. It buys these products from various local suppliers and then
sells them abroad, particularly in the United States, Canada and the Middle East. Most of
its exports are purchased by the petitioner on credit.
The petitioner was a depositor of the respondent bank and maintained a checking account
in its branch at Romulo Avenue, Cubao, Quezon City. On May 25, 1981, the petitioner
deposited to its account in the said bank the amount of P100,000.00, thus increasing its
balance as of that date to P190,380.74. 1 Subsequently, the petitioner issued several
checks against its deposit but was suprised to learn later that they had been dishonored
for insufficient funds.

The dishonored checks are the following:

1. Check No. 215391 dated May 29, 1981, in favor of California Manufacturing Company,
Inc. for P16,480.00:
2. Check No. 215426 dated May 28, 1981, in favor of the Bureau of Internal Revenue in the
amount of P3,386.73:
3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg Pedreo in the amount of
P7,080.00;
4. Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife Trading Corporation
in the amount of P42,906.00:
5. Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife Trading Corporation
in the amount of P12,953.00:
6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services, Inc. in the amount
of P27,024.45:
7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country Club Corporation in
the amount of P4,385.02: and
8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in the amount of
P6,275.00. 2
As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a letter
of demand to the petitioner, threatening prosecution if the dishonored check issued to it
was not made good. It also withheld delivery of the order made by the petitioner. Similar
letters were sent to the petitioner by the Malabon Long Life Trading, on June 15, 1981, and
by the G. and U. Enterprises, on June 10, 1981. Malabon also canceled the petitioner's
credit line and demanded that future payments be made by it in cash or certified check.
Meantime, action on the pending orders of the petitioner with the other suppliers whose
checks were dishonored was also deferred.
The petitioner complained to the respondent bank on June 10, 1981. 3 Investigation
disclosed that the sum of P100,000.00 deposited by the petitioner on May 25, 1981, had
not been credited to it. The error was rectified on June 17, 1981, and the dishonored
checks were paid after they were re-deposited. 4
In its letter dated June 20, 1981, the petitioner demanded reparation from the respondent
bank for its "gross and wanton negligence." This demand was not met. The petitioner then
filed a complaint in the then Court of First Instance of Rizal claiming from the private
respondent moral damages in the sum of P1,000,000.00 and exemplary damages in the
sum of P500,000.00, plus 25% attorney's fees, and costs.

After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and
exemplary damages were not called for under the circumstances. However, observing that
the plaintiff's right had been violated, he ordered the defendant to pay nominal damages
in the amount of P20,000.00 plus P5,000.00 attorney's fees and costs. 5 This decision was
affirmed in toto by the respondent court. 6
The respondent court found with the trial court that the private respondent was guilty of
negligence but agreed that the petitioner was nevertheless not entitled to moral damages.
It said:
The essential ingredient of moral damages is proof of bad faith (De Aparicio vs. Parogurga,
150 SCRA 280). Indeed, there was the omission by the defendant-appellee bank to credit
appellant's deposit of P100,000.00 on May 25, 1981. But the bank rectified its records. It
credited the said amount in favor of plaintiff-appellant in less than a month. The
dishonored checks were eventually paid. These circumstances negate any imputation or
insinuation of malicious, fraudulent, wanton and gross bad faith and negligence on the
part of the defendant-appellant.
It is this ruling that is faulted in the petition now before us.
This Court has carefully examined the facts of this case and finds that it cannot share
some of the conclusions of the lower courts. It seems to us that the negligence of the
private respondent had been brushed off rather lightly as if it were a minor infraction
requiring no more than a slap on the wrist. We feel it is not enough to say that the private
respondent rectified its records and credited the deposit in less than a month as if this
were sufficient repentance. The error should not have been committed in the first place.
The respondent bank has not even explained why it was committed at all. It is true that
the dishonored checks were, as the Court of Appeals put it, "eventually" paid. However,
this took almost a month when, properly, the checks should have been paid immediately
upon presentment.
As the Court sees it, the initial carelessness of the respondent bank, aggravated by the
lack of promptitude in repairing its error, justifies the grant of moral damages. This rather
lackadaisical attitude toward the complaining depositor constituted the gross negligence,
if not wanton bad faith, that the respondent court said had not been established by the
petitioner.
We also note that while stressing the rectification made by the respondent bank, the
decision practically ignored the prejudice suffered by the petitioner. This was simply
glossed over if not, indeed, disbelieved. The fact is that the petitioner's credit line was
canceled and its orders were not acted upon pending receipt of actual payment by the
suppliers. Its business declined. Its reputation was tarnished. Its standing was reduced in
the business community. All this was due to the fault of the respondent bank which was
undeniably remiss in its duty to the petitioner.

Article 2205 of the Civil Code provides that actual or compensatory damages may be
received "(2) for injury to the plaintiff s business standing or commercial credit." There is
no question that the petitioner did sustain actual injury as a result of the dishonored
checks and that the existence of the loss having been established "absolute certainty as to
its amount is not required." 7 Such injury should bolster all the more the demand of the
petitioner for moral damages and justifies the examination by this Court of the validity and
reasonableness of the said claim.
We agree that moral damages are not awarded to penalize the defendant but to
compensate the plaintiff for the injuries he may have suffered. 8 In the case at bar, the
petitioner is seeking such damages for the prejudice sustained by it as a result of the
private respondent's fault. The respondent court said that the claimed losses are purely
speculative and are not supported by substantial evidence, but if failed to consider that
the amount of such losses need not be established with exactitude precisely because of
their nature. Moral damages are not susceptible of pecuniary estimation. Article 2216 of
the Civil Code specifically provides that "no proof of pecuniary loss is necessary in order
that moral, nominal, temperate, liquidated or exemplary damages may be adjudicated."
That is why the determination of the amount to be awarded (except liquidated damages)
is left to the sound discretion of the court, according to "the circumstances of each case."
From every viewpoint except that of the petitioner's, its claim of moral damages in the
amount of P1,000,000.00 is nothing short of preposterous. Its business certainly is not that
big, or its name that prestigious, to sustain such an extravagant pretense. Moreover, a
corporation is not as a rule entitled to moral damages because, not being a natural
person, it cannot experience physical suffering or such sentiments as wounded feelings,
serious anxiety, mental anguish and moral shock. The only exception to this rule is where
the corporation has a good reputation that is debased, resulting in its social humiliation. 9
We shall recognize that the petitioner did suffer injury because of the private respondent's
negligence that caused the dishonor of the checks issued by it. The immediate
consequence was that its prestige was impaired because of the bouncing checks and
confidence in it as a reliable debtor was diminished. The private respondent makes much
of the one instance when the petitioner was sued in a collection case, but that did not
prove that it did not have a good reputation that could not be marred, more so since that
case was ultimately settled. 10 It does not appear that, as the private respondent would
portray it, the petitioner is an unsavory and disreputable entity that has no good name to
protect.
Considering all this, we feel that the award of nominal damages in the sum of P20,000.00
was not the proper relief to which the petitioner was entitled. Under Article 2221 of the
Civil Code, "nominal damages are adjudicated in order that a right of the plaintiff, which
has been violated or invaded by the defendant, may be vindicated or recognized, and not
for the purpose of indemnifying the plaintiff for any loss suffered by him." As we have
found that the petitioner has indeed incurred loss through the fault of the private
respondent, the proper remedy is the award to it of moral damages, which we impose, in
our discretion, in the same amount of P20,000.00.

Now for the exemplary damages.

The pertinent provisions of the Civil Code are the following:
Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction
for the public good, in addition to the moral, temperate, liquidated or compensatory
damages.
Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if
the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.
The banking system is an indispensable institution in the modern world and plays a vital
role in the economic life of every civilized nation. Whether as mere passive entities for the
safekeeping and saving of money or as active instruments of business and commerce,
banks have become an ubiquitous presence among the people, who have come to regard
them with respect and even gratitude and, most of all, confidence. Thus, even the humble
wage-earner has not hesitated to entrust his life's savings to the bank of his choice,
knowing that they will be safe in its custody and will even earn some interest for him. The
ordinary person, with equal faith, usually maintains a modest checking account for
security and convenience in the settling of his monthly bills and the payment of ordinary
expenses. As for business entities like the petitioner, the bank is a trusted and active
associate that can help in the running of their affairs, not only in the form of loans when
needed but more often in the conduct of their day-to-day transactions like the issuance or
encashment of checks.
In every case, the depositor expects the bank to treat his account with the utmost fidelity,
whether such account consists only of a few hundred pesos or of millions. The bank must
record every single transaction accurately, down to the last centavo, and as promptly as
possible. This has to be done if the account is to reflect at any given time the amount of
money the depositor can dispose of as he sees fit, confident that the bank will deliver it as
and to whomever he directs. A blunder on the part of the bank, such as the dishonor of a
check without good reason, can cause the depositor not a little embarrassment if not also
financial loss and perhaps even civil and criminal litigation.
The point is that as a business affected with public interest and because of the nature of
its functions, the bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship. In the
case at bar, it is obvious that the respondent bank was remiss in that duty and violated
that relationship. What is especially deplorable is that, having been informed of its error in
not crediting the deposit in question to the petitioner, the respondent bank did not
immediately correct it but did so only one week later or twenty-three days after the
deposit was made. It bears repeating that the record does not contain any satisfactory
explanation of why the error was made in the first place and why it was not corrected
immediately after its discovery. Such ineptness comes under the concept of the wanton
manner contemplated in the Civil Code that calls for the imposition of exemplary
damages.

After deliberating on this particular matter, the Court, in the exercise of its discretion,
hereby imposes upon the respondent bank exemplary damages in the amount of
P50,000.00, "by way of example or correction for the public good," in the words of the law.
It is expected that this ruling will serve as a warning and deterrent against the repetition of
the ineptness and indefference that has been displayed here, lest the confidence of the
public in the banking system be further impaired.
ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private respondent is
ordered to pay the petitioner, in lieu of nominal damages, moral damages in the amount
of P20,000.00, and exemplary damages in the amount of P50,000.00 plus the original
award of attorney's fees in the amount of P5,000.00, and costs.
SO ORDERED.
G.R. No. 128066

June 19, 2000

JARDINE DAVIES INC., petitioner,

vs.
COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 128069
PURE FOODS CORPORATION, petitioner,
vs.
COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.
BELLOSILLO, J.:
This is rather a simple case for specific performance with damages which could have been
resolved through mediation and conciliation during its infancy stage had the parties been
earnest in expediting the disposal of this case. They opted however to resort to full court
proceedings and denied themselves the benefits of alternative dispute resolution, thus
making the process more arduous and long-drawn.
The controversy started in 1992 at the height of the power crisis which the country was
then experiencing. To remedy and curtail further losses due to the series of power failures,
petitioner PURE FOODS CORPORATION (hereafter PUREFOODS) decided to install two (2)
1500 KW generators in its food processing plant in San Roque, Marikina City.
Sometime in November 1992 a bidding for the supply and installation of the generators
was held. Several suppliers and dealers were invited to attend a pre-bidding conference to
discuss the conditions, propose scheme and specifications that would best suit the needs
of PUREFOODS. Out of the eight (8) prospective bidders who attended the pre-bidding
conference, only three (3) bidders, namely, respondent FAR EAST MILLS SUPPLY

CORPORATION (hereafter FEMSCO), MONARK and ADVANCE POWER submitted bid

proposals and gave bid bonds equivalent to 5% of their respective bids, as required.
Thereafter, in a letter dated 12 December 1992 addressed to FEMSCO President Alfonso
Po, PUREFOODS confirmed the award of the contract to FEMSCO
Gentlemen:
This will confirm that Pure Foods Corporation has awarded to your firm the project: Supply
and Installation of two (2) units of 1500 KW/unit Generator Sets at the Processed Meats
Plant, Bo. San Roque, Marikina, based on your proposal number PC 28-92 dated November
20, 1992, subject to the following basic terms and conditions:
1. Lump sum contract of P6,137,293.00 (VAT included), for the supply of materials and
labor for the local portion and the labor for the imported materials, payable by progress
billing twice a month, with ten percent (10%) retention. The retained amount shall be
released thirty (30) days after acceptance of the completed project and upon posting of
Guarantee Bond in an amount equivalent to twenty percent (20%) of the contract price.
The Guarantee Bond shall be valid for one (1) year from completion and acceptance of
project. The contract price includes future increase/s in costs of materials and labor;
2. The projects shall be undertaken pursuant to the attached specifications. It is
understood that any item required to complete the project, and those not included in the
list of items shall be deemed included and covered and shall be performed;
3. All materials shall be brand new;
4. The project shall commence immediately and must be completed within twenty (20)
working days after the delivery of Generator Set to Marikina Plant, penalty equivalent to
1/10 of 1% of the purchase price for every day of delay;
5. The Contractor shall put up Performance Bond equivalent to thirty (30%) of the contract
price, and shall procure All Risk Insurance equivalent to the contract price upon
commencement of the project. The All Risk Insurance Policy shall be endorsed in favor of
and shall be delivered to Pure Foods Corporation;
6. Warranty of one (1) year against defective material and/or workmanship.
Once finalized, we shall ask you to sign the formal contract embodying the foregoing
terms and conditions.
Immediately, FEMSCO submitted the required performance bond in the amount of
P1,841,187.90 and contractor's all-risk insurance policy in the amount of P6,137,293.00
which PUREFOODS through its Vice President Benedicto G. Tope acknowledged in a letter
dated 18 December 1992. FEMSCO also made arrangements with its principal and started

the PUREFOODS project by purchasing the necessary materials. PUREFOODS on the other
hand returned FEMSCO's Bidder's Bond in the amount of P1,000,000.00, as requested.
Later, however, in a letter dated 22 December 1992, PUREFOODS through its Senior Vice
President Teodoro L. Dimayuga unilaterally canceled the award as "significant factors were
uncovered and brought to (their) attention which dictate (the) cancellation and warrant a
total review and re-bid of (the) project." Consequently, FEMSCO protested the cancellation
of the award and sought a meeting with PUREFOODS. However, on 26 March 1993, before
the matter could be resolved, PUREFOODS already awarded the project and entered into a
contract with JARDINE NELL, a division of Jardine Davies, Inc. (hereafter JARDINE), which
incidentally was not one of the bidders.1wphi1.nt
FEMSCO thus wrote PUREFOODS to honor its contract with the former, and to JARDINE to
cease and desist from delivering and installing the two (2) generators at PUREFOODS. Its
demand letters unheeded, FEMSCO sued both PUREFOODS and JARDINE: PUREFOODS for
reneging on its contract, and JARDINE for its unwarranted interference and inducement.
Trial ensued. After FEMSCO presented its evidence, JARDINE filed a Demurrer to Evidence.
On 27 June 1994 the Regional Trial Court of Pasig, Br. 68, 1 granted JARDINE's Demurrer to
Evidence. The trial court concluded that "[w]hile it may seem to the plaintiff that by the
actions of the two defendants there is something underhanded going on, this is all a
matter of perception, and unsupported by hard evidence, mere suspicions and
suppositions would not stand up very well in a court of law." 2 Meanwhile trial proceeded
as regards the case against PUREFOODS.
On 28 July 1994 the trial court rendered a decision ordering PUREFOODS: (a) to indemnify
FEMSCO the sum of P2,300,000.00 representing the value of engineering services it
rendered; (b) to pay FEMSCO the sum of US$14,000.00 or its peso equivalent, and
P900,000.00 representing contractor's mark-up on installation work, considering that it
would be impossible to compel PUREFOODS to honor, perform and fulfill its contractual
obligations in view of PUREFOOD's contract with JARDINE and noting that construction had
already started thereon; (c) to pay attorney's fees in an amount equivalent to 20% of the
total amount due; and, (d) to pay the costs. The trial court dismissed the counterclaim
filed by PUREFOODS for lack of factual and legal basis.
Both FEMSCO and PUREFOODS appealed to the Court of Appeals. FEMSCO appealed the 27
June 1994 Resolution of the trial court which granted the Demurrer to Evidence filed by
JARDINE resulting in the dismissal of the complaint against it, while PUREFOODS appealed
the 28 July 1994 Decision of the same court which ordered it to pay FEMSCO.
On 14 August 1996 the Court of Appeals affirmed in toto the 28 July 1994 Decision of the
trial court. 3 It also reversed the 27 June 1994 Resolution of the lower court and ordered
JARDINE to pay FEMSCO damages for inducing PUREFOODS to violate the latter's contract
with FEMSCO. As such, JARDINE was ordered to pay FEMSCO P2,000,000.00 for moral
damages. In addition, PUREFOODS was also directed to pay FEMSCO P2,000,000.00 as

moral damages and P1,000,000.00 as exemplary damages as well as 20% of the total
amount due as attorney's fees.
On 31 January 1997 the Court of Appeals denied for lack of merit the separate motions for
reconsideration filed by PUREFOODS and JARDINE. Hence, these two (2) petitions for
review filed by PUREFOODS and JARDINE which were subsequently consolidated.
PUREFOODS maintains that the conclusions of both the trial court and the appellate court
are premised on a misapprehension of facts. It argues that its 12 December 1992 letter to
FEMSCO was not an acceptance of the latter's bid proposal and award of the project but
more of a qualified acceptance constituting a counter-offer which required FEMSCO's
express conforme. Since PUREFOODS never received FEMSCO's conforme, PUREFOODS
was very well within reason to revoke its qualified acceptance or counter-offer. Hence, no
contract was perfected between PUREFOODS and FEMSCO. PUREFOODS also contends
that it was never in bad faith when it dealt with FEMSCO. Hence moral and exemplary
damages should not have been awarded.
Corollarily, JARDINE asserts that the records are bereft of any showing that it had prior
knowledge of the supposed contract between PUREFOODS and FEMSCO, and that it
induced PUREFOODS to violate the latter's alleged contract with FEMSCO. Moreover,
JARDINE reasons that FEMSCO, an artificial person, is not entitled to moral damages. But
granting arguendo that the award of moral damages is proper, P2,000,000.00 is extremely
excessive.
In the main, these consolidated cases present two (2) issues: first, whether there existed a
perfected contract between PUREFOODS and FEMSCO; and second, granting there existed
a perfected contract, whether there is any showing that JARDINE induced or connived with
PUREFOODS to violate the latter's contract with FEMSCO.
A contract is defined as "a juridical convention manifested in legal form, by virtue of which
one or more persons bind themselves in favor of another or others, or reciprocally, to the
fulfillment of a prestation to give, to do, or not to do." 4 There can be no contract unless the
following requisites concur: (a) consent of the contracting parties; (b) object certain which
is the subject matter of the contract; and, (c) cause of the obligation which is
established. 5 A contract binds both contracting parties and has the force of law between
them.
Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer
made by the offeror. From that moment, the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law. 6 To produce a contract,
the acceptance must not qualify the terms of the offer. However, the acceptance may be
express or implied. 7 For a contract to arise, the acceptance must be made known to the
offeror. Accordingly, the acceptance can be withdrawn or revoked before it is made known
to the offeror.

In the instant case, there is no issue as regards the subject matter of the contract and the
cause of the obligation. The controversy lies in the consent whether there was an
acceptance of the offer, and if so, if it was communicated, thereby perfecting the contract.
To resolve the dispute, there is a need to determine what constituted the offer and the
acceptance. Since petitioner PUREFOODS started the process of entering into the contract
by conducting a bidding, Art. 1326 of the Civil Code, which provides that "[a]dvertisements
for bidders are simply invitations to make proposals," applies. Accordingly, the Terms and
Conditions of the Bidding disseminated by petitioner PUREFOODS constitutes the
"advertisement" to bid on the project. The bid proposals or quotations submitted by the
prospective suppliers including respondent FEMSCO, are the offers. And, the reply of
petitioner PUREFOODS, the acceptance or rejection of the respective offers.
Quite obviously, the 12 December 1992 letter of petitioner. PUREFOODS to FEMSCO
constituted acceptance of respondent FEMSCO's offer as contemplated by law. The tenor
of the letter, i.e., "This will confirm that Pure Foods has awarded to your firm (FEMSCO) the
project," could not be more categorical. While the same letter enumerated certain "basic
terms and conditions," these conditions were imposed on the performance of the
obligation rather than on the perfection of the contract. Thus, the first "condition" was
merely a reiteration of the contract price and billing scheme based on the Terms and
Conditions of Bidding and the bid or previous offer of respondent FEMSCO. The second and
third "conditions" were nothing more than general statements that all items and materials
including those excluded in the list but necessary to complete the project shall be deemed
included and should be brand new. The fourth "condition" concerned the completion of the
work to be done, i.e., within twenty (20) days from the delivery of the generator set, the
purchase of which was part of the contract. The fifth "condition" had to do with the putting
up of a performance bond and an all-risk insurance, both of which should be given upon
commencement of the project. The sixth "condition" related to the standard warranty of
one (1) year. In fine, the enumerated "basic terms and conditions" were prescriptions on
how the obligation was to be performed and implemented. They were far from being
conditions imposed on the perfection of the contract.
In Babasa v. Court of Appeals 8 we distinguished between a condition imposed on the
perfection of a contract and a condition imposed merely on the performance of an
obligation. While failure to comply with the first condition results in the failure of a
contract, failure to comply with the second merely gives the other party options and/or
remedies to protect his interests.
We thus agree with the conclusion of respondent appellate court which affirmed the trial
court
As can be inferred from the actual phrase used in the first portion of the letter, the
decision to award the contract has already been made. The letter only serves as a
confirmation of such decision. Hence, to the Court's mind, there is already an acceptance
made of the offer received by Purefoods. Notwithstanding the terms and conditions
enumerated therein, the offer has been accepted and/or amplified the details of the terms

and conditions contained in the Terms and Conditions of Bidding given out by Purefoods to
prospective bidders. 9
But even granting arguendo that the 12 December 1992 letter of petitioner PUREFOODS
constituted a "conditional counter-offer," respondent FEMCO's submission of the
performance bond and contractor's all-risk insurance was an implied acceptance, if not a
clear indication of its acquiescence to, the "conditional counter-offer," which expressly
stated that the performance bond and the contractor's all-risk insurance should be given
upon the commencement of the contract. Corollarily, the acknowledgment thereof by
petitioner PUREFOODS, not to mention its return of FEMSCO's bidder's bond, was a
concrete manifestation of its knowledge that respondent FEMSCO indeed consented to the
"conditional counter-offer." After all, as earlier adverted to, an acceptance may either be
express or implied, 10 and this can be inferred from the contemporaneous and subsequent
acts of the contracting parties.
Accordingly, for all intents and purposes, the contract at that point has been perfected,
and respondent FEMSCO'sconforme would only be a mere surplusage. The discussion of
the price of the project two (2) months after the 12 December 1992 letter can be deemed
as nothing more than a pressure being exerted by petitioner PUREFOODS on respondent
FEMSCO to lower the price even after the contract had been perfected. Indeed from the
facts, it can easily be surmised that petitioner PUREFOODS was haggling for a lower price
even after agreeing to the earlier quotation, and was threatening to unilaterally cancel the
contract, which it eventually did. Petitioner PUREFOODS also makes an issue out of the
absence of a purchase order (PO). Suffice it to say that purchase orders or POs do not
make or break a contract. Thus, even the tenor of the subsequent letter of petitioner
PUREFOODS, i.e., "Pure Foods Corporation is hereby canceling the award to your company
of the project," presupposes that the contract has been perfected. For, there can be no
cancellation if the contract was not perfected in the first place.
Petitioner PUREFOODS also argues that it was never in bad faith.1avvphi1 On the contrary,
it believed in good faith that no such contract was perfected. We are not convinced. We
subscribe to the factual findings and conclusions of the trial court which were affirmed by
the appellate court
Hence, by the unilateral cancellation of the contract, the defendant (petitioner PURE
FOODS) has acted with bad faith and this was further aggravated by the subsequent
inking of a contract between defendant Purefoods and erstwhile co-defendant Jardine. It is
very evident that Purefoods thought that by the expedient means of merely writing a letter
would automatically cancel or nullify the existing contract entered into by both parties
after a process of bidding. This, to the Court's mind, is a flagrant violation of the express
provisions of the law and is contrary to fair and just dealings to which every man is due. 11
This Court has awarded in the past moral damages to a corporation whose reputation has
been besmirched. 12 In the instant case, respondent FEMSCO has sufficiently shown that its
reputation was tarnished after it immediately ordered equipment from its suppliers on
account of the urgency of the project, only to be canceled later. We thus sustain

respondent appellate court's award of moral damages. We however reduce the award from
P2,000,000.00 to P1,000,000.00, as moral damages are never intended to enrich the
recipient. Likewise, the award of exemplary damages by way of example for the public
good is excessive and should be reduced to P100,000.00.
Petitioner JARDINE maintains on the other hand that respondent appellate court erred in
ordering it to pay moral damages to respondent FEMSCO as it supposedly induced
PUREFOODS to violate the contract with FEMSCO. We agree. While it may seem that
petitioners PUREFOODS and JARDINE connived to deceive respondent FEMSCO, we find no
specific evidence on record to support such perception. Likewise, there is no showing
whatsoever that petitioner JARDINE induced petitioner PUREFOODS. The similarity in the
design submitted to petitioner PUREFOODS by both petitioner JARDINE and respondent
FEMSCO, and the tender of a lower quotation by petitioner JARDINE are insufficient to show
that petitioner JARDINE indeed induced petitioner PUREFOODS to violate its contract with
respondent FEMSCO.
WHEREFORE, judgment is hereby rendered as follows:
(a) The petition in G.R. No. 128066 is GRANTED. The assailed Decision of the Court of
Appeals reversing the 27 June 1994 resolution of the trial court and ordering petitioner
JARDINE DAVIES, INC., to pay private respondent FAR EAST MILLS SUPPLY CORPORATION
P2,000,000.00 as moral damages is REVERSED and SET ASIDE for insufficiency of
evidence; and
(b) The petition in G.R. No. 128069 is DENIED. The assailed Decision of the Court of
Appeals ordering petitioner PUREFOODS CORPORATION to pay private respondent FAR
EAST MILLS SUPPLY CORPORATION the sum of P2,300,000.00 representing the value of
engineering services it rendered, US$14,000.00 or its peso equivalent, and P900,000.00
representing the contractor's mark-up on installation work, as well as attorney's fees
equivalent to twenty percent (20%) of the total amount due, is AFFIRMED. In addition,
petitioner PURE FOODS CORPORATION is ordered to pay private respondent FAR EAST
MILLS SUPPLY CORPORATION moral damages in the amount of P1,000,000.00 and
exemplary damages in the amount of P1,000,000.00. Costs against petitioner.
SO ORDERED.
G.R. No. 128690 January 21, 1999
ABS-CBN BROADCASTING CORPORATION, petitioner,
vs.
HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA
PRODUCTION, INC., and VICENTE DEL ROSARIO, respondents.

DAVIDE, JR., CJ.:

In this petition for review on certiorari, petitioner ABS-CBN Broadcasting Corp. (hereafter
ABS-CBN) seeks to reverse and set aside the decision 1 of 31 October 1996 and the
resolution 2 of 10 March 1997 of the Court of Appeals in CA-G.R. CV No. 44125. The former
affirmed with modification the decision 3 of 28 April 1993 of the Regional Trial Court (RTC)
of Quezon City, Branch 80, in Civil Case No. Q-92-12309. The latter denied the motion to
reconsider the decision of 31 October 1996.
The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows:
In 1990, ABS-CBN and Viva executed a Film Exhibition Agreement (Exh. "A") whereby Viva
gave ABS-CBN an exclusive right to exhibit some Viva films. Sometime in December 1991,
in accordance with paragraph 2.4 [sic] of said agreement stating that .
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for
TV telecast under such terms as may be agreed upon by the parties hereto, provided,
however, that such right shall be exercised by ABS-CBN from the actual offer in writing.
Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo
Santos-Concio, a list of three(3) film packages (36 title) from which ABS-CBN may exercise
its right of first refusal under the afore-said agreement (Exhs. "1" par, 2, "2," "2-A'' and "2B"-Viva). ABS-CBN, however through Mrs. Concio, "can tick off only ten (10) titles" (from
the list) "we can purchase" (Exh. "3" - Viva) and therefore did not accept said list (TSN,
June 8, 1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the subject of the case
at bar except the film ''Maging Sino Ka Man."
For further enlightenment, this rejection letter dated January 06, 1992 (Exh "3" - Viva) is
hereby quoted:
6 January 1992
Dear Vic,
This is not a very formal business letter I am writing to you as I would like to express my
difficulty in recommending the purchase of the three film packages you are offering ABSCBN.
From among the three packages I can only tick off 10 titles we can purchase. Please see
attached. I hope you will understand my position. Most of the action pictures in the list do
not have big action stars in the cast. They are not for primetime. In line with this I wish to
mention that I have not scheduled for telecast several action pictures in out very first
contract because of the cheap production value of these movies as well as the lack of big
action stars. As a film producer, I am sure you understand what I am trying to say as Viva
produces only big action pictures.
In fact, I would like to request two (2) additional runs for these movies as I can only
schedule them in our non-primetime slots. We have to cover the amount that was paid for

these movies because as you very well know that non-primetime advertising rates are
very low. These are the unaired titles in the first contract.
1. Kontra Persa [sic].
2. Raider Platoon.
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. Lady Commando
7. Batang Matadero
8. Rebelyon
I hope you will consider this request of mine.
The other dramatic films have been offered to us before and have been rejected because
of the ruling of MTRCB to have them aired at 9:00 p.m. due to their very adult themes.
As for the 10 titles I have choosen [sic] from the 3 packages please consider including all
the other Viva movies produced last year. I have quite an attractive offer to make.
Thanking you and with my warmest regards.
(Signed)
Charo Santos-Concio
On February 27, 1992, defendant Del Rosario approached ABS-CBN's Ms. Concio, with a list
consisting of 52 original movie titles (i.e. not yet aired on television) including the 14 titles
subject of the present case, as well as 104 re-runs (previously aired on television) from
which ABS-CBN may choose another 52 titles, as a total of 156 titles, proposing to sell to
ABS-CBN airing rights over this package of 52 originals and 52 re-runs for P60,000,000.00
of which P30,000,000.00 will be in cash and P30,000,000.00 worth of television spots (Exh.
"4" to "4-C" Viva; "9" -Viva).
On April 2, 1992, defendant Del Rosario and ABS-CBN general manager, Eugenio Lopez III,
met at the Tamarind Grill Restaurant in Quezon City to discuss the package proposal of
Viva. What transpired in that lunch meeting is the subject of conflicting versions. Mr. Lopez
testified that he and Mr. Del Rosario allegedly agreed that ABS-CRN was granted exclusive
film rights to fourteen (14) films for a total consideration of P36 million; that he allegedly

put this agreement as to the price and number of films in a "napkin'' and signed it and
gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992). On the other hand,
Del Rosario denied having made any agreement with Lopez regarding the 14 Viva films;
denied the existence of a napkin in which Lopez wrote something; and insisted that what
he and Lopez discussed at the lunch meeting was Viva's film package offer of 104 films
(52 originals and 52 re-runs) for a total price of P60 million. Mr. Lopez promising [sic]to
make a counter proposal which came in the form of a proposal contract Annex "C" of the
complaint (Exh. "1"- Viva; Exh. "C" - ABS-CBN).
On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for
Finance discussed the terms and conditions of Viva's offer to sell the 104 films, after the
rejection of the same package by ABS-CBN.
On April 07, 1992, defendant Del Rosario received through his secretary, a handwritten
note from Ms. Concio, (Exh. "5" - Viva), which reads: "Here's the draft of the contract. I
hope you find everything in order," to which was attached a draft exhibition agreement
(Exh. "C''- ABS-CBN; Exh. "9" - Viva, p. 3) a counter-proposal covering 53 films, 52 of which
came from the list sent by defendant Del Rosario and one film was added by Ms. Concio,
for a consideration of P35 million. Exhibit "C" provides that ABS-CBN is granted films right
to 53 films and contains a right of first refusal to "1992 Viva Films." The said counter
proposal was however rejected by Viva's Board of Directors [in the] evening of the same
day, April 7, 1992, as Viva would not sell anything less than the package of 104 films for
P60 million pesos (Exh. "9" - Viva), and such rejection was relayed to Ms. Concio.
On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and
meetings defendant Del Rosario and Viva's President Teresita Cruz, in consideration of P60
million, signed a letter of agreement dated April 24, 1992. granting RBS the exclusive right
to air 104 Viva-produced and/or acquired films (Exh. "7-A" - RBS; Exh. "4" - RBS) including
the fourteen (14) films subject of the present case. 4
On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a
prayer for a writ of preliminary injunction and/or temporary restraining order against
private respondents Republic Broadcasting Corporation 5 (hereafter RBS ), Viva Production
(hereafter VIVA), and Vicente Del Rosario. The complaint was docketed as Civil Case No. Q92-12309.
On 27 May 1992, RTC issued a temporary restraining order 6 enjoining private respondents
from proceeding with the airing, broadcasting, and televising of the fourteen VIVA films
subject of the controversy, starting with the film Maging Sino Ka Man, which was
scheduled to be shown on private respondents RBS' channel 7 at seven o'clock in the
evening of said date.
On 17 June 1992, after appropriate proceedings, the RTC issued an order 7 directing the
issuance of a writ of preliminary injunction upon ABS-CBN's posting of P35 million bond.
ABS-CBN moved for the reduction of the bond, 8 while private respondents moved for
reconsideration of the order and offered to put up a counterbound. 9

In the meantime, private respondents filed separate answers with counterclaim.

also set up a cross-claim against VIVA..

10

RBS

On 3 August 1992, the RTC issued an order 11 dissolving the writ of preliminary injunction
upon the posting by RBS of a P30 million counterbond to answer for whatever damages
ABS-CBN might suffer by virtue of such dissolution. However, it reduced petitioner's
injunction bond to P15 million as a condition precedent for the reinstatement of the writ of
preliminary injunction should private respondents be unable to post a counterbond.
At the pre-trial 12 on 6 August 1992, the parties, upon suggestion of the court, agreed to
explore the possibility of an amicable settlement. In the meantime, RBS prayed for and
was granted reasonable time within which to put up a P30 million counterbond in the
event that no settlement would be reached.
As the parties failed to enter into an amicable settlement RBS posted on 1 October 1992 a
counterbond, which the RTC approved in its Order of 15 October 1992. 13
On 19 October 1992, ABS-CBN filed a motion for reconsideration
October 1992 Orders, which RBS opposed. 15
On 29 October 1992, the RTC conducted a pre-trial.

14

of the 3 August and 15

16

Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of
Appeals a petition 17challenging the RTC's Orders of 3 August and 15 October 1992 and
praying for the issuance of a writ of preliminary injunction to enjoin the RTC from enforcing
said orders. The case was docketed as CA-G.R. SP No. 29300.
On 3 November 1992, the Court of Appeals issued a temporary restraining order 18 to
enjoin the airing, broadcasting, and televising of any or all of the films involved in the
controversy.
On 18 December 1992, the Court of Appeals promulgated a decision 19 dismissing the
petition in CA -G.R. No. 29300 for being premature. ABS-CBN challenged the dismissal in a
petition for review filed with this Court on 19 January 1993, which was docketed as G.R.
No. 108363.
In the meantime the RTC received the evidence for the parties in Civil Case No. Q-1921209. Thereafter, on 28 April 1993, it rendered a decision 20 in favor of RBS and VIVA and
against ABS-CBN disposing as follows:
WHEREFORE, under cool reflection and prescinding from the foregoing, judgments is
rendered in favor of defendants and against the plaintiff.
(1) The complaint is hereby dismissed;
(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:

a) P107,727.00, the amount of premium paid by RBS to the surety which issued defendant
RBS's bond to lift the injunction;
b) P191,843.00 for the amount of print advertisement for "Maging Sino Ka Man" in various
newspapers;
c) Attorney's fees in the amount of P1 million;
d) P5 million as and by way of moral damages;
e) P5 million as and by way of exemplary damages;
(3) For defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of
reasonable attorney's fees.
(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.
(5) Plaintiff to pay the costs.
According to the RTC, there was no meeting of minds on the price and terms of the offer.
The alleged agreement between Lopez III and Del Rosario was subject to the approval of
the VIVA Board of Directors, and said agreement was disapproved during the meeting of
the Board on 7 April 1992. Hence, there was no basis for ABS-CBN's demand that VIVA
signed the 1992 Film Exhibition Agreement. Furthermore, the right of first refusal under
the 1990 Film Exhibition Agreement had previously been exercised per Ms. Concio's letter
to Del Rosario ticking off ten titles acceptable to them, which would have made the 1992
agreement an entirely new contract.
On 21 June 1993, this Court denied 21 ABS-CBN's petition for review in G.R. No. 108363, as
no reversible error was committed by the Court of Appeals in its challenged decision and
the case had "become moot and academic in view of the dismissal of the main action by
the court a quo in its decision" of 28 April 1993.
Aggrieved by the RTC's decision, ABS-CBN appealed to the Court of Appeals claiming that
there was a perfected contract between ABS-CBN and VIVA granting ABS-CBN the
exclusive right to exhibit the subject films. Private respondents VIVA and Del Rosario also
appealed seeking moral and exemplary damages and additional attorney's fees.
In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the
contract between ABS-CBN and VIVA had not been perfected, absent the approval by the
VIVA Board of Directors of whatever Del Rosario, it's agent, might have agreed with Lopez
III. The appellate court did not even believe ABS-CBN's evidence that Lopez III actually
wrote down such an agreement on a "napkin," as the same was never produced in court. It
likewise rejected ABS-CBN's insistence on its right of first refusal and ratiocinated as
follows:

As regards the matter of right of first refusal, it may be true that a Film Exhibition
Agreement was entered into between Appellant ABS-CBN and appellant VIVA under Exhibit
"A" in 1990, and that parag. 1.4 thereof provides:
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films for
TV telecast under such terms as may be agreed upon by the parties hereto, provided,
however, that such right shall be exercised by ABS-CBN within a period of fifteen (15) days
from the actual offer in writing (Records, p. 14).
[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be
subject to such terms as may be agreed upon by the parties thereto, and that the said
right shall be exercised by ABS-CBN within fifteen (15) days from the actual offer in
writing.
Said parag. 1.4 of the agreement Exhibit "A" on the right of first refusal did not fix the
price of the film right to the twenty-four (24) films, nor did it specify the terms thereof. The
same are still left to be agreed upon by the parties.
In the instant case, ABS-CBN's letter of rejection Exhibit 3 (Records, p. 89) stated that it
can only tick off ten (10) films, and the draft contract Exhibit "C" accepted only fourteen
(14) films, while parag. 1.4 of Exhibit "A'' speaks of the next twenty-four (24) films.
The offer of V1VA was sometime in December 1991 (Exhibits 2, 2-A. 2-B; Records, pp. 8688; Decision, p. 11, Records, p. 1150), when the first list of VIVA films was sent by Mr. Del
Rosario to ABS-CBN. The Vice President of ABS-CBN, Ms. Charo Santos-Concio, sent a letter
dated January 6, 1992 (Exhibit 3, Records, p. 89) where ABS-CBN exercised its right of
refusal by rejecting the offer of VIVA.. As aptly observed by the trial court, with the said
letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its right of first refusal. And
even if We reckon the fifteen (15) day period from February 27, 1992 (Exhibit 4 to 4-C)
when another list was sent to ABS-CBN after the letter of Mrs. Concio, still the fifteen (15)
day period within which ABS-CBN shall exercise its right of first refusal has already
expired.22
Accordingly, respondent court sustained the award of actual damages consisting in the
cost of print advertisements and the premium payments for the counterbond, there being
adequate proof of the pecuniary loss which RBS had suffered as a result of the filing of the
complaint by ABS-CBN. As to the award of moral damages, the Court of Appeals found
reasonable basis therefor, holding that RBS's reputation was debased by the filing of the
complaint in Civil Case No. Q-92-12309 and by the non-showing of the film "Maging Sino
Ka Man." Respondent court also held that exemplary damages were correctly imposed by
way of example or correction for the public good in view of the filing of the complaint
despite petitioner's knowledge that the contract with VIVA had not been perfected, It also
upheld the award of attorney's fees, reasoning that with ABS-CBN's act of instituting Civil
Case No, Q-92-1209, RBS was "unnecessarily forced to litigate." The appellate court,
however, reduced the awards of moral damages to P2 million, exemplary damages to P2
million, and attorney's fees to P500, 000.00.

On the other hand, respondent Court of Appeals denied VIVA and Del Rosario's appeal
because it was "RBS and not VIVA which was actually prejudiced when the complaint was
filed by ABS-CBN."
Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case,
contending that the Court of Appeals gravely erred in
I
. . . RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND
PRIVATE RESPONDENT VIVA NOTWITHSTANDING PREPONDERANCE OF EVIDENCE ADDUCED
BY PETITIONER TO THE CONTRARY.
II
. . . IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE
RESPONDENT RBS.
III
. . . IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT
RBS.
IV
. . . IN AWARDING ATTORNEY'S FEES IN FAVOR OF RBS.
ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four
titles under the 1990 Film Exhibition Agreement, as it had chosen only ten titles from the
first list. It insists that we give credence to Lopez's testimony that he and Del Rosario met
at the Tamarind Grill Restaurant, discussed the terms and conditions of the second list (the
1992 Film Exhibition Agreement) and upon agreement thereon, wrote the same on a paper
napkin. It also asserts that the contract has already been effective, as the elements
thereof, namely, consent, object, and consideration were established. It then concludes
that the Court of Appeals' pronouncements were not supported by law and jurisprudence,
as per our decision of 1 December 1995 in Limketkai Sons Milling, Inc. v. Court of
Appeals,23 which cited Toyota Shaw, Inc. v. Court of Appeals, 24 Ang Yu Asuncion v. Court of
Appeals, 25 and Villonco Realty Company v. Bormaheco. Inc. 26
Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent
for the premium on the counterbond of its own volition in order to negate the injunction
issued by the trial court after the parties had ventilated their respective positions during
the hearings for the purpose. The filing of the counterbond was an option available to RBS,
but it can hardly be argued that ABS-CBN compelled RBS to incur such expense. Besides,
RBS had another available option, i.e., move for the dissolution or the injunction; or if it
was determined to put up a counterbond, it could have presented a cash bond.

Furthermore under Article 2203 of the Civil Code, the party suffering loss or injury is also
required to exercise the diligence of a good father of a family to minimize the damages
resulting from the act or omission. As regards the cost of print advertisements, RBS had
not convincingly established that this was a loss attributable to the non showing "Maging
Sino Ka Man"; on the contrary, it was brought out during trial that with or without the case
or the injunction, RBS would have spent such an amount to generate interest in the film.
ABS-CBN further contends that there was no clear basis for the awards of moral and
exemplary damages. The controversy involving ABS-CBN and RBS did not in any way
originate from business transaction between them. The claims for such damages did not
arise from any contractual dealings or from specific acts committed by ABS-CBN against
RBS that may be characterized as wanton, fraudulent, or reckless; they arose by virtue
only of the filing of the complaint, An award of moral and exemplary damages is not
warranted where the record is bereft of any proof that a party acted maliciously or in bad
faith in filing an action. 27 In any case, free resort to courts for redress of wrongs is a
matter of public policy. The law recognizes the right of every one to sue for that which he
honestly believes to be his right without fear of standing trial for damages where by lack
of sufficient evidence, legal technicalities, or a different interpretation of the laws on the
matter, the case would lose ground. 28 One who makes use of his own legal right does no
injury. 29 If damage results front the filing of the complaint, it is damnum absque
injuria. 30 Besides, moral damages are generally not awarded in favor of a juridical person,
unless it enjoys a good reputation that was debased by the offending party resulting in
social humiliation. 31
As regards the award of attorney's fees, ABS-CBN maintains that the same had no factual,
legal, or equitable justification. In sustaining the trial court's award, the Court of Appeals
acted in clear disregard of the doctrines laid down in Buan v. Camaganacan 32 that the text
of the decision should state the reason why attorney's fees are being awarded; otherwise,
the award should be disallowed. Besides, no bad faith has been imputed on, much less
proved as having been committed by, ABS-CBN. It has been held that "where no sufficient
showing of bad faith would be reflected in a party' s persistence in a case other than an
erroneous conviction of the righteousness of his cause, attorney's fees shall not be
recovered as cost." 33
On the other hand, RBS asserts that there was no perfected contract between ABS-CBN
and VIVA absent any meeting of minds between them regarding the object and
consideration of the alleged contract. It affirms that the ABS-CBN's claim of a right of first
refusal was correctly rejected by the trial court. RBS insist the premium it had paid for the
counterbond constituted a pecuniary loss upon which it may recover. It was obliged to put
up the counterbound due to the injunction procured by ABS-CBN. Since the trial court
found that ABS-CBN had no cause of action or valid claim against RBS and, therefore not
entitled to the writ of injunction, RBS could recover from ABS-CBN the premium paid on
the counterbond. Contrary to the claim of ABS-CBN, the cash bond would prove to be more
expensive, as the loss would be equivalent to the cost of money RBS would forego in case
the P30 million came from its funds or was borrowed from banks.

RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled
showing of the film "Maging Sino Ka Man" because the print advertisements were put out
to announce the showing on a particular day and hour on Channel 7, i.e., in its entirety at
one time, not a series to be shown on a periodic basis. Hence, the print advertisement
were good and relevant for the particular date showing, and since the film could not be
shown on that particular date and hour because of the injunction, the expenses for the
advertisements had gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and
secured injunctions purely for the purpose of harassing and prejudicing RBS. Pursuant then
to Article 19 and 21 of the Civil Code, ABS-CBN must be held liable for such
damages. Citing Tolentino, 34 damages may be awarded in cases of abuse of rights even if
the act done is not illicit and there is abuse of rights were plaintiff institutes and action
purely for the purpose of harassing or prejudicing the defendant.
In support of its stand that a juridical entity can recover moral and exemplary damages,
private respondents RBScited People v. Manero, 35 where it was stated that such entity
may recover moral and exemplary damages if it has a good reputation that is debased
resulting in social humiliation. it then ratiocinates; thus:
There can be no doubt that RBS' reputation has been debased by ABS-CBN's acts in this
case. When RBS was not able to fulfill its commitment to the viewing public to show the
film "Maging Sino Ka Man" on the scheduled dates and times (and on two occasions that
RBS advertised), it suffered serious embarrassment and social humiliation. When the
showing was canceled, late viewers called up RBS' offices and subjected RBS to verbal
abuse ("Announce kayo nang announce, hindi ninyo naman ilalabas," "nanloloko yata
kayo") (Exh. 3-RBS, par. 3). This alone was not something RBS brought upon itself. it was
exactly what ABS-CBN had planned to happen.
The amount of moral and exemplary damages cannot be said to be excessive. Two reasons
justify the amount of the award.
The first is that the humiliation suffered by RBS is national extent. RBS operations as a
broadcasting company is [sic] nationwide. Its clientele, like that of ABS-CBN, consists of
those who own and watch television. It is not an exaggeration to state, and it is a matter
of judicial notice that almost every other person in the country watches television. The
humiliation suffered by RBS is multiplied by the number of televiewers who had
anticipated the showing of the film "Maging Sino Ka Man" on May 28 and November 3,
1992 but did not see it owing to the cancellation. Added to this are the advertisers who
had placed commercial spots for the telecast and to whom RBS had a commitment in
consideration of the placement to show the film in the dates and times specified.
The second is that it is a competitor that caused RBS to suffer the humiliation. The
humiliation and injury are far greater in degree when caused by an entity whose ultimate
business objective is to lure customers (viewers in this case) away from the competition. 36

For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial
court and the Court of Appeals do not support ABS-CBN's claim that there was a perfected
contract. Such factual findings can no longer be disturbed in this petition for review under
Rule 45, as only questions of law can be raised, not questions of fact. On the issue of
damages and attorneys fees, they adopted the arguments of RBS.
The key issues for our consideration are (1) whether there was a perfected contract
between VIVA and ABS-CBN, and (2) whether RBS is entitled to damages and attorney's
fees. It may be noted that the award of attorney's fees of P212,000 in favor of VIVA is not
assigned as another error.
I.
The first issue should be resolved against ABS-CBN. A contract is a meeting of minds
between two persons whereby one binds himself to give something or to render some
service to another 37 for a consideration. there is no contract unless the following
requisites concur: (1) consent of the contracting parties; (2) object certain which is the
subject of the contract; and (3) cause of the obligation, which is established. 38 A contract
undergoes three stages:
(a) preparation, conception, or generation, which is the period of negotiation and
bargaining, ending at the moment of agreement of the parties;
(b) perfection or birth of the contract, which is the moment when the parties come to
agree on the terms of the contract; and
(c) consummation or death, which is the fulfillment or performance of the terms agreed
upon in the contract. 39
Contracts that are consensual in nature are perfected upon mere meeting of the minds,
Once there is concurrence between the offer and the acceptance upon the subject matter,
consideration, and terms of payment a contract is produced. The offer must be certain. To
convert the offer into a contract, the acceptance must be absolute and must not qualify
the terms of the offer; it must be plain, unequivocal, unconditional, and without variance
of any sort from the proposal. A qualified acceptance, or one that involves a new proposal,
constitutes a counter-offer and is a rejection of the original offer. Consequently, when
something is desired which is not exactly what is proposed in the offer, such acceptance is
not sufficient to generate consent because any modification or variation from the terms of
the offer annuls the offer. 40
When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-CBN at the Tamarind Grill on 2
April 1992 to discuss the package of films, said package of 104 VIVA films was VIVA's offer
to ABS-CBN to enter into a new Film Exhibition Agreement. But ABS-CBN, sent, through Ms.
Concio, a counter-proposal in the form of a draft contract proposing exhibition of 53 films
for a consideration of P35 million. This counter-proposal could be nothing less than the
counter-offer of Mr. Lopez during his conference with Del Rosario at Tamarind Grill

Restaurant. Clearly, there was no acceptance of VIVA's offer, for it was met by a counteroffer which substantially varied the terms of the offer.
ABS-CBN's reliance in Limketkai Sons Milling, Inc. v. Court of
Appeals 41 and Villonco Realty Company v. Bormaheco, Inc., 42 is misplaced. In these
cases, it was held that an acceptance may contain a request for certain changes in the
terms of the offer and yet be a binding acceptance as long as "it is clear that the meaning
of the acceptance is positively and unequivocally to accept the offer, whether such
request is granted or not." This ruling was, however, reversed in the resolution of 29 March
1996, 43 which ruled that the acceptance of all offer must be unqualified and absolute, i.e.,
it "must be identical in all respects with that of the offer so as to produce consent or
meeting of the minds."
On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised
counter-offer were not material but merely clarificatory of what had previously been
agreed upon. It cited the statement in Stuart v. Franklin Life Insurance Co. 44 that "a
vendor's change in a phrase of the offer to purchase, which change does not essentially
change the terms of the offer, does not amount to a rejection of the offer and the tender of
a counter-offer." 45 However, when any of the elements of the contract is modified upon
acceptance, such alteration amounts to a counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of VIVA's offer. Hence, they
underwent a period of bargaining. ABS-CBN then formalized its counter-proposals or
counter-offer in a draft contract, VIVA through its Board of Directors, rejected such counteroffer, Even if it be conceded arguendo that Del Rosario had accepted the counter-offer, the
acceptance did not bind VIVA, as there was no proof whatsoever that Del Rosario had the
specific authority to do so.
Under Corporation Code, 46 unless otherwise provided by said Code, corporate powers,
such as the power; to enter into contracts; are exercised by the Board of Directors.
However, the Board may delegate such powers to either an executive committee or
officials or contracted managers. The delegation, except for the executive committee,
must be for specific purposes, 47 Delegation to officers makes the latter agents of the
corporation; accordingly, the general rules of agency as to the bindings effects of their
acts would apply. 48 For such officers to be deemed fully clothed by the corporation to
exercise a power of the Board, the latter must specially authorize them to do so. That Del
Rosario did not have the authority to accept ABS-CBN's counter-offer was best evidenced
by his submission of the draft contract to VIVA's Board of Directors for the latter's
approval. In any event, there was between Del Rosario and Lopez III no meeting of minds.
The following findings of the trial court are instructive:
A number of considerations militate against ABS-CBN's claim that a contract was perfected
at that lunch meeting on April 02, 1992 at the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the
price and the number of films, which he wrote on a napkin. However, Exhibit "C"

contains numerous provisions which, were not discussed at the Tamarind Grill, if Lopez
testimony was to be believed nor could they have been physically written on a napkin.
There was even doubt as to whether it was a paper napkin or a cloth napkin. In short what
were written in Exhibit "C'' were not discussed, and therefore could not have been agreed
upon, by the parties. How then could this court compel the parties to sign Exhibit "C" when
the provisions thereof were not previously agreed upon?
SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the
contract was 14 films. The complaint in fact prays for delivery of 14 films. But Exhibit "C"
mentions 53 films as its subject matter. Which is which If Exhibits "C" reflected the true
intent of the parties, then ABS-CBN's claim for 14 films in its complaint is false or if what it
alleged in the complaint is true, then Exhibit "C" did not reflect what was agreed upon by
the parties. This underscores the fact that there was no meeting of the minds as to the
subject matter of the contracts, so as to preclude perfection thereof. For settled is the rule
that there can be no contract where there is no object which is its subject matter (Art.
1318, NCC).
THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. "D") states:
We were able to reach an agreement. VIVA gave us the exclusive license to show these
fourteen (14) films, and we agreed to pay Viva the amount of P16,050,000.00 as well as
grant Viva commercial slots worth P19,950,000.00. We had already earmarked this P16,
050,000.00.
which gives a total consideration of P36 million (P19,950,000.00 plus P16,050,000.00.
equals P36,000,000.00).
On cross-examination Mr. Lopez testified:
Q. What was written in this napkin?
A. The total price, the breakdown the known Viva movies, the 7 blockbuster movies and
the other 7 Viva movies because the price was broken down accordingly. The none [sic]
Viva and the seven other Viva movies and the sharing between the cash portion and the
concerned spot portion in the total amount of P35 million pesos.
Now, which is which? P36 million or P35 million? This weakens ABS-CBN's claim.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit "C" to Mr.
Del Rosario with a handwritten note, describing said Exhibit "C" as a "draft." (Exh. "5" Viva; tsn pp. 23-24 June 08, 1992). The said draft has a well defined meaning.
Since Exhibit "C" is only a draft, or a tentative, provisional or preparatory writing prepared
for discussion, the terms and conditions thereof could not have been previously agreed
upon by ABS-CBN and Viva Exhibit "C'' could not therefore legally bind Viva, not having
agreed thereto. In fact, Ms. Concio admitted that the terms and conditions embodied in

Exhibit "C" were prepared by ABS-CBN's lawyers and there was no discussion on said
terms and conditions. . . .
As the parties had not yet discussed the proposed terms and conditions in Exhibit "C," and
there was no evidence whatsoever that Viva agreed to the terms and conditions thereof,
said document cannot be a binding contract. The fact that Viva refused to sign Exhibit "C"
reveals only two [sic] well that it did not agree on its terms and conditions, and this court
has no authority to compel Viva to agree thereto.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the
Tamarind Grill was only provisional, in the sense that it was subject to approval by the
Board of Directors of Viva. He testified:
Q. Now, Mr. Witness, and after that Tamarind meeting ... the second meeting wherein you
claimed that you have the meeting of the minds between you and Mr. Vic del Rosario,
what happened?
A. Vic Del Rosario was supposed to call us up and tell us specifically the result of the
discussion with the Board of Directors.
Q. And you are referring to the so-called agreement which you wrote in [sic] a piece of
paper?
A. Yes, sir.
Q. So, he was going to forward that to the board of Directors for approval?
A. Yes, sir. (Tsn, pp. 42-43, June 8, 1992)
Q. Did Mr. Del Rosario tell you that he will submit it to his Board for approval?
A. Yes, sir. (Tsn, p. 69, June 8, 1992).
The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had
no authority to bind Viva to a contract with ABS-CBN until and unless its Board of Directors
approved it. The complaint, in fact, alleges that Mr. Del Rosario "is the Executive Producer
of defendant Viva" which "is a corporation." (par. 2, complaint). As a mere agent of Viva,
Del Rosario could not bind Viva unless what he did is ratified by its Board of Directors.
(Vicente vs. Geraldez, 52 SCRA 210; Arnold vs. Willetsand Paterson, 44 Phil. 634). As a
mere agent, recognized as such by plaintiff, Del Rosario could not be held liable jointly and
severally with Viva and his inclusion as party defendant has no legal basis. (Salonga
vs. Warner Barner [sic] , COLTA , 88 Phil. 125; Salmon vs. Tan, 36 Phil. 556).
The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that
what was supposed to have been agreed upon at the Tamarind Grill between Mr. Lopez
and Del Rosario was not a binding agreement. It is as it should be because corporate

power to enter into a contract is lodged in the Board of Directors. (Sec. 23, Corporation
Code). Without such board approval by the Viva board, whatever agreement Lopez and Del
Rosario arrived at could not ripen into a valid contract binding upon Viva (Yao Ka Sin
Trading vs. Court of Appeals, 209 SCRA 763). The evidence adduced shows that the Board
of Directors of Viva rejected Exhibit "C" and insisted that the film package for 140 films be
maintained (Exh. "7-1" - Viva ). 49
The contention that ABS-CBN had yet to fully exercise its right of first refusal over twentyfour films under the 1990 Film Exhibition Agreement and that the meeting between Lopez
and Del Rosario was a continuation of said previous contract is untenable. As observed by
the trial court, ABS-CBN right of first refusal had already been exercised when Ms. Concio
wrote to VIVA ticking off ten films, Thus:
[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was
for an entirely different package. Ms. Concio herself admitted on cross-examination to
having used or exercised the right of first refusal. She stated that the list was not
acceptable and was indeed not accepted by ABS-CBN, (TSN, June 8, 1992, pp. 8-10). Even
Mr. Lopez himself admitted that the right of the first refusal may have been already
exercised by Ms. Concio (as she had). (TSN, June 8, 1992, pp. 71-75). Del Rosario himself
knew and understand [sic] that ABS-CBN has lost its rights of the first refusal when his list
of 36 titles were rejected (Tsn, June 9, 1992, pp. 10-11) 50
II
However, we find for ABS-CBN on the issue of damages. We shall first take up actual
damages. Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on actual or
compensatory damages. Except as provided by law or by stipulation, one is entitled to
compensation for actual damages only for such pecuniary loss suffered by him as he has
duly proved. 51 The indemnification shall comprehend not only the value of the loss
suffered, but also that of the profits that the obligee failed to obtain. 52 In contracts and
quasi-contracts the damages which may be awarded are dependent on whether the
obligor acted with good faith or otherwise, It case of good faith, the damages recoverable
are those which are the natural and probable consequences of the breach of the obligation
and which the parties have foreseen or could have reasonably foreseen at the time of the
constitution of the obligation. If the obligor acted with fraud, bad faith, malice, or wanton
attitude, he shall be responsible for all damages which may be reasonably attributed to
the non-performance of the obligation. 53 In crimes and quasi-delicts, the defendant shall
be liable for all damages which are the natural and probable consequences of the act or
omission complained of, whether or not such damages has been foreseen or could have
reasonably been foreseen by the defendant. 54
Actual damages may likewise be recovered for loss or impairment of earning capacity in
cases of temporary or permanent personal injury, or for injury to the plaintiff's business
standing or commercial credit. 55

The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or
quasi-delict. It arose from the fact of filing of the complaint despite ABS-CBN's alleged
knowledge of lack of cause of action. Thus paragraph 12 of RBS's Answer with
Counterclaim and Cross-claim under the heading COUNTERCLAIM specifically alleges:
12. ABS-CBN filed the complaint knowing fully well that it has no cause of action RBS. As a
result thereof, RBS suffered actual damages in the amount of P6,621,195.32. 56
Needless to state the award of actual damages cannot be comprehended under the above
law on actual damages. RBS could only probably take refuge under Articles 19, 20, and 21
of the Civil Code, which read as follows:
Art. 19. Every person must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty and good faith.
Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to
another, shall indemnify the latter for tile same.
Art. 21. Any person who wilfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the
damage.
It may further be observed that in cases where a writ of preliminary injunction is issued,
the damages which the defendant may suffer by reason of the writ are recoverable from
the injunctive bond. 57 In this case, ABS-CBN had not yet filed the required bond; as a
matter of fact, it asked for reduction of the bond and even went to the Court of Appeals to
challenge the order on the matter, Clearly then, it was not necessary for RBS to file a
counterbond. Hence, ABS-CBN cannot be held responsible for the premium RBS paid for
the counterbond.
Neither could ABS-CBN be liable for the print advertisements for "Maging Sino Ka Man" for
lack of sufficient legal basis. The RTC issued a temporary restraining order and later, a writ
of preliminary injunction on the basis of its determination that there existed sufficient
ground for the issuance thereof. Notably, the RTC did not dissolve the injunction on the
ground of lack of legal and factual basis, but because of the plea of RBS that it be allowed
to put up a counterbond.
As regards attorney's fees, the law is clear that in the absence of stipulation, attorney's
fees may be recovered as actual or compensatory damages under any of the
circumstances provided for in Article 2208 of the Civil Code. 58
The general rule is that attorney's fees cannot be recovered as part of damages because
of the policy that no premium should be placed on the right to litigate. 59 They are not to
be awarded every time a party wins a suit. The power of the court to award attorney's fees
under Article 2208 demands factual, legal, and equitable justification. 60 Even when
claimant is compelled to litigate with third persons or to incur expenses to protect his

rights, still attorney's fees may not be awarded where no sufficient showing of bad faith
could be reflected in a party's persistence in a case other than erroneous conviction of the
righteousness of his cause. 61
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code.
Article 2217 thereof defines what are included in moral damages, while Article 2219
enumerates the cases where they may be recovered, Article 2220 provides that moral
damages may be recovered in breaches of contract where the defendant acted
fraudulently or in bad faith. RBS's claim for moral damages could possibly fall only under
item (10) of Article 2219, thereof which reads:
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
Moral damages are in the category of an award designed to compensate the claimant for
actual injury suffered. and not to impose a penalty on the wrongdoer. 62 The award is not
meant to enrich the complainant at the expense of the defendant, but to enable the
injured party to obtain means, diversion, or amusements that will serve to obviate then
moral suffering he has undergone. It is aimed at the restoration, within the limits of the
possible, of the spiritual status quo ante, and should be proportionate to the suffering
inflicted. 63 Trial courts must then guard against the award of exorbitant damages; they
should exercise balanced restrained and measured objectivity to avoid suspicion that it
was due to passion, prejudice, or corruption on the part of the trial court. 64
The award of moral damages cannot be granted in favor of a corporation because, being
an artificial person and having existence only in legal contemplation, it has no feelings, no
emotions, no senses, It cannot, therefore, experience physical suffering and mental
anguish, which call be experienced only by one having a nervous system. 65 The statement
in People v. Manero 66 and Mambulao Lumber Co. v. PNB 67 that a corporation may recover
moral damages if it "has a good reputation that is debased, resulting in social humiliation"
is an obiter dictum. On this score alone the award for damages must be set aside, since
RBS is a corporation.
The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII, Book IV of the
Civil Code. These are imposed by way of example or correction for the public good, in
addition to moral, temperate, liquidated or compensatory damages. 68 They are
recoverable in criminal cases as part of the civil liability when the crime was committed
with one or more aggravating circumstances; 69 in quasi-contracts, if the defendant acted
with gross negligence;70 and in contracts and quasi-contracts, if the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner. 71
It may be reiterated that the claim of RBS against ABS-CBN is not based on contract,
quasi-contract, delict, or quasi-delict, Hence, the claims for moral and exemplary damages
can only be based on Articles 19, 20, and 21 of the Civil Code.
The elements of abuse of right under Article 19 are the following: (1) the existence of a
legal right or duty, (2) which is exercised in bad faith, and (3) for the sole intent of

prejudicing or injuring another. Article 20 speaks of the general sanction for all other
provisions of law which do not especially provide for their own sanction; while Article 21
deals with acts contra bonus mores, and has the following elements; (1) there is an act
which is legal, (2) but which is contrary to morals, good custom, public order, or public
policy, and (3) and it is done with intent to injure. 72
Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith
implies a conscious and intentional design to do a wrongful act for a dishonest purpose or
moral obliquity. 73 Such must be substantiated by evidence. 74
There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was
honestly convinced of the merits of its cause after it had undergone serious negotiations
culminating in its formal submission of a draft contract. Settled is the rule that the adverse
result of an action does not per se make the action wrongful and subject the actor to
damages, for the law could not have meant to impose a penalty on the right to litigate. If
damages result from a person's exercise of a right, it is damnum absque injuria. 75
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of
Appeals in CA-G.R. CV No, 44125 is hereby REVERSED except as to unappealed award of
attorney's fees in favor of VIVA Productions, Inc.1wphi1.nt
No pronouncement as to costs.
SO ORDERED.
G.R. No. 126204

November 20, 2001

NATIONAL POWER CORPORATION, petitioner,

vs.
PHILIPP BROTHERS OCEANIC, INC., respondent.
SANDOVAL-GUTIERREZ, J.:
Where a person merely uses a right pertaining to him, without bad faith or intent to injure,
the fact that damages are thereby suffered by another will not make him liable. 1
This principle finds useful application to the present case.
Before us is a petition for review of the Decision 2 dated August 27, 1996 of the Court of
Appeals affirming in toto the Decision3 dated January 16, 1992 of the Regional Trial Court,
Branch 57, Makati City.
The facts are:
On May 14, 1987, the National Power Corporation (NAPOCOR) issued invitations to bid for
the supply and delivery of 120,000 metric tons of imported coal for its Batangas Coal-Fired

Thermal Power Plant in Calaca, Batangas. The Philipp Brothers Oceanic, Inc. (PHIBRO)
prequalified and was allowed to participate as one of the bidders. After the public bidding
was conducted, PHIBRO's bid was accepted. NAPOCOR's acceptance was conveyed in a
letter dated July 8, 1987, which was received by PHIBRO on July 15, 1987.The "Bidding
Terms and Specifications"4provide for the manner of shipment of coals, thus:
"SECTION V
SHIPMENT
The winning TENDERER who then becomes the SELLER shall arrange and provide gearless
bulk carrier for the shipment of coal to arrive at discharging port on or before thirty (30)
calendar days after receipt of the Letter of Credit by the SELLER or its nominee as per
Section XIV hereof to meet the vessel arrival schedules at Calaca, Batangas, Philippines as
follows:
60,000 +/ - 10 % July 20, 1987
60,000 +/ - 10% September 4, 1987"5
On July 10, 1987, PHIBRO sent word to NAPOCOR that industrial disputes might soon
plague Australia, the shipment's point of origin, which could seriously hamper PHIBRO's
ability to supply the needed coal.6 From July 23 to July 31, 1987, PHIBRO again apprised
NAPOCOR of the situation in Australia, particularly informing the latter that the ship
owners therein are not willing to load cargo unless a "strike-free" clause is incorporated in
the charter party or the contract of carriage. 7 In order to hasten the transfer of coal,
PHIBRO proposed to NAPOCOR that they equally share the burden of a "strike-free" clause.
NAPOCOR refused.
On August 6, 1987, PHIBRO received from NAPOCOR a confirmed and workable letter of
credit. Instead of delivering the coal on or before the thirtieth day after receipt of the
Letter of Credit, as agreed upon by the parties in the July contract, PHIBRO effected its first
shipment only on November 17, 1987.
Consequently, in October 1987, NAPOCOR once more advertised for the delivery of coal to
its Calaca thermal plant. PHIBRO participated anew in this subsequent bidding. On
November 24, 1987, NAPOCOR disapproved PHIBRO's application for pre-qualification to
bid for not meeting the minimum requirements. 8 Upon further inquiry, PHIBRO found that
the real reason for the disapproval was its purported failure to satisfy NAPOCOR's demand
for damages due to the delay in the delivery of the first coal shipment.
This prompted PHIBRO to file an action for damages with application for injunction against
NAPOCOR with the Regional Trial Court, Branch 57, Makati City. 9 In its complaint, PHIBRO
alleged that NAPOCOR's act of disqualifying it in the October 1987 bidding and in all
subsequent biddings was tainted with malice and bad faith. PHIBRO prayed for actual,
moral and exemplary damages and attorney's fees.

In its answer, NAPOCOR averred that the strikes in Australia could not be invoked as
reason for the delay in the delivery of coal because PHIBRO itself admitted that as of July
28, 1987 those strikes had already ceased. And, even assuming that the strikes were still
ongoing, PHIBRO should have shouldered the burden of a "strike-free" clause because
their contract was "C and F Calaca, Batangas, Philippines," meaning,
the cost and freight from the point of origin until the point of destination would be for the
account of PHIBRO. Furthermore, NAPOCOR claimed that due to PHIBRO's failure to deliver
the coal on time, it was compelled to purchase coal from ASEA at a higher price. NAPOCOR
claimed for actual damages in the amount of P12,436,185.73, representing the increase in
the price of coal, and a claim of P500,000.00 as litigation expenses. 10
Thereafter, trial on the merits ensued.
On January 16, 1992, the trial court rendered a decision in favor of PHIBRO, the dispositive
portion of which reads:
"WHEREFORE, judgment is hereby rendered in favor of plaintiff Philipp Brothers Oceanic
Inc. (PHIBRO) and against the defendant National Power Corporation (NAPOCOR) ordering
the said defendant NAPOCOR:
1. To reinstate Philipp Brothers Oceanic, Inc. (PHIBRO) in the defendant National Power
Corporation's list of accredited bidders and allow PHIBRO to participate in any and all
future tenders of National Power Corporation for the supply and delivery of imported
steam coal;
2. To pay Philipp Brothers Oceanic, Inc. (PHIBRO);
a. The peso equivalent at the time of payment of $864,000 as actual damages,
b. The peso equivalent at the time of payment of $100,000 as moral damages;
c. The peso equivalent at the time of payment of $50,000 as exemplary damages;
d. The peso equivalent at the time of payment of $73,231.91 as reimbursement for
expenses, cost of litigation and attorney's fees;
3. To pay the costs of suit;
4. The counterclaims of defendant NAPOCOR are dismissed for lack of merit.
SO ORDERED."11
Unsatisfied, NAPOCOR, through the Solicitor General, elevated the case to the Court of
Appeals. On August 27, 1996, the Court of Appeals rendered a Decision affirming in toto
the Decision of the Regional Trial Court. It ratiocinated that:

"There is ample evidence to show that although PHIBRO's delivery of the shipment of coal
was delayed, the delay was in fact caused by a) Napocor's own delay in opening a
workable letter of credit; and b) the strikes which plaqued the Australian coal industry
from the first week of July to the third week of September 1987. Strikes are included in the
definition of force majeure in Section XVII of the Bidding Terms and Specifications, (supra),
so Phibro is not liable for any delay caused thereby.
Phibro was informed of the acceptance of its bid on July 8, 1987. Delivery of coal was to be
effected thirty (30) days from Napocor's opening of a confirmed and workable letter of
credit. Napocor was only able to do so on August 6, 1987.
By that time, Australia's coal industry was in the middle of a seething controversy and
unrest, occasioned by strikes, overtime bans, mine stoppages. The origin, the scope and
the effects of this industrial unrest are lucidly described in the uncontroverted testimony
of James Archibald, an employee of Phibro and member of the Export Committee of the
Australian Coal Association during the time these events transpired.
xxx

xxx

xxx

The records also attest that Phibro periodically informed Napocor of these developments
as early as July 1, 1987, even before the bid was approved. Yet, Napocor did not forthwith
open the letter of credit in order to avoid delay which might be caused by the strikes and
their after-effects.
"Strikes" are undoubtedly included in the force majeure clause of the Bidding Terms and
Specifications (supra). The renowned civilist, Prof. Arturo Tolentino, defines
force majeure as "an event which takes place by accident and could not have been
foreseen." (Civil Code of the Philippines, Volume IV, Obligations and Contracts, 126,
[1991]) He further states:
"Fortuitous events may be produced by two general causes: (1) by Nature, such as
earthquakes, storms, floods, epidemics, fires, etc., and (2) by the act of man, such as an
armed invasion, attack by bandits, governmental prohibitions, robbery, etc."
Tolentino adds that the term generally applies, broadly speaking, to natural accidents. In
order that acts of man such as a strike, may constitute fortuitous event, it is necessary
that they have the force of an imposition which the debtor could not have resisted. He
cites a parallel example in the case of Philippine National Bank v. Court of Appeals, 94
SCRA 357 (1979), wherein the Supreme Court said that the outbreak of war which
prevents performance exempts a party from liability.
Hence, by law and by stipulation of the parties, the strikes which took place in Australia
from the first week of July to the third week of September, 1987, exempted Phibro from
the effects of delay of the delivery of the shipment of coal." 12

Twice thwarted, NAPOCOR comes to us via a petition for review ascribing to the Court of
Appeals the following errors:
I
"Respondent Court of Appeals gravely and seriously erred in concluding and so holding
that PHIBRO's delay in the delivery of imported coal was due to NAPOCOR's alleged delay
in opening a letter of credit and to force majeure, and not to PHIBRO's own deliberate acts
and faults."13
II
"Respondent Court of Appeals gravely and seriously erred in concluding and so holding
that NAPOCOR acted maliciously and unjustifiably in disqualifying PHIBRO from
participating in the December 8, 1987 and future biddings for the supply of imported coal
despite the existence of valid grounds therefor such as serious impairment of its track
record."14
III
"Respondent Court of Appeals gravely and seriously erred in concluding and so holding
that PHIBRO was entitled to injunctive relief, to actual or compensatory, moral and
exemplary damages, attorney's fees and litigation expenses despite the clear absence of
legal and factual bases for such award." 15
IV
"Respondent Court of Appeals gravely and seriously erred in absolving PHIBRO from any
liability for damages to NAPOCOR for its unjustified and deliberate refusal and/or failure to
deliver the contracted imported coal within the stipulated period." 16
V
"Respondent Court of Appeals gravely and seriously erred in dismissing NAPOCOR's
counterclaims for damages and litigation expenses." 17
It is axiomatic that only questions of law, not questions of fact, may be raised before this
Court in a petition for review under Rule 45 of the Rules of Court. 18 The findings of facts of
the Court of Appeals are conclusive and binding on this Court 19 and they carry even more
weight when the said court affirms the factual findings of the trial court. 20 Stated
differently, the findings of the Court of .Appeals, by itself, which are supported by
substantial evidence, are almost beyond the power of review by this Court. 21
With the foregoing settled jurisprudence, we find it pointless to delve lengthily on the
factual issues raised by petitioner. The existence of strikes in Australia having been duly
established in the lower courts, we are left only with the burden of determining whether or

not NAPOCOR acted wrongfully or with bad faith in disqualifying PHIBRO from participating
in the subsequent public bidding.
Let us consider the case in its proper perspective.
The Court of Appeals is justified in sustaining the Regional Trial Court's decision
exonerating PHIBRO from any liability for damages to NAPOCOR as it was clearly
established from the evidence, testimonial and documentary, that what prevented PHIBRO
from complying with its obligation under the July 1987 contract was the industrial disputes
which besieged Australia during that time. Extant in our Civil Code is the rule that no
person shall be responsible for those events which could not be foreseen, or which, though
foreseen, were inevitable.22 This means that when an obligor is unable to fulfill his
obligation because of a fortuitous event or force majeure, he cannot be held liable for
damages for non-performance.23
In addition to the above legal precept, it is worthy to note that PHIBRO and NAPOCOR
explicitly agreed in Section XVII of the "Bidding Terms and Specifications" 24 that "neither
seller (PHIBRO) nor buyer (NAPOCOR) shall be liable for any delay in or failure of the
performance of its obligations, other than the payment of money due, if any such delay or
failure is due to Force Majeure." Specifically, they defined force majeure as "any disabling
cause beyond the control of and without fault or negligence of the party, which causes
may include but are not restricted to Acts of God or of the public enemy; acts of the
Government in either its sovereign or contractual capacity; governmental restrictions;
strikes, fires, floods, wars, typhoons, storms, epidemics and quarantine restrictions."
The law is clear and so is the contract between NAPOCOR and PHIBRO. Therefore, we have
no reason to rule otherwise.
However, proceeding from the premise that PHIBRO was prevented by force majeure from
complying with its obligation, does it necessarily follow that NAPOCOR acted unjustly,
capriciously, and unfairly in disapproving PHIBRO's application for pre-qualification to bid?
First, it must be stressed that NAPOCOR was not bound under any contract to approve
PHIBRO's pre-qualification requirements. In fact, NAPOCOR had expressly reserved its right
to reject bids. The Instruction to Bidders found in the "Post-Qualification
Documents/Specifications for the Supply and Delivery of Coal for the Batangas Coal-Fired
Thermal Power Plant I at Calaca, Batangas Philippines," 25 is explicit, thus:
"IB-17 RESERVATION OF NAPOCOR TO REJECT BIDS
NAPOCOR reserves the right to reject any or all bids, to waive any minor informality in the
bids received. The right is also reserved to reject the bids of any bidder who has
previously failed to properly perform or complete on time any and all contracts for
delivery of coal or any supply undertaken by a bidder."26(Emphasis supplied)

This Court has held that where the right to reject is so reserved, the lowest bid or any bid
for that matter may be rejected on a mere technicality. 27 And where the government as
advertiser, availing itself of that right, makes its choice in rejecting any or all bids, the
losing bidder has no cause to complain nor right to dispute that choice unless an
unfairness or injustice is shown. Accordingly, a bidder has no ground of action to compel
the Government to award the contract in his favor, nor to compel it to accept his bid. Even
the lowest bid or any bid may be rejected. 28In Celeste v. Court of Appeals,29 we had the
occasion to rule:
"Moreover, paragraph 15 of the Instructions to Bidders states that 'the Government
hereby reserves the right to reject any or all bids submitted.' In the case of A.C. Esguerra
and Sons v. Aytona, 4 SCRA 1245, 1249 (1962), we held:
'x x x [I]n the invitation to bid, there is a condition imposed upon the bidders to the effect
that the bidders shall be subject to the right of the government to reject any and all bids
subject to its discretion. Here the government has made its choice, and unless an
unfairness or injustice is shown, the losing bidders have no cause to complain, nor right to
dispute that choice.'
Since there is no evidence to prove bad faith and arbitrariness on the part of the
petitioners in evaluating the bids, we rule that the private respondents are not entitled to
damages representing lost profits." (Emphasis supplied)
Verily, a reservation of the government of its right to reject any bid, generally vests in the
authorities a wide discretion as to who is the best and most advantageous bidder. The
exercise of such discretion involves inquiry, investigation, comparison, deliberation and
decision, which are quasi-judicial functions, and when honestly exercised, may not be
reviewed by the court.30 In Bureau Veritas v. Office of the President,31 we decreed:
"The discretion to accept or reject a bid and award contracts is vested in the Government
agencies entrusted with that function. The discretion given to the authorities on this
matter is of such wide latitude that the Courts will not interfere therewith, unless it is
apparent that it is used as a shield to a fraudulent award. (Jalandoni v. NARRA, 108 Phil.
486 [1960]) x x x. The exercise of this discretion is a policy decision that necessitates prior
inquiry, investigation, comparison, evaluation, and deliberation. This task can best be
discharged by the Government agencies concerned, not by the Courts. The role of the
Courts is to ascertain whether a branch or instrumentality of the Government has
transgresses its constitutional boundaries. But the Courts will not interfere with executive
or legislative discretion exercised within those boundaries. Otherwise, it strays into the
realm of policy decision-making. x x x." (Emphasis supplied)
Owing to the discretionary character of the right involved in this case, the propriety of
NAPOCOR's act should therefore be judged on the basis of the general principles
regulating human relations, the forefront provision of which is Article 19 of the Civil Code
which provides that "every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty

and good faith."32Accordingly, a person will be protected only when he acts in the
legitimate exercise of his right, that is, when he acts with prudence and in good faith; but
not when he acts with negligence or abuse. 33
Did NAPOCOR abuse its right or act unjustly in disqualifying PHIBRO from the public
bidding?
We rule in the negative.
In practice, courts, in the sound exercise of their discretion, will have to determine under
all the facts and circumstances when the exercise of a right is unjust, or when there has
been an abuse of right.34
We went over the record of the case with painstaking solicitude and we are convinced that
NAPOCOR's act of disapproving PHIBRO's application for pre-qualification to bid was
without any intent to injure or a purposive motive to perpetrate damage. Apparently,
NAPOCOR acted on the strong conviction that PHIBRO had a "seriously-impaired" track
record. NAPOCOR cannot be faulted from believing so. At this juncture, it is worth
mentioning that at the time NAPOCOR issued its subsequent Invitation to Bid, i.e., October
1987, PHIBRO had not yet delivered the first shipment of coal under the July 1987
contract, which was due on or before September 5, 1987. Naturally, NAPOCOR is justified
in entertaining doubts on PHIBRO's qualification or capability to assume an obligation
under a new contract.
Moreover, PHIBRO's actuation in 1987 raised doubts as to the real situation of the coal
industry in Australia. It appears from the records that when NAPOCOR was constrained to
consider an offer from another coal supplier (ASEA) at a price of US$33.44 per metric ton,
PHIBRO unexpectedly offered the immediate delivery of 60,000 metric tons of Ulan steam
coal at US$31.00 per metric ton for arrival at Calaca, Batangas on September 20-21,
1987."35 Of course, NAPOCOR had reason to ponder how come PHIBRO could assure the
immediate delivery of 60,000 metric tons of coal from the same source to arrive at Calaca
not later than September 20/21, 1987 but it could not deliver the coal it had undertaken
under its contract?
Significantly, one characteristic of a fortuitous event, in a legal sense, and consequently in
relations to contracts, is that "the concurrence must be such as to render it impossible for
the debtor to fulfill his obligation in a normal manner." 36 Faced with the above
circumstance, NAPOCOR is justified in assuming that, may be, there was really no
fortuitous event or force majeure which could render it impossible for PHIBRO to effect the
delivery of coal. Correspondingly, it is also justified in treating PHIBRO's failure to deliver a
serious impairment of its track record. That the trial court, thereafter, found PHIBRO's
unexpected offer actually a result of its desire to minimize losses on the part of NAPOCOR
is inconsequential. In determining the existence of good faith, the yardstick is the frame of
mind of the actor at the time he committed the act, disregarding actualities or facts
outside his knowledge. We cannot fault NAPOCOR if it mistook PHIBRO's unexpected offer

a mere attempt on the latter's part to undercut ASEA or an indication of PHIBRO's

inconsistency. The circumstances warrant such contemplation.
That NAPOCOR believed all along that PHIBRO's failure to deliver on time was unfounded is
manifest from its letters37 reminding PHIBRO that it was bound to deliver the coal within 30
days from its (PHIBRO's) receipt of the Letter of Credit, otherwise it would be constrained
to take legal action. The same honest belief can be deduced from NAPOCOR's Board
Resolution, thus:
"On the legal aspect, Management stressed that failure of PBO to deliver under the
contract makes them liable for damages, considering that the reasons invoked were not
valid. The measure of the damages will be limited to actual and compensatory damages.
However, it was reported that Philipp Brothers advised they would like to have continuous
business relation with NPC so they are willing to sit down or even proposed that the case
be submitted to the Department of Justice as to avoid a court action or arbitration.
xxx

xxx

xxx

On the technical-economic aspect, Management claims that if PBO delivers in November

1987 and January 1988, there are some advantages. If PBO reacts to any legal action and
fails to deliver, the options are: one, to use 100% Semirara and second, to go into urgent
coal order. The first option will result in a 75 MW derating and oil will be needed as
supplement. We will stand to lose around P30 M. On the other hand, if NPC goes into an
urgent coal order, there will be an additional expense of $786,000 or P16.11 M,
considering the price of the latest purchase with ASEA. On both points, reliability is
decreased."38
The very purpose of requiring a bidder to furnish the awarding authority its prequalification documents is to ensure that only those "responsible" and "qualified" bidders
could bid and be awarded with government contracts. It bears stressing that the award of
a contract is measured not solely by the smallest amount of bid for its performance, but
also by the "responsibility" of the bidder. Consequently, the integrity, honesty, and
trustworthiness of the bidder is to be considered. An awarding official is justified in
considering a bidder not qualified or not responsible if he has previously defrauded the
public in such contracts or if, on the evidence before him, the official bona fide believes
the bidder has committed such fraud, despite the fact that there is yet no judicial
determination to that effect.39Otherwise stated, if the awarding body bona fide believes
that a bidder has seriously impaired its track record because of a particular conduct, it is
justified in disqualifying the bidder. This policy is necessary to protect the interest of the
awarding body against irresponsible bidders.
Thus, one who acted pursuant to the sincere belief that another willfully committed an act
prejudicial to the interest of the government cannot be considered to have acted in bad
faith. Bad faith has always been a question of intention. It is that corrupt motive that
operates in the mind. As understood in law, it contemplates a state of mind affirmatively
operating with furtive design or with some motive of self-interest or ill-will or for ulterior

purpose.40While confined in the realm of thought, its presence may be ascertained through
the party's actuation or through circumstantial evidence. 41 The circumstances under which
NAPOCOR disapproved PHIBRO's pre-qualification to bid do not show an intention to cause
damage to the latter. The measure it adopted was one of self-protection. Consequently, we
cannot penalize NAPOCOR for the course of action it took. NAPOCOR cannot be made
liable for actual, moral and exemplary damages.
Corollarily, in awarding to PHIBRO actual damages in the amount of $864,000, the
Regional Trial Court computed what could have been the profits of PHIBRO had NAPOCOR
allowed it to participate in the subsequent public bidding. It ruled that "PHIBRO would
have won the tenders for the supply of about 960,000 metric tons out of at least
1,200,000 metric tons" from the public bidding of December 1987 to 1990. We quote the
trial court's ruling, thus:
". . . PHIBRO was unjustly excluded from participating in at least five (5) tenders beginning
December 1987 to 1990, for the supply and delivery of imported coal with a total volume
of about 1,200,000 metric tons valued at no less than US$32 Million. (Exhs. "AA," "AA-1-1,"
to "AA-2"). The price of imported coal for delivery in 1988 was quoted in June 1988 by
bidders at US$41.35 to US$43.95 per metric ton (Exh. "JJ"); in September 1988 at
US$41.50 to US$49.50 per metric ton (Exh. "J-1"); in November 1988 at US$39.00 to
US$48.50 per metric ton (Exh. "J-2") and for the 1989 deliveries, at US$44.35 to US$47.35
per metric ton (Exh. "J-3") and US$38.00 to US$48.25 per metric ton in September 1990
(Exh. "JJ-6" and "JJ-7"). PHIBRO would have won the tenders for the supply and delivery of
about 960,000 metric tons of coal out of at least 1,200,000 metric tons awarded during
said period based on its proven track record of 80%. The Court, therefore finds that as a
result of its disqualification, PHIBRO suffered damages equivalent to its standard 3%
margin in 960,000 metric tons of coal at the most conservative price of US$30,000 per
metric ton, or the total of US$864,000 which PHIBRO would have earned had it been
allowed to participate in biddings in which it was disqualified and in subsequent tenders
for supply and delivery of imported coal."
We find this to be erroneous.
Basic is the rule that to recover actual damages, the amount of loss must not only be
capable of proof but must actually be proven with reasonable degree of certainty,
premised upon competent proof or best evidence obtainable of the actual amount
thereof.42 A court cannot merely rely on speculations, conjectures, or guesswork as to the
fact and amount of damages. Thus, while indemnification for damages shall comprehend
not only the value of the loss suffered, but also that of the profits which the obligee failed
to obtain,43 it is imperative that the basis of the alleged unearned profits is not too
speculative and conjectural as to show the actual damages which may be suffered on a
future period.
In Pantranco North Express, Inc. v. Court of Appeals,44 this Court denied the plaintiff's claim
for actual damages which was premised on a contract he was about to negotiate on the
ground that there was still the requisite public bidding to be complied with, thus:

"As to the alleged contract he was about to negotiate with Minister Hipolito, there is no
showing that the same has been awarded to him. If Tandoc was about to negotiate a
contract with Minister Hipolito, there was no assurance that the former would get it or that
the latter would award the contract to him since there was the requisite public
bidding. The claimed loss of profit arising out of that alleged contract which was still to be
negotiated is a mere expectancy. Tandoc's claim that he could have earned P2 million in
profits is highly speculative and no concrete evidence was presented to prove the same.
The only unearned income to which Tandoc is entitled to from the evidence presented is
that for the one-month period, during which his business was interrupted, which is
P6,125.00, considering that his annual net income was P73,500.00."
In Lufthansa German Airlines v. Court of Appeals,45 this Court likewise disallowed the trial
court's award of actual damages for unrealized profits in the amount of US$75,000.00 for
being highly speculative. It was held that "the realization of profits by respondent . . . was
not a certainty, but depended on a number of factors, foremost of which was his ability to
invite investors and to win the bid." This Court went further saying that actual or
compensatory damages cannot be presumed, but must be duly proved, and proved with
reasonable degree of certainty.
And in National Power Corporation v. Court of Appeals,46 the Court, in denying the bidder's
claim for unrealized commissions, ruled that even if NAPOCOR does not deny its (bidder's)
claims for unrealized commissions, and that these claims have been transmuted into
judicial admissions, these admissions cannot prevail over the rules and regulations
governing the bidding for NAPOCOR contracts, which necessarily and inherently include
the reservation by the NAPOCOR of its right to reject any or all bids.
The award of moral damages is likewise improper. To reiterate, NAPOCOR did not act in
bad faith. Moreover, moral damages are not, as a general rule, granted to a
corporation.47 While it is true that besmirched reputation is included in moral damages, it
cannot cause mental anguish to a corporation, unlike in the case of a natural person, for a
corporation has no reputation in the sense that an individual has, and besides, it is
inherently impossible for a corporation to suffer mental anguish. 48 In LBC Express, Inc. v.
Court of Appeals,49 we ruled:
"Moral damages are granted in recompense for physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation,
and similar injury. A corporation, being an artificial person and having existence only in
legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot
experience physical suffering and mental anguish. Mental suffering can be experienced
only by one having a nervous system and it flows from real ills, sorrows, and griefs of life
all of which cannot be suffered by respondent bank as an artificial person."
Neither can we award exemplary damages under Article 2234 of the Civil Code. Before the
court may consider the question of whether or not exemplary damages should be
awarded, the plaintiff must show that he is entitled to moral, temperate, or compensatory
damages.

NAPOCOR, in this petition, likewise contests the judgment of the lower courts awarding
PHIBRO the amount of $73,231.91 as reimbursement for expenses, cost of litigation and
attorney's fees.
We agree with NAPOCOR.
This Court has laid down the rule that in the absence of stipulation, a winning party may
be awarded attorney's fees only in case plaintiff's action or defendant's stand is so
untenable as to amount to gross and evident bad faith. 50This cannot be said of the case at
bar. NAPOCOR is justified in resisting PHIBRO's claim for damages. As a matter of fact, we
partially grant the prayer of NAPOCOR as we find that it did not act in bad faith in
disapproving PHIBRO's pre-qualification to bid.
Trial courts must be reminded that attorney's fees may not be awarded to a party simply
because the judgment is favorable to him, for it may amount to imposing a premium on
the right to redress grievances in court. We adopt the same policy with respect to the
expenses of litigation. A winning party may be entitled to expenses of litigation only where
he, by reason of plaintiff's clearly unjustifiable claims or defendant's unreasonable refusal
to his demands, was compelled to incur said expenditures. Evidently, the facts of this case
do not warrant the granting of such litigation expenses to PHIBRO.
At this point, we believe that, in the interest of fairness, NAPOCOR should give PHIBRO
another opportunity to participate in future public bidding. As earlier mentioned, the delay
on its part was due to a fortuitous event.
But before we dispose of this case, we take this occasion to remind PHIBRO of the
indispensability of coal to a coal-fired thermal plant. With households and businesses
being entirely dependent on the electricity supplied by NAPOCOR, the delivery of coal
cannot be venturesome. Indeed, public interest demands that one who offers to deliver
coal at an appointed time must give a reasonable assurance that it can carry through.
With the deleterious possible consequences that may result from failure to deliver the
needed coal, we believe there is greater strain of commitment in this kind of obligation.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 126204 dated August
27, 1996 is hereby MODIFIED. The award, in favor of PHIBRO, of actual, moral and
exemplary damages, reimbursement for expenses, cost of litigation and attorney's fees,
and costs of suit, is DELETED.
SO ORDERED.
G.R. No. 100866 July 14, 1992
REBECCA BOYER-ROXAS and GUILLERMO ROXAS, petitioners,
vs.
HON. COURT OF APPEALS and HEIRS OF EUGENIA V. ROXAS, INC., respondents.

GUTIERREZ, JR., J.:

This is a petition to review the decision and resolution of the Court of Appeals in CA-G.R.
No. 14530 affirming the earlier decision of the Regional Trial Court of Laguna, Branch 37,
at Calamba, in the consolidated RTC Civil Case Nos. 802-84-C and 803-84-C entitled "Heirs
of Eugenia V. Roxas, Inc. v. Rebecca Boyer-Roxas" and Heirs of Eugenia V. Roxas, Inc. v.
Guillermo Roxas," the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and
against the defendants, by ordering as it is hereby ordered that:
1) In RTC Civil Case No. 802-84-C: Rebecca Boyer-Roxas and all persons claiming under her
to:
a) Immediately vacate the residential house near the Balugbugan pool located inside the
premises of the Hidden Valley Springs Resort at Limao, Calauan, Laguna;
b) Pay the plaintiff the amount of P300.00 per month from September 10, 1983, for her
occupancy of the residential house until the same is vacated;
c) Remove the unfinished building erected on the land of the plaintiff within ninety (90)
days from receipt of this decision;
d) Pay the plaintiff the amount of P100.00 per month from September 10, 1983, until the
said unfinished building is removed from the land of the plaintiff; and
e) Pay the costs.
2) In RTC Civil Case No. 803-84-C: Guillermo Roxas and all persons claiming under him to:
a) Immediately vacate the residential house near the tennis court located within the
premises of the Hidden Valley Springs Resort at Limao, Calauan, Laguna;
b) Pay the plaintiff the amount of P300.00 per month from September 10, 1983, for his
occupancy of the said residential house until the same is vacated; and
c) Pay the costs. (Rollo, p. 36)
In two (2) separate complaints for recovery of possession filed with the Regional Trial Court
of Laguna against petitioners Rebecca Boyer-Roxas and Guillermo Roxas respectively,
respondent corporation, Heirs of Eugenia V. Roxas, Inc., prayed for the ejectment of the
petitioners from buildings inside the Hidden Valley Springs Resort located at Limao,
Calauan, Laguna allegedly owned by the respondent corporation.

In the case of petitioner Rebecca Boyer-Roxas (Civil Case No-802-84-C), the respondent
corporation alleged that Rebecca is in possession of two (2) houses, one of which is still
under construction, built at the expense of the respondent corporation; and that her
occupancy on the two (2) houses was only upon the tolerance of the respondent
corporation.
In the case of petitioner Guillermo Roxas (Civil Case No. 803-84-C), the respondent
corporation alleged that Guillermo occupies a house which was built at the expense of the
former during the time when Guillermo's father, Eriberto Roxas, was still living and was the
general manager of the respondent corporation; that the house was originally intended as
a recreation hall but was converted for the residential use of Guillermo; and that
Guillermo's possession over the house and lot was only upon the tolerance of the
respondent corporation.
In both cases, the respondent corporation alleged that the petitioners never paid rentals
for the use of the buildings and the lots and that they ignored the demand letters for them
to vacate the buildings.
In their separate answers, the petitioners traversed the allegations in the complaint by
stating that they are heirs of Eugenia V. Roxas and therefore, co-owners of the Hidden
Valley Springs Resort; and as co-owners of the property, they have the right to stay within
its premises.
The cases were consolidated and tried jointly.
At the pre-trial, the parties limited the issues as follows:
1) whether plaintiff is entitled to recover the questioned premises;
2) whether plaintiff is entitled to reasonable rental for occupancy of the premises in
question;
3) whether the defendant is legally authorized to pierce the veil of corporate fiction and
interpose the same as a defense in an accion publiciana;
4) whether the defendants are truly builders in good faith, entitled to occupy the
questioned premises;
5) whether plaintiff is entitled to damages and reasonable compensation for the use of the
questioned premises;
6) whether the defendants are entitled to their counterclaim to recover moral and
exemplary damages as well as attorney's fees in the two cases;
7) whether the presence and occupancy by the defendants on the premises in questioned
(sic) hampers, deters or impairs plaintiff's operation of Hidden Valley Springs Resort; and

8) whether or not a unilateral and sudden withdrawal of plaintiffs tolerance allowing

defendants' occupancy of the premises in questioned (sic) is unjust enrichment. (Original
Records, 486)
Upon motion of the plaintiff respondent corporation, Presiding Judge Francisco Ma.
Guerrero of Branch 34 issued an Order dated April 25, 1986 inhibiting himself from further
trying the case. The cases were re-raffled to Branch 37 presided by Judge Odilon Bautista.
Judge Bautista continued the hearing of the cases.
For failure of the petitioners (defendants below) and their counsel to attend the October
22, 1986 hearing despite notice, and upon motion of the respondent corporation, the court
issued on the same day, October 22, 1986, an Order considering the cases submitted for
decision. At this stage of the proceedings, the petitioners had not yet presented their
evidence while the respondent corporation had completed the presentation of its
evidence.
The evidence of the respondent corporation upon which the lower court based its decision
is as follows:
To support the complaints, the plaintiff offered the testimonies of Maria Milagros Roxas and
that of Victoria Roxas Villarta as well as Exhibits "A" to "M-3".
The evidence of the plaintiff established the following: that the plaintiff, Heirs of Eugenia V
Roxas, Incorporated, was incorporated on December 4, 1962 (Exh. "C") with the primary
purpose of engaging in agriculture to develop the properties inherited from Eugenia V.
Roxas and that of y Eufrocino Roxas; that the Articles of Incorporation of the plaintiff, in
1971, was amended to allow it to engage in the resort business (Exh."C-1"); that the
incorporators as original members of the board of directors of the plaintiff were all
members of the same family, with Eufrocino Roxas having the biggest share; that
accordingly, the plaintiff put up a resort known as Hidden Valley Springs Resort on a
portion of its land located at Bo. Limao, Calauan, Laguna, and covered by TCT No. 32639
(Exhs. "A" and "A-l"); that improvements were introduced in the resort by the plaintiff and
among them were cottages, houses or buildings, swimming pools, tennis court, restaurant
and open pavilions; that the house near the Balugbugan Pool (Exh. "B-l") being occupied
by Rebecca B. Roxas was originally intended as staff house but later used as the residence
of Eriberto Roxas, deceased husband of the defendant Rebecca Boyer-Roxas and father of
Guillermo Roxas; that this house presently being occupied by Rebecca B. Roxas was built
from corporate funds; that the construction of the unfinished house (Exh. "B-2") was
started by the defendant Rebecca Boyer-Roxas and her husband Eriberto Roxas; that the
third building (Exh. "B-3") presently being occupied by Guillermo Roxas was originally
intended as a recreation hall but later converted as a residential house; that this house
was built also from corporate funds; that the said house occupied by Guillermo Roxas
when it was being built had nipa roofing but was later changed to galvanized iron sheets;
that at the beginning, it had no partition downstairs and the second floor was an open
space; that the conversion from a recreation hall to a residential house was with the
knowledge of Eufrocino Roxas and was not objected to by any of the Board of Directors of

the plaintiff; that most of the materials used in converting the building into a residential
house came from the materials left by Coppola, a film producer, who filmed the movie
"Apocalypse Now"; that Coppola left the materials as part of his payment for rents of the
rooms that he occupied in the resort; that after the said recreation hall was converted into
a residential house, defendant Guillermo Roxas moved in and occupied the same together
with his family sometime in 1977 or 1978; that during the time Eufrocino Roxas was still
alive, Eriberto Roxas was the general manager of the corporation and there was seldom
any board meeting; that Eufrocino Roxas together with Eriberto Roxas were (sic) the ones
who were running the corporation; that during this time, Eriberto Roxas was the restaurant
and wine concessionaire of the resort; that after the death of Eufrocino Roxas, Eriberto
Roxas continued as the general manager until his death in 1980; that after the death of
Eriberto Roxas in 1980, the defendants Rebecca B. Roxas and Guillermo Roxas, committed
acts that impeded the plaintiff's expansion and normal operation of the resort; that the
plaintiff could not even use its own pavilions, kitchen and other facilities because of the
acts of the defendants which led to the filing of criminal cases in court; that cases were
even filed before the Ministry of Tourism, Bureau of Domestic Trade and the Office of the
President by the parties herein; that the defendants violated the resolution and orders of
the Ministry of Tourism dated July 28, 1983, August 3, 1983 and November 26, 1984 (Exhs.
"G", "H" and "H-l") which ordered them or the corporation they represent to desist from
and to turn over immediately to the plaintiff the management and operation of the
restaurant and wine outlets of the said resort (Exh. "G-l"); that the defendants also
violated the decision of the Bureau of Domestic Trade dated October 23, 1983 (Exh. "C");
that on August 27, 1983, because of the acts of the defendants, the Board of Directors of
the plaintiff adopted Resolution No. 83-12 series of 1983 (Exh. "F") authorizing the
ejectment of the defendants from the premises occupied by them; that on September 1,
1983, demand letters were sent to Rebecca Boyer-Roxas and Guillermo Roxas (Exhs. "D"
and "D-1") demanding that they vacate the respective premises they occupy; and that the
dispute between the plaintiff and the defendants was brought before the barangay level
and the same was not settled (Exhs. "E" and "E-l"). (Original Records, pp. 454-456)
The petitioners appealed the decision to the Court of Appeals. However, as stated earlier,
the appellate court affirmed the lower court's decision. The Petitioners' motion for
reconsideration was likewise denied.
Hence, this petition.
In a resolution dated February 5, 1992, we gave due course to the petition.
The petitioners now contend:
I Respondent Court erred when it refused to pierce the veil of corporate fiction over private
respondent and maintain the petitioners in their possession and/or occupancy of the
subject premises considering that petitioners are owners of aliquot part of the properties
of private respondent. Besides, private respondent itself discarded the mantle of corporate
fiction by acts and/or omissions of its board of directors and/or stockholders.

II The respondent Court erred in not holding that petitioners were in fact denied due
process or their day in court brought about by the gross negligence of their former
counsel.
III The respondent Court misapplied the law when it ordered petitioner Rebecca BoyerRoxas to remove the unfinished building in RTC Case No. 802-84-C, when the trial court
opined that she spent her own funds for the construction thereof. (CA Rollo, pp. 17-18)
Were the petitioners denied due process of law in the lower court?
After the cases were re-raffled to the sala of Presiding Judge Odilon Bautista of Branch 37
the following events transpired:
On July 3, 1986, the lower court issued an Order setting the hearing of the cases on July
21, 1986. Petitioner Rebecca V. Roxas received a copy of the Order on July 15, 1986, while
petitioner Guillermo Roxas received his copy on July 18, 1986. Atty. Conrado Manicad, the
petitioners' counsel received another copy of the Order on July 11, 1986. (Original Records,
p. 260)
On motion of the respondent corporation's counsel, the lower court issued an Order dated
July 15, 1986 cancelling the July 21, 1986 hearing and resetting the hearing to August 11,
1986. (Original records, 262-263) Three separate copies of the order were sent and
received by the petitioners and their counsel. (Original Records, pp. 268, 269, 271)
A motion to cancel and re-schedule the August 11, 1986 hearing filed by the respondent
corporation's counsel was denied in an Order dated August 8, 1986. Again separate copies
of the Order were sent and received by the petitioners and their counsel. (Original
Records, pp. 276-279)
At the hearing held on August 11, 1986, only Atty. Benito P. Fabie, counsel for the
respondent corporation appeared. Neither the petitioners nor their counsel appeared
despite notice of hearing. The lower court then issued an Order on the same date, to wit:
ORDER
When these cases were called for continuation of trial, Atty. Benito P. Fabie appeared
before this Court, however, the defendants and their lawyer despite receipt of the Order
setting the case for hearing today failed to appear. On Motion of Atty. Fabie, further cross
examination of witness Victoria Vallarta is hereby considered as having been waived.
The plaintiff is hereby given twenty (20) days from today within which to submit formal
offer of evidence and defendants are also given ten (10) days from receipt of such formal
offer of evidence to file their objection thereto.
In the meantime, hearing in these cases is set to September 29, 1986 at 10:00 o'clock in
the morning. (Original Records, p. 286)

Copies of the Order were sent and received by the petitioners and their counsel on the
following dates Rebecca Boyer-Roxas on August 20, 1986, Guillermo Roxas on August
26, 1986, and Atty. Conrado Manicad on September 19, 1986. (Original Records, pp. 288290)
On September 1, 1986, the respondent corporation filed its "Formal Offer of Evidence." In
an Order dated September 29, 1986, the lower court issued an Order admitting exhibits
"A" to "M-3" submitted by the respondent corporation in its "Formal Offer of Evidence . . .
there being no objection . . ." (Original Records, p. 418) Copies of this Order were sent and
received by the petitioners and their counsel on the following dates: Rebecca Boyer-Roxas
on October 9, 1986; Guillermo Roxas on October 9, 1986 and Atty. Conrado Manicad on
October 4, 1986 (Original Records, pp. 420, 421, 428).
The scheduled hearing on September 29, 1986 did not push through as the petitioners and
their counsel were not present prompting Atty. Benito Fabie, the respondent corporation's
counsel to move that the cases be submitted for decision. The lower court denied the
motion and set the cases for hearing on October 22, 1986. However, in its Order dated
September 29, 1986, the court warned that in the event the petitioners and their counsel
failed to appear on the next scheduled hearing, the court shall consider the cases
submitted for decision based on the evidence on record. (Original Records, p. 429, 430 and
431)
Separate copies of this Order were sent and received by the petitioners and their counsel
on the following dates: Rebecca Boyer-Roxas on October 9, 1986, Guillermo Roxas on
October 9, 1986; and Atty. Conrado Manicad on October 1, 1986. (Original Records, pp.
429-430)
Despite notice, the petitioners and their counsel again failed to attend the scheduled
October 22, 1986 hearing. Atty. Fabie representing the respondent corporation was
present. Hence, in its Order dated October 22, 1986, on motion of Atty. Fabie and pursuant
to the order dated September 29, 1986, the Court considered the cases submitted for
decision. (Original Records, p. 436)
On November 14, 1986, the respondent corporation, filed a "Manifestation", stating that
". . . it is submitting without further argument its "Opposition to the Motion for
Reconsideration" for the consideration of the Honorable Court in resolving subject
incident." (Original Records, p. 442)
On December 16, 1986, the lower court issued an Order, to wit:
ORDER
Considering that the Court up to this date has not received any Motion for Reconsideration
filed by the defendants in the above-entitled cases, the Court cannot act on the Opposition
to Motion for Reconsideration filed by the plaintiff and received by the Court on November
14, 1986. (Original Records, p. 446)

On January 15, 1987, the lower court rendered the questioned decision in the two (2)
cases. (Original Records, pp. 453-459)
On January 20, 1987, Atty. Conrado Manicad, the petitioners' counsel filed an ExParte Manifestation and attached thereto, a motion for reconsideration of the October 22,
1986 Order submitting the cases for decision. He prayed that the Order be set aside and
the cases be re-opened for reception of evidence for the petitioners. He averred that: 1)
within the reglementary period he prepared the motion for reconsideration and among
other documents, the draft was sent to his law office thru his messenger; after signing the
final copies, he caused the service of a copy to the respondent corporation's counsel with
the instruction that the copy of the Court be filed; however, there was a
miscommunication between his secretary and messenger in that the secretary mailed the
copy for the respondent corporation's counsel and placed the rest in an envelope for the
messenger to file the same in court but the messenger thought that it was the secretary
who would file it; it was only later on when it was discovered that the copy for the Court
has not yet been filed and that such failure to file the motion for reconsideration was due
to excusable neglect and/or accident. The motion for reconsideration contained the
following allegations: that on the date set for hearing (October 22, 1986), he was on his
way to Calamba to attend the hearing but his car suffered transmission breakdown; and
that despite efforts to repair said transmission, the car remained inoperative resulting in
his absence at the said hearing. (Original Records, pp. 460-469)
On February 3, 1987, Atty. Manicad filed a motion for reconsideration of the January 15,
1987 decision. He explained that he had to file the motion because the receiving clerk
refused to admit the motion for reconsideration attached to the ex-parte manifestation
because there was no proof of service to the other party. Included in the motion for
reconsideration was a notice of hearing of the motion on February 3, 1987. (Original
Records, p. 476-A)
On February 4, 1987, the respondent corporation through its counsel filed a Manifestation
and Motion manifesting that they received the copy of the motion for reconsideration only
today (February 4, 1987), hence they prayed for the postponement of the hearing.
(Original Records, pp. 478-479)
On the same day, February 4, 1987, the lower court issued an Order setting the hearing on
February 13, 1987 on the ground that it received the motion for reconsideration late.
Copies of this Order were sent separately to the petitioners and their counsel. The records
show that Atty. Manicad received his copy on February 11, 1987. As regards the
petitioners, the records reveal that Rebecca Boyer-Roxas did not receive her copy while as
regards Guillermo Roxas, somebody signed for him but did not indicate when the copy was
received. (Original Records, pp. 481-483)
At the scheduled February 13, 1987 hearing, the counsels for the parties were present.
However, the hearing was reset for March 6, 1987 in order to allow the respondent
corporation to file its opposition to the motion for reconsideration. (Order dated February
13, 1987, Original Records, p. 486) Copies of the Order were sent and received by the

petitioners and their counsel on the following dates: Rebecca Boyer-Roxas on February 23,
1987; Guillermo Roxas on February 23, 1987 and Atty. Manicad on February 19, 1987.
(Original Records, pp. 487, 489-490)
The records are not clear as to whether or not the scheduled hearing on March 6, 1987
was held. Nevertheless, the records reveal that on March 13, 1987, the lower court issued
an Order denying the motion for reconsideration.
The well-settled doctrine is that the client is bound by the mistakes of his lawyer. (Aguila v.
Court of First Instance of Batangas, Branch I, 160 SCRA 352 [1988]; See also Vivero v.
Santos, et al., 98 Phil. 500 [1956]; Isaac v. Mendoza, 89 Phil. 279 [1951]; Montes v. Court
of First Instance of Tayabas, 48 Phil. 640 [1926]; People v. Manzanilla, 43 Phil. 167 [1922];
United States v. Dungca, 27 Phil. 274 [1914]; and United States v. Umali, 15 Phil. 33
[1910]) This rule, however, has its exceptions. Thus, in several cases, we ruled that the
party is not bound by the actions of his counsel in case the gross negligence of the
counsel resulted in the client's deprivation of his property without due process of law. In
the case of Legarda v. Court of Appeals (195 SCRA 418 [1991]), we said:
In People's Homesite & Housing Corp. v. Tiongco and Escasa (12 SCRA 471 [1964]), this
Court ruled as follows:
Procedural technicality should not be made a bar to the vindication of a legitimate
grievance. When such technicality deserts from being an aid to Justice, the courts are
justified in excepting from its operation a particular case. Where there was something
fishy and suspicious about the actuations of the former counsel of petitioners in the case
at bar, in that he did not give any significance at all to the processes of the court, which
has proven prejudicial to the rights of said clients, under a lame and flimsy explanation
that the court's processes just escaped his attention, it is held that said lawyer deprived
his clients of their day in court, thus entitling said clients to petition for relief from
judgment despite the lapse of the reglementary period for filing said period for filing said
petition.
In Escudero v. Judge Dulay (158 SCRA 69 [1988]), this Court, in holding that the counsel's
blunder in procedure is an exception to the rule that the client is bound by the mistakes of
counsel, made the following disquisition:
Petitioners contend, through their new counsel, that the judgment rendered against them
by the respondent court was null and void, because they were therein deprived of their
day in court and divested of their property without due process of law, through the gross
ignorance, mistake and negligence of their previous counsel. They acknowledge that,
while as a rule, clients are bound by the mistake of their counsel, the rule should not be
applied automatically to their case, as their trial counsel's blunder in procedure and gross
ignorance of existing jurisprudence changed their cause of action and violated their
substantial rights.
We are impressed with petitioner's contentions.

xxx xxx xxx

While this Court is cognizant of the rule that, generally, a client will suffer consequences of
the negligence, mistake or lack of competence of his counsel, in the interest of Justice and
equity, exceptions may be made to such rule, in accordance with the facts and
circumstances of each case. Adherence to the general rule would, in the instant case,
result in the outright deprivation of their property through a technicality.
In its questioned decision dated November 19, 1989 the Court of Appeals found, in no
uncertain terms, the negligence of the then counsel for petitioners when he failed to file
the proper motion to dismiss or to draw a compromise agreement if it was true that they
agreed on a settlement of the case; or in simply filing an answer; and that after having
been furnished a copy of the decision by the court he failed to appeal therefrom or to file a
petition for relief from the order declaring petitioners in default. In all these instances the
appellate court found said counsel negligent but his acts were held to bind his client,
petitioners herein, nevertheless.
The Court disagrees and finds that the negligence of counsel in this case appears to be so
gross and inexcusable. This was compounded by the fact, that after petitioner gave said
counsel another chance to make up for his omissions by asking him to file a petition for
annulment of the judgment in the appellate court, again counsel abandoned the case of
petitioner in that after he received a copy of the adverse judgment of the appellate court,
he did not do anything to save the situation or inform his client of the judgment. He
allowed the judgment to lapse and become final. Such reckless and gross negligence
should not be allowed to bind the petitioner. Petitioner was thereby effectively deprived of
her day in court. (at pp. 426-427)
The herein petitioners, however, are not similarly situated as the parties mentioned in the
abovecited cases. We cannot rule that they, too, were victims of the gross negligence of
their counsel.
The petitioners are to be blamed for the October 22, 1986 order issued by the lower court
submitting the cases for decision. They received notices of the scheduled hearings and yet
they did not do anything. More specifically, the parties received notice of the Order dated
September 29, 1986 with the warning that if they fail to attend the October 22, 1986
hearing, the cases would be submitted for decision based on the evidence on record.
Earlier, at the scheduled hearing on September 29, 1986, the counsel for the respondent
corporation moved that the cases be submitted for decision for failure of the petitioners
and their counsel to attend despite notice. The lower court denied the motion and gave
the petitioners and their counsel another chance by rescheduling the October 22, 1986
hearing.
Indeed, the petitioners knew all along that their counsel was not attending the scheduled
hearings. They did not take steps to change their counsel or make him attend to their
cases until it was too late. On the contrary, they continued to retain the services of Atty.
Manicad knowing fully well his lapses vis-a-vis their cases. They, therefore, cannot raise

the alleged gross negligence of their counsel resulting in their denial of due process to
warrant the reversal of the lower court's decision. In a similar case, Aguila v. Court of First
Instance of Batangas, Branch 1 (supra), we ruled:
In the instant case, the petitioner should have noticed the succession of errors committed
by his counsel and taken appropriate steps for his replacement before it was altogether
too late. He did not. On the contrary, he continued to retain his counsel through the series
of proceedings that all resulted in the rejection of his cause, obviously through such
counsel's "ineptitude" and, let it be added, the clients' forbearance. The petitioner's
reverses should have cautioned him that his lawyer was mishandling his case and moved
him to seek the help of other counsel, which he did in the end but rather tardily.
Now petitioner wants us to nullify all of the antecedent proceedings and recognize his
earlier claims to the disputed property on the justification that his counsel was grossly
inept. Such a reason is hardly plausible as the petitioner's new counsel should know.
Otherwise, all a defeated party would have to do to salvage his case is claim neglect or
mistake on the part of his counsel as a ground for reversing the adverse judgment. There
would be no end to litigation if these were allowed as every shortcoming of counsel could
be the subject of challenge by his client through another counsel who, if he is also found
wanting, would likewise be disowned by the same client through another counsel, and so
on ad infinitum. This would render court proceedings indefinite, tentative and subject to
reopening at any time by the mere subterfuge of replacing counsel. (at pp. 357-358)
We now discuss the merits of the cases.
In the first assignment of error, the petitioners maintain that their possession of the
questioned properties must be respected in view of their ownership of an aliquot portion of
all the properties of the respondent corporation being stockholders thereof. They propose
that the veil of corporate fiction be pierced, considering the circumstances under which
the respondent corporation was formed.
Originally, the questioned properties belonged to Eugenia V. Roxas. After her death, the
heirs of Eugenia V. Roxas, among them the petitioners herein, decided to form a
corporation Heirs of Eugenia V. Roxas, Incorporated (private respondent herein) with the
inherited properties as capital of the corporation. The corporation was incorporated on
December 4, 1962 with the primary purpose of engaging in agriculture to develop the
inherited properties. The Articles of Incorporation of the respondent corporation were
amended in 1971 to allow it to engage in the resort business. Accordingly, the corporation
put up a resort known as Hidden Valley Springs Resort where the questioned properties
are located.
These facts, however, do not justify the position taken by the petitioners.
The respondent is a bona fide corporation. As such, it has a juridical personality of its own
separate from the members composing it. (Western Agro Industrial Corporation v. Court of
Appeals, 188 SCRA 709 [1990]; Tan Boon Bee & Co., Inc. v. Jarencio, 163 SCRA 205 [1988];

Yutivo Sons Hardware Company v. Court of Tax Appeals, 1 SCRA 160 [1961]; Emilio Cano
Enterprises, Inc. v. Court of Industrial Relations, 13 SCRA 290 [1965]) There is no dispute
that title over the questioned land where the Hidden Valley Springs Resort is located is
registered in the name of the corporation. The records also show that the staff house
being occupied by petitioner Rebecca Boyer-Roxas and the recreation hall which was later
on converted into a residential house occupied by petitioner Guillermo Roxas are owned by
the respondent corporation. Regarding properties owned by a corporation, we stated in the
case of Stockholders of F. Guanzon and Sons, Inc. v. Register of Deeds of Manila, (6 SCRA
373 [1962]):
xxx xxx xxx
. . . Properties registered in the name of the corporation are owned by it as an entity
separate and distinct from its members. While shares of stock constitute personal
property, they do not represent property of the corporation. The corporation has property
of its own which consists chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75;
Morrow v. Gould, 145 Iowa 1, 123 N.W. 743). A share of stock only typifies an aliquot part
of the corporation's property, or the right to share in its proceeds to that extent when
distributed according to law and equity (Hall & Faley v. Alabama Terminal, 173 Ala., 398,
56 So. 235), but its holder is not the owner of any part of the capital of the corporation
(Bradley v. Bauder, 36 Ohio St., 28). Nor is he entitled to the possession of any definite
portion of its property or assets (Gottfried V. Miller, 104 U.S., 521; Jones v. Davis, 35 Ohio
St., 474). The stockholder is not a co-owner or tenant in common of the corporate property
(Harton v. Johnston, 166 Ala., 317, 51 So. 992). (at pp. 375-376)
The petitioners point out that their occupancy of the staff house which was later used as
the residence of Eriberto Roxas, husband of petitioner Rebecca Boyer-Roxas and the
recreation hall which was converted into a residential house were with the blessings of
Eufrocino Roxas, the deceased husband of Eugenia V. Roxas, who was the majority and
controlling stockholder of the corporation. In his lifetime, Eufrocino Roxas together with
Eriberto Roxas, the husband of petitioner Rebecca Boyer-Roxas, and the father of
petitioner Guillermo Roxas managed the corporation. The Board of Directors did not object
to such an arrangement. The petitioners argue that . . . the authority thus given by
Eufrocino Roxas for the conversion of the recreation hall into a residential house can no
longer be questioned by the stockholders of the private respondent and/or its board of
directors for they impliedly but no leas explicitly delegated such authority to said Eufrocino
Roxas. (Rollo, p. 12)
Again, we must emphasize that the respondent corporation has a distinct personality
separate from its members. The corporation transacts its business only through its officers
or agents. (Western Agro Industrial Corporation v. Court of Appeals, supra). Whatever
authority these officers or agents may have is derived from the board of directors or other
governing body unless conferred by the charter of the corporation. An officer's power as
an agent of the corporation must be sought from the statute, charter, the by-laws or in a
delegation of authority to such officer, from the acts of the board of directors, formally

expressed or implied from a habit or custom of doing business. (Vicente v. Geraldez, 52

SCRA 210 [1973])
In the present case, the record shows that Eufrocino V. Roxas who then controlled the
management of the corporation, being the majority stockholder, consented to the
petitioners' stay within the questioned properties. Specifically, Eufrocino Roxas gave his
consent to the conversion of the recreation hall to a residential house, now occupied by
petitioner Guillermo Roxas. The Board of Directors did not object to the actions of
Eufrocino Roxas. The petitioners were allowed to stay within the questioned properties
until August 27, 1983, when the Board of Directors approved a Resolution ejecting the
petitioners, to wit:
R E S O L U T I O N No. 83-12
RESOLVED, That Rebecca B. Roxas and Guillermo Roxas, and all persons claiming under
them, be ejected from their occupancy of the Hidden Valley Springs compound on which
their houses have been constructed and/or are being constructed only on tolerance of the
Corporation and without any contract therefor, in order to give way to the Corporation's
expansion and improvement program and obviate prejudice to the operation of the Hidden
Valley Springs Resort by their continued interference.
RESOLVED, Further that the services of Atty. Benito P. Fabie be engaged and that he be
authorized as he is hereby authorized to effect the ejectment, including the filing of the
corresponding suits, if necessary to do so. (Original Records, p. 327)
We find nothing irregular in the adoption of the Resolution by the Board of Directors. The
petitioners' stay within the questioned properties was merely by tolerance of the
respondent corporation in deference to the wishes of Eufrocino Roxas, who during his
lifetime, controlled and managed the corporation. Eufrocino Roxas' actions could not have
bound the corporation forever. The petitioners have not cited any provision of the
corporation by-laws or any resolution or act of the Board of Directors which authorized
Eufrocino Roxas to allow them to stay within the company premises forever. We rule that
in the absence of any existing contract between the petitioners and the respondent
corporation, the corporation may elect to eject the petitioners at any time it wishes for the
benefit and interest of the respondent corporation.
The petitioners' suggestion that the veil of the corporate fiction should be pierced is
untenable. The separate personality of the corporation may be disregarded only when the
corporation is used "as a cloak or cover for fraud or illegality, or to work injustice, or where
necessary to achieve equity or when necessary for the protection of the creditors." (Sulong
Bayan, Inc. v. Araneta, Inc., 72 SCRA 347 [1976] cited in Tan Boon Bee & Co., Inc., v.
Jarencio, supra and Western Agro Industrial Corporation v. Court of Appeals, supra) The
circumstances in the present cases do not fall under any of the enumerated categories.
In the third assignment of error, the petitioners insist that as regards the unfinished
building, Rebecca Boyer-Roxas is a builder in good faith.

The construction of the unfinished building started when Eriberto Roxas, husband of
Rebecca Boyer-Roxas, was still alive and was the general manager of the respondent
corporation. The couple used their own funds to finance the construction of the building.
The Board of Directors of the corporation, however, did not object to the construction.
They allowed the construction to continue despite the fact that it was within the property
of the corporation. Under these circumstances, we agree with the petitioners that the
provision of Article 453 of the Civil Code should have been applied by the lower courts.
Article 453 of the Civil Code provides:
If there was bad faith, not only on the part of the person who built, planted or sown on the
land of another but also on the part of the owner of such land, the rights of one and the
other shall be the same as though both had acted in good faith.
In such a case, the provisions of Article 448 of the Civil Code govern the relationship
between petitioner Rebecca-Boyer-Roxas and the respondent corporation, to wit:
Art. 448 The owner of the land on which anything has been built, sown or planted in
good faith, shall have the right to appropriate as his own the works, sowing or planting
after payment of the indemnity provided for in articles 546 and 548, or to oblige the one
who built or planted to pay the price of the land, and the one who sowed, the proper rent.
However, the builder or planter cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such case, he shall pay reasonable
rent, if the owner of the land does not choose to appropriate the buildings or trees after
proper indemnity. The parties shall agree upon the terms of the lease and in case of
disagreement, the court shall fix the terms thereof.
WHEREFORE, the present petition is partly GRANTED. The questioned decision of the Court
of Appeals affirming the decision of the Regional Trial Court of Laguna, Branch 37, in RTC
Civil Case No. 802-84-C is MODIFIED in that subparagraphs (c) and (d) of Paragraph 1 of
the dispositive portion of the decision are deleted. In their stead, the petitioner Rebecca
Boyer-Roxas and the respondent corporation are ordered to follow the provisions of Article
448 of the Civil Code as regards the questioned unfinished building in RTC Civil Case No.
802-84-C. The questioned decision is affirmed in all other respects.
SO ORDERED.
G.R. No. 100812 June 25, 1999
FRANCISCO MOTORS CORPORATION, petitioner,
vs.
COURT OF APPEALS and SPOUSES GREGORIO and LIBRADA MANUEL, respondents.

QUISUMBING, J.:

This petition for review on certiorari, under Rule 45 of the Rules of Court, seeks to annul
the decision 1 of the Court of Appeals in C.A. G.R. CV No. 10014 affirming the decision
rendered by Branch 135, Regional Trial Court of Makati, Metro Manila. The procedural
antecedents of this petition are as follows:
On January 23, 1985, petitioner filed a complaint 2 against private respondents to recover
three thousand four hundred twelve and six centavos (P3,412.06), representing the
balance of the jeep body purchased by the Manuels from petitioner; an additional sum of
twenty thousand four hundred fifty-four and eighty centavos (P20,454.80) representing the
unpaid balance on the cost of repair of the vehicle; and six thousand pesos (P6,000.00) for
cost of suit and attorney's fees. 3 To the original balance on the price of jeep body were
added the costs of repair. 4 In their answer, private respondents interposed a counterclaim
for unpaid legal services by Gregorio Manuel in the amount of fifty thousand pesos
(P50,000) which was not paid by the incorporators, directors and officers of the petitioner.
The trial court decided the case on June 26, 1985, in favor of petitioner in regard to the
petitioner's claim for money, but also allowed the counter-claim of private respondents.
Both parties appealed. On April 15, 1991, the Court of Appeals sustained the trial court's
decision. 5 Hence, the present petition.
For our review in particular is the propriety of the permissive counterclaim which private
respondents filed together with their answer to petitioner's complaint for a sum of money.
Private respondent Gregorio Manuel alleged as an affirmative defense that, while he was
petitioner's Assistant Legal Officer, he represented members of the Francisco family in the
intestate estate proceedings of the late Benita Trinidad. However, even after the
termination of the proceedings, his services were not paid. Said family members, he said,
were also incorporators, directors and officers of petitioner. Hence to petitioner's collection
suit, he filed a counter permissive counterclaim for the unpaid attorney's fees. 6
For failure of petitioner to answer the counterclaim, the trial court declared petitioner in
default on this score, and evidence ex-parte was presented on the counterclaim. The trial
court ruled in favor of private respondents and found that Gregorio Manuel indeed
rendered legal services to the Francisco family in Special Proceedings Number 7803 "In
the Matter of Intestate Estate of Benita Trinidad". Said court also found that his legal
services were not compensated despite repeated demands, and thus ordered petitioner to
pay him the amount of fifty thousand (P50,000.00) pesos. 7
Dissatisfied with the trial court's order, petitioner elevated the matter to the Court of
Appeals, posing the following issues:
I.
WHETHER OR NOT THE DECISION RENDERED BY THE LOWER COURT IS NULL AND VOID AS
IT NEVER ACQUIRED JURISDICTION OVER THE PERSON OF THE DEFENDANT.
II.

WHETHER OR NOT PLAINTIFF-APPELLANT NOT BEING A REAL PARTY IN THE ALLEGED

PERMISSIVE COUNTERCLAIM SHOULD BE HELD LIABLE TO THE CLAIM OF DEFENDANTAPPELLEES.
III.
WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFF-APPELLANT TO ANSWER
THE ALLEGED PERMISSIVE COUNTERCLAIM. 8
Petitioner contended that the trial court did not acquire jurisdiction over it because no
summons was validly served on it together with the copy of the answer containing the
permissive counterclaim. Further, petitioner questions the propriety of its being made
party to the case because it was not the real party in interest but the individual members
of the Francisco family concerned with the intestate case.
In its assailed decision now before us for review, respondent Court of Appeals held that a
counterclaim must be answered in ten (10) days, pursuant to Section 4, Rule 11, of the
Rules of Court; and nowhere does it state in the Rules that a party still needed to be
summoned anew if a counterclaim was set up against him. Failure to serve summons, said
respondent court, did not effectively negate trial court's jurisdiction over petitioner in the
matter of the counterclaim. It likewise pointed out that there was no reason for petitioner
to be excused from answering the counterclaim. Court records showed that its former
counsel, Nicanor G. Alvarez, received the copy of the answer with counterclaim two (2)
days prior to his withdrawal as counsel for petitioner. Moreover when petitioner's new
counsel, Jose N. Aquino, entered his appearance, three (3) days still remained within the
period to file an answer to the counterclaim. Having failed to answer, petitioner was
correctly considered in default by the trial
court. 9 Even assuming that the trial court acquired no jurisdiction over petitioner,
respondent court also said, but having filed a motion for reconsideration seeking relief
from the said order of default, petitioner was estopped from further questioning the trial
court's jurisdiction. 10
On the question of its liability for attorney's fees owing to private respondent Gregorio
Manuel, petitioner argued that being a corporation, it should not be held liable therefor
because these fees were owed by the incorporators, directors and officers of the
corporation in their personal capacity as heirs of Benita Trinidad. Petitioner stressed that
the personality of the corporation, vis-a-vis the individual persons who hired the services
of private respondent, is separate and distinct, 11 hence, the liability of said individuals did
not become an obligation chargeable against petitioner.
Nevertheless, on the foregoing issue, the Court of Appeals ruled as follows:
However, this distinct and separate personality is merely a fiction created by law for
convenience and to promote justice. Accordingly, this separate personality of the
corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it
is used as a cloak or cover for found (sic) illegality, or to work an injustice, or where

necessary to achieve equity or when necessary for the protection of creditors. (Sulo ng
Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347) Corporations are composed of natural persons
and the legal fiction of a separate corporate personality is not a shield for the commission
of injustice and inequity. (Chemplex Philippines, Inc. vs. Pamatian, 57 SCRA 408).
In the instant case, evidence shows that the plaintiff-appellant Francisco Motors
Corporation is composed of the heirs of the late Benita Trinidad as directors and
incorporators for whom defendant Gregorio Manuel rendered legal services in the intestate
estate case of their deceased mother. Considering the aforestated principles and
circumstances established in this case, equity and justice demands plaintiff-appellant's
veil of corporate identity should be pierced and the defendant be compensated for legal
services rendered to the heirs, who are directors of the plaintiff-appellant corporation. 12
Now before us, petitioner assigns the following errors:
I.
THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF PIERCING THE VEIL OF
CORPORATE ENTITY.
II.
THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE WAS JURISDICTION OVER
PETITIONER WITH RESPECT TO THE COUNTERCLAIM. 13
Petitioner submits that respondent court should not have resorted to piercing the veil of
corporate fiction because the transaction concerned only respondent Gregorio Manuel and
the heirs of the late Benita Trinidad. According to petitioner, there was no cause of action
by said respondent against petitioner; personal concerns of the heirs should be
distinguished from those involving corporate affairs. Petitioner further contends that the
present case does not fall among the instances wherein the courts may look beyond the
distinct personality of a corporation. According to petitioner, the services for which
respondent Gregorio Manuel seeks to collect fees from petitioner are personal in nature.
Hence, it avers the heirs should have been sued in their personal capacity, and not involve
the corporation.14
With regard to the permissive counterclaim, petitioner also insists that there was no proper
service of the answer containing the permissive counterclaim. It claims that the
counterclaim is a separate case which can only be properly served upon the opposing
party through summons. Further petitioner states that by nature, a permissive
counterclaim is one which does not arise out of nor is necessarily connected with the
subject of the opposing party's claim. Petitioner avers that since there was no service of
summons upon it with regard to the counterclaim, then the court did not acquire
jurisdiction over petitioner. Since a counterclaim is considered an action independent from
the answer, according to petitioner, then in effect there should be two simultaneous

actions between the same parties: each party is at the same time both plaintiff and
defendant with respect to the other, 15 requiring in each case separate summonses.
In their Comment, private respondents focus on the two questions raised by petitioner.
They defend the propriety of piercing the veil of corporate fiction, but deny the necessity
of serving separate summonses on petitioner in regard to their permissive counterclaim
contained in the answer.
Private respondents maintain both trial and appellate courts found that respondent
Gregorio Manuel was employed as assistant legal officer of petitioner corporation, and that
his services were solicited by the incorporators, directors and members to handle and
represent them in Special Proceedings No. 7803, concerning the Intestate Estate of the
late Benita Trinidad. They assert that the members of petitioner corporation took
advantage of their positions by not compensating respondent Gregorio Manuel after the
termination of the estate proceedings despite his repeated demands for payment of his
services. They cite findings of the appellate court that support piercing the veil of
corporate identity in this particular case. They assert that the corporate veil may be
disregarded when it is used to defeat public convenience, justify wrong, protect fraud, and
defend crime. It may also be pierced, according to them, where the corporate entity is
being used as an alter ego, adjunct, or business conduit for the sole benefit of the
stockholders or of another corporate entity. In these instances, they aver, the corporation
should be treated merely as an association of individual persons. 16
Private respondents dispute petitioner's claim that its right to due process was violated
when respondents' counterclaim was granted due course, although no summons was
served upon it. They claim that no provision in the Rules of Court requires service of
summons upon a defendant in a counterclaim. Private respondents argue that when the
petitioner filed its complaint before the trial court it voluntarily submitted itself to the
jurisdiction of the court. As a consequence, the issuance of summons on it was no longer
necessary. Private respondents say they served a copy of their answer with affirmative
defenses and counterclaim on petitioner's former counsel, Nicanor G. Alvarez. While
petitioner would have the Court believe that respondents served said copy upon Alvarez
after he had withdrawn his appearance as counsel for the petitioner, private respondents
assert that this contention is utterly baseless. Records disclose that the answer was
received two (2) days before the former counsel for petitioner withdrew his appearance,
according to private respondents. They maintain that the present petition is but a form of
dilatory appeal, to set off petitioner's obligations to the respondents by running up more
interest it could recover from them. Private respondents therefore claim damages against
petitioner. 17
To resolve the issues in this case, we must first determine the propriety of piercing the veil
of corporate fiction.
Basic in corporation law is the principle that a corporation has a separate personality
distinct from its stockholders and from other corporations to which it may be
connected. 18 However, under the doctrine of piercing the veil of corporate entity, the

corporation's separate juridical personality may be disregarded, for example, when the
corporate identity is used to defeat public convenience, justify wrong, protect fraud, or
defend crime. Also, where the corporation is a mere alter ego or business conduit of a
person, or where the corporation 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, then its distinct personality may be ignored. 19 In these circumstances, the
courts will treat the corporation as a mere aggrupation of persons and the liability will
directly attach to them. The legal fiction of a separate corporate personality in those cited
instances, for reasons of public policy and in the interest of justice, will be justifiably set
aside.
In our view, however, given the facts and circumstances of this case, the doctrine of
piercing the corporate veil has no relevant application here. Respondent court erred in
permitting the trial court's resort to this doctrine. The rationale behind piercing a
corporation's identity in a given case is to remove the barrier between the corporation
from the persons comprising it to thwart the fraudulent and illegal schemes of those who
use the corporate personality as a shield for undertaking certain proscribed activities.
However, in the case at bar, instead of holding certain individuals or persons responsible
for an alleged corporate act, the situation has been reversed. It is the petitioner as a
corporation which is being ordered to answer for the personal liability of certain individual
directors, officers and incorporators concerned. Hence, it appears to us that the doctrine
has been turned upside down because of its erroneous invocation. Note that according to
private respondent Gregorio Manuel his services were solicited as counsel for members of
the Francisco family to represent them in the intestate proceedings over Benita Trinidad's
estate. These estate proceedings did not involve any business of petitioner.
Note also that he sought to collect legal fees not just from certain Francisco family
members but also from petitioner corporation on the claims that its management had
requested his services and he acceded thereto as an employee of petitioner from whom it
could be deduced he was also receiving a salary. His move to recover unpaid legal fees
through a counterclaim against Francisco Motors Corporation, to offset the unpaid balance
of the purchase and repair of a jeep body could only result from an obvious
misapprehension that petitioner's corporate assets could be used to answer for the
liabilities of its individual directors, officers, and incorporators. Such result if permitted
could easily prejudice the corporation, its own creditors, and even other stockholders;
hence, clearly inequitous to petitioner.
Furthermore, considering the nature of the legal services involved, whatever obligation
said incorporators, directors and officers of the corporation had incurred, it was incurred in
their personal capacity. When directors and officers of a corporation are unable to
compensate a party for a personal obligation, it is far-fetched to allege that the
corporation is perpetuating fraud or promoting injustice, and be thereby held liable
therefor by piercing its corporate veil. While there are no hard and fast rules on
disregarding separate corporate identity, we must always be mindful of its function and
purpose. A court should be careful in assessing the milieu where the doctrine of piercing

the corporate veil may be applied. Otherwise an injustice, although unintended, may result
from its erroneous application.
The personality of the corporation and those of its incorporators, directors and officers in
their personal capacities ought to be kept separate in this case. The claim for legal fees
against the concerned individual incorporators, officers and directors could not be properly
directed against the corporation without violating basic principles governing corporations.
Moreover, every action including a counterclaim must be prosecuted or defended in
the name of the real party in interest. 20 It is plainly an error to lay the claim for legal fees
of private respondent Gregorio Manuel at the door of petitioner (FMC) rather than
individual members of the Francisco family.
However, with regard to the procedural issue raised by petitioner's allegation, that it
needed to be summoned anew in order for the court to acquire jurisdiction over it, we
agree with respondent court's view to the contrary. Section 4, Rule 11 of the Rules of Court
provides that a counterclaim or cross-claim must be answered within ten (10) days from
service. Nothing in the Rules of Court says that summons should first be served on the
defendant before an answer to counterclaim must be made. The purpose of a summons is
to enable the court to acquire jurisdiction over the person of the defendant. Although a
counterclaim is treated as an entirely distinct and independent action, the defendant in
the counterclaim, being the plaintiff in the original complaint, has already submitted to the
jurisdiction of the court. Following Rule 9, Section 3 of the 1997 Rules of Civil
Procedure, 21 if a defendant (herein petitioner) fails to answer the counterclaim, then upon
motion of plaintiff, the defendant may be declared in default. This is what happened to
petitioner in this case, and this Court finds no procedural error in the disposition of the
appellate court on this particular issue. Moreover, as noted by the respondent court, when
petitioner filed its motion seeking to set aside the order of default, in effect it submitted
itself to the jurisdiction of the court. As well said by respondent court:
Further on the lack of jurisdiction as raised by plaintiff-appellant[,] [t]he records show that
upon its request, plaintiff-appellant was granted time to file a motion for reconsideration of
the disputed decision. Plaintiff-appellant did file its motion for reconsideration to set aside
the order of default and the judgment rendered on the counterclaim.
Thus, even if the court acquired no jurisdiction over plaintiff-appellant on the counterclaim,
as it vigorously insists, plaintiff-appellant is considered to have submitted to the court's
jurisdiction when it filed the motion for reconsideration seeking relief from the court.
(Soriano vs. Palacio, 12 SCRA 447). A party is estopped from assailing the jurisdiction of a
court after voluntarily submitting himself to its jurisdiction. (Tejones vs. Gironella, 159
SCRA 100). Estoppel is a bar against any claims of lack of jurisdiction. (Balais vs. Balais,
159 SCRA 37). 22
WHEREFORE, the petition is hereby GRANTED and the assailed decision is hereby
REVERSED insofar only as it held Francisco Motors Corporation liable for the legal
obligation owing to private respondent Gregorio Manuel; but this decision is without

prejudice to his filing the proper suit against the concerned members of the Francisco
family in their personal capacity. No pronouncement as to costs.1wphi1.nt
SO ORDERED.
G.R. No. 142616

July 31, 2001

PHILIPPINE NATIONAL BANK, petitioner,

vs.
RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN GENERAL
MERCHANDISE,respondents.
KAPUNAN, J.:
In a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner
seeks to annul and set aside the Court of Appeals' decision in C.A. CV G.R. S.P. No. 55374
dated March 27, 2000, affirming the Order issuing a writ of preliminary injunction of the
Regional Trial Court of Makati, Branch 147 dated June 30, 1999, and its Order dated
October 4, 1999, which denied petitioner's motion to dismiss.
The antecedents of this case are as follows:
Petitioner Philippine National Bank is a domestic corporation organized and existing under
Philippine law. Meanwhile, respondents Ritratto Group, Inc., Riatto International, Inc. and
Dadasan General Merchandise are domestic corporations, likewise, organized and existing
under Philippine law.
On May 29, 1996, PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB,
organized and doing business in Hong Kong, extended a letter of credit in favor of the
respondents in the amount of US$300,000.00 secured by real estate mortgages
constituted over four (4) parcels of land in Makati City. This credit facility was later
increased successively to US$1,140,000.00 in September 1996; to US$1,290,000.00 in
November 1996; to US$1,425,000.00 in February 1997; and decreased to
US$1,421,316.18 in April 1998. Respondents made repayments of the loan incurred by
remitting those amounts to their loan account with PNB-IFL in Hong Kong.
However, as of April 30, 1998, their outstanding obligations stood at US$1,497,274.70.
Pursuant to the terms of the real estate mortgages, PNB-IFL, through its attorney-in-fact
PNB, notified the respondents of the foreclosure of all the real estate mortgages and that
the properties subject thereof were to be sold at a public auction on May 27, 1999 at the
Makati City Hall.
On May 25, 1999, respondents filed a complaint for injunction with prayer for the issuance
of a writ of preliminary injunction and/or temporary restraining order before the Regional
Trial Court of Makati. The Executive Judge of the Regional Trial Court of Makati issued a 72hour temporary restraining order. On May 28, 1999, the case was raffled to Branch 147 of

the Regional Trial Court of Makati. The trial judge then set a hearing on June 8, 1999. At
the hearing of the application for preliminary injunction, petitioner was given a period of
seven days to file its written opposition to the application. On June 15, 1999, petitioner
filed an opposition to the application for a writ of preliminary injunction to which the
respondents filed a reply. On June 25, 1999, petitioner filed a motion to dismiss on the
grounds of failure to state a cause of action and the absence of any privity between the
petitioner and respondents. On June 30, 1999, the trial court judge issued an Order for the
issuance of a writ of preliminary injunction, which writ was correspondingly issued on July
14, 1999. On October 4, 1999, the motion to dismiss was denied by the trial court judge
for lack of merit.
Petitioner, thereafter, in a petition for certiorari and prohibition assailed the issuance of
the writ of preliminary injunction before the Court of Appeals. In the impugned
decision,1 the appellate court dismissed the petition. Petitioner thus seeks recourse to this
Court and raises the following errors:
1.
THE COURT OF APPEALS PALPABLY ERRED IN NOT DISMISSING THE COMPLAINT A QUO,
CONSIDERING THAT BY THE ALLEGATIONS OF THE COMPLAINT, NO CAUSE OF ACTION
EXISTS AGAINST PETITIONER, WHICH IS NOT A REAL PARTY IN INTEREST BEING A MERE
ATTORNEY-IN-FACT AUTHORIZED TO ENFORCE AN ANCILLARY CONTRACT.
2.
THE COURT OF APPEALS PALPABLY ERRED IN ALLOWING THE TRIAL COURT TO ISSUE IN
EXCESS OR LACK OF JURISDICTION A WRIT OF PRELIMINARY INJUNCTION OVER AND
BEYOND WHAT WAS PRAYED FOR IN THE COMPLAINT A QUO CONTRARY TO CHIEF OF
STAFF, AFP VS. GUADIZ JR., 101 SCRA 827.2
Petitioner prays, inter alia, that the Court of Appeals' Decision dated March 27, 2000 and
the trial court's Orders dated June 30, 1999 and October 4, 1999 be set aside and the
dismissal of the complaint in the instant case. 3
In their Comment, respondents argue that even assuming arguendo that petitioner and
PNB-IFL are two separate entities, petitioner is still the party-in-interest in the application
for preliminary injunction because it is tasked to commit acts of foreclosing respondents'
properties.4 Respondents maintain that the entire credit facility is void as it contains
stipulations in violation of the principle of mutuality of contracts. 5 In addition, respondents
justified the act of the court a quo in applying the doctrine of "Piercing the Veil of
Corporate Identity" by stating that petitioner is merely an alter ego or a business conduit
of PNB-IFL.6
The petition is impressed with merit.

Respondents, in their complaint, anchor their prayer for injunction on alleged invalid
provisions of the contract:
GROUNDS
I
THE DETERMINATION OF THE INTEREST RATES BEING LEFT TO THE SOLE DISCRETION OF
THE DEFENDANT PNB CONTRAVENES THE PRINCIPAL OF MUTUALITY OF CONTRACTS.
II
THERE BEING A STIPULATION IN THE LOAN AGREEMENT THAT THE RATE OF INTEREST
AGREED UPON MAY BE UNILATERALLY MODIFIED BY DEFENDANT, THERE WAS NO
STIPULATION THAT THE RATE OF INTEREST SHALL BE REDUCED IN THE EVENT THAT THE
APPLICABLE MAXIMUM RATE OF INTEREST IS REDUCED BY LAW OR BY THE MONETARY
BOARD.7
Based on the aforementioned grounds, respondents sought to enjoin and restrain PNB
from the foreclosure and eventual sale of the property in order to protect their rights to
said property by reason of void credit facilities as bases for the real estate mortgage over
the said property.8
The contract questioned is one entered into between respondent and PNB-IFL, not PNB. In
their complaint, respondents admit that petitioner is a mere attorney-in-fact for the PNBIFL with full power and authority to, inter alia, foreclose on the properties mortgaged to
secure their loan obligations with PNB-IFL. In other words, herein petitioner is an agent
with limited authority and specific duties under a special power of attorney incorporated in
the real estate mortgage. It is not privy to the loan contracts entered into by respondents
and PNB-IFL.
The issue of the validity of the loan contracts is a matter between PNB-IFL, the petitioner's
principal and the party to the loan contracts, and the respondents. Yet, despite the
recognition that petitioner is a mere agent, the respondents in their complaint prayed that
the petitioner PNB be ordered to re-compute the rescheduling of the interest to be paid by
them in accordance with the terms and conditions in the documents evidencing the credit
facilities, and crediting the amount previously paid to PNB by herein respondents. 9
Clearly, petitioner not being a part to the contract has no power to re-compute the interest
rates set forth in the contract. Respondents, therefore, do not have any cause of action
against petitioner.
The trial court, however, in its Order dated October 4, 1994, ruled that since PNB-IFL, is a
wholly owned subsidiary of defendant Philippine National Bank, the suit against the
defendant PNB is a suit against PNB-IFL. 10 In justifying its ruling, the trial court, citing the
case of Koppel Phil. Inc. vs. Yatco,11 reasoned that the corporate entity may be disregarded

where a corporation is the mere alter ego, or business conduit of a person or where the
corporation 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. 12
We disagree.
The general rule is that as a legal entity, a corporation has a personality distinct and
separate from its individual stockholders or members, and is not affected by the personal
rights, obligations and transactions of the latter. 13 The mere fact that a corporation owns
all of the stocks of another corporation, taken alone is not sufficient to justify their being
treated as one entity. If used to perform legitimate functions, a subsidiary's separate
existence may be respected, and the liability of the parent corporation as well as the
subsidiary will be confined to those arising in their respective business. The courts may in
the exercise of judicial discretion step in to prevent the abuses of separate entity privilege
and pierce the veil of corporate entity.
We find, however, that the ruling in Koppel finds no application in the case at bar. In said
case, this Court disregarded the separate existence of the parent and the subsidiary on
the ground that the latter was formed merely for the purpose of evading the payment of
higher taxes. In the case at bar, respondents fail to show any cogent reason why the
separate entities of the PNB and PNB-IFL should be disregarded.
While there exists no definite test of general application in determining when a subsidiary
may be treated as a mere instrumentality of the parent corporation, some factors have
been identified that will justify the application of the treatment of the doctrine of the
piercing of the corporate veil. The case of Garrett vs. Southern Railway Co.14 is
enlightening. The case involved a suit against the Southern Railway Company. Plaintiff was
employed by Lenoir Car Works and alleged that he sustained injuries while working for
Lenoir. He, however, filed a suit against Southern Railway Company on the ground that
Southern had acquired the entire capital stock of Lenoir Car Works, hence, the latter
corporation was but a mere instrumentality of the former. The Tennessee Supreme Court
stated that as a general rule the stock ownership alone by one corporation of the stock of
another does not thereby render the dominant corporation liable for the torts of the
subsidiary unless the separate corporate existence of the subsidiary is a mere sham, or
unless the control of the subsidiary is such that it is but an instrumentality or adjunct of
the dominant corporation. Said Court then outlined the circumstances which may be useful
in the determination of whether the subsidiary is but a mere instrumentality of the parentcorporation:
The Circumstance rendering the subsidiary an instrumentality. It is manifestly impossible
to catalogue the infinite variations of fact that can arise but there are certain common
circumstances which are important and which, if present in the proper combination, are
controlling.
These are as follows:

(a) The parent corporation owns all or most of the capital stock of the subsidiary.
(b) The parent and subsidiary corporations have common directors or officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise
causes its incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.
(g) The subsidiary has substantially no business except with the parent corporation or no
assets except those conveyed to or by the parent corporation.
(h) In the papers of the parent corporation or in the statements of its officers, the
subsidiary is described as a department or division of the parent corporation, or its
business or financial responsibility is referred to as the parent corporation's own.
(i) The parent corporation uses the property of the subsidiary as its own.
(j) The directors or executives of the subsidiary do not act independently in the interest of
the subsidiary but take their orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are not observed.
The Tennessee Supreme Court thus ruled:
In the case at bar only two of the eleven listed indicia occur, namely, the ownership of
most of the capital stock of Lenoir by Southern, and possibly subscription to the capital
stock of Lenoir. . . The complaint must be dismissed.
Similarly, in this jurisdiction, we have held that the doctrine of piercing the corporate veil
is an equitable doctrine developed to address situations where the separate corporate
personality of a corporation is abused or used for wrongful purposes. The doctrine applies
when the corporate fiction is used to defeat public convenience, justify wrong, protect
fraud or defend crime, or when it is made as a shield to confuse the legitimate issues, or
where a corporation is the mere alter ego or business conduit of a person, or where the
corporation 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. 15
In Concept Builders, Inc. v. NLRC,16 we have laid the test in determining the applicability of
the doctrine of piercing the veil of corporate fiction, to wit:

1. Control, not mere majority or complete 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 plaintiffs 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 the operation.17
Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no
showing of the indicative factors that the former corporation is a mere instrumentality of
the latter are present. Neither is there a demonstration that any of the evils sought to be
prevented by the doctrine of piercing the corporate veil exists. Inescapably, therefore, the
doctrine of piercing the corporate veil based on the alter ego or instrumentality doctrine
finds no application in the case at bar.
In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the
significant legal relationship involved in this case since the petitioner was not sued
because it is the parent company of PNB-IFL. Rather, the petitioner was sued because it
acted as an attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings. A suit
against an agent cannot without compelling reasons be considered a suit against the
principal. Under the Rules of Court, every action must be prosecuted or defended in the
name of the real party-in-interest, unless otherwise authorized by law or these Rules. 18 In
mandatory terms, the Rules require that "parties-in-interest without whom no final
determination can be had, an action shall be joined either as plaintiffs or defendants." 19 In
the case at bar, the injunction suit is directed only against the agent, not the principal.
Anent the issuance of the preliminary injunction, the same must be lifted as it is a mere
provisional remedy but adjunct to the main suit. 20 A writ of preliminary injunction is an
ancillary or preventive remedy that may only be resorted to by a litigant to protect or
preserve his rights or interests and for no other purpose during the pendency of the
principal action. The dismissal of the principal action thus results in the denial of the
prayer for the issuance of the writ. Further, there is no showing that respondents are
entitled to the issuance of the writ. Section 3, Rule 58, of the 1997 Rules of Civil Procedure
provides:
SECTION 3. Grounds for issuance of preliminary injunction. A preliminary injunction may
be granted when it is established:

(a) That the applicant is entitled to the relief demanded, and the whole or part of such
relief consists in restraining the commission or continuance of the act or acts complained
of, or in requiring the performance of an act or acts, either for a limited period or
perpetually,
(b) That the commission, continuance or non-performance of the acts or acts complained
of during the litigation would probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or
is procuring or suffering to be done, some act or acts probably in violation of the rights of
the applicant respecting the subject of the action or proceeding, and tending to render the
judgment ineffectual.
Thus, an injunctive remedy may only be resorted to when there is a pressing necessity to
avoid injurious consequences which cannot be remedied under any standard
compensation.21 Respondents do not deny their indebtedness. Their properties are by their
own choice encumbered by real estate mortgages. Upon the non-payment of the loans,
which were secured by the mortgages sought to be foreclosed, the mortgaged properties
are properly subject to a foreclosure sale. Moreover, respondents questioned the alleged
void stipulations in the contract only when petitioner initiated the foreclosure proceedings.
Clearly, respondents have failed to prove that they have a right protected and that the
acts against which the writ is to be directed are violative of said right. 22 The Court is not
unmindful of the findings of both the trial court and the appellate court that there may be
serious grounds to nullify the provisions of the loan agreement. However, as earlier
discussed, respondents committed the mistake of filing the case against the wrong party,
thus, they must suffer the consequences of their error.
All told, respondents do not have a cause of action against the petitioner as the latter is
not privy to the contract the provisions of which respondents seek to declare void.
Accordingly, the case before the Regional Trial Court must be dismissed and the
preliminary injunction issued in connection therewith, must be lifted.
IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The assailed decision of the
Court of Appeals is hereby REVERSED. The Orders dated June 30, 1999 and October 4,
1999 of the Regional Trial Court of Makati, Branch 147 in Civil Case No. 99-1037 are hereby
ANNULLED and SET ASIDE and the complaint in said case DISMISSED.
SO ORDERED.
G.R. No. L-78412 September 26, 1989
TRADERS ROYAL BANK, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, HON. BALTAZAR M. DIZON, Presiding
Judge, Regional Trial Court, Branch 113, Pasay City and ALFREDO
CHING, respondents.

San Juan, Africa, Gonzalez and San Agustin for petitioner.

Balgos and Perez for respondents.

GRINO-AQUINO, J.:
This petition for certiorari assails the Court of Appeals' decision dated April 29, 1987 in CAG.R. SP No. 03593, entitled "Alfredo Ching vs. Hon. Baltazar M. Dizon and Traders Royal
Bank" nullifying the Regional Trial Court's orders dated August 15,1983 and May 24,1984
and prohibiting it from further proceeding in Civil Case No. 1028-P.
On March 30,1982, the Philippine Blooming Mills, Inc. (PBM) and Alfredo Ching jointly
submitted to the Securities and Exchange Commission a petition for suspension of
payments (SEC No. 2250) where Alfredo Ching was joined as co-petitioner because under
the law, he was allegedly entitled, as surety, to avail of the defenses of PBM and he was
expected to raise most of the stockholders' equity of Pl00 million being required under the
plan for the rehabilitation of PBM. Traders Royal Bank was included among PBM's creditors
named in Schedule A accompanying PBM's petition for suspension of payments.
On May 13, 1983, the petitioner bank filed Civil Case No. 1028-P in the Regional Trial
Court, Branch CXIII in Pasay City, against PBM and Alfredo Ching, to collect P22,227,794.05
exclusive of interests, penalties and other bank charges representing PBM's outstanding
obligation to the bank. Alfredo Ching, a stockholder of PBM, was impleaded as codefendant for having signed as a surety for PBM's obligations to the extent of ten million
pesos (Pl0,000,000) under a Deed of Suretyship dated July 21, 1977.
In its en banc decision in SEC-EB No. 018 (Chung Ka Bio, et al. vs. Hon. Antonio R.
Manabat, et al.), the SEC declared that it had assumed jurisdiction over petitioner Alfredo
Ching pursuant to Section 6, Rule 3 of the new Rules of Procedure of the SEC providing
that "parties in interest without whom no final determination can be had of an action shall
be joined either as complainant, petitioner or respondent" to prevent multiplicity of suits.
On July 9, 1982, the SEC issued an Order placing PBM's business, including its assets and
liabilities, under rehabilitation receivership, and ordered that "all actions for claims listed
in Schedule A of the petition pending before any court or tribunal are hereby suspended in
whatever stage the same may be, until further orders from the Commission" (p. 22, Rollo).
As directed by the SEC, said order was published once a week for three consecutive weeks
in the Bulletin Today, Philippine Daily Express and Times Journal at the expense of PBM and
Alfredo Ching.
PBM and Ching jointly filed a motion to dismiss Civil Case No. 1028-P in the RTC, Pasay
City, invoking the pendency in the SEC of PBM's application for suspension of payments
(which Ching co-signed) and over which the SEC had already assumed jurisdiction.

Before the motion to dismiss could be resolved, the court dropped PBM from the
complaint, on motion of the plaintiff bank, for the reason that the SEC had already placed
PBM under rehabilitation receivership.
On August 15, 1983, the trial court denied Ching's motion to dismiss the complaint against
himself. The court pointed out that "P.D. 1758 is only concerned with the activities of
corporations, partnerships and associations. Never was it intended to regulate and/or
control activities of individuals" (p.11, Rollo). Ching's motion for reconsideration of that
order was denied on May 24,1984. Respondent Judge argued that under P ' D. 902-A, as
amended, the SEC may not validly acquire jurisdiction over an individual, like Ching (p. 62,
Rollo).
Ching filed a petition for certiorari and prohibition in the Court of Appeals (CA-G.R. SP No.
03593) to annul the orders of respondent Judge and to prohibit him from further
proceeding in the civil case.
The main issue raised in the petition was whether the court a quo could acquire
jurisdiction over Ching in his personal and individual capacity as a surety of PBM in the
collection suit filed by the bank, despite the fact that PBM's obligation to the bank had
been placed under receivership by the SEC.
On April 29, 1987, the Court of Appeals granted the writs prayed for. It nullified the
questioned orders of respondent Judge and prohibited him from further proceeding in Civil
Case No. 1028-P, except to enter an order dismissing the case. The pertinent ruling of the
Court of Appeals reads:
In sum, since the SEC had assumed jurisdiction over petitioner in SEC Case No. 2250 and
reiterating the propriety of such assumption in SEC-EB No. 018; and since under PD 902-A,
as amended by PD 1758, ... upon appointment of a ... rehabilitation receiver... pursuant to
this Decree, all actions for claims against corporation ... under management or
receivership pending before any court, tribunal, board or body shall be suspended
accordingly ... respondent judge clearly acted without jurisdiction in taking cognizance of
the civil case in the court a quo brought by respondent bank to enforce the surety
agreement against petitioner for the purpose of collecting payment of PBM's outstanding
obligations. Respondent bank should have questioned the SEC's assumption of jurisdiction
over petitioner in an appellate forum and not in the court a quo, a tribunal with which the
SEC enjoys a co-equal and coordinate rank. (p. 27, Rollo.)
The Bank assails that decision in this petition for review alleging that the appellate court
erred;
1. in holding that jurisdiction over respondent Alfredo Ching was assumed by the SEC
because he was a co-signer or surety of PBM and that the lower court may not assume
jurisdiction over him so as to avoid multiplicity of suits; and

2. in holding that the jurisdiction assumed by the SEC over Ching was to the exclusion of
courts or tribunals of coordinate rank.
The petition for review is meritorious.
Although Ching was impleaded in SEC Case No. 2250, as a co-petitioner of PBM, the SEC
could not assume jurisdiction over his person and properties. The Securities and Exchange
Commission was empowered, as rehabilitation receiver, to take custody and control of the
assets and properties of PBM only, for the SEC has jurisdiction over corporations only not
over private individuals, except stockholders in an intra-corporate dispute (Sec. 5, P.D.
902-A and Sec. 2 of P.D. 1758). Being a nominal party in SEC Case No. 2250, Ching's
properties were not included in the rehabilitation receivership that the SEC constituted to
take custody of PBM's assets. Therefore, the petitioner bank was not barred from filing a
suit against Ching, as a surety for PBM. An anomalous situation would arise if individual
sureties for debtor corporations may escape liability by simply co- filing with the
corporation a petition for suspension of payments in the SEC whose jurisdiction is limited
only to corporations and their corporate assets.
The term "parties-in-interest" in Section 6, Rule 3 of the SEC's New Rules of Procedure
contemplates only private individuals sued or suing as stockholders, directors, or officers
of a corporation.
Ching can be sued separately to enforce his liability as surety for PBM, as expressly
provided by Article 1216 of the New Civil Code:
ART. 1216. The creditor may proceed against any of the solidary debtors or all of them
simultaneously. The demand made against one of them shall not be an obstacle to those
which may subsequently be directed against the others, as long as the debt has not been
fully collected.
It is elementary that a corporation has a personality distinct and separate from its
individual stockholders or members. Being an officer or stockholder of a corporation does
not make one's property the property also of the corporation, for they are separate entities
(Adelio Cruz vs. Quiterio Dalisay, 152 SCRA 482).
Ching's act of joining as a co-petitioner with PBM in SEC Case No. 2250 did not vest in the
SEC jurisdiction over his person or property, for jurisdiction does not depend on the
consent or acts of the parties but upon express provision of law (Tolentino vs. Social
Security System, 138 SCRA 428; Lee vs. Municipal Trial Court of Legaspi City, Br. I, 145
SCRA 408).
WHEREFORE, the petition for review is granted. The decision of the Court of Appeals in CAG.R. SP No. 03593 is set aside. Respondent Judge of the Regional Trial Court in Pasay City
is ordered to reinstate Civil Case No. 1028-P and to proceed therein against the private
respondent Alfredo Ching. Costs against the private respondent.

SO ORDERED.
G.R. No. 58168 December 19, 1989
CONCEPCION MAGSAYSAY-LABRADOR, SOLEDAD MAGSAYSAY-CABRERA, LUISA
MAGSAYSAY-CORPUZ, assisted be her husband, Dr. Jose Corpuz, FELICIDAD P.
MAGSAYSAY, and MERCEDES MAGSAYSAY-DIAZ, petitioners,
vs.
THE COURT OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY, Special
Administratrix of the Estate of the late Genaro F. Magsaysay respondents.

FERNAN, C.J.:
In this petition for review on certiorari, petitioners seek to reverse and set aside [1] the
decision of the Court of Appeals dated July l3, 1981, 1 affirming that of the Court of First
Instance of Zambales and Olongapo City which denied petitioners' motion to intervene in
an annulment suit filed by herein private respondent, and [2] its resolution dated
September 7, 1981, denying their motion for reconsideration.
Petitioners are raising a purely legal question; whether or not respondent Court of Appeals
correctly denied their motion for intervention.
The facts are not controverted.
On February 9, 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of
the estate of the late Senator Genaro Magsaysay, brought before the then Court of First
Instance of Olongapo an action against Artemio Panganiban, Subic Land Corporation
(SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the Register of Deeds of
Zambales. In her complaint, she alleged that in 1958, she and her husband acquired, thru
conjugal funds, a parcel of land with improvements, known as "Pequena Island", covered
by TCT No. 3258; that after the death of her husband, she discovered [a] an annotation at
the back of TCT No. 3258 that "the land was acquired by her husband from his separate
capital;" [b] the registration of a Deed of Assignment dated June 25, 1976 purportedly
executed by the late Senator in favor of SUBIC, as a result of which TCT No. 3258 was
cancelled and TCT No. 22431 issued in the name of SUBIC; and [c] the registration of Deed
of Mortgage dated April 28, 1977 in the amount of P 2,700,000.00 executed by SUBIC in
favor of FILMANBANK; that the foregoing acts were void and done in an attempt to defraud
the conjugal partnership considering that the land is conjugal, her marital consent to the
annotation on TCT No. 3258 was not obtained, the change made by the Register of Deeds
of the titleholders was effected without the approval of the Commissioner of Land
Registration and that the late Senator did not execute the purported Deed of Assignment
or his consent thereto, if obtained, was secured by mistake, violence and intimidation. She
further alleged that the assignment in favor of SUBIC was without consideration and
consequently null and void. She prayed that the Deed of Assignment and the Deed of

Mortgage be annulled and that the Register of Deeds be ordered to cancel TCT No. 22431
and to issue a new title in her favor.
On March 7, 1979, herein petitioners, sisters of the late senator, filed a motion for
intervention on the ground that on June 20, 1978, their brother conveyed to them one-half
(1/2 ) of his shareholdings in SUBIC or a total of 416,566.6 shares and as assignees of
around 41 % of the total outstanding shares of such stocks of SUBIC, they have a
substantial and legal interest in the subject matter of litigation and that they have a legal
interest in the success of the suit with respect to SUBIC.
On July 26, 1979, the court denied the motion for intervention, and ruled that petitioners
have no legal interest whatsoever in the matter in litigation and their being alleged
assignees or transferees of certain shares in SUBIC cannot legally entitle them to
intervene because SUBIC has a personality separate and distinct from its stockholders.
On appeal, respondent Court of Appeals found no factual or legal justification to disturb
the findings of the lower court. The appellate court further stated that whatever claims the
petitioners have against the late Senator or against SUBIC for that matter can be
ventilated in a separate proceeding, such that with the denial of the motion for
intervention, they are not left without any remedy or judicial relief under existing law.
Petitioners' motion for reconsideration was denied. Hence, the instant recourse.
Petitioners anchor their right to intervene on the purported assignment made by the late
Senator of a certain portion of his shareholdings to them as evidenced by a Deed of Sale
dated June 20, 1978. 2 Such transfer, petitioners posit, clothes them with an interest,
protected by law, in the matter of litigation.
Invoking the principle enunciated in the case of PNB v. Phil. Veg. Oil Co., 49 Phil. 857,862 &
853 (1927), 3petitioners strongly argue that their ownership of 41.66% of the entire
outstanding capital stock of SUBIC entitles them to a significant vote in the corporate
affairs; that they are affected by the action of the widow of their late brother for it
concerns the only tangible asset of the corporation and that it appears that they are more
vitally interested in the outcome of the case than SUBIC.
Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, this Court affirms
the respondent court's holding that petitioners herein have no legal interest in the subject
matter in litigation so as to entitle them to intervene in the proceedings below. In the case
of Batama Farmers' Cooperative Marketing Association, Inc. v. Rosal, 4 we held: "As clearly
stated in Section 2 of Rule 12 of the Rules of Court, to be permitted to intervene in a
pending action, the party must have a legal interest in the matter in litigation, or in the
success of either of the parties or an interest against both, or he must be so situated as to
be adversely affected by a distribution or other disposition of the property in the custody
of the court or an officer thereof ."

To allow intervention, [a] it must be shown that the movant has legal interest in the matter
in litigation, or otherwise qualified; and [b] consideration must be given as to whether the
adjudication of the rights of the original parties may be delayed or prejudiced, or whether
the intervenor's rights may be protected in a separate proceeding or not. Both
requirements must concur as the first is not more important than the second. 5
The interest which entitles a person to intervene in a suit between other parties must be in
the matter in litigation and of such direct and immediate character that the intervenor will
either gain or lose by the direct legal operation and effect of the judgment. Otherwise, if
persons not parties of the action could be allowed to intervene, proceedings will become
unnecessarily complicated, expensive and interminable. And this is not the policy of the
law. 6
The words "an interest in the subject" mean a direct interest in the cause of action as
pleaded, and which would put the intervenor in a legal position to litigate a fact alleged in
the complaint, without the establishment of which plaintiff could not recover. 7
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. 8
Petitioners further contend that the availability of other remedies, as declared by the Court
of appeals, is totally immaterial to the availability of the remedy of intervention.
We cannot give credit to such averment. As earlier stated, that the movant's interest may
be protected in a separate proceeding is a factor to be considered in allowing or
disallowing a motion for intervention. It is significant to note at this juncture that as per
records, there are four pending cases involving the parties herein, enumerated as follows:
[1] Special Proceedings No. 122122 before the CFI of Manila, Branch XXII, entitled
"Concepcion Magsaysay-Labrador, et al. v. Subic Land Corp., et al.", involving the validity
of the transfer by the late Genaro Magsaysay of one-half of his shareholdings in Subic
Land Corporation; [2] Civil Case No. 2577-0 before the CFI of Zambales, Branch III,
"Adelaida Rodriguez-Magsaysay v. Panganiban, etc.; Concepcion Labrador, et al.
Intervenors", seeking to annul the purported Deed of Assignment in favor of SUBIC and its
annotation at the back of TCT No. 3258 in the name of respondent's deceased husband;
[3] SEC Case No. 001770, filed by respondent praying, among other things that she be
declared in her capacity as the surviving spouse and administratrix of the estate of Genaro
Magsaysay as the sole subscriber and stockholder of SUBIC. There, petitioners, by motion,

sought to intervene. Their motion to reconsider the denial of their motion to intervene was
granted; [4] SP No. Q-26739 before the CFI of Rizal, Branch IV, petitioners herein filing a
contingent claim pursuant to Section 5, Rule 86, Revised Rules of Court. 9 Petitioners'
interests are no doubt amply protected in these cases.
Neither do we lend credence to petitioners' argument that they are more interested in the
outcome of the case than the corporation-assignee, owing to the fact that the latter is
willing to compromise with widow-respondent and since a compromise involves the giving
of reciprocal concessions, the only conceivable concession the corporation may give is a
total or partial relinquishment of the corporate assets. 10
Such claim all the more bolsters the contingent nature of petitioners' interest in the
subject of litigation.
The factual findings of the trial court are clear on this point. The petitioners cannot claim
the right to intervene on the strength of the transfer of shares allegedly executed by the
late Senator. The corporation did not keep books and records. 11 Perforce, no transfer was
ever recorded, much less effected as to prejudice third parties. The transfer must be
registered in the books of the corporation to affect third persons. The law on corporations
is explicit. Section 63 of the Corporation Code provides, thus: "No transfer, however, shall
be valid, except as between the parties, until the transfer is recorded in the books of the
corporation showing the names of the parties to the transaction, the date of the transfer,
the number of the certificate or certificates and the number of shares transferred."
And even assuming arguendo that there was a valid transfer, petitioners are nonetheless
barred from intervening inasmuch as their rights can be ventilated and amply protected in
another proceeding.
WHEREFORE, the instant petition is hereby DENIED. Costs against petitioners.
SO ORDERED.
G.R. No. 82797 February 27, 1991
GOOD EARTH EMPORIUM INC., and LIM KA PING, petitioners,
vs.
HONORABLE COURT OF APPEALS and ROCES-REYES REALTY INC., respondents.
A.E. Dacanay for petitioners.
Antonio Quintos Law Office for private respondent.

PARAS, J.:p

This is a petition for review on certiorari of the December 29, 1987 decision * of the Court
of Appeals in CA-G.R. No. 11960 entitled "ROCES-REYES REALTY, INC. vs. HONORABLE
JUDGE REGIONAL TRIAL COURT OF MANILA, BRANCH 44, GOOD EARTH EMPORIUM, INC.
and LIM KA PING" reversing the decision of respondent Judge ** of the Regional Trial Court
of Manila, Branch 44 in Civil Case No. 85-30484, which reversed the resolution of the
Metropolitan Trial Court Of Manila, Branch 28 in Civil Case No. 09639, *** denying herein
petitioners' motion to quash the alias writ of execution issued against them.
As gathered from the records, the antecedent facts of this case, are as follows:
A Lease Contract, dated October 16, 1981, was entered into by and between ROCESREYES REALTY, INC., as lessor, and GOOD EARTH EMPORIUM, INC., as lessee, for a term of
three years beginning November 1, 1981 and ending October 31, 1984 at a monthly rental
of P65,000.00 (Rollo, p. 32; Annex "C" of Petition). The building which was the subject of
the contract of lease is a five-storey building located at the corner of Rizal Avenue and
Bustos Street in Sta. Cruz, Manila.
From March 1983, up to the time the complaint was filed, the lessee had defaulted in the
payment of rentals, as a consequence of which, private respondent ROCES-REYES REALTY,
INC., (hereinafter designated as ROCES for brevity) filed on October 14, 1984, an
ejectment case (Unlawful Detainer) against herein petitioners, GOOD EARTH EMPORIUM,
INC. and LIM KA PING, hereinafter designated as GEE, (Rollo, p. 21; Annex "B" of the
Petition). After the latter had tendered their responsive pleading, the lower court (MTC,
Manila) on motion of Roces rendered judgment on the pleadings dated April 17, 1984, the
dispositive portion of which states:
Judgment is hereby rendered ordering defendants (herein petitioners) and all persons
claiming title under him to vacate the premises and surrender the same to the plaintiffs
(herein respondents); ordering the defendants to pay the plaintiffs the rental of
P65,000.00 a month beginning March 1983 up to the time defendants actually vacate the
premises and deliver possession to the plaintiff; to pay attorney's fees in the amount of
P5,000.00 and to pay the costs of this suit. (Rollo, p. 111; Memorandum of Respondents)
On May 16, 1984, Roces filed a motion for execution which was opposed by GEE on May
28, 1984 simultaneous with the latter's filing of a Notice of Appeal (Rollo, p. 112, Ibid.). On
June 13, 1984, the trial court resolved such motion ruling:
After considering the motion for the issuance of a writ of execution filed by counsel for the
plaintiff (herein respondents) and the opposition filed in relation thereto and finding that
the defendant failed to file the necessary supersedeas bond, this court resolved to grant
the same for being meritorious. (Rollo, p. 112)
On June 14, 1984, a writ of execution was issued by the lower court. Meanwhile, the
appeal was assigned to the Regional Trial Court (Manila) Branch XLVI. However, on August
15, 1984, GEE thru counsel filed with the Regional Trial Court of Manila, a motion to
withdraw appeal citing as reason that they are satisfied with the decision of the

Metropolitan Trial Court of Manila, Branch XXVIII, which said court granted in its Order of
August 27, 1984 and the records were remanded to the trial court (Rollo, p. 32; CA
Decision). Upon an ex-parte Motion of ROCES, the trial court issued an Alias Writ of
Execution dated February 25, 1985 (Rollo, p. 104; Annex "D" of Petitioner's Memorandum),
which was implemented on February 27, 1985. GEE thru counsel filed a motion to quash
the writ of execution and notice of levy and an urgent Ex-parte Supplemental Motion for
the issuance of a restraining order, on March 7, and 20, 1985, respectively. On March 21,
1985, the lower court issued a restraining order to the sheriff to hold the execution of the
judgment pending hearing on the motion to quash the writ of execution (Rollo, p. 22; RTC
Decision). While said motion was pending resolution, GEE filed a Petition for Relief from
judgment before another court, Regional Trial Court of Manila, Branch IX, which petition
was docketed as Civil Case No. 80-30019, but the petition was dismissed and the
injunctive writ issued in connection therewith set aside. Both parties appealed to the Court
of Appeals; GEE on the order of dismissal and Roces on denial of his motion for indemnity,
both docketed as CA-G.R. No. 15873-CV. Going back to the original case, the Metropolitan
Trial Court after hearing and disposing some other incidents, promulgated the questioned
Resolution, dated April 8, 1985, the dispositive portion of which reads as follows:
Premises considered, the motion to quash the writ is hereby denied for lack of merit.
The restraining orders issued on March 11 and 23, 1985 are hereby recalled, lifted and set
aside. (Rollo, p. 20, MTC Decision)
GEE appealed and by coincidence. was raffled to the same Court, RTC Branch IX. Roces
moved to dismiss the appeal but the Court denied the motion. On certiorari, the Court of
Appeals dismissed Roces' petition and remanded the case to the RTC. Meantime, Branch IX
became vacant and the case was re-raffled to Branch XLIV.
On April 6, 1987, the Regional Trial Court of Manila, finding that the amount of P1 million
evidenced by Exhibit "I" and another P1 million evidenced by the pacto de retro sale
instrument (Exhibit "2") were in full satisfaction of the judgment obligation, reversed the
decision of the Municipal Trial Court, the dispositive portion of which reads:
Premises considered, judgment is hereby rendered reversing the Resolution appealed from
quashing the writ of execution and ordering the cancellation of the notice of levy and
declaring the judgment debt as having been fully paid and/or Liquidated. (Rollo, p. 29).
On further appeal, the Court of Appeals reversed the decision of the Regional Trial Court
and reinstated the Resolution of the Metropolitan Trial Court of Manila, the dispositive
portion of which is as follows:
WHEREFORE, the judgment appealed from is hereby REVERSED and the Resolution dated
April 8, 1985, of the Metropolitan Trial Court of Manila Branch XXXIII is hereby REINSTATED.
No pronouncement as to costs. (Rollo, p. 40).

GEE's Motion for Reconsideration of April 5, 1988 was denied (Rollo, p. 43). Hence, this
petition.
The main issue in this case is whether or not there was full satisfaction of the judgment
debt in favor of respondent corporation which would justify the quashing of the Writ of
Execution.
A careful study of the common exhibits (Exhibits 1/A and 2/B) shows that nowhere in any
of said exhibits was there any writing alluding to or referring to any settlement between
the parties of petitioners' judgment obligation (Rollo, pp. 45-48).
Moreover, there is no indication in the receipt, Exhibit "1", that it was in payment, full or
partial, of the judgment obligation. Likewise, there is no indication in the pacto de
retro sale which was drawn in favor of Jesus Marcos Roces and Marcos V. Roces and not the
respondent corporation, that the obligation embodied therein had something to do with
petitioners' judgment obligation with respondent corporation.
Finding that the common exhibit, Exhibit 1/A had been signed by persons other than
judgment creditors (Roces-Reyes Realty, Inc.) coupled with the fact that said exhibit was
not even alleged by GEE and Lim Ka Ping in their original motion to quash the alias writ of
execution (Rollo, p. 37) but produced only during the hearing (Ibid.) which production
resulted in petitioners having to claim belatedly that there was an "overpayment" of about
half a million pesos (Rollo, pp. 25-27) and remarking on the utter absence of any writing in
Exhibits "1/A" and "2/B" to indicate payment of the judgment debt, respondent Appellate
Court correctly concluded that there was in fact no payment of the judgment debt. As
aptly observed by the said court:
What immediately catches one's attention is the total absence of any writing alluding to or
referring to any settlement between the parties of private respondents' (petitioners')
judgment obligation. In moving for the dismissal of the appeal Lim Ka Ping who was then
assisted by counsel simply stated that defendants (herein petitioners) are satisfied with
the decision of the Metropolitan Trial Court (Records of CA, p. 54).
Notably, in private respondents' (petitioners') Motion to Quash the Writ of Execution and
Notice of Levy dated March 7, 1985, there is absolutely no reference to the alleged
payment of one million pesos as evidenced by Exhibit 1 dated September 20, 1984. As
pointed out by petitioner (respondent corporation) this was brought out by Linda Panutat,
Manager of Good Earth only in the course of the latter's testimony. (Rollo, p. 37)
Article 1240 of the Civil Code of the Philippines provides that:
Payment shall be made to the person in whose favor the obligation has been constituted,
or his successor in interest, or any person authorized to receive it.
In the case at bar, the supposed payments were not made to Roces-Reyes Realty, Inc. or
to its successor in interest nor is there positive evidence that the payment was made to a

person authorized to receive it. No such proof was submitted but merely inferred by the
Regional Trial Court (Rollo, p. 25) from Marcos Roces having signed the Lease Contract as
President which was witnessed by Jesus Marcos Roces. The latter, however, was no longer
President or even an officer of Roces-Reyes Realty, Inc. at the time he received the money
(Exhibit "1") and signed the sale with pacto de retro (Exhibit "2"). He, in fact, denied being
in possession of authority to receive payment for the respondent corporation nor does the
receipt show that he signed in the same capacity as he did in the Lease Contract at a time
when he was President for respondent corporation (Rollo, p. 20, MTC decision).
On the other hand, Jesus Marcos Roces testified that the amount of P1 million evidenced
by the receipt (Exhibit "1") is the payment for a loan extended by him and Marcos Roces in
favor of Lim Ka Ping. The assertion is home by the receipt itself whereby they
acknowledged payment of the loan in their names and in no other capacity.
A corporation has a personality distinct and separate from its individual stockholders or
members. Being an officer or stockholder of a corporation does not make one's property
also of the corporation, and vice-versa, for they are separate entities (Traders Royal Bank
v. CA-G.R. No. 78412, September 26, 1989; Cruz v. Dalisay, 152 SCRA 482). Shareowners
are in no legal sense the owners of corporate property (or credits) which is owned by the
corporation as a distinct legal person (Concepcion Magsaysay-Labrador v. CA-G.R. No.
58168, December 19, 1989). As a consequence of the separate juridical personality of a
corporation, the corporate debt or credit is not the debt or credit of the stockholder, nor is
the stockholder's debt or credit that of the corporation (Prof. Jose Nolledo's "The
Corporation Code of the Philippines, p. 5, 1988 Edition, citing Professor Ballantine).
The absence of a note to evidence the loan is explained by Jesus Marcos Roces who
testified that the IOU was subsequently delivered to private respondents (Rollo, pp. 9798). Contrary to the Regional Trial Court's premise that it was incumbent upon respondent
corporation to prove that the amount was delivered to the Roces brothers in the payment
of the loan in the latter's favor, the delivery of the amount to and the receipt thereof by
the Roces brothers in their names raises the presumption that the said amount was due to
them. There is a disputable presumption that money paid by one to the other was due to
the latter (Sec. 5(f) Rule 131, Rules of Court). It is for GEE and Lim Ka Ping to prove
otherwise. In other words, it is for the latter to prove that the payments made were for the
satisfaction of their judgment debt and not vice versa.
The fact that at the time payment was made to the two Roces brothers, GEE was also
indebted to respondent corporation for a larger amount, is not supportive of the Regional
Trial Court's conclusions that the payment was in favor of the latter, especially in the case
at bar where the amount was not receipted for by respondent corporation and there is
absolutely no indication in the receipt from which it can be reasonably inferred, that said
payment was in satisfaction of the judgment debt. Likewise, no such inference can be
made from the execution of the pacto de retro sale which was not made in favor of
respondent corporation but in favor of the two Roces brothers in their individual capacities
without any reference to the judgment obligation in favor of respondent corporation.

In addition, the totality of the amount covered by the receipt (Exhibit "1/A") and that of the
sale with pacto de retro(Exhibit "2/B") all in the sum of P2 million, far exceeds petitioners'
judgment obligation in favor of respondent corporation in the sum of P1,560,000.00 by
P440,000.00, which militates against the claim of petitioner that the aforesaid amount
(P2M) was in full payment of the judgment obligation.
Petitioners' explanation that the excess is interest and advance rentals for an extension of
the lease contract (Rollo, pp. 25-28) is belied by the absence of any interest awarded in
the case and of any agreement as to the extension of the lease nor was there any such
pretense in the Motion to Quash the Alias Writ of Execution.
Petitioners' averments that the respondent court had gravely abused its discretion in
arriving at the assailed factual findings as contrary to the evidence and applicable
decisions of this Honorable Court are therefore, patently unfounded. Respondent court was
correct in stating that it "cannot go beyond what appears in the documents submitted by
petitioners themselves (Exhibits "1" and "2") in the absence of clear and convincing
evidence" that would support its claim that the judgment obligation has indeed been fully
satisfied which would warrant the quashal of the Alias Writ of Execution.
It has been an established rule that when the existence of a debt is fully established by
the evidence (which has been done in this case), the burden of proving that it has been
extinguished by payment devolves upon the debtor who offers such a defense to the claim
of the plaintiff creditor (herein respondent corporation) (Chua Chienco v. Vargas, 11 Phil.
219; Ramos v. Ledesma, 12 Phil. 656; Pinon v. De Osorio, 30 Phil. 365). For indeed, it is
well-entrenched in Our jurisprudence that each party in a case must prove his own
affirmative allegations by the degree of evidence required by law (Stronghold Insurance
Co. v. CA, G.R. No. 83376, May 29,1989; Tai Tong Chuache & Co. v. Insurance Commission,
158 SCRA 366).
The appellate court cannot, therefore, be said to have gravely abused its discretion in
finding lack of convincing and reliable evidence to establish payment of the judgment
obligation as claimed by petitioner. The burden of evidence resting on the petitioners to
establish the facts upon which their action is premised has not been satisfactorily
discharged and therefore, they have to bear the consequences.
PREMISES CONSIDERED, the petition is hereby DENIED and the Decision of the Respondent
court is hereby AFFIRMED, reinstating the April 8, 1985 Resolution of the Metropolitan Trial
Court of Manila.
SO ORDERED.
G.R. No. L-57767 January 31, 1984
ALBERTO S. SUNIO and ILOCOS COMMERCIAL CORPORATION, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, NEMESIO VALENTON, SANTOS DEL

ROSARIO, VICENTE TAPUCOL, ANDRES SOLIS, CRESCENCIO SOLLER, CECILIO

LABUNI, SOTERO L. TUMANG, in his capacity as Asst. Regional Director for
Arbitration, Regional Office No. 1, Ministry of Labor & Employment, and
AMBROSIO B. SISON, in his capacity as Acting Regional Sheriff, Regional Office
No. 1, Ministry of Labor & Employment, respondents.
Yolanda Bustamante for petitioners.
The Solicitor General for respondent NLRC.
Benjamin F. Baterina for private respondents,

MELENCIO-HERRERA, J.:
In this special civil action for certiorari and Prohibition with Preliminary Injunction,
petitioners Alberto Sunio and Ilocos Commercial Corporation seek to set aside the
Resolution of March 24, 1981 of the National Labor Relations Commission (NLRC), which
affirmed the Decision of the Assistant Regional Director, dated November 5, 1979, in NLRC
Case No. RB-1-1228-78, directing petitioners and Cabugao Ice Plant Incorporated to
reinstate private respondents to their former position without loss of seniority and
privileges and to pay them backwages from February 1, 1978 to the date of their actual
reinstatement.
The controversy arose from the following antecedents:
On July 30,1973, EM Ramos & Company, Inc. (EMRACO for brevity) and Cabugao Ice Plant,
Inc. (CIPI for short), sister corporations, sold an ice plant to Rizal Development and Finance
Corporation RDFC with a mortgage on the same properties constituted by the latter in
favor of the former to secure the payment of the balance of the purchase price. 1
By virtue of that sale, EMRACO-CIPI terminated the services of all their employees
including private respondents herein, and paid them their separation pay. RDFC hired its
own own employees and operated the plant.
On November 28, 1973, RDFC sold the ice plant to petitioner Ilocos Commercial
Corporation ICC headed by its President and General Manager, petitioner Alberto S. Sunio.
Petitioners also hired their own employees as private respondents were no longer in the
plant. The sale was subject to the mortgage in favor of EMRACO-CIPI. Both RDFC-ICC failed
to pay the balance of the purchase price, as a consequence of which, EMRACO-CIPI
instituted extrajudicial foreclosure proceedings. The properties were sold at public auction
on August 30, 1974, the highest bidders being EMRACO CIPI. On the same date, said
companies obtained an ex-parte Writ of Possession from the Court of First Instance of
Ilocos Sur in Civil Case No. 3026-V.

On the same date, August 30, 1974, EMRACO-CIPI sold the ice plant to Nilo Villanueva,
suspect to the right of redemption of RDFC. Nilo Villanueva then re-hired private
respondents.
On August 27, 1975, RDFC redeemed the ice plant. Because of the gate to Nilo Villanueva,
EMRACO-CIPI were unable to turn over possession to RDFC and/or petitioners, prompting
the latter to file a complaint for recovery of possession against EMRACO-CIPI with the then
Court of First Instance of Ilocos Sur (Civil Case No. 81-KC). Nilo Villanueva intervened
Said Court ordered the issuance of a Writ of Preliminary Mandatory Injunction placing
RDFC in possession of the ice plant. EMPRACO-CIPI and Villanueva appealed to the Court of
Appeals (CA-GR No. 05880- SP which upheld the questionee, Order. A Petition for certiorari
with this Court (L-46376) assailing that Resolution was denied for lack of merit or January
6, 1978.
On February 1, 1978, RDFC and petitioners finally obtains possession of the ice plant by
virtue of the Mandatory Injunction previously issued, which ordered defendant "particularly
Nilo C. Villanueva and his agents representatives, or any person found in the premises to
vacate and surrender the property in litigation." 2 Petitioners did not re-employ private
respondents.
Private respondents filed complaints against petitioners for illegal dismissal with the
Regional Office, Ministry of Labor & Employment, San Fernando, La Union.
On November 5, 1979, the Assistant Regional Director rendered a decision the decretal
portion of which reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, respondents Cabugao Ice Plant, Inc., Ilocos
Commercial Corporation and/or Alberto Sunio, are hereby directed to reinstate the
complainants to their former positions without loss of seniority privileges and to pay their
backwages from February 1, 1978 to the date when they are actually reinstated
Petitioners appealed to the NLRC, which affirmed the Regional Director's decision and
dismissed the appeal for lack of merit on March 24, 1981 reasoning that when RDFC took
possession of the property and private respondents were terminated in 1973, the latter
already had a vested right to their security of tenure, and when they were rehired those
rights continued. 3
Petitioners are now before us assailing the Asst. Regional Director's Decision, dated
November 5, 1979, the Resolution of the NLRC, Second Division, dated March 24, 1981, as
well as the Writ of Execution issued pursuant thereto dated July 14, 1981, for P156,720.80
representing backwages. They raise as lone issue:
That respondent National Labor Relations Commission and/or Asst. Regional Director
Sotero Tumang acted in excess of jurisdiction and/or with grave abuse of discretion

amounting to lack of jurisdiction in rendering the decision and the resolution in NLRC Case
No. RB-1-1228-78, and in ordering the execution of said decision
We issued a Temporary Restraining Order to maintain the status quo, resolved to give due
course to the Petition, and required the parties to submit their respective Briefs. Only
petitioners have complied.
Did public respondents' act with grave abuse of on amounting to lack of jurisdiction in
ordering the reinstatement of private respondents and the payment of their backwages?
Petitioners deny any employer-employee relationship with private respondents arguing
that no privity of contract exists between them, the latter being the employees of Nilo
Villanueva who re-hired them when he took over the operation of the ice plant from CIPI;
that private respondents should go after Nilo Villanueva for whatever rights they may be
entitled to, or the CIPI which is still existing, that no succession of rights and obligations
took place between Villanueva and petitioners as the transfer of possession was a
consequence of the exercise of the right of redemption; that the amount of backwages
was determined without petitioners being given a chance to be heard and that granting
that respondents are entitled to the reliefs adjudged, such award cannot be enforced
against petitioner Sunio, who was impleaded in the complaint as the General Manager of
ICC.
Public respondent, in its Comment, countered that the sale of a business of 'a going
concern does not ipso factoterminate employer-employee relations when the successoremployer continues the business operation of the predecessor-employer in an essentially
unchanged manner. Private respondents argue that the change of management or
ownership of a business entity is not one of the just causes for the termination of services
of employees under Article 283 of the Labor Code, as amended. Both respondents
additionally claim that petitioner Sunio, as the General Manager of ICC and owner of one
half (1/2) of its interest, is personally liable for his malicious act of illegally dismissing
private respondents, for no ground exists to justify their termination.
We sustain petitioners.
It is true that the sale of a business of a going concern does not ipso facto terminate the
employer-employee relations insofar as the successor-employer is concerned, and that
change of ownership or management of an establishment or company is not one of the
just causes provided by law for termination of employment. The situation here, however,
was not one of simple change of ownership. Of note is the fact that when, on July 30,
1973, EMRACO-CIPI sold the plant to RDFC, CIPI had terminated the services of its
employees, including herein private respondents, giving them their separation pay which
they had accepted. When RDFC took over ownership and management, therefore, it hired
its own employees, not the private respondents, who were no longer there. RDFC
subsequently sold the property to petitioners on November 28, 1973. But by reason of
their failure to pay the balance of the purchase price, EMRACO-CIPI foreclosed on the
mortgage over the ice plant; the property was sold at public auction to EMRACO-CIPI as

the highest bidders, and they eventually re-possessed the plant on August 30, 1974.
During all the period that RDFC and petitioners were operating the plant from July 30,
1973 to August 30, 1974, they had their own employees. CIPI-EMRACO then sold the plant,
also on August 30, 1974, to Nilo Villanueva, subject to RDFC's right of redemption. Nilo
Villanueva then rehired private respondents as employees of the plant, also in 1974.
In 1975, RDFC redeemed the property and demanded possession but EMRACO-CIPI and
Nilo Villanueva resisted so that petitioners were compelled to sue for recovery of
possession, obtaining it, however, only in 1978.
Under those circumstances, it cannot be justifiably said that the plant together with its
staff and personnel moved from one ownership to another. No succession of employment
rights and obligations can be said to have taken place between EMRACO-CIPI-Nilo
Villanueva, on the one hand, and petitioners on the other. Petitioners eventually acquired
possession by virtue of the exercise of their right of redemption and of a Mandatory
Injunction in their favor which ordered Nilo Villanueva and "any person found in the
premises" to vacate. What is more, when EMRACO-CIPI sold the ice plant to RDFC in 1973,
private respondents' employment was terminated by EMRACO-CIPI and they were given
their separation pay, which they accepted. During the thirteen months, therefore, that
RDFC and petitioners were in possession and operating the plant up to August, 1974, they
hired their own employees, not the private respondents. In fact, it may even be said that
private respondents had slept on their rights when they failed to contest such termination
at the time of sale, if they believed they had rights to protect. Further, Nilo Villanueva
rehired private respondents in August, 1974, subject to a resolutory condition. That
condition having arisen, the rights of private respondents who claim under him mast be
deemed to have also ceased.
Private respondents can neither successfully invoke security of tenure in their favor. Their
tenure should not be reckoned from 1967 because they were already terminated in 1973.
Private respondents were only rehired in 1974 by Nilo Villanueva. Petitioners took over by
judicial process in 1978 so that private respondents had actually only four years of rehired
employment with Nilo Villanueva, during all of which period, petitioners fought hard
against Nilo Villanueva to recover possession of the plant. Insofar as petitioners are
concerned therefore, there was no tenurial security to speak of that would entitle private
respondents to reinstatement and backwages. We come now to the personal liability of
petitioner, Sunio, who was made jointly and severally responsible with petitioner company
and CIPI for the payment of the backwages of private respondents. This is reversible error.
The Assistant Regional Director's Decision failed to disclose the reason why he was made
personally liable. Respondents, however, alleged as grounds thereof, his being the owner
of one-half (1/2) interest of said corporation, and his alleged arbitrary dismissal of private
respondents. Petitioner Sunio was impleaded in the Complaint his capacity as General
Manager of petitioner corporation. where appears to be no evidence on record that he
acted maliciously or in bad faith in terminating the services of private respondents. His
act, therefore, was within the scope of his authority and was a corporate act.

It is basic that a corporation is invested by law with a personality separate and distinct
from those of the persons composing it as well as from that of any other legal entity to
which it may be related. 4 Mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient
ground for disregarding the separate corporate personality. 5 Petitioner Sunio, therefore,
should not have been made personally answerable for the payment of private
respondents' back salaries.
WHEREFORE, the assailed Decision and Resolution, dated November 5, 1979 and March
24, 1981, respectively, and the consequent Writ of Execution are hereby SET ASIDE and
the Temporary Restraining Order heretofore issued by this Court hereby made permanent.
Public respondents are hereby ordered to return to petitioners the latter's levied properties
in their possession. No costs.
SO ORDERED.
G.R. No. L-36187 January 17, 1989
REYNOLDS PHILIPPINE CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS and SERG'S PRODUCTS, INC., respondents.
Belo, Abiera & Associates for petitioner.
Ponciano U. Pitargue for private respondent.

GRIO-AQUINO, J.:
This is a petition for review of the decision dated December 1, 1972 of the Court of
Appeals in "Reynolds Philippine Corporation vs. Serg's Products, Inc." dismissing the
petitioner's collection suit.
In its complaint of June 2, 1966, the petitioner sought to recover from the private
respondent Serg's Products, Inc. the sum of P32,565.62 representing the unpaid price of
aluminum foils and cores sold and delivered by it to the latter.
The private respondent denied liability for payment of the account on the ground that the
aluminum foils and cores were ordered or purchased by Serg's Chocolate Products, a
partnership of Antonio Goquiolay and Luis Sequia Mendoza, not Serg's Products, Inc., a
corporation managed and controlled by Antonio Goquiolay and his wife Conchita
Goquiolay, as majority stockholders and principal officers.
On July 31, 1968, the trial court rendered judgment finding the private respondent liable
and ordered it

to pay 'Reynolds Philippine Corporation the balance of its account in the sum of Thirty Two
Thousand Five Hundred Sixty Five Pesos and Sixty-Two Centavos (P32,565.62) with 6%
interest per annum from January 26, 1966, until paid; Two thousand Pesos (P2,000.00) as
attorney's fees, and litigation expenses; and costs of this suit.' (p. 46, Rollo, pp. 88-89,
Record on Appeal.)
Upon private respondent's appeal to the Court of Appeals, that court on December 1,
1972, reversed the trial court and dismissed the complaint on the ground that petitioner
had no cause of action against Serg's Products, Inc. (p. 43, Rollo).
Reynolds is now before Us, seeking a review of the Court of Appeals' decision. The petition
raises a factual issue: Who is the real debtor of the petitioner? Is it the partnership of
Goquiolay and Mendoza, doing business under the trade name of "Serg's Chocolate
Products,' or the respondent corporation, Serg's Products, Inc.?
Based on the testimony of the witnesses, the trial court held the corporation, "Serg's
Products, Inc.," liable as the real buyer and user of the aluminum foils and cores. However,
the Court of Appeals relied on the sales orders, delivery receipts, statements of account
and demand letters where the purchaser named was "Serg's Chocolate Products," the
partnership.
While it is an established principle that in a petition for review under Rule 45 of the Rules
of Court, the Supreme Court will review only questions of law and that the factual findings
of the Court of Appeals are conclusive upon Us, nevertheless, there are certain recognized
exceptions to that rule. The exceptions are: (1) when the conclusion is grounded entirely
on speculation, surmises and conjectures; (2) when the inference is manifestly mistaken,
absurd, and impossible; (3) where there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the Court in making its
findings, went beyond the issues of the case, and the same are contrary to the admissions
of both the appellant and the appellee; (6) when the findings of the Appellate Court are
contrary to those of the trial court; (7) when the findings are without citation of specific
evidence on which they are based (Mendoza vs. Court of Appeals, 156 SCRA 597;
Manlapaz vs. Court of Appeals, 147 SCRA 238 [1987]; Sacay vs. Sandiganbayan, 142 SCRA
609 [1986] Guita vs. CA, 139 SCRA 576 [1985]). It was held that where findings of the
Court of Appeals and trial court are contrary to each other, the Supreme Court may
scrutinize the evidence on record (Cruz vs. CA, 129 SCRA 222 [1984]).
In this case, the trial court which heard the witnesses testify, hence was in a superior
position to assess the probative worth of their evidence, found that although the
commercial documents were indeed in the name of "Serg's Chocolate Products," the
following facts proved that the true purchaser of the aluminum foils and cores from the
petitioner, was "Serg's Products, Inc." not the partnership denominated "Serg's Chocolate
Products:"

(1) The rolls of aluminum foil were ordered and signed for by Antonio Goquiolay president
of Serg's Products, Inc. They were delivered to, accepted, and used by said corporation in
its chocolate factory at Cainta, Rizal (p. 47,Rollo; p. 8, Brief for plaintiff-appellee);
(2) Antonio Goquiolay did not appear in court to shed light on whether he signed the
purchase orders and delivery receipts as managing partner of "Serg's Chocolate Products,"
or as president and general manager of "Serg's Products, Inc." Jesus V. Toledo, the Chief
Accountant of Serg's Products, Inc., admitted, however, that "we (Serg's products, Inc.) are
buying from them (Reynolds) the aluminum foil." (t.s.n., Dec. 7, 1967, P. 9);
(3) The error in Identifying the customer as 'Serg's Chocolate Products," instead of Serg's
Products, Inc." in the sales orders, delivery receipts and invoices was caused by Antonio
Goquiolay himself who placed the orders;
(4) The trial court noted that "Serg's Products, Inc." "acted in such a manner that third
persons dealing with it were led to believe that 'Serg's Products, Inc.' and 'Serg's Chocolate
Products' were one and the same party. Serg's Products, Inc. has its address at 109
Cordillera St., Quezon City, which is also the address of Serg's Chocolate Products (see
Exhibit 'NN'), and the managing partner of the partnership doing business under the name
'Serg's Chocolate Products is Antonio Goquiolay who is also the manager of Serg's
Products Inc." (p. 46, Rollo; p. 82, Record on Appeal.)
(5) Serg's Chocolate Products ceased to exist in 1959 for under the partnership Agreement
between Goquiolay and Mendoza (Exh. "2") the partnership which they formed on March
17, 1954 had a term of five (5) years, or up to 1959 only. While that term was renewable
for the same period upon agreement of the parties, no evidence was adduced that it was
renewed after it expired in 1959. Having ceased to exist since 1959, the partnership has
no more juridical personality nor capacity to sue and be sued. "Serg's Chocolate Products"
is nothing but a name now which the manager of Serg's Products, Inc. appears to have
used to confuse, deceive, and delay, if not completely evade, the payment of the
corporation's just debt to the petitioner.
Those important facts were overlooked by the Court of Appeals.
In La Campana Coffee Factory, Inc. vs. Kaisahan ng mga Manggagawa sa La Campana, 93
Phil. 160, where a somewhat similar situation existed as in this case, We ruled:
The attempt to make the two factories appear as two separate businesses, when in reality
they are but one, is but a devise to defeat the ends of the law and should not be permitted
to prevail. Although the coffee factory is a corporation and, by legal fiction, an entity
existing separate and apart from persons composing it, T and his family, it is settled that
this fiction of law, which had been introduced as a matter of convenience and to subserve
the ends of justice cannot be invoked to further an end subversive of that purpose. (13
Am. Jur. 160-162; Anno. 1 A.L.R. 612, s. 34 A.L.R. 599.)

Similarly, apropos is the decision of this Court in Telephone Engineering & Service
Company, Inc. vs. Workmen's Compensation Commission, et al., 104 SCRA 354, where We
held:
Petitioner admitted that TESCO and UMACOR are sister companies operating under one
single management and based in the same building. Although respect for corporate
personality as such, is the general rule, there are exceptions. In appropriate cases, the veil
of corporate fiction may be pierced as when the same is made as a shield to confuse
legitimate issues.
WHEREFORE, the petition for review is granted. The decision of the Court of Appeals is
reversed and set aside and that of the trial court is reinstated. Costs against the private
respondent Serg's Products, Inc.
SO ORDERED.