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[G.R. No. 119877.

March 31, 1997]

FEDERICO B. GUILAS, respondents.
At fore, once again, is the jurisdictional tug of war between the National Labor Relations Commission (NLRC)
and the Securities & Exchange Commission (SEC) in this special civil action for certiorari under Rule 65 of the
Revised Rules of Court. It seeks to set aside the Resolutions of the NLRC in NLRC NCR Case No. 00-05-02780-92
(NLRC CA No. 004329-93) dated 9 March 1995 and 4 April 1995 which reversed the decision of Labor Arbiter
Oswald Lorenzo and denied petitioners' motion for reconsideration, respectively.
Petitioner Galeria de Magallanes Condominium Association, Inc. (Galeria for brevity) is a non-stock, nonprofit corporation formed in accordance with R.A. No. 4726, otherwise known as the Condominium Act. "Its
primary purpose is to hold title to the common areas of the Galeria de Magallanes Condominium Project and to
manage and administer the same for the use and convenience of the residents and/or owners."[1] Petitioner
Bienvenido Ongkingco was the president of Galeria at the time private respondent filed his complaint.
On 1 September 1990, Galeria's Board of Directors appointed private respondent Federico B. Guilas as
Administrator/Superintendent. He was given a "monthly salary of P10,000 subject to review after five (5) months
and subsequently thereafter as Galeria's finances improved."[2]
As Administrator, private respondent was tasked with the maintenance of the "performance and elegance of the
common areas of the condominium and external appearance of the compound thereof for the convenience and
comfort of the residents as well as to keep up the quality image, and hence the value of the investment for the
owners thereof."[3]
However, on 17 March 1992, through a resolution passed by the Board of Directors of Galeria, private
respondent was not re-appointed as Administrator.
As a result, on 15 May 1992, private respondent instituted a complaint against petitioners for illegal dismissal
and non-payment of salaries with the NLRC.
In response, on 22 July 1992, petitioners filed a motion to dismiss alleging that it is the SEC, and not the labor
arbiter, which has jurisdiction over the subject matter of the complaint.
Labor Arbiter Lorenzo granted the aforestated motion to dismiss in his order dated 29 December 1992. He
ruled, thus:
A judicious calibration of the position taken by the contending parties preponderate clearly in favor of respondents,
that this case is within the jurisdiction of the Securities and Exchange Commission and not this Office (Labor
Our reasons are as follows:
The Position of Administrator or Superintendent is a corporate position, whose appointment
depended on the Board of Directors. As such, the position of the administrator is a corporate creation.
Clearly from the respondent corporation's Articles of Incorporation, Art. V, Sec. 6 thereof, the
appointment and removal of the administrator is a prerogative that belongs to the Board, and thereby involves the
exercise of deliberate choice and faculty of discriminative selection.
THIRD. Thus, we find lacking of merit the argument of complainant that since he is not a member of the
condominium association where he was formerly administrator, or is not a unit holder thereof, since a person's
relationship to a corporation is not determinative of the services performed but by the incidents of the relationship as
they exist. (PSBA vs. LEANO, 127 SCRA 778.)
The resolution, therefore, of the other pending incident, which is the MOTION FOR SUBSTITUTION OF
PARTIES is hereby deferred for action by the SEC.

WHEREFORE, in view of all the foregoing considerations, this Office hereby orders the dismissal of the instant
action for reason of lack of jurisdiction. The complainant, if he is mindful should file this case with the Securities
and Exchange Commission.
The NLRC, however, reversed the Labor Arbiter's order in its resolution dated 9 March 1995. It ruled in this
We find merit in the appeal. It cannot be gainsaid that the complainant's cause of action in his complaint is illegal
dismissal which issue falls four square within the jurisdiction of the NLRC. This is so, because while it may be true
that the termination of the complainant was effected allegedly by a resolution of the Board of Directors of the
respondent association, this did not make the dispute intracorporate in nature. Moreover, We have taken note of the
fact that the complainant is neither a member of the association nor an officer thereof. Hence, We are more
convinced that he is an employee of the respondent association occupying the position of administrator who is in
(sic) charged with the function of managing and administering the building or condominium owned by the members.
Indeed, there is a whale of difference between a member of the association who is a part owner of the building and a
mere employee performing managerial and administrative functions which are necessary in the usual undertaking of
the respondent Association. The complainant falls under the second category.
And, to the point of being repetitious, it needs to be stressed that the fact that the complainant was removed by the
Board of Directors did not change the issue from an illegal dismissal case to an intracorporate one. For, what
remains to be resolved here is whether or not the complainant's removal from his position as Administrator was for a
just and valid cause and in compliance with due process. And, as the facts now stand, the issue is within the scope of
authority of the National Labor Relations Commission to resolve.
We simply could not agree with the conclusions of law made by the Arbiter a quo on the applicability of the
provisions of P.D. 902. Our view finds basis in the case of Gregorio Araneta University Foundation vs. Antonio J.
Teodoro and NLRC (167 SCRA 79) wherein the Supreme Court had the occasion to clarify the jurisdiction of the
Securities and Exchange Commission and that of the NLRC. It (Supreme Court) held, thus
"x x x Relying on Philippine School of Business Administration, et al., (127 SCRA 778) and Dy, et al., vs. National
Labor Relations Commission, et al., (145 SCRA 211), Petitioner theorizes that since private respondent was a
corporate officer, the present controversy is within the jurisdiction of the Securities and Exchange Commission,
pursuant to P.D. 902-A, and not in the public respondent.
Without need of applying the rule on estoppel by laches against petitioner, its contention must fail on the ground of
misplaced reliance. As explained in Dy, the same is true with Philippine Business Administration, the controversies
therein were intra corporate in nature and squarely within the purview of Section 5(c), PD. 902-A since the real
question was the invalidity of the board of director's meeting wherein corporate officers involved were not reelected, resulting in the termination of their services." (Underscoring ours.)
As obtaining in this case, no intracorporate controversy exists, hence, the jurisdiction of the NLRC should be
WHEREFORE, finding merit on the appeal, the same is hereby, given due course. Accordingly, the Order appealed
from is declared Null and Void and is hereby, VACATED and SET ASIDE. Accordingly, let the records of the case
be remanded to the Arbitration Branch of origin for further proceedings. With the directive that the instant case be
given priority in the calendar of the Labor Arbiter for the speedy disposition hereon. Concomitant hereto, the
respondents are hereby directed to submit their position paper within ten (10) days from receipt hereof.

Petitioners filed a motion for reconsideration but the same was denied in the NLRC's resolution dated 4 April
1995.[6] Hence, the present recourse.
The petitioners raised a single issue:
The petition is granted.
Specifically delineated in P.D. 902-A are the cases over which the SEC exercises exclusive jurisdiction:
SECTION 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission
over corporations, partnerships and other forms of associations registered with it as expressly granted under existing
laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving:
Devices or schemes employed by or any acts of the board of directors, business associates, its officers or
partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of
the stockholders, partners, members of associations or organizations registered with the Commission.
Controversies arising out of intra-corporate or partnership relations, between and among stockholders,
members, or associates; between any or all of them and the corporation, partnership or association of which they are
stockholders, members or associates, respectively; and between such corporation, partnership or association and the
State insofar as it concerns their individual franchise or right to exist as such entity;
Controversies in the election or appointment of directors, trustees, officers, or managers of such
corporations, partnerships or associations.
Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments
in cases where the corporation, partnership or association possesses property to cover all of its debts but foresees the
impossibility of meeting them when they respectively fall due or in cases where the corporation, partnership or
association has no sufficient assets to cover its liabilities, but is under the Management Committee created pursuant
to this Decree. (Underscoring ours.)
The Solicitor General contends that the case at bar falls outside the purview of the aforequoted provision. He
insists that private respondent was a mere employee of petitioner corporation being tasked mainly, as
administrator/superintendent, with the upkeep of the condominium's common areas. He, thus, maintains that private
respondent cannot be deemed a corporate officer because "it is the nature of one's functions and not the
nomenclature or title given to one's job which determines one's status in a corporation."[7]
The contentions of public respondent lack merit. That private respondent is an officer of petitioner corporation
and not its mere employee cannot be questioned. The by-laws of the Galeria de Magallanes Condominium
Association specifically includes the Superintendent/Administrator in its roster of corporate officers:
Section 1. Executive Officers The Executive officers of the corporation shall be a President, a Vice President, a
Treasurer, all of whom shall be elected by the Board of Directors. They may be removed with or without cause at
any meeting by the concurrence of four directors. The Board of Directors may appoint a Superintendent or
Administrator and such other officers and employees and delineate their powers and duties as the Board shall find
necessary to manage the affairs of the corporation.[8] (Underscoring ours.)

Section 6. The Superintendent or Administrator The Board of Directors may appoint a Superintendent or
Administrator for the condominium project if the activities and financial condition of the Association so warrant. If
one is so appointed, he shall be the principal administrative officer of the Association. He shall attend to routinary
and day-to-day business and activities of the Association and shall keep regular officer hours for the purpose. He
shall have such other duties and powers as may be conferred upon him by the Board of Directors or delegated by the
President of the Association.
At the discretion of the Board of Directors, the work and duties of Superintendent or Administrator may be entrusted
to a juridical entity which is qualified and competent to perform such work.[9]
Closely approximating the dispute at bar is the recent case of Tabang v. NLRC.[10] This Court, through Justice
Florenz D. Regalado, ruled that:
Contrary to the contention of petitioner, a medical director and a hospital administrator are considered as corporate
officers under the by-laws of respondent corporation. Section 2(i), Article I thereof states that one of the powers of
the Board of Trustees is "(t)o appoint a Medical Director, Comptroller/Administrator, Chiefs of Services and such
other officers as it may deem necessary and prescribe their powers and duties."
The president, vice-president, secretary and treasurer are commonly regarded as the principal or executive officers
of a corporation, and modern corporation statutes usually designate them as the officers of the corporation.
However, other offices are sometimes created by the charter or by-laws of a corporation, or the board of directors
may be empowered under the by-laws of a corporation to create additional offices as may be necessary.
It has been held that an "office" is created by the charter of the corporation and the officer is elected by the directors
or stockholders. On the other hand, an "employee" usually occupies no office and generally is employed not by
action of the directors or stockholders but by the managing officer of the corporation who also determines the
compensation to be paid to such employee.
In the case at bar, considering that herein petitioner, unlike an ordinary employee, was appointed by respondent
corporation's Board of Trustees in its memorandum of October 30, 1990, she is deemed an officer of the
corporation. Perforce, Section 5(c) of Presidential Decree No. 902-A, which provides that the SEC exercises
exclusive jurisdiction over controversies in the election or appointment of directors, trustees, officers or managers of
corporations, partnerships or associations, applies in the present dispute. Accordingly, jurisdiction over the same is
vested in the SEC, and not in the Labor Arbiter or the NLRC.
Supplementing the afore-quoted ruling, in Lozon v. NLRC[11] and Espino v. NLRC,[12] citing Fortune Cement
Corp. v. NLRC,[13] we declared that:
A corporate officer's dismissal is always a corporate act and/or an intra-corporate controversy and that nature is not
altered by the reason or wisdom which the Board of Directors may have in taking such action.
Based on the foregoing, we must rule that private respondent was indeed a corporate officer. He was appointed
directly by the Board of Directors not by any managing officer of the corporation and his salary was, likewise, set by
the same Board. Having thus determined, his dismissal or non-appointment is clearly an intra-corporate matter and
jurisdiction, therefore, properly belongs to the SEC and not the NLRC.
The respondents also attack the SEC's jurisdiction over the instant case on grounds that Guilas was not elected
by the Board of Directors but was merely appointed.
This particular argument baffles us. P.D. 902-A cannot be any clearer. Sec. 5(c) of said law expressly covers
both election and appointment of corporate directors, trustees, officers and managers.[14]

It is of no consequence, likewise, that the complaint of private respondent for illegal dismissal includes money
claims, jurisdiction remains with the SEC as ruled in the case of Cagayan de Oro Coliseum, Inc. v. Office of the
Although the reliefs sought by Chaves appear to fall under the jurisdiction of the labor arbiter as they are claims for
unpaid salaries and other remunerations for services rendered, a close scrutiny thereof shows that said claims are
actually part of the perquisites of his position in, and therefore interlinked with his relations with the corporation. In
Dy vs. NLRC, the Court said: "(t)he question of remuneration involving as it does, a person who is not a mere
employee but a stockholder and officer, an integral part, it might be said, of the corporation, is not a simple labor
problem but a matter that comes within the area of corporate affairs and, management, and is in fact a corporate
controversy in contemplation of the Corporation Code."
WHEREFORE, the petition for certiorari is given DUE COURSE, the assailed resolutions of the NLRC are
hereby REVERSED and the Order of the Labor Arbiter dated 29 December 1992 REINSTATED.
[G.R. No. 119310. February 3, 1997]
INC., respondents.
May a co-owner contest as unenforceable a sale of a real property listed in and sold pursuant to the terms of a
judicially-approved compromise agreement but without the knowledge of such co-owner? Is the corporate
secretarys certification of the shareholders and directors resolution authorizing such sale sufficient, or does the
buyer need to go behind such certification and investigate further the truth and veracity thereof?
These questions are answered by this Court as it resolves the instant petition challenging the Decision[1] in CAG.R. SP No. 33307 promulgated May 31, 1994 by the respondent Court,[2] reversing the judgment of the trial court.
The Antecedent Facts
The facts as found by the respondent Court of Appeals are as follows:
On 29 June 1984, (now herein Petitioner) Julieta Esguerra filed a complaint for administration of conjugal
partnership or separation of property against her husband Vicente Esguerra, Jr. before (the trial) court. The said
complaint was later amended on 31 October 1985 impleading V. Esguerra Construction Co., Inc. (VECCI for
brevity) and other family corporations as defendants (Annex C, p. 23, Rollo).
The parties entered into a compromise agreement which was submitted to the court. On the basis of the said
agreement, the court on 11 January 1990 rendered two partial judgments: one between Vicente and (herein
petitioner) and the other as between the latter and VECCI (Annex F and G, pp. 26-27, Rollo). The compromise
agreement between (herein petitioner) and VECCI provides in part:
Plaintiff Julieta V. Esguerra and defendant V. Esguerra Construction Co., Inc., as assisted by their respective
counsels, submitted to this Court on January 11, 1990 a Joint Motion for Partial Judgment Based on Compromise
Agreement, pertinent provisions of which reads as follows:
Defendant V. Esguerra Construction Co., Inc., (VECCI) shall sell/alienate/transfer or dispose of in any
lawful and convenient manner, and under the terms and conditions recited in the enabling resolutions of its Board of
Directors and stockholders, all the following properties:

real estate and building located at 140 Amorsolo Street, Legaspi Village, Makati, Metro Manila;

real estate and building located at 104 Amorsolo Street, Legaspi Village, Makati, Metro Manila;

real estate and improvements located at Barangay San Jose, Antipolo, Rizal;

real estate and improvements located at Barangay San Jose, Antipolo, Rizal;

real estate and improvements located at Kamagong Street, St. Anthony Subdivision, Cainta, Rizal; and

real estate and improvements located at Barangay Malaatis, San Mateo, Rizal.

After the above-mentioned properties shall have been sold/alienated/transferred or disposed of and funds
are realized therefrom, and after all the financial obligations of defendant VECCI (those specified in the enabling
resolutions and such other obligations determined to be due and will become due) are completely paid and/or settled,
defendant VECCI shall cause to be paid and/or remitted to the plaintiff such amount/sum equivalent to fifty percent
(50%) of the (net) resulting balance of such funds.
By virtue of said agreement, Esguerra Bldg. I located at 140 Amorsolo St., Legaspi Village was sold and the
net proceeds distributed according to the agreement. The controversy arose with respect to Esguerra Building II
located at 104 Amorsolo St., Legaspi Village, Makati. (Herein petitioner) started claiming one-half of the rentals of
the said building which VECCI refused. Thus, on 7 August 1990, (herein petitioner) filed a motion with respondent
court praying that VECCI be ordered to remit one-half of the rentals to her effective January 1990 until the same be
sold (p. 28, id.). VECCI opposed said motion (p. 31, Rollo).
On October 30, 1990 respondent (trial) court ruled in favor of (herein petitioner) (p. 34, Rollo) which was
affirmed by this court in a decision dated 17 May 1991 in CA-G.R. SP. No. 2380. VECCI resorted to the Supreme
Court which on 4 May 1992 in G.R. No. 100441 affirmed this courts decision the fallo of which reads:
The petition is without merit. As correctly found by the respondent Court of Appeals, it can be deduced from the
terms of the Compromise Agreement and from the nature of the action in the court a quo that the basis of the equal
division of the proceeds of any sale or disposition of any of the subject properties is the acknowledged ownership of
private respondent over one-half of the said assets. Considering that the other building has yet to be sold, it is but
logical that pending its disposition and conformably with her one-half interest therein, private respondent should be
entitled to half of its rentals which forms part of her share in the fruits of the assets. To accord a different
interpretation of the Compromise Agreement would be prejudicial to the established rights of private respondent.
(p. 36, Rollo).
Meanwhile, Esguerra Bldg. II was sold to (herein private respondent Sureste Properties, Inc.)
for P150,000,000.00 (sic). On 17 June 1993, (Julieta V. Esguerra) filed a motion seeking the nullification of the sale
before respondent (trial) court on the ground that VECCI is not the lawful and absolute owner thereof and that she
has not been notified nor consulted as to the terms and conditions of the sale (p.37, Rollo).
Not being a party to the civil case, (private respondent Sureste) on 23 June 1993 filed a Manifestation
concerning (herein petitioners) motion to declare the sale void ab initio. In its Manifestation (Sureste) points out
that in the compromise agreement executed by VECCI and (Julieta V. Esguerra), she gave her express consent to the
sale of the said building (p.38,Rollo).
On 05 August 1993, respondent judge (who took over the case from Judge Buenaventura Guerrero, now
Associate Justice of this court) issued an Omnibus Order denying among others, (Surestes) motion, to which a
motion for reconsideration was filed.[3]
After trial on the merits, the Regional Trial Court of Makati, Branch 133,[4] rendered its order, the dispositive
portion of which reads:
WHEREFORE, the Court resolves as it is resolved that:
The Omnibus Order of the Court issued on August 5, 1993 is hereby reconsidered and modified to the
effect that:
a. The Notice of Lis Pendens is annotated at the back of the Certificate of Title of Esguerra Bldg. II located at
Amorsolo St., Legaspi Village, Makati, Metro Manila is delivered to be valid and subsisting, the cancellation of the
same is hereby set aside; and,
b. The sale of Esguerra Bldg. II to Sureste Properties, Inc. is declared valid with respect to one-half of the value
thereof but ineffectual and unenforceable with respect to the other half as the acknowledged owner of said portion
was not consulted as to the terms and conditions of the sale.
The other provisions of said Omnibus Order remain undisturbed and are now deemed final and executory.
Sureste Properties, Inc. is hereby enjoined from pursuing further whatever Court action it has filed against
plaintiff as well as plaintiffs tenants at Esguerra Bldg. II;

Plaintiffs Urgent Ex-parte Motion dated December 14, 1993 is hereby DENIED for being moot and
Plaintiff is hereby directed to bring to Court, personally or through counsel, the subject shares of stocks on
February 15, 1994 at 10:30 in the morning for the physical examination of defendant or counsel.
From the foregoing order, herein private respondent Sureste Properties, Inc. interposed an appeal with the
Court of Appeals which ruled in its favor, viz.:
From the foregoing, it is clear that respondent judge abused his discretion when he rendered the sale of the property
unenforceable with respect to one-half.
WHEREFORE, the petition is hereby GRANTED. The assailed order dated 1 February 1994 is hereby SET
ASIDE. No pronouncement as to cost.
Julieta Esguerras Motion for Reconsideration[7] dated June 15, 1994 was denied by the respondent Court in the
second assailed Resolution[8] promulgated on February 23, 1995.
Hence this petition.
The Issues
Petitioner submits the following assignment of errors:
x x x (I)n issuing the Decision (Annex A of the petition) and the Resolution (Annex B of the petition), the
Court of Appeals decided questions of substance contrary to law and applicable jurisprudence and acted
without jurisdiction and/or with grave abuse of discretion when:
It validated the sale by VECCI to Sureste of the subject property without the knowledge and consent of
the acknowledged co-owner thereof and in contravention of the terms of the compromise agreement as well as
the Resolution of this Honorable Court in G.R. No. 100441 wherein this Honorable Court recognized herein
petitioners acknowledged ownership of - - - one-half of the subject property; and,
It held that the trial court acted without jurisdiction and/or abused its discretion when it held that the
questioned sale of the property is ineffectual and unenforceable as to herein petitioners one-half (1/2)
ownership/interest in the property since the sale was made without her knowledge and consent.
A. No proper corporate action of VECCI was made to effect such sale as required under the
compromise agreement;
B. The sale of the subject property was made in violation of the terms of the compromise
agreement in that it was not made with the approval/consent of the acknowledged owner of 1/2 of the said
C. The prior sale of another property (the Esguerra Building I as distinguished from the subject
property which is the Esguerra Building II) included in the said compromise agreement was made only
after the prior approval/consent of petitioner and this procedure established a precedent that applied in the
subsequent sale of the Esguerra Building II; and
D. Respondent Sureste as purchaser pendente lite of the subject property covered by a notice of
lis pendens was in law deemed to have been duly notified of the aforesaid conditions required for a valid
sale of the subject property as well as of petitioners acknowledged ownership - - - over one-half of the
Esguerra Building II.[9]
Simply put, petitioner (1) assails VECCIs sale of Esguerra Building II to private respondent as unenforceable
to the extent of her one-half share, and (2) accuses the appellate court of acting without jurisdiction or with grave
abuse of discretion in reversing the trial courts finding to that effect.
The Courts Ruling

The petition has no merit.

First Issue: Is the Contract of Sale Unenforceable?
The Civil Code provides that a contract is unenforceable when it is x x x entered into in the name of another
person by one who has been given no authority or legal representation, or who has acted beyond his
powers.[10] And that (a) contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, x x x .[11] After a thorough review of
the case at bench, the Court finds the sale of Esguerra Building II by VECCI to private respondent Sureste
Properties, Inc. valid. The sale was expressly and clearly authorized under the judicially-approved compromise
agreement freely consented to and voluntarily signed by petitioner Julieta Esguerra. Thus, petitioners contention
that the sale is unenforceable as to her share for being unauthorized is plainly incongruous with the express authority
granted by the compromise agreement to VECCI, which specified no condition that the latter shall first consult with
the former prior to selling any of the properties listed there. As astutely and correctly found by the appellate Court:
The compromise agreement entered between private respondent (Julieta Esguerra) and VECCI , which was
approved by the court, expressly provides, among others, that the latter shall sell or otherwise dispose of certain
properties, among them, Esguerra Bldgs. I and II, and fifty (50%) percent of the net proceeds thereof to be given to
the former. Pursuant to said agreement, VECCI sold the buildings.x x x



x x x The compromise agreement expressly authorizes VECCI to sell the subject properties, with the only condition
that the sale be in a lawful and convenient manner and under the terms and conditions recited in the enabling
resolutions of its Board of Directors and stockholders. There is nothing in the said agreement requiring VECCI to
consult the private respondent (Julieta Esguerra) before any sale (can be concluded). Thus, when VECCI sold the
property to (Sureste Properties, Inc.) as agreed upon, it need not consult the private respondent.[12]
Moreover, petitioners contention runs counter to Article 1900 of the Civil Code which provides that:
So far as third persons are concerned, an act is deemed to have been performed within the scope of the agents
authority, if such act is within the terms of the power of attorney, as written, even if the agent has in fact exceeded
the limits of his authority according to an understanding between the principal and the agent.
Thus, as far as private respondent Sureste Properties, Inc. is concerned, the sale to it by VECCI was completely
valid and legal because it was executed in accordance with the compromise agreement, authorized not only by the
parties thereto, who became co-principals in a contract of agency created thereby, but by the approving court as
well. Consequently, the sale to Sureste Properties, Inc. of Esguerra Building II cannot in any manner or guise be
deemed unenforceable, as contended by petitioner.
Consultation in the Sale of Esguerra Building I
Not a Binding Precedent
The petitioner further argues that VECCIs consulting her on the terms and conditions of its sale of Esguerra
Building I set a binding precedent to be followed by the latter on subsequent sales. She adds that in failing to
consult her on the sale of Esguerra Building II, VECCI acted unfairly and unjustly as evidenced by (a) the sale of
said building for only P160,000,000.00 instead of P200,000,000.00, which is the best price obtainable in the
market, (b) payment of real estate brokers commission of 5% instead of just 2% as in the sale of Esguerra 1
building, and (c) the denial of petitioners right of first refusal when her offer to purchase her one-half share
for P80,000,000.00 as ordered by the trial court was totally ignored.[13]
The Court is not persuaded. Petitioners argument is debunked by the very nature of a compromise
agreement. The mere fact that petitioner Julieta Esguerra was consulted by VECCI in the sale of Esguerra Building
I did not affect nor vary the terms of the authority to sell granted the former as expressly spelled out in the
judicially-approved compromise agreement because a compromise once approved by final orders of the court has
the force of res judicata between the parties and should not be disturbed except for vices of consent or
forgery.[14]Hence, a decision on a compromise agreement is final and executory, x x x .[15]
Petitioner insists that had she been consulted in the sale of Esguerra Building II, better terms could have been
obtained. This is plainly without legal basis since she already consented to the compromise agreement which
authorized VECCI to sell the properties without the requirement of prior consultation with her. It is a long

established doctrine that the law does not relieve a party from the effects of an unwise, foolish, or disastrous
contract, entered into with all the required formalities and with full awareness of what he was doing. Courts have no
power to relieve parties from obligations voluntarily assumed, simply because their contracts turned out to be
disastrous deals or unwise investments.[16] It is a truism that a compromise agreement entered into by partylitigants, when not contrary to law, public order, public policy, morals, or good custom is a valid contract which is
the law between the parties themselves. It follows, therefore, that a compromise agreement, not tainted with
infirmity, irregularity, fraud or illegality is the law between the parties who are duty bound to abide by it and
observe strictly its terms and conditions[17] as in this case. Incidentally, private respondent Sureste Properties, Inc.
submits that the petitioner offered to buy her one-half share for only P75,000,000.00, not P80,000,000.00.[18] She
therefore valued the whole building only at P150,000,000.00 which amount is P10,000,000.00 less than the price
of P160,000,000.00 paid by private respondent, the highest offer the market has produced in two and a half years the
building was offered for sale. Even the 5% real estate brokers commission was not disparate with the standard
practice in the real estate industry. Thus, the respondent Court aptly stated that:
x x x In affixing her signature on the compromise agreement, private respondent (Julieta Esguerra) has
demonstrated her agreement to all the terms and conditions therein and have (sic) given expressly her consent to all
acts that may be performed pursuant thereto. She can not later on repudiate the effects of her voluntary acts simply
because it does not fit her. Her contention that she was not consulted as to the terms of the sale has no leg to stand
Parenthetically, the previous consultation can be deemed as no more than a mere courtesy extended voluntarily
by VECCI. Besides, such previous consultation -- even assumingarguendo that it was a binding precedent -- cannot
bind private respondent Sureste which was not a party thereto. To declare the sale as infirm or unenforceable is to
heap unfairness upon Sureste Properties, Inc. and to undermine public faith in court decisions approving
compromise agreements.
Right of First Refusal Waived
The argument of petitioner that she was denied her right of first refusal is puerile. This alleged right, like other
rights, may be waived[20]as petitioner did waive it upon entering into the compromise agreement. Corollarily, the
execution of the spouses judicial compromise agreement necessitated the sale of the spouses co-owned properties
and its proceeds distributed fifty percent to each of them which, therefor, resulted in its partition.[21] If petitioner
wanted to keep such right of first refusal, she should have expressly reserved it in the compromise agreement. For
her failure to do so, she must live with its consequences.
VECCIS Sale of Esguerra
Building II A Valid Exercise of Corporate Power
Petitioner contends that VECCI violated the condition in the compromise agreement requiring that the sale be
made under the terms and conditions recited in the enabling resolutions of its Board of Directors and
stockholders.[22] She rues that no shareholders or directors meeting, wherein these resolutions were passed, was
actually held. She thus bewails this sale as improper for not having complied with the requirements mandated by
Section 40 of the Corporation Code.[23]
Petitioners contention is plainly unmeritorious. The trial courts partial decision dated January 11,
1990 approving the compromise agreement clearly showed that the enabling resolutions of its (VECCIs) board of
directors and stockholders referred to were those then already existing; to wit: (1) the resolution of the
stockholders of VECCI dated November 9, 1989, (where) the stockholders authorized VECCI to sell and/or disposed
all or substantially all its property and assets upon such terms and conditions and for such consideration as the board
of directors may deem expedient.[24] (2) the resolution dated 9 November 1989, (where) the board of directors of
VECCI authorized VECCI to sell and/or dispose all or substantially all the property and assets of the corporation, at
the highest available price/s they could be sold or disposed of in cash, and in such manner as may be held
convenient under the circumstances, and authorized the President Vicente B. Esguerra, Jr. to negotiate, contract,
execute and sign such sale for and in behalf of the corporation.[25] VECCIs sale of all the properties mentioned in
the judicially-approved compromise agreement was done on the basis of its Corporate Secretarys Certification of
these two resolutions. The partial decision did not require any further board or stockholder resolutions to make
VECCIs sale of these properties valid. Being regular on its face, the Secretarys Certification was sufficient for
private respondent Sureste Properties, Inc. to rely on. It did not have to investigate the truth of the facts contained in
such certification. Otherwise, business transactions of corporations would become tortuously slow and

unnecessarily hampered. Ineluctably, VECCIs sale of Esguerra Building II to private respondent was not ultra
vires but a valid execution of the trial courts partial decision. Based on the foregoing, the sale is also deemed to
have satisfied the requirements of Section 40 of the Corporation Code.
Furthermore, petitioner Julieta Esguerra is estopped from contesting the validity of VECCIs corporate action
in selling Esguerra Building II on the basis of said resolutions and certification because she never raised this issue in
VECCIs prior sales of the other properties sold including the Esguerra Building I.[26] The same identical resolutions
and certification were used in such prior sales.
Notice of Lis Pendens
Once a notice of lis pendens has been duly registered, any cancellation or issuance of the title of the land
involved as well as any subsequent transaction affecting the same, would have to be subject to the outcome[27] of
the suit. In other words, a purchaser who buys registered land with full notice of the fact that it is in litigation
between the vendor and a third party x x x stands in the shoes of his vendor and his title is subject to the incidents
and result of the pending litigation x x x.[28] In the present case, the purchase made by private respondent Sureste
Properties, Inc. of the property in controversy is subject to the notice of lis pendens annotated on its title. Thus, the
private respondents purchase remains subject to our decision in the instant case. The former is likewise deemed
notified of all the incidents of this case including the terms and conditions for the sale contained in the compromise
agreement. However, petitioners inference that the private respondent is also deemed to have been notified that the
manner of the sale of the properties contained in the compromise agreement should be made only upon prior
consent/conformity of the herein petitioner is non sequitur. Nowhere in the compromise agreement was this
inference expressly or impliedly stated. In the final analysis, the determination of this issue ultimately depends on
this Courts disposition of this case.
Appealed Decision Consistent with Previous
Court of Appeals and Supreme Court Decisions
Petitioner maintains that the trial courts ruling that the sale of Esguerra Building II to Sureste is
unenforceable to the extent of one-half share of petitioner in the property is based on the Court of Appeals
decision in G.R. SP No. 23780 dated May 17, 1991, and the Supreme Courts decision in G.R. No. 100441 dated
May 4, 1992 which both acknowledged petitioners one-half ownership of said building.[29] She reasons that (a)s
co-owner her consent or conformity to the sale was necessary for the validity or effectivity thereof insofar as her 1/2
share/ownership was concerned.[30] The Court disagrees. As discussed previously, this repetitive contention is
negated by her consent to the compromise agreement that authorized VECCI to sell the building without need of
further consultation with her. Her co-ownership in the building was not inconsistent with her authorizing another,
specifically VECCI, to sell her share in this property via an agency arrangement. As correctly stated by the
respondent Court of Appeals, the only import of this Courts ruling in G.R. No. 100441 was as follows:
the only issue involved is whether or not private respondent is entitled to one-half of the rentals of the subject
property pending its sale. The rulings of the courts is (sic) therefore limited only to the issue of rental, there being
no provision in the compromise agreement approved by the court for the rentals earned from the building pending its
sale. Nowhere in the said rulings did it question nor assail the authority granted to VECCI to sell the said
building. In fact, the decisions affirmed the authority granted to VECCI to sell the said building which invoked the
compromise agreement of the parties as a basis of the decision (Manifestation, p. 38, Rollo).[31]
Second Issue: Did the Appellate Court Act Without Jurisdiction
or With Grave Abuse of Discretion?
In the case of Alafriz vs. Nable,[32] this Court defined the phrases without jurisdiction and grave abuse of
discretion as follows:
Without jurisdiction means that the court acted with absolute want of jurisdiction. x x x Grave abuse of
discretion implies such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction, or, in
other words where the power is exercised in an arbitrary or despotic manner by reason of passion or personal
hostility, and it must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to
perform the duty enjoined or to act at all in contemplation of law.

Contrary to petitioners asseverations, the Court finds that the respondent Court of Appeals judiciously,
correctly and certainly acted within its jurisdiction in reversing the trial courts decision. As discussed, its decision
is consistent with law and existing jurisprudence.
Let it be emphasized that Rule 45 of the Rules of Court, under which the present petition was filed, authorizes
only reversible errors of the appellate court as grounds for review, and not grave abuse of discretion which is
provided for by Rule 65. It is basic that where Rule 45 is available, and in fact availed of as a remedy -- as in this
case -- recourse under Rule 65 cannot be allowed either as an add-on or as a substitute for appeal.
Finally, (c)ourts as a rule may not impose upon the parties a judgment different from their compromise
agreement. It would be an abuse of discretion.[33] Hence, in this case, it is the trial courts decision which is tainted
with grave abuse of discretion for having injudiciously added prior consultation to VECCIs authority to sell the
properties, a condition not contained in the judicially-approved compromise agreement.
WHEREFORE, the petition is hereby DENIED for lack of merit, no reversible error having been committed
by respondent Court. The assailed Decision is AFFIRMED in toto. Costs against petitioner.
G.R. No. L-31339 January 31, 1978
VILLA REY TRANSIT, INC., and HON. JESUS P. MORFE, in his capacity as Judge of the Court of First
Instance of Manila, petitioners, v. FAR EAST MOTOR CORPORATION and THE HONORABLE COURTS
OF APPEALS, respondents.
Appeal by certiorari from the Derision of the Court of Appeals 1 and its Resolution denying petitioner's Motion for
Reconsideration of said Decision in CA-G.R. No. 43144-R, entitled "Far East Motor Corporation, Petitioner, vs.
Hon. Jesus P. Morfe Judge of the Court of First Instance of Manila, et al., Respondents."
On April 25, 1968, respondent Far East Motor Corporation sued petitioner Villa Rey Transit, Inc. for various sums
of money before the Court of First Instance of Manila, Branch XIII.
Summons was issued to petitioner and per return of the Sheriff, the summons was served on petitioner on June 16,
1968, the sheriff certifying. "Served thru Atty. Virgilio A. Reyes, Assistant General Mgr., but refused to sign."
Claiming failure of the petitioner to file answer within the reglementary period, respondent corporation filed on
August 13, 1968 an ex-parte motion to declare the petitioner in default, which was granted on August 21, 1968.
On the other hand, late receipt of the summons by its main office, petitioner filed an Urgent Motion to Extend Time
to Answer, which was denied on October 2, 1968, the order of denial being served on petitioner's counsel on
October 7, 1968.
Pursuant to the order of default, respondent Far East Motor Corporation then presented its evidence ex-parte, and
based on the said evidence, the lower court adjudicated various sums of money to the respondent Far East Motor
Corporation. Copy of the decision was received by the petitioner on October 25, 1968.
On November 6, 1968, petitioner then filed a Motion to Quash Service of Summons, to Lift the Order of Default,
and to Set Aside Judgment, on the following grounds:
a. The service of summons upon defendant was not in accordance with law and therefor this
Honorable Court had not acquired a valid jurisdiction over said defendant;
b. Assuring for the sake of argument only that a valid substituted service of summons was made,
failure of defendant to answer with the reglementary peirod was due to failure of Sheriff ot
propertly serve summons and/or due to excusable negligence on the part of defendant's employee;
c. Considering the huge claims of plaintiff which are incorrect and against which defendant has
valid and genuine defense, it is in the interest of justice and truth to lift the order of deafult which
defandant has not received, and to set aside judgment already rendered.
Petitioner's motion was denied on November 19, 1968 and copy of the denial was received by the corporation on
November 21, 1968.

Hence, on December 3, 1968, respondent Far East Motor Corporation filed a Motion for Execution of the decision.
Upon receipt of its copy of the said motion, petitioner Villa Rey Transit filed a motion dated December 5, 1968
asking for reconsideration of the court's order denying its Motion to Set Aside on the following grounds: (a) the
sheriff's return is null and void and hence, the court has not acquired jurisdiction over it, and (b) defendant has valid
defenses which will alter the decision rendered ex-parte if the defendant is given the opportunity to file its answer
and present evidence in support thereof. The motion was set for hearing on December 14, 1968.
Acting on these last two motions, the lower court on December 27, 1968 denied plaintiff's motion for execution;
granted defendant's motionfor reconsideration; set aside its order of November 19, 1967; quashed the service of
summons; and set aside the judgment already rendered.
On the claim that the judgment had already become final and unappealable on December 9, 1968, respondent moved
to reconsider the above order of December 9, 1968 but was denied.
Respondent then filed a petition for certiorari, mandamus and prohibition before the Supreme Court. However, on
the ground that the remedy sought in the petition was in aid of the appellate jurisdictionof the Court of Appeals, the
case was certified to the appellate court whose decision, sustaining the petition and ordering the lower court to issue
the writ of execution upon the judgement, i now subject of this appeal.
Emphasis is on the jurisdictional issue of service of summons.
To recount the facts surrounding the service of summons: Sometime in June, 1968, Deputy Sheriff Salita went to
petitioner's sub-station at 853 M. Earnshaw St., Sampaloc, Manila; he handed some papers to Atty. Virgilio A.
Reyes, Assistant General Manager for Operations: after reading the contents of the same, and noting that they were
copies of a complaint filed by Far East Motor corporation against petitioner involving some transactions made by
him with the complainant as the then president of petitioner corporation, he suggested that service of the complaint
made by him with the complainant as the then president of petitioner corporation, he suggested that service of the
complaint and the corresponding summons be made directly on De. Jose M. Villarama, the present President and
General Manager, at their main office at Ricarfor Street, corner Sta. Elena Street, Tondo, Manila; instead, the sheriff
left the papers with one of their night tellers, Juanito Vince Cruz; due to volume and pressure of his work, Cruz
forgot all about the papers; hence, the papers were delivered to their main office only on September 27, 1968.
Based on the above facts, petitioner claims that service of summons on its mere Assistant General Manager holding
office at ists sub-station is not a valid service; thus, the court did not acquire jurisdiction over tis person.
We find the claim untenable. Service of process on a corporation is controlled by Section 13, Rule 14 of the Revised
Rules of Court, thus
Sec. 13. Service upon private domestic corporation for partnership. If the defendant is a
corporation organized under the laws of the Philippines or a partnership duly registered, service
may be made on the president, manager, secretary, cashier, agent, or any of its directors.
Petitioner claims that the foregoing enumeration is exclusive and service of summons is without force and effect
unless made upon any one of them. The focus of inquiry then is whether an Assistant General Manager for
Operations may properly be within the terms manager or agent.
Petitioner relies on the Litton Mills case 2 where this Court held that a branch manager (sales manager) does not
come within the enumeration in Sec. 13, Rule 14 of the Revised Rules of Court, all of whom are top officers whose
duties extend generally to overall transactions of the corporation, not merely to a particular branch or department
The above cases without application here.
Atty. Virgilio A. Reyes is the Assistant General Manager, and admittedly, the former President and General
Manager of the petitioner corporation. As his present title implies, Atty. Virgilio A. Reyes is not one of the lesser
officers of the petitioner corporation upon whom service of Summons is not authorized by law. That he is in charge
of Operations, which "includes the incoming and outgoing buses, the arrangement of schedule, the appointment of
drivers and conductors, the following of highway troubles, and generally affecting the running of buses, 3 does not
make him a mere branch manager so insistently pointed out by petitioner. We take the opposite view, for precisely,
as the Assistant General Manager for Operations, he is in charge of the main bulk of the corporate business of the
petitioner transit corporation. "Operations" is the main concern, if not all, of a transit corporation.

More, We find petitioner's claim that Attorney. Virgilio A. Reyes, holding office at their M. Earnshaw sub-station, is
not the proper person upon whom summons may be seized inconsistent with their own admission that Atty. Reyes
customarily receives summons at the same sub-station in behalf of the petitioner. To quote part of petitioner's
motion for reconsideration of the CFI's denial of its motion to set aside judgment: "Records will show that Atty.
Reyes has been receiving summon issued in cases wherein the Villa Rey Transit, Inc. is a defendant, before and after
June 18, 1968, the alleged date when the deputy sheriff allegedly served the summons and complaint in the above
case. In all these occasions, Atty. Reyes signed having received said summons and in no occasion had he refused to
sign. However, in connection with the service of summons in the above case, it is not true that Atty. Reyes refused
to sign. What he did was to instruct the deputy sheriff to serve the same directly to Dr. Jose M. Villarama who is the
President and General Manager of the Villa Rey Transit Inc. and having offices at the Villa Rey Transit main
compound located at Ricafort (corner Sta. Elena Street), Tondo, Manila. There was reason for Atty. Reyes to make
such request upon the deputy sheriff because the promissory notes (Annexes B, C. D, E, F and G to complaint) were
signed by him in his former capacity as President of the Villa Rey Transit, Inc. while in other cases, the attention of
Dr. Villarama may not be imperative." 4 That the transactions alleged in the complaint involved him personally is no
reason for his refusal to receive this particular summons. Indeed, with more reason that he should have received the
summons because as the signatory to the promissory notes, he had an interest therein.
According to jurisprudence, the rationale of all rules for service of process on corporation is that service must be
made on a representative so integrated with the corporation sued as to make it a priori supposable that he will
realize his responsibilities and know what he should do with any legal papers served on him. 5 Based on the
particular facts of this case, service of summons upon Atty. Virgilio A. Reyes has served the purpose of the law.
And as he refused to receive the summons, tender unto him was sufficient to confer jurisdiction over the petitioner.
Since petitioner failed to answer within the reglementary period, even after denial of its motion to extend time to
answer, the order of default was proper. So also with the hearing on the merits ex-parte resulting in the judgment by
default. The decision was appealable, and as receipt of the same by petitioner was on October 25, 1968, the 30-day
appeal period commenced from that date on. On November 6, 1968, petitioner filed a Motion to Quash Service of
Summons, To Lift Order of Defeat and To Set Aside Judgment, and from that day on, the appeal period was deemed
suspended, the remaining 18 days beginning to run again upon receipt of the denial of the motion. Receipt of such
denial was on November 21, 1968; hence, by mathematical computation, the 30-day appeal period expired on
December 9, 1968. There being no appeal increased by the petitioner from the judgment of default on or before
December 9, 1968, the lower court lost its jurisdiction to hear on December 14, 1968 petitioner's Motion for
Reconsideration dated December 5, 1968, the judgment by default having become final and executory.
Of course, petitioner insists that on December 5, 1968 it filed a Motion for Reconsideration of the order denying its
Motion to Quash, Lift Order of Default and to Set Aside Judgment taking the position that it should have suspended
the period to appeal We do not agree. The records clearly show that there were no new arguments presented against
the judgment on the merits, perforce the motion is pro forma and did not suspend the running of the period to
Petitioner then insists that the above motion should be considered a petition for relief. This again is untenable. As
correctly pointed out by the apellate court, a petition for relief presupposes a final and unappealable judgment. In
this case, judgment has not yet become final and unappealable at the time of the filing of the motion on December 5,
WHEREFORE, the decision appealed from is affirmed. Let execution issue on the lower court's judgment by
default, Costs against petitioner. SO ORDERED.
G.R. No. L-66394 February 5, 1990
Whether or not the contract between the petitioners and the private respondent is a lease or a management contract is
the issue in this petition for review. The petitioners assail the decision of the then Intermediate Appellate Court in
AC-G.R. CV No. 65264 which affirmed in toto the judgment of the Court of First Instance of Manila, Branch XII
declaring the said contract as one of lease.

The disputed letter-contract signed by petitioner Juanito Uy in his capacity as President of the petitioner corporation
Mr. Alejandro Ng
No. 8-A Boston Street
Quezon City
Dear Mr. Ng,
By authority of the Board of Directors, you are hereby appointed to MANAGE and
1976, under a commission basis over and above the amount of EIGHT THOUSAND PESOS
(P8,000.00) which should be remitted to us not later than the first five (5) days of each month
starting January 1, 1976.
In addition, you are to fulfill the following terms and conditions:
1. You are to remit the amount of Sixteen Thousand Pesos (Pl6,000.00)
immediately after accepting this appointment as a guarantee bond for the faithful
performance of your duties and responsibilities. However, this amount shall be
returned to you after the duration of your appointment which will be up to
September 30, 1979. Otherwise, it will be forfeited if you do not comply with all
your duties and responsibilities.
2. Further, all government licenses, permits, utilities and services in the premises
such as water, gas, electricity, telephone, additional air conditioning units and
the installation and repairs thereof and all other repairs therein during your
management shall be for your account;
3. The sole control and management of the premises shall belong to you and you
are not responsible to Anybody nor to Any Board of Directors except to me
4. You are empowered to make any renovation, repairs and improvements but
expenses shall be for your account as well as to change or add personnels
5. Please take all good care of all the equipment and facilities presently existing
therein and see to it that they are always in good working condition; Otherwise,
the. loss and damage on any of this equipment and facilities shall be borne by
6. In case, however, that you will not be in a position to continue Managing and
Administering the business profitably due to any Government Rules, Decree or
Regulations or Force Majeure this appointment shall be suspended for a period
of 3 months for the purpose of determining whether or not you can still continue
managing the same.
Hoping that you find the same satisfactory and good luck.
President/Director (Rollo,
P. 35)

This case arose from the petitioners' act of allegedly terminating the respondent's appointment as manageradministrator as a result of his alleged failure to comply with the terms and conditions of his appointment. The
termination took effect on January 15,1977.
Private respondent Ng, on January 21, 1977 filed with the Court of First Instance of Manila, Branch XII, a case for
specific performance and damages with prayer for a writ of preliminary mandatory injunction and attorney's fees
against the petitioner. The case was docketed as Civil Case No. 106511.
On January 28, 1977, the private respondent amended his complaint to one for breach of contract with damages with
the same prayer for a writ of preliminary injunction and attorney's fees.
The amended complaint alleged, among others, that on December 30, 1975, the petitioners agreed to lease in favor
of the private respondent their business called "Paradise Sauna and Massage Corporation" located at E. Rodriguez,
Sr. Avenue, Quezon City and that they entered into a contract whereby the latter shall have full control and
management of the said business effective January 1, 1976 until September 30,1979; that as lessee of the said
business with full and sole control thereof, private respondent's principal obligation consists of only paying the
petitioners the sum of eight thousand pesos (P8,000.00 ) not later than the first five (5) days of each month as rentals
and remitting to the latter the sum of sixteen thousand pesos ( P16,000.00 ) as guarantee bond; that as such lessee,
the private respondent assumed control and management of the petitioner's business on January 1, 1976, hired and
paid personnel to beef up its operations and tried religiously to comply with his obligations like paying for his
account all government licenses, permits, utilities and services in the premises such as water, gas, electricity and
telephone; that the private respondent paid all the monthly rentals due the petitioners until December 1976; that the
petitioner refused to accept the rental for January 1977 and asked the private respondent to vacate and leave the
premises instead thereby terminating his services and forfeiting his guarantee bond of sixteen thousand pesos (
P16,000.00 ); that on January 16, 1977, the petitioners, assisted by Metrocom soldiers, entered the private
respondent's office and through intimidations, forcibly ejected him from the premises, assumed full control and
supervision of the business and put another person in his place who immediately took possession of all cash sales for
the day; that the private respondent returned to the business premises the following day but he was refused entry and
there was a notice to all the employees in front of the premises signed by the petitioners to the effect that the private
respondent's services had been terminated and that another person had been appointed to take his place; that for
having breached their contract, the private respondent suffered damages in the amount of not less than P100,000.00
representing unrealized profits from the operation of the business, forfeiture of the guarantee bond and value of his
personal properties placed in the business which the petitioners appropriated to themselves; that the private
respondent shall prove further actual damages in the course of the trial resulting from the petitioners' failure to
reinstate the former immediately; and that the private respondent is entitled to moral damages in the amount of
P50,000.00 and attorney's fees in the amount of P30,000.00.
In their answer, the petitioners counter-alleged, among others, that the petitioner corporation is the operator of the
sauna bath and massage establishment in question, that petitioner Uy was the former manager and administrator of
the said establishment which was then fully equipped and staffed with more than thirty (30) personnel consisting of
hospitality attendants and boy-helpers; that the petitioner corporation is paying P4,000.00 as lease rentals for the
premises occupied by it, that in his capacity as President-Director of the petitioner corporation and in his desire to
expand the operations of the same, petitioner Uy relinquished his position as manager-administrator of the said
establishment in favor of the private respondent as evidenced by the letter dated December 30, 1975 addressed to the
latter; that private respondent's appointment as manager-administrator was terminated on January 15, 1977 for
violations of the terms and conditions of his appointment, namely, failure to pay water and electric bills, failure to
pay the salaries of the employees of the petitioner corporation, failure to supply the provisions necessary for the
conduct of the petitioners' sauna and massage business like lotion, towels and blankets, failure to perform efficiently
as manager-administrator of the petitioner corporation by managing the Rajah Sauna Bath in Ermita, Manila
simultaneously with his management of the petitioner corporation and by inducing the petitioners' customers to
patronize the said Rajah Sauna Bath instead of the petitioner corporation.
After trial, the lower court, on December 23, 1978 rendered judgment in favor of the private respondent with the
following dispositive portion:

IN VIEW OF THE FOREGOING CONSIDERATIONS, the Court hereby renders judgment:

(a) declaring the letter-contract, Exhibit A, as a contract of lease covering the paradise sauna bath
and massage clinic, and not a contract of employment ;
(b) directing defendants to forthwith return the management and operation of the paradise sauna
bath and massage clinic to the plaintiff, so that plaintiff can operate and manage the same for the
unexpired term of the lease of Two (2) Years, Eight (8) Months and Fifteen (15) days;
(c) declaring the forfeiture by defendants of the plaintiffs deposit of P16,000.00 as null and void
and declaring it as subsisting for the purpose of which it was put up by plaintiff, if Exhibit A is
made to continue, as decreed in par. (b) hereof, otherwise, if or for any reason Exhibit A can not
continue to be in force, directing defendants to jointly and severally pay to plaintiff the said sum
of P16,000.00;
(d) directing the defendants to account for and return to the plaintiff all the articles listed in
Exhibit R, consisting of pages 1, 2 and 3, or in default thereof, to jointly and severally pay to the
plaintiff in the following manner and in the following amount, as far as it is practicable, to wit:
(1) P4,650.00 for the cost of two television (sic) and the refrigerator, with an
allowance of 30% for depreciation costs, with interest thereon at the legal rate
from date of this decision until it is fully paid;
(2) P11,540.30 Cost price of certain items listed in page l of Exhibit R as
recited elsewhere in the body of this decision, with interest thereon at the legal
rate from the date of this decision until it is fully paid;
(e) directing the defendants to account for and to return to the plaintiff one rice cooker, one gas
lantern, one medicine cabinet with assorted medicines, one Akai Tape Recorder, Sixteen glass
tumblers, five coffee cups, four intercom, two telephone hands (sic), one Video, one color
vibrator, eight drawerlocks, one electric fan with stand, one steel cabinet with lock, 40 pieces
nameplates with pictures, 30 cans Acaho, and two speakers with cabinet, all of which are listed on
page 1 of Exhibit R, and in default of such delivery, directing defendants to pay jointly and
severally the reasonable value thereof taking into consideration the present costs of such items,
with allowances of at least thirty per cent for their depreciation costs, with interests thereon at
6% per annum from date of this decision until it is fully paid;
(f) directing defendants to account for and return to plaintiffs all the articles listed in page 2 of
Exhibit R, or in default thereof, directing defendants to pay jointly and severally to plaintiff the
sum of P l,313.42, with interest thereon at 6% per annum from the date of this decision, until it is
fully paid;
(g) directing the defendants to account for and return to plaintiff all of Items 1 to 17 listed on page
2 of Exh. R, or in default thereof, to pay jointly and severally the plaintiff the sum of P2,968.03,
with interest thereon of 6% per annum from date of this decision until it is fully paid;
(h) directing the defendants to account for and return to plaintiff all of the last six items listed on
page 2 of Exhibit R, or in default thereof, to pay jointly and severally the plaintiff the total costs of
P7,999.55, with an allowance of 30% for their depreciation costs, and with interest thereon at
6% per annum until it is fully paid;

(i) directing the defendants to account for and return to plaintiff all the articles listed on page 3 of
Exhibit R, or in default thereof, to jointly and severally pay to the plaintiff the cost price of
P1,313.43, with interest thereon at the legal rate from date of this decision until it is fully paid;
(j) directing the defendants to pay jointly and severally to the plaintiff the sums of P50,000.00 as
moral damages and P50,000 as exemplary damages;
(k) directing the plaintiff to pay defendants the sum of P28,572.45, with legal interest thereon
from date of this decision until it is fully paid. This sum shall be set off and made to reduce
plaintiffs entitlement as awarded by this Court;
(l) dismissing all other claims which the parties have against each other for lack of merit;
Costs against defendants. (Pp. 111 to 114, Record on Appeal). (At pp. 24-27, Rollo)
On appeal, the then Intermediate Appellate Court, on November 29, 1983, affirmed in toto the decision of the trial
court. The subsequent motion for reconsideration by the petitioners was denied. Hence, this petition which presents
three main arguments.
Firstly, the petitioners contend that the respondent Court sanctioned a legal error made by the trial court which is the
reformation of Exhibit A from a management contract to a lease contract contrary to Art. 1367 of the New Civil
Code. In support of their contention, they averred that when respondent Ng filed an action for specific performance
then for breach of contract later, he should have been presumed to have admitted the due execution and contents of
the letter-contract marked as Exhibit A whereby he was appointed as manager-administrator of the petitioner
corporation and he should never have been allowed to deny the contents thereof for purposes of reforming the said
instrument. Article 1367 of the Civil Code states that:
Art. 1367When one of the parties has brought an action to enforce the instrument, he cannot
subsequently ask for its reformation.
The above quoted provision of law invoked by the petitioners cannot apply to respondent Ng's case. When Ng
amended his original complaint for specific performance which calls for an enforcement of Exhibit A to one for
breach of contract, he did so as a matter of right since no responsive pleading had been filed yet by the petitioners.
The original complaint was filed on January 21, 1977 and was amended on January 28, 1977. The answer of the
petitioners to the original complaint was filed only on February 4, 1977. Under Section 2, Rule 10 of the Revised
Rules of Court, "a party may amend his pleading once as a matter of course at any time before a responsive pleading
is served . . . ." When a pleading is amended, the original one is deemed abandoned. Hence, the amended pleading
replaces the original one which no longer forms part of the record and the trial of the case is made on the basis of the
amended pleading only (see Ruymann and Farris v. Director of Lands et al., 34 Phil. 428 [1916]). In the case at bar,
respondent Ng, in his amended complaint brought an action for breach of contract not to enforce his rights as
manager-administrator but as lessee of the petitioner corporation. In the course of the trial, parol evidence was
introduced to prove that the contract in question was not a management contract as it appeared on its face but a lease
Rule 130, Sec. 7 of the Revised Rules of Court provides that:
Sec. 7. Evidence of written agreements. When the terms of an agreement have been reduced to
writing, it is to be considered as containing all such terms, and, therefore, there can be, between
the parties and their successors-in-interest, no evidence of the terms of the agreement other than
the contents of the writing, except in the following cases:
(a) Where a mistake or imperfection of the writing, or its failure to express the true intent and
agreement of the parties, or the validity of the agreement is put in issue by the pleadings;

(b) When there is an intrinsic ambiguity in the writing.

The term "agreement" includes wills. (Emphasis supplied)
In the instant case, the failure of a contract to express the true intent and agreement of the parties is raised. The fact
that the allegations of respondent Ng with respect to his rights as lessee of the petitioner corporation were made on
the basis of' Exhibit A which was marked as Annex "A" in the amended complaint meets the procedural requirement
that said failure be put in issue by the pleadings.
In ruling that the subject contract is a lease contract and not a management contract, we adopt the findings of fact
made by the trial court and affirmed by the respondent court.
The claim of the petitioners that respondent Ng is their manager-administrator is untenable since it fails to pass the
control test pertinent to the existence of an employer-employee relationship. The control test asks whether the
employer controls or has reserved the right to control the employee not only as to the result of the work but also as
to the means and methods by which the said work is to be accomplished (Social Security System v. Court of
Appeals, 156 SCRA 383 [1987]). Such control by the petitioners over respondent Ng is lacking. Exhibit A is in the
nature of a lease contract under Art. 1643 of the Civil Code which states that:
Art. 1643. In the lease of things, one of the parties binds himself to give to another the enjoyment
or use of a thing for a price certain, and for a period which may be definite or indefinite. However,
no lease for more than ninety-nine (99) years shall be valid.
We find no reason to disturb the findings of the two courts below that the disputed contract is a lease contract. The
reasons given are:
(1) The respondent paid the petitioners a fixed P8,000.00 monthly even when the business suffers
a loss. The P8,000.00 was paid at the start of the month with no attention paid to operating
expenses, profits, and losses.
(2) The monthly receipts received by the petitioners from Alejandro Ng state that they were given
for rentals from January to October 1976. The receipts for November and December substitute the
word "commission" for "rental". The respondent explained the change by stating that petitioner Uy
changed the receipt as he realized that subleasing the premises to Ng was a violation of the
contract with the owner and the latter might discover the violation. The receipts were prepared by
the petitioners but signed in the presence of the respondent when payment was made.
(3) The respondent was responsible for all licenses, permits, utilities and services, including the
installation and repair of all equipment such as airconditioning units. He had sole control and
management and did not report to anybody.
Anent the argument that the respondent Court, in holding petitioner Uy severally liable with the petitioner
corporation, departed from the rule that a stockholder or officer of a corporation has a personality distinct from the
corporation, we hold that the corporate entity theory cannot apply in the instant case where it is being invoked as a
cloak or shield for illegality. (see Tan Boon Bee & Co., Inc. v. Judge Jarencio, 163 SCRA 205 [1988]), There is
proof obtaining in the case at bar as to the real nature of Exhibit A. Thus, being a party to a simulated contract of
management, petitioner Uy cannot be permitted to escape liability under the said contract by using the corporate
entity theory. This is one instance when the veil of corporate entity has to be pierced to avoid injustice and inequity.
Lastly, the petitioners argue that the respondent Court's award of moral and exemplary damages was contrary to law
as there was no showing of bad faith. In this case, the petitioners' manner of barring respondent Ng from his place of
business with the use of Metrocom soldiers instead of availing of the proper legal action constituted bad faith as
contemplated by law considering that the petitioners were aware of the real nature of the contract in question. The

amount of P8,000.00 given monthly to the petitioners was received as "rentals" and not as "commissions." Only the
later receipts indicated that the P8,000.00 was for payment of "commission" and respondent Ng explained that the
change in the phraseology of the receipts was due to the fact that petitioner Uy wanted them to be so written since
subleasing would constitute a violation of the latter's contract with the owner of the business premises. Moral
damages are recoverable in cases of breach of contract where the defendant acted fraudulently or in bad faith (Art.
2220, New Civil Code). Exemplary damages, as well may be awarded in contracts if the defendant acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner (Art. 2232, New Civil Code).
We feel, however, that the amount of moral and exemplary damages may be reduced considering the circumstances
of the case. Mr. Uy was unhappy about the continued life of the lease arrangement and Mr. Ng was aware of this. In
some instances, rental payments were not made promptly at the start of the month. Three checks initially bounced.
Damage to the central airconditioning system and other equipment was not repaired. Mr. Ng also operated another
massage and sauna parlorThe Rajah Sauna Bath in Ermitaand Mr. Uy was convinced that personnel and
customers of Paradise Sauna were being enticed by the respondent to the other place thus eroding the goodwill and
patronage of the complaining establishment. All of these, however, mitigate but do not justify the acts
accompanying the termination of the contract.
WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is DISMISSED. The judgment appealed from
is AFFIRMED with the MODIFICATION that the award of moral and exemplary damages is hereby reduced to a
total of P20,000. The term of the lease having expired, the order to return the massage clinic to the private
respondent is DELETED.

G.R. No. 80863 April 27, 1989

O. ADRE, Presiding Judge, Regional Trial Court, Branch 22, 11th Judicial Region, and LUCIO
VELAYO, respondents.
The central question in the petition at bar is whether or not the regular courts may stay an execution decreed by the
labor arbiters and what the consequences are of such a recourse to the courts.
The case began from a complaint, dated January 6, 1977, for recovery of unpaid thirteenth-month pay filed by the
Sarangani Marine and General Workers Union-ALU with the Department of Labor (Regional Office No. XI,
General Santos City) against the South Cotabato Integrated Port Services, Inc. (SCIPSI), a Philippine corporation.
Later, thirty-seven SCIPSI employees, non-union members apparently, filed their own complaint. The labor arbiter
consolidated the twin complaints and after hearing, ordered a dismissal on December 29, 1977. On appeal, however,
the National Labor Relations Commission, on June 9, 1981, reversed and accordingly, ordered the private
respondents, SCIPSI and its president and general, Lucio Velayo, to pay the thirteenth-month pays demanded. The
private respondents' motion for reconsideration was denied, and the decision has since attained finality.
Thereafter, the parties, on orders of the labor arbiter, were made to appear before a corporate auditing examiner to
determine the private respondents' exact liability. On October 24, 1986, the corporate auditing examiner submitted
an accounting and found the private respondents liable in the total sum of Pl,134,000.00. Thereupon, the private
respondents interposed an objection and prayed for a revision. It appears, however, that the private respondents
never pursued their exceptions. 1
On January 16,1987, the union moved for execution and pursuant thereto, the labor arbiter issued a writ of
execution. As a result, the sheriff levied on two parcels of land, both registered in Lucio Velayo's name, with an area
of 400 and 979 square meters.
On February 14, 1987, both SCIPSI and Velayo petitioned this Court 2 on certiorari with injunction on the ground,
fundamentally that the Department of Labor's examiner erred in her determination of the private respondents
pecuniary liabilities.
On February 16,1987, Velayo alone filed a petition with the respondent court (Special Case No. 227) on a cause of
action based on an alleged irregular execution, on the ground that he "was never a party to the labor case" 3and that
"a corporation (that is, SCIPSI has a separate and distinct personality from this incorporators, stockholders and
officers." 4

On February 17, 1987, the respondent court issued a temporary restraining order enjoining execution of the
judgment in the aforementioned labor cases. On March 5, 1987, the petitioner moved for dismissal for lack of
jurisdiction and litis pendentia.
On the strength of this Court's decision in National Mines Allied Workers Union v. Vera, 5 the trial judge denied the
motion to dismiss. Reconsideration having been likewise denied, the union as well as the labor arbiter (Antonio
Villanueva) and the sheriff (Fulgencio Lavarez) themselves, on October 22, 1987, instituted these certiorari
proceedings. 6
Meanwhile, on April 27,1988, the parties (in G.R. Nos. 7730001) submitted a Compromise Agreement whereby the
private respondents agreed to pay, in installments, the reduced sum of P637,400.00 to the workers. On May 11,
1988, we issued a Resolution approving the Compromise Agreement, and considering the cases (G.R. Nos. 7730001) closed and terminated. 7
At the same time, we issued (in this petition) a Resolution requiring the private respondents and/or counsel, Atty.
Oscar Dinipol, to show cause why they should not be held in contempt for forum-shopping. On December 9,1988,
Atty. Dinopol filed a manifestation praying for dismissal "not because it has become moot and academic in view of
the compromise agreement executed by the parties in G.R. Nos. 77300-01 (but because) the subject or cause of
action (thereof) is totally different from the cause of action in the above-entitled case." 8
On whether or not this case has become moot and academic in view of the compromise reached in G.R. Nos. 7730001, the Court rules in the affirmative. It should be noted that the instant petition has been brought as a result of the
execution of the judgment rendered below, and since the parties, by virtue of the compromise, have spelled out the
manner by which payment shall be made, execution by means of levy, the question confronting the court herein,
may no longer be carried out. Nevertheless, because of the ethical implications of the acts of the private respondents,
the Court is constrained to render its judgment if only to forestall future similar acts and for the guidance of the
bench and the bar.
We likewise render judgment notwithstanding Atty. Oscar Dinopol's pending prayer for extension of time to file his
comment to our show cause Resolution of November 7, 1988. We consider his manifestation, dated November
29,1988, urging us not to dismiss this case for having became moot and academic but because the petition lacks
merit as his comment. We do so for one because it has been the position of the private respondents that Special Case
No. 227 and G.R. Nos. 77300-01 could stand together and for another, because of the compelling need to dispose of
labor cases with utmost dispatch. We take this as his defense to that show-cause Resolution. Parenthetically, we find
him mistaken for supposing that our Resolution is based on the simultaneous commencement of Special Case No.
227 and G.R. Nos. 77300-01. This is not the act that forced suspicions on our part of efforts by the private
respondents to "shop for a friendly forum". Rather, it is the institution of Special Case No. 227, despite the pendency
of the labor proceedings below, that led us to those suspicions. G.R. Nos. 77300-01, on the other hand, were brought
primarily on the question of the exact amount SCIPSI is liable to pay. It is on its face, a legitimate ground
for certiorari, and for this reason we accepted the parties compromise reached there, instead of dismissing it.
There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable opinion
(other than by appeal or certiorari) in another. The principle applies not only with respect to suits filed in the courts
but also in connection with litigations commenced in the courts while an administrative proceeding is pending, as in
this case, in order to defeat administrative processes and in anticipation of an unfavorable administrative ruling and
a favorable court ruling. This is specially so, as in this case, where the court in which the second suit was brought,
has no jurisdiction.
Accordingly, the respondent court must be held to be in error assuming jurisdiction over Special Case No. 227. It is
well-established that the courts cannot enjoin execution of judgment rendered by the National Labor Relations
Commission. 9
The respondent Lucio Velayo's reliance upon National Mines and Allied Workers Union v. Vera 10 is not well-taken.
In that case, the properties involved belonged to third persons, a development that provided a civil dimension to the
labor case, and a development that gave the courts the jurisdiction. In the case at bar, however, Velayo cannot be
said to be a stranger to the proceedings for a number of reasons. First, and as pointed out by the Solicitor General,
and as the records will amply show, he, Velayo, was a party to the proceedings below where he took part actively in
defense of his case. We quote:

... It is not true that Lucio Velayo was not a party in the labor cases. The caption of the labor cases
shows he was a respondent. The records of the labor cases show that he participated in the
proceedings therein, without raising the issue that he was not a party nor the employer of the
complainants. Thus, the Motion for Reconsideration dated August 7, 1981 attached to the Petition
as Annex B was filed by both SCIPS and Lucio Velayo. SCIPS and Velayo discussed the merits of
the cases in said motion and there was nary a mention of the allegation of Velayo now that he not
not a party in the cases nor an employer of the complainants. Likewise, the Exception and/or
Opposition to Report of Examiner dated November 13, 1986, attached to the Petition as Annex F,
was also filed by both SCIPS and Velayo and, like the Motion for Reconsideration
aforementioned, it does not mention anything about Velayo not being a party and not being an
employer of complainants. 11
Certainly, he cannot now be heard to say that he was no party to the controversy.
The fact that he was never mentioned in the pleadings before the petitioner-labor arbiter is of no moment.The fact is
that he himself had questioned the findings of the corporate auditor (in G.R. Nos. 77300-01) and this is enough
evidence that he admits personal liability, although he does not agree with the amount supposedly due from him. His
remonstrances came too late in the day.
But other than estoppel, the law itself stands as a formidable obstacle to Velayo's claims. In A.C. Ransom Labor
Union-CCLU v. NLRC 12 we held that in case of corporations. It is the president who responds personally for
violation of the labor pay laws. We quote:
Article 273 of the Code provides that:
Any person violating any of the provisions of Article 265 of this Code shall be punished by a fine
of not exceeding five hundred pesos and/or imprisonment for not less than one (1) day nor more
than six (6) months.
(b) How can the foregoing provisions be implemented when the employer is a corporation? The
answer is found in Article 212 (c) of the Labor Code which provides:
(c) 'Employer' of the Labor Code which provides: which 'Employer' includes any person acting in
the interest of an employer, directly or indirectly. The term shall not include any labor
organization or any of its officers or agents except when acting as employer.
The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM
is an artificial person, it must have an officer who can be presumed to be the employer, being "the
person acting in the interest of (the) employer" RANSOM. The corporation, only in the technical
sense, is the employer.
The responsible officer of an employer corporation can be held personally, not to say even
criminally, liable for non-payment of back wages. That is the policy of the law. In the Minimum
Wage Law, Section 15(b) provided:
(b) If any violation of this Act is committed by a corporation, trust, partnership or association, the
manager or in his default, the person acting as such when the violation took place, shall be
responsible. In the case of a government corporation, the managing head shall be made
responsible, except when shown that the violation was due to an act or commission of some other
person, over whom he has no control, in which case the latter shall be held responsible.
In PD 525, where a corporation fails to pay the emergency allowance therein provided, the
prescribed penalty shall be imposed upon the guilty officer or officers of the corporation.
(c) If the policy of the law were otherwise, the corporation employer can have devious ways for
evading payment of back wages. In the instant case, it would appear that RANSOM, in 1969,
foreesing the possibility or probability of payment of back wages to the 22 strikers, organized
ROSARIO to replace RANSOM, with the latter to be eventually phased out if the 22 strikers win
their case. RANSOM actually ceased operations on May 1, 1973 after the December 19, 1972
Decision of the Court of Industrial Relations was promulgated against RANSOM.

(d) The record does not clearly Identify the "officer or officers" of RANSOM directly responsible
for failure to pay the back wages of the 22 strikers. In the absence of definite proof in that regard,
we behave it should be presumed that the responsible officer is the President of the corporation
who can be deemed the chief operation officer thereof. Thus, in RA 602, criminal responsibility is
with the "Manager or in his default, the person acting as such." In RANSOM, the President
appears to be the Manager.
(e) Considering that non-payment of the back wages of the 22 strikers has been a continuing
situation, it is our opinion that the personal liability of the RANSOM President, at the time the
back wages were ordered to be paid should also be a continuing joint and several personal
liabilities of all who may have thereafter succeeded to the office of president; otherwise, the 22
striken may be deprived of their rights by the election of a president without leviable assets. 13
Accordingly, Velayo cannot be excused from payment of SCIPSI's liability by mere reason of SCIPSI's separate
corporate existence. The theory of corporate entity, in the first place, was not meant to promote unfair objectives or
otherwise, to shield them. This Court has not hesitated in penetrating the veil of corporate fiction when it would
defeat the ends envisaged by law, 14 not to mention the clear decree of the Labor Code.
And if Velayo truly had a valid objection (to the levy on his properties), he could have raised it at the earliest hour,
and in the course of the labor proceedings themselves. But, as we earlier indicated, he raised nary a finger there, and
he cannot raise it now, much less in a separate proceeding. He is not only estopped, litis pendencia is a bar to such a
separate action. 15
While the instant case has been rendered moot and academic by reason of the out-of-court settlement between the
parties, that development will not absolve Velayo and/or his counsel, Atty. Oscar Dinopol 16 from charges of forumshopping. In Buan v. Lopez, Jr., supra, we declared that forum- shopping is an act of malpractice that constitutes
contempt of court.
In this connection, we reject Atty. Dinopol's pretense that no Identity exists between Special Case No. 227 and the
labor case that had precipitated it. The fact remains that in Special Case No. 227, he assails the execution of the
judgment of the National Labor Relations Commission, the same relief he could have asked for in the very labor
proceeding. The fact that he likewise prayed for damages therein will not alter the essence of the petition- to stay
execution-and in which the claim for damages is but an incidental relief.
Clearly, both Velayo and Atty. Dinopol must account for forum-shopping.
WHEREFORE, judgment is rendered: (1) DISMISSING the petition for having become moot and academic; (2)
ORDERING the respondent judge to dismiss Special Case No. 227; (3) DECLARING the respondent, Lucio Velayo
and Atty. Oscar Dinopol IN CONTEMPT and ORDERING them to pay a fine of Pl,000.00 each within five (5) days
from notice; and (4) SUSPENDING Atty. Oscar Dinopol, for a period of three (3) months effective from notice,
from the practice of law. Let a copy of this Decision be entered in his record.
G.R. No. 103372 June 22, 1992
COURT OF APPEALS (17th Division), ( Republic of the Philippines), UNIVERSITY OF THE
PHILIPPINES, respondents.
Petitioner EPG Construction Co., Inc. and the University of the Philippines, herein private respondent, entered into a
contract for the construction of the UP Law Library Building for the stipulated price of P7,545,000.00. The
agreement included the following provision:
CONTRACTOR guarantees that the work completed under the contract and any change order,
thereto, shall be in accordance with the plans and specification prepared by ARCHITECT, and

shall conform to the specific requirements, performances, and capacities required by the contract,
and shall be free from imperfect workmanship or materials. CONTRACTOR shall repair at his
own cost and expenses for a period of one (1) year from date of substantial completion and
acceptance of the work by the OWNER, all the work covered under the contract and change orders
that may prove defective except maintenance works. The CONTRACTOR shall be liable in
accordance with Art. 1723 of the Civil Code in case, within 15 years from completion of the
project, the building collapses on account of defects in the construction or the use of materials of
inferior quality furnished by him or due to any violation of the terms of contract.
Upon its completion, the building was formally turned over by EPG to the private respondent. UP issued a
certification of acceptance dated January 13, 1983, reading as follows:
This is to certify that the General Construction Work of the College of Law Library Annex
Building, University of the Philippines, Diliman, Quezon City, has been satisfactorily completed
as per plans and specifications as of January 11, 1983 without any defects whatsoever and
therefore accepted.
Release of the 10% retention is hereby recommended in favor of EPG Construction, Inc.
Sometime in July, 1983, the private respondent complained to the petitioner that 6 air-conditioning units on the third
floor of the building were not cooling properly. After inspection of the equipment, EPG agreed to shoulder the
expenses for their repair, including labor and materials, in the amount of P38.000.00.
For whatever reason, the repair was never undertaken. UP repeated its complaints to EPG, which again sent its
representatives to assess the defects. Finally, it made UP a written offer to repair the system for P194,000.00.
UP insisted that EPG was obligated to repair the defects at its own expense under the guarantee provision in their
contract. EPG demurred. UP then contracted with another company, which repaired the defects for P190,000.00.
The private respondent subsequently demanded from EPG reimbursement of the said amount plus an equal sum as
liquidated damages. When the demand was rejected, UP sued EPG and its president, Emmanuel P. de Guzman, in
the Regional Trial Court of Quezon City. De Guzman moved to dismiss the complaint as to him for lack of a cause
of action, but the motion was denied.
After trial, judgment was rendered by Judge Antonio P. Solano requiring both defendants jointly and severally to
pay the plaintiff P190,000.00 as actual damages, P50,000.00 as liquidated damages, P10,000.00 as attorney's fees,
and costs.
The petitioners appealed to the Court of Appeals, which sustained the trial court. 1 They then came to this Court to
fault the respondent court for not holding that: 1) UP was estopped by its certificate of acceptance from imputing
liability to EPG for the defects; 2) the defects were due to force majeure or fortuitous event; and 3) Emmanuel de
Guzman has a separate personality from that of EPG Construction Co., Inc.
The petitioners argue that by issuing the certificate of acceptance, UP waived the guarantee provision and is now
estopped from invoking it. The argument is absurd. All UP certified to was that the building was in good condition
at the time it was turned over to it on January 13, 1983. It did not thereby relieve the petitioners of liability for any
defect that might arise or be discovered later during the one-year period of the guarantee. Any other interpretation
would make the guarantee provision useless to begin with as it would have automatically become functus
officio with the turn-over of the construction.
The petitioners bolster their argument by quoting Article 1719 of the Civil Code thus, "Acceptance of the work by
the employer relieves the contractor of liability . . . " and stopping there. The Article reads in full as follows:
Art. 1719. Acceptance of the work by the employer relieves the contractor of liability for any
defect in the work, unless:
(1) The defect is hidden and the employer is not, by his special knowledge, expected to recognize
the same; or
(2) The employer expressly reserves his rights against the contractor by reason of the defect.

The exceptions were omitted by the petitioners for obvious reasons. The defects complained against were hidden
and the employer was not expected to recognize them at the time the work was accepted. Moreover, there was an
express reservation by UP of its right to hold the contractor liable for the defects during a period of one year.
The petitioners' contention that the defects were caused by force majeure or fortuitous event as a result of the
frequent brown-outs in Metro Manila is not meritorious. The Court is not prepared to accept that the recurrent power
cut-offs can be classified as force majeure or a fortuitous event, We agree that the real cause of the problem,
according to the petitioners' own subcontractor, was poor workmanship, as discovered upon inspection of the
cooling system, Among the detects noted were improper interlocking of the entire electrical system in all the six
units; wrong specification of the time delay relay, also in all the six units; incorrect wiring connections on the oil
pressure switches; improper setting of the Hi and Lo pressure switches; and many missing parts like bolts and
screws of panels, and the compressor terminal insulation, and the terminal screws of a circuit breaker. 2
Curiously, it has not been shown that the cooling system in buildings within the same area have been similarly
damaged by the power cut-offs. The brown-outs have become an intolerable annoyance, but they cannot excuse all
contractual irregularities, including the petitioners' shortcomings.
The petitioners also claim that the breakdown of the cooling system was caused by the failure of UP to do
maintenance work thereon. We do not see how mere maintenance work could have corrected the above-mentioned
defects. At any rate, whether the repairs in the air-conditioning system can be considered mere maintenance work is
a factual issue. The resolution thereof by the lower courts is binding upon this Court in the absence of a clear
showing that it comes under the accepted exceptions to the rule. There is no such showing here.
The final point of the petition is that Emmanuel P. de Guzman has a separate legal personality from EPG
Construction Co., Inc. and should not be held solidarity liable with it. He stresses that the acts of the company are its
own responsibility and there is no reason why any liability arising from such acts should be ascribed to him. Thus:
It is a doctrine well-established and obtains both at law and in equity that a corporation is a
distinct legal entity to be considered as separate and apart from the individual stockholders or
members who compose it, and is not affected by the personal rights, obligations and transactions
of its stockholders or members. 3
The trial court did not explain why Emmanuel de Guzman was held solidarity liable with EPG Construction Co.,
Inc., and neither did the respondent court when it affirmed the appealed decision, In its Comment on the present
petition, UP also did not refute the petitioners' argument and simply passed upon it sub silentio although the matter
was squarely raised and discussed in the petition.
Notably, when Emmanuel de Guzman moved to dismiss the complaint as to him, UP said in its opposition to the
motion that it was suing him "in his official capacity and not in his personal capacity." His inclusion as President of
the company was therefore superfluous, as De Guzman correctly contended, because his acts as such were corporate
acts imputable to EPG itself as his principal. It is settled 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 entity to which it may be related. 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.
The general manager of a corporation therefore should not be made personally answerable for the
payment of the employee's backwages unless he had acted maliciously or in bad faith in
terminating the services of the employee. 4
The exception noted is where the official "had acted maliciously or in bad faith," in which event he may be made
personally liable for his own act. That exception is not applicable in the case at bar, because it has not been proved
that De Guzman acted maliciously or in bad faith when, as President of EPG, he sought to protect its interests and
resisted UP's claims. Whatever damage was caused to UP as a result of his acts is the sole responsibility of EPG
even though De Guzman was its principal officer and controlling stockholder.
In sum, we hold that the lower court did not err in holding EPG liable for the repair of the air-conditioning system at
its expense pursuant to the guarantee provision in the construction contract with UP. However, Emmanuel de
Guzman is not solidarily liable with it, having acted on its behalf within the scope of his authority and without
any demonstrated malice or bad faith.

WHEREFORE, the appealed decision is AFFIRMED but with the modification that EPG Construction Co., Inc.
shall be solely liable for the damages awarded in favor of the University of the Philippines. It is so ordered.
G.R. No. 89804 October 23, 1992
RODULFO, respondents.
This petition is a belated attempt to avoid the adverse amended decision of public respondent, promulgated on 31
May 1989 in C.A.-G.R. No. 11389, 1 on the ground that petitioner is not personally liable for the amount adjudged
since the same constitutes a corporate liability which nevertheless cannot even bind or be enforced against the
corporation because it is not a party in the collection suit filed before the trial court.
The procedural antecedents are not complicated.
On 4 June 1985, private respondent filed with the Regional Trial Court (RTC) of Catanduanes a complaint for a sum
of money against petitioner. 2 The case was docketed as Civil Case No. 1992 and was assigned to Branch 42 thereof.
It is alleged therein:
xxx xxx xxx
3. That from late 1981 up to early 1983, the defendant, taking advantage of his close friendship
with the plaintiff, succeeded in securing on credit from the plaintiff, various items, cash and
checks which the defendant encashed, in the total amount of P93,358.51, which the plaintiff
willingly extended because of the representations of the defendant that he was a successful
financial consultant of local and international businessmen;
4. That defendant's indebtedness referred to in the next preceding paragraph, is shown and
described in thirty (30) "vales" signed by him or by persons authorized by him, all of which
documents are in the possession of the plaintiff for being unredeemed or unpaid, xerox copies
attached as Annexes "A" to "Z" and "AA" to "DD" which are hereby made integral parts hereof;
5. That commencing with the summer months of 1983 up to the time immediately before the filing
of this complaint, the plaintiff had made numerous demands for payment but the respondent acted
in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and
demandable claim;
6. That the plaintiff is left without any recourse other than to enforce his claim in court and had to
secure the services of the undersigned counsel who charged the plaintiff with P1,000.00 for
accepting the case, P200.00 appearance fee for every appearance before this Court, and attorney's
contingent fee of 25% of the award in favor of the plaintiff; plaintiff shall incur litigation expenses
which may amount to no less than P5,000.00, all of which amounts are recoverable from the
In his Answer, 3 petitioner does not deny having had business transactions with the private respondent but alleges
that the professional relationship began only in August of 1982 when he "was looking for a "pro-forma" invoice to
support his loan with the Kilusang Kabuhayan at Kaunlaran (KKK for short) under the Ministry of Human
Settlement (sic)." 4 He explicitly admits that "(H)is loan was in the same of his family corporation, CSAR Marine
Resources, Inc.;" 5 however, the "vales", more specifically Annexes "A" to "DD" of the complaint, "were liquidated
in the bank loan releases." 6 It is thus clear that his main defense is payment; he did not interpose any other
affirmative defense.
In his Pre-Trial Brief, 7 petitioner reiterated the earlier claim that his first business dealing with the plaintiff (private
respondent herein) was in August of 1982. This time, however, he alleges that "as President of CSAR Marine
Resources, Inc., he requested for a pro-forma Invoice for said corporation to support the loan application with the
Kilusang Kabuhayan at Kaunlaran (KKK for short), with the Ministry of Human Settlement (sic)." 8
In its Decision of 1 August 1986, 9 the trial court made the following findings of fact:
Defendant admitted the genuineness (sic) and due execution of Exhibits "A" to "DD" but,
according to him, he already paid plaintiff P56,098.00 thru PNB Virac Branch, per Cash Voucher
dated September 28, 1982 (Exh. 3) and then P42,363.75 also thru PNB Virac Branch, per PNB
check No. 628861K dated December 16, 1982 (Exh. 1).

Analyzing the evidence adduced by both parties, it ruled that since Exhibit "3" is dated 28 September 1982 and the
"vales", Exhibits "A" to "DD", with the exception of Exhibits "K" in the amount of P1,730.00 and "Q" in the amount
of P10,765.00, were issued after said date, it could not have been in payment of the "vales" other than that evidenced
by Exhibits "K" and "Q" Considering, however, that the "vales" remained in the possession of the private
respondent, they are presumed to remain unpaid; in fact, private respondent so testified that they were not paid at all.
The court therefore ordered petitioner to pay private respondent:
(a) the total amount of P92,358.43 covered by the "vales", plus interest thereon at the rate of
twelve (12%) per cent per annum from June 4, 1985 when the complaint was filed;
(b) P9,000.00 for and as attorney's fees; and
(c) the cost of suit. 10
Petitioner appealed this decision to the public respondent which docketed the case as C.A.-G.R. CV No. 11389.
The public respondent affirmed the trial court's decision in its Decision of 14 January 1988. 11 As could be gleaned
therefrom, petitioner's assigned errors are as follows:
. . . defendant raised as error of the court a quo in (sic) holding that the "vales" (Exhs. A to DD)
have not been paid; that the presumption in favor of the plaintiff-appellee that since he was in
possession of the "vales" the same have not been paid, remained undisputed; that the total
transaction between the parties amount to more than P200,000.00; and in rendering a decision in
favor of the plaintiff-appellee plus the award of attorney's fees in his favor. 12
On 5 February 1988, petitioner filed a motion to reconsider the aforesaid decision 13 alleging therein, inter alia, that
(a) the evidence showing payment of the "vales" is "uncontroverted", hence the presumption that they were not paid
simply because they remain in the possession of the creditor cannot arise; (b) the alleged non-payment of the "vales"
could have been further explained if the trial court gave the appellant the opportunity to present sur-rebuttal witness
and documentary evidence; besides, he has newly discovered evidence invoked in a prayer for a new trial that
was nevertheless denied by the lower court which consists of a letter, dated 7 February 1983, signed by Rafael
Rodulfo, General Manager of the private respondent and addressed to Brig. Gen. Clemente Racela, then KKK
General Action Officer, categorically stating that "the account of CSAR Marine Resources, Inc. c/o Atty. Calvin
Arcilla" is only P23,639.33; and (c) the evidence presented by both parties disclosure that "the subject account are
(sic) all in the name of CSAR MARINE RESOURCES, INC., a corporation separate and distinct from the
appellant;" such fact remains "uncontroverted" as shown by Exhibits "1", "3", "A" to "DD" adopted as Exhibits "7"
to "25" for the appellant." 14 He then prays that:
. . . considering that appellees was not able to prove by preponderance of evidence the alleged
unpaid account of appellant, the decision promulgated on January 14, 1988 be RECONSIDERED
and a new one be entered REVERSING the lower court decision and thereby ordering the
DISMISSAL of plaintiff-appellee's complaint, with damages and costs against appellee.
In the remote possibility, that the appellee's complaint cannot be dismissed outrightly, it is further
prayed that his Honorable Tribunal orders (sic) a new trial for appellant to present additional
evidence he wanted to present in his motion for new trial. 15
xxx xxx xxx
Reacting to this motion, private respondent, in a "Manifestation dated 7 February 1988, informed the public
respondent that in the interest of justice and fair play, he interposes no objection to the alternative prayer for a new
trial. 16 Hearing was thereafter conducted to receive the petitioner's so-called newly discovered evidence consisting
of the abovementioned letter of Rafael Rodulfo, dated 7 February 1983, to General Clemente A. Racela (Exh. "1"Motion) wherein the former, as General Manager of private respondent's Universal Enterprises, informed the latter
. . . Csar Marine Resources, Inc. c/o Atty. Calvin Arcilla has an outstanding obligation of
TWENTY THREE THOUSAND SIX PESOS to Universal Enterprises as a result of various
purchases of construction materials. 17
Thereafter, on 31 May 1989, the public respondent promulgated an Amended Decision, 18 the dispositive portion of
which reads as follows:

WHEREFORE, the decision of this Court promulgated on January 14, 1988 is hereby
reconsidered and a new one rendered, ordering defendant-appellant to pay plaintiff-appellee in his
capacity as President of Csar Marine Resources, Inc. the outstanding balance of P23,639.33 to
Universal Enterprises, owned and operated by plaintiff-appellee, plus interest at 12% per
annum from June 4, 1985 when the complaint was filed; attorney's fees of P1,000.00, P200.00 per
court appearance of counsel and 25% of the amount awarded; plus the costs of the suit. 19
On 4 January 1989, petitioner filed a Motion For Clarificatory Judgment 20 alleging therein that:
3. It is very clear from the findings of this Honorable Court contained in the amended decision
promulgated on May 31, 1989 that:
3.1. Defendant Calvin S. Arcilla never had any personal business transaction
(sic) in the plaintiff;
3.2. Csar Marine Resources, Inc. has an outstanding balance in the amount of
P23,636.33 with plaintiff-appellee out of the KKK loan transaction;
3.3. Csar Marine Resources, Inc. is not a party in this case;
xxx xxx xxx
5. It is rather confusing (sic) that defendant-appellant is ordered to pay plaintiff-appellee in his
capacity as President of Csar Marine Resources, Inc. the said amount of P23,639.33, when
plaintiff-appellee for ulterior motives choose (sic) not to implead said corporation. It need not be
emphasized that the personality and liability of the defendant-appellant and that of Csar Marine
Resources, Inc., as a corporation, are separate and distinct from its (sic) other. . . . . 21
He then prays that:
. . . an order be issued clarifying the liability of defendant-appellant in his personal capacity as
regards the amount of P23,639.33, if any, otherwise, the case be dismissed against him. 22
1989 23 on these grounds: (a) the veil of corporate fiction should be pierced in this case; (b) since petitioner did not
raise the issue of separate corporate identity in the pleadings in the trial court or in his Brief, he cannot raise it for
the first time in a Motion for Clarificatory Judgment; in his answer to paragraphs 3 and 4 of the complaint, he admits
that it was he and not his corporation who transacted business with the private respondent; and (c) the "vales" refer
not only to construction materials for which the loan to Csar Marine Resources, Inc. was supposed to be used, but
also to consumables such as salt, rice, food seasoning, cigarettes, coffee, etc.; this indicates that the petitioner
himself did not seriously treat the corporate affairs of Csar Marine Resources, Inc. as separate and distinct from his
Not satisfied with the Resolution, petitioner filed this petition. He alleges therein that respondent Court of Appeals:
After the filing of the Comment, the Reply thereto and the Rejoinder to the latter, this Court gave due course to the
petition and required the parties to submit their respective Memoranda. 25
The records bear nothing to prop up the instant petition. The arguments adduced by the petitioner breathe no life to

On the contrary, the pleadings lead Us to the inescapable conclusion that the petitioner, who is himself a lawyer, is
merely taking advantage of the use of the innocuous phrase "in his capacity as President" found in the dispositive
portion of the challenged Amended Decision making the same a sanctuary for a defense which he, as hereinafter
discussed, had long since abandoned or waived either deliberately or through his obliviscence. His sole purpose, of
course, is to avoid complying with the liability adjudged against him by the public respondent; such avoidance is
premiered on the so-called newly discovered evidence offered after the public respondent had bent over backwards
to grant him a new trial despite the availability of such evidence during pendency of the proceedings before the trial
court. It is to be noted that he failed to assign as error in his Brief the denial by the said court of his motion for new
trial on the basis thereof.
The grant of affirmative relief based on the first assigned error would really redound to the benefit of an entirety
which was not made a party in the main case and which did not seek to intervene therein. Therefore, it has no
personality to seek as review of the public respondent's Amended Decision under Rule 45 of the Rules of Court.
Only the original parties to the main case may do so. 26 Moreover, by no stretch of even the most fertile imagination
may one be able to conclude that the challenged Amended Decision directed Csar Marine Resources, Inc. to pay the
amounts adjudge. By its clear and unequivocal language, it is the petitioner who was declared liable therefor and
consequently made to pay. That the latter was ordered to do so as president of the corporation would not free him
from the responsibility of paying the due amount simply because according to him, he had ceased to be corporate
president; such conclusion stems from the fact that the public respondent, in resolving his motion for clarificatory
judgment, pierced the veil of corporate fictional and cast aside the contention that both he and the corporation have
separate and distinct personalities. In short, even if We are to assume arguendo that the obligation was incurred in
the name of the corporation, the petitioner would still be personally liable therefor because for all legal intents and
purposes, he and the corporation are one and the same. Csar Marine Resources, Inc. is nothing more than his
business conduit and alter ego. The fiction of a separate juridical personality conferred upon such corporation by law
should be disregarded. 27 Significantly, petitioner does not seriously challenge the public respondent's application of
the doctrine which permits the piercing of the corporate veil and the disregarding of the fiction of a separate juridical
personality; this is because he knows only too well that from the very beginning, he merely used the corporation for
his personal purposes.
In his answer to the complaint, petitioner volunteered the information that the pro-forma invoice which he obtained
from the private respondent and which became the source of the obligations reflected in the "vales" was to support
his loan. He states in part:
. . . when defendant was looking for a "pro-forma" invoice to support his loan with the Kilusang
Kabuhayan at Kaunlaran . . . His loan was in the name of his family corporation, CSAR Marine
Resources, Inc. . . . . 28
That it was indeed his loan is further borne out by his allegations therein part:
(a) The accounting between plaintiff and defendant, however, was not closed because adjustments
were needed in the following points: 29
(b) 5. While it is true that plaintiff made demands for payment of an alleged balance of P23,000.00
in March 1983, which demand was even coursed thru the KKK Regional and Provincial Offices,
after the demand of P23,000.00 defendant paid additional P5,000.00 cash to plaintiff. 30
In his motion to reconsider the public respondent's original decision, petitioner becomes more candid in his
admissions that indeed, the transaction with the private respondent and the loan obtained previously were
for his personal account. Thus he asserts that:
(a) the first document made between appellee and appellant was the pro-forma invoice. 31
(b) [c]considering that appellant had already an approved loan and was ready for release . . . . 32
Moreover, petitioner neglected to set up in his Answer the defense that he is not personally liable to private
respondent because the "vales" were corporate obligations of Csar Marine Resources, Inc.. Of course, that defense
would have been inconsistent with his volunteered admission that the KKK loan which resulted in the
procurement of the pro-forma invoice from the private respondent was for his benefit. In any case, the failure to
set it up as an affirmative defense amounted to a waiver thereof. Section 2, Rule 9 of the Rules of Court expressly
proved that defenses and objections, other than the failure to state a cause of action and lack of jurisdiction, not
pleaded either in a motion to dismiss or in the answer are deemed waved. Petitioner, as a lawyer, knows or is

supposed to know this rule. Since he prepared the Answer himself, We cannot think of any possible reason why he
failed to set up this defense other than his realization of its inherent weakness or his outright inexcusable negligence
of forgetfulness. And even if it were due to inadvertence, he could still have subsequently availed of Section 2, Rule
10 of the Rules of Court which allows a party to amend his answer as a matter of right within the period therein
stated. Failing that, he could have resorted to Section 3 thereof which allows the making of amendments upon leave
of court. On the other hand, if the lapse was due to forgetfulness, it is just unfortunate that he did not exercise due
diligence in the conduct of his won affairs. He can expect no reward for it.
Then too, as correctly noted by the public respondent, petitioner, in his Brief, did not assign as error the holding of
the trial court that he is solely liable for the obligation.
Petitioner's volunteered admission that he procured the pro-forma invoice from the private respondent in connection
with his loan from the KKK, using his family corporation in the process, and his deliberate waiver of the
aforementioned defense provide an insurmountable obstacle to the viability of this petition.
WHEREFORE, for utter lack of merit, the instant petition is DENIED with costs against petitioner.
This decision is immediately executory.
[G.R. No. 113103. June 13, 1997]
COURT OF APPEALS, HON. TOMAS V. TADEO, JR., in his capacity as Presiding Judge, Regional
Trial Court of Quezon City, Branch 105 and GROWTH LINK, INC., respondents.
[G.R. No. 116000. June 13 1997]
CORPORATION, respondents.
Raising the sole issue of the legacy of the award of the illegality of an exorbitant and unconscionable amount
as attorneys fees granted[1] by the Regional Trial Court[2] in a Petition for Mandamus with Preliminary Mandatory
Injunction and Damages[3]and affirmed by the Court of Appeals[4] in its Decisions[5] in CA-G.R. SP No. 26898,
entitled, Growth Link, Inc. v. National Power Corporation , et al., therein respondents-appelants National Power
Corporation (NPC), the NPC Board of Directors, Conrado D. Del Rosario and Marcelino Ilao, petition this court to
reverse said Decision insofar as the award of attorneys fees is concerned.[6]
Growth Link, Inc. (hereafter, Growth Link), which is the petitioner-appellee in CA-G.R. SP No. 26898, for its
part, comes before us with a separate Petition in challenge of the same Decision which we are asked to completely
reverse, Growth Link praying[7] instead for the affirmance in toto of the trial court decision. Growth Links Petition
is docketed as G.R. 116000.
In a Resolution[8] dated September 28, 1994, we granted the Motion for Consolidation filed by Growth Link
and forthwith ordered the consolidation of G.R. Nos. 113103 and 116000.
We proceed from the following premises;
"The facts of the case as summarized by the trial court are as follows:
[Growth Link] is a duly registered domestic corporation while x x x NPC is a duly organized government
corporate entity while the individual [petitioners] are officers and/or members of the NPC Board of Directors,
except that [petitioners] Conrado Del Rosario and Crispin T. Ubaldo are no longer connected with x x x NPC;
That on October 23, 1984, [Growth Link] was duly awarded Purchase Order (PO) No. 086653 to suply
(sic) NPC, subject to certain terms therein expressed, two (2) pieces Pielstick Piston Skirt specified under Code No.
02.005.0171.00, Plate No. at the total price of P230,000.00;
That subject Piston Skirts were actually delivered to and received by the NPC Manila (RWSS) Warehouwe
(sic) on January 16, 1985, subjected to actual visual inspection and were found conforming to technical
specifications per PO, hence were accepted and approved for payment;

That said Piston Skirts were later shipped by NPC to he end-user, the General Santos Diesel Plant (GSDP),
which acknowledged delivery thereof as of January 29, 1985;
That under date 24 May 1985, four (4) months from delivery, the following findings/observations were
allegedly reported found in said Piston Skirts, namely: (a) damage[d]/used O-rings; (b) scratches on mid-span; (c)
scratches on top and bottom portion of skirts; (d) carbon residue/deposit on top grove of piston skirts;
That the amount of P16,879.50 was deducted by NPC from [Growth links] other receivables thru PNB
Check no. 102690 per NPC Credit Memo No. 030910;
That under date 6 March 1986, [Growth Link] was in receipt of a letter from the then NPC President, Hon.
G.Y. Itchon, formally demanding immediate replacements of the Piston Skirts otherwise, NPC will be contrained
(sic) to demand the refund of P227, 470 as purchase costs of the items and P23,051 as cost of delivery x x x plus
applicable interest charges reckoned from date of receipt of NPC payment, meanwhile said amounts are withheld
from [Growth Links] outstanding receivables from NPC, pending replacements with the warning that a repetition of
similar delivery or any subsequent infraction shall amount to immediate cancellation of [Growth Links]
accreditation with the NPC and prosecution of appropriate legal action;
That as direct consequence of the pressures aforecited and despite the actual investigation findings on the
rejected items by foreign principal authorized representative xxx [Growth Link] was eventually constrained to
replace, as [it] actually did replace the questioned piston skirts, and the rejected items shipped back to Japan for
That under date February 23, 1984, [NPC] ordered thru [Growth Link], under Indent Order (I.O.) No.
07600, Pielstick Engine Pistol Rings for the Panay Diesel Power Plant (PDPP-Dingle) per Inquiry No. F2C84-3/261053TR, PR No. 07381, worth FOBY1.87M;
That subject piston rings were shipped from Japan direct of consignee, the NPC and were accepted and
received by the end-user, PDPP-Dingle Panay, on May 30, 1985;
That under date 3 June 1986, almost a year later, Mr. Romeo A. Perlado, NPC Manager, Procurrement
Division, [that the Pielstick Engine Piston Rings for PDPP-Dingle Panay under] Indent Order No. N-07600 did not
reach its normal expected life of 12,000 RH and [that Ms. Dalplas is] to x x x check and verify who was the
supplier of these materials and x x x request them to replace their materials xxxx to put on record that x x x this
supplier [gave] a bad supply of materials;
That upon the intercession of [Growth Link], the foreign supplier of said indented piston rings telexed NPC
to send thru [Growth Link] all damaged rings/circumstial data for manufacturers analysis/evaluation with further
info that other NPC orders supplied by Fuji includes [sic] the same items per IO 7395,7501, and 7694;
That acting upon the foreign suppliers telex message aforecited, Ms. Cecilia V. Daplas, the NPC Manager,
Procurement Division, Diliman, Quezon City, in Memorandum dated 11 July 1986, to the NPC VP Visayas Region,
requested [for] two sets of these rings, one of which will be sent to the manufacturer and other for analysis by an
independent party in the Philippines with the further request that the rings to be sent x x x should bear the markings
of the manufacturer in order to avoid any room for doubt or denials that the damaged rings are their manufacture[d]
That in his report x x x dated April 6, 1987, Naciano T. Caballero, Manager, CMTS Department,
addressed Mr. J. C. Guaderrama, Manager, Materials Management Department, NPC, re: PDPP-I Pielstick Piston
Rings, stated:
1. Our inspection failed to produce the rejected pieces as there are no available damaged piston rings at the plant to
be presented to Procurement Division dated 11 July 1986 addressed to VP-VRC x x x forwarded to this office for
proper action;
2. Operating indicators and maintenance data fail to completely show evidence that will substantiate earlier reports
of premature damage.
This six (6) months later herein petition was in receipt of a letter dated October 16, 1987 from NPC VPAdministrator, Ms. P. A. Segovia (Ms. Segovia was among those previously furnished the Caballero Report dated
April 6, 1987, to the effect that the 4 pieces of the damaged rings are now available for release with the demand that

all rejected piston ring(s) be now completely replaced by genuine parts manufactured by S.E.M.T. - licensed
That under the date 14 June 1986, [Growth Link] was awarded Purchase Order (PO) No. 095435 to deliver
four (4) pieces of Right Hand Exhaust Valve Body, Part No. 02.015.0226.00; Plate No. 02.015.11 and another four
(4) pieces of Left Hand Exhaust Valve Body, Part No. 02.015.0117.00; Plate No. 02.015.12 at the NPC Old Bldg.,
Port Area Manila;
That upon delivery at the NPC Old Warehouse, Port Area Manila on October 13, 1986 subject Valve Body
were forthwith immediately rejected by the Quality Assurance Group on ground that they are manufactured by Fuji
Diesel Co., Ltd., which is not licensee of S.E.M.T. Pielstick [and] that only Pielstick engine spare parts coming
from the manufacturer or its licensed shall be accepted.

That the rejected exhaust valve body items still remain at the NPC Warehouse, Port area Manila.



The existence of the memo of NPCs General Counsel of January 28, 1987 x x x is admitted;


Under date 12 October 1987 [Growth Link] was in receipt of a letter (sic) dated 1 October 1987 from the x
x x then NPC President C. D. del Rosario, that NPC is constrained to refrain transacting business with [Growth Link
and ] further alleging [that] certain subsequent deliveries by petitioner were either rejected or found with
missing items as additional infraction, thus:
a. the 72 pieces of Screws covered by IO No. M-08354-AA allegedly did not conform with the dimensions of the
original part.
b. the shipment consisting of washer, nut and screw for Pielstick Engine covered by IO No. M-07692 dated April
24, 1984 [had] four (4) missing items out of the eight (8) items ordered;
c. BBC turbocharger spares covered by PO No. 096345 dated October 9, 1985 and PO No. 096626 dated
November 10, 1985 [were] rejected on March 10, 1987 by the Quality Assurance Dept. on grounds that the items
delivered were found to be manufactured by IHI, Japan which although BBC licensee, was not specified
manufacturer on [Growth Links] bid offer;
d. Pielstick Engine spares covered by IO No. N-08186 dated July 20, 1985 shipped direct from Japan arrived at
Aplaya, reported[ly] short-shipped x x x.

The existence of the Reply communication and [Growth Links] motion for reconsideration is admitted;


[Growth Link] was pre-qualified as an NPC supplier in 1982.

The following facts have also been shown:

Since 1982 when, as admitted, [Growth Link] was pre-qualified as NPC supplier, up to the time in 1987
when x x x NPC refused to do business with petitioner, the latter had numerous sales through public biddings with a
total value of over P60 million x x x.
[Growth Link] was the lowest bidder and the most advantageous bidder in several other biddings x x x but
NPC did not issue the awards.
As a matter [of] procedure, NPC dealt only with accredited suppliers and NPC recognized [Growth Link]
as duly accredited. x x x
At the start in 1982 [Growth Link] complied with the accreditation requirements of NPC by submitting
voluminous documents like the articles of incorporation of GLI, corporate profile, appointment of [Growth Link] as
exclusive supplier and distributor of spare parts by foreign manufacturers x x x, suppliers warranties x x x
catalogues, company profile and other information about foreign suppliers x x x. And, more importantly, it did not
anymore undergo the same process ad (sic) subsequent biddings [that Growth Link] participated in. So that the
accreditation was a continuing one and not on a per transaction basis.

On February 13, 1987 NPC announced its decision to stop transacting business with [Growth Link] x x x
and was blacklisted due to violation of the conditions of the contract. x x x

The grounds for the cancellation of [Growth Links] accreditation x x x are three, namely:


that [Growth Link] supplied second hand piston skirts;


that piston rings supplied by it did not reach the required running hours;

c. that [Growth Link] supplied exhaust valve bodies manufactured by Fuji Diesel Ltd. which was not licensed by
[Growth Link] refuted the charges in several letters x x x and was asking for opportunity to be heard at a
formal hearing on [the] request for reconsideration but same was not acted upon by NPC.
[NPCs] witness Alejandro admitted that he knew of instances of switching cargoes in the Port Area of
Manila (TSN, Oct. 16, 1990, p. 23).
On October 23, 1984, [Growth Link] was awarded by NPC Purchase Order No. 088653 to supply NPC
two (2) pieces of Pielstick Skirt specified under Code No., Plate No. at the total price
of P230,000.00 x x x. These items were manufactured in Japan by Fuji Diesel Ltd.
From Japan these were shipped to the Philippines on board Everett Orient Line vessel x x x and Bureau of
Customs tagged the shipment as brand new.
Subject piston skirts were actually delivered to and received by NPC Manila (RWSS) Warehouse on
January 16, 1985 and subjected to actual visual inspection and were found conforming to technical specification per
PO, hence, were accepted and approved for payment x x x.
Having complied with all the terms and conditions in the PO, [Growth Link was] paid by x x x NPC for
said piston skirts.
The piston skirts were shipped by NPC to end-user, the General Santos Diesel Plant (GSDP) and the latter
rejected the items in view of the finding made on May 24, 1985 of a) damaged/used O-rings; b) scratches on mid
span; c) scratches on top and bottom portion of skirts; d) carbon residue/deposit on grove of piston skirts x x x.
On June 18, 1985 [Growth Link] notified foreign supplier (Fuji Diesel) of the findings of the end user x x x
Fuji sent to the Philippines its own investigator to conduct inspection/investigation and on August 6, 1985 said Fuji
investigator submitted his findings on the rejected piston skirts as follows:

The rejected/inspected items were not the ones supplied by us for the following reasons:
Identification marks engraved on the rejected items are different from
the standard markings of FUJI DIESEL LTD. the company [that] manufactured the
items x x x supplied against [NPCs] subject order.
The items supplied by Fuji were part of a production batch made up of 16
items. Each of the 16 items was engraved with the assigned number within the series
65511 to 65526.


On the photographs taken of [the] following are observed:


Reamer bolts that were part of the Fuji supplied items were missing.


Fuji did not supply nuts that were part of the reject.


The presence of rust on the upper portion of the item indicated that the item is not new. x x x

Azuma Kako Co., Ltd., a third party surveyor, after careful analysis, found that the rejected items were
second hand and not manufactured in Japan. x x x
On May 14, 1986 Fuji Diesel Co., Ltd., issued a certification that (a) the two (2) pieces of Pielstick Piston
Skirts covered by PO 086653 were brand new parts manufactured by our company; but the two (2) pieces of Piston
Skirt recently returned had been identified as products of other than [Fuji] company.

NPCs witness Mangosing in his report xxx noted that the defects he found on the piston skirts delivered
by [Growth Link] were slight dents and scratches. The items x x x received at Gen. Santos had serious defects x x x
and [were] obviously second hand x x x.

In his report x x x NPCs Agcaoili stated:

x x x Closer scrutiny on the piston skirt thru the uncovered and wide spaces between the crating materials showed
that there were no signs of damages and/or unusual imperfections except for slight dents on the periphery of the
piston pin hole. This was considered insignificant and will not in any way affect the soundness of the item.

NPCs Mangosing confirmed Agcaoilis findings in a separated report, thus:

x x x The two pieces of piston skirt inspected were packed in a single Palo China crate. The description of the
delivery was written on a piece of plywood specifying the corresponding Code No. and Plate No. which is similar to
that in the P.O. The piston skirts were covered with plastic material. The bolts and nuts which are included in the
delivery were similarly wrapped with plastic material and musking [sic] tape which is place [sic] in one of the piston
x x x The piston skirt was provided with a wax protective coating. A look through the open and uncovered spaces
between the piston skirt and the crating material show[s] that the wax protective coating is thoroughly
applied. However, scratches and dents were noted on the pheriphery [sic] of the piston pin holes.
[Growth Links] foreign suppliers, Fuji and I&N International, are highly respected and prominent
companies x x x.
NPCs Osilla in his report dated September 10, 1985 x x x stated: further verification revealed that the
rejected items by GSDP were not the ones[s] supplied by the principal of Growth Link Inc.
As to the Pielstick Piston Rings ordered by NPC from petitioner on February 23, 1984 under I.O. 07600 for
Panay Diesel Power Plant (PDPP), same were shipped from Japan direct to conisgnee [sic], the NPC, and were
accepted and received by the end-user, PDPP, on May 30, 1985. On June 3, 1986, or almost a year later, Romeo A.
Perlado, NPC VP-Visayas Region, addressed a Memo to Ms. C. V. Daplas, NPC Manager, Procurement Division,
Diliman, Quezon City, that the purchased piston rings covered by I.O. No. N-07600 did not reach its noremal
expected life of 12,000 RH x x x.
[Growth Links] foreign supplier of the piston rings, upon intercession of [Growth Link] , telexed NPC to
send thru [it] all damaged rings/circumstantial data for manufacturers analysis/evaluation x x x.
Engr. Naciancino T. Caballero, NPC Manager, CMTS Dept. Visayas Regional Office, in a communication
dated April 6, 1987 to Mr. Guadarrama, NPC Manager, Materials Management Dept. stated that: our inspection
failed to produce the rejected pieces as there are no available damaged piston at the plant to be presented to
Procurement per Memo of Ms. Daplas and that operating indicators and maintenance data fail to completely show
evidence that will substantiate reports of premature damage x x x.
The alleged piston rings remained with x x x NPC x x x for reason that NPC refuses to issue the
authorization to obtain possession of the subject item with complete description/identification/marking for
manufacturer[s] purposes.
As to the exhaust valve bodies, which were delivered to NPC Old Warehouse, Port Area, Manila, on
October 13, 1986, these were rejected by NPC Quality Assurance Group on ground that they are manufactured by
Fuji Diesel Co., Ltd., which is not a licensee of S.E.M.T. Pielstick [and] that only Pielstick engine spare parts
coming from the manufacturer or its licensees shall be accepted. [Growth Link] did not accept the return of the
rejected items for reason [that] there was nothing in the PO x x x which was excluded Fuji as manufacturer of the
particular items. It only required a certificate of compliance from [the] manufacturer upon delivery which was
complied with and for reason that the manufacturer was not specified to be S.E.M.T. or any of its licensees.
Petitioner submitted to NPC prequalification documents of its supplier of capital-production-sales tie up
with Niigata Engineering Co. Ltd. which is a licensee of SEMT for PC type engines x x x. These also show that
Fuji was a licensee fo SEMT for PA type engines.

NPC, from 1982 to 1986, had already issued 24 orders to Fuji valued at P28,000,000.00 x x x.

[Growth Link] filed [a] petition for mandamus with preliminary injunction and damages with the trial court on
February 8, 1988. In an order dated February 15, 1988, the trial court required the [NPC] and other respondents
[therein] to file their Comment and/or Answer x x x.
At the hearing on February 24, 1988, the [NPC and other] respondents [therein] and/or counsel failed to appear but
upon motion of xxx Growth Links counsel, the latter was allowed to present its evidence ex parte insofar as the
issuance of the writ concerned. Thereafter, or on March 4, 1988, the court granted the issuance of the writ, subject
to the filing by petitioner of a surety bond in the amount ofP2,245,821.53 x x x. However, said order of March 4,
1988 was set aside in and order dated April 18, 1988 for the reason that [the] x x x one who receive the summons x
x x [was] not authorized to receive summons for the corporation nor the individual defendants [therein] x x x [T]he
trial court acquired jurisdiction over [them] only upon their voluntary appearance in court on March 18, 1988. x x
x When [Growth Link] filed the bond x x x the same was approved by the Court and the writ of preliminary
mandatory injunction was issued:
x x x directing the x x x NPC or its duly authorized representatives to honor, comply and/or abide with the said
Purchase Orders and/or Indent Orders mentioned in the petition as well as to refrain, cease and desist from
cancelling the standing accreditation of [Growth Link] and allow the former to participate in any bidding or award
like any other accredited suppliers x x x.
The trial court resolved Growth Links application for preliminary mandatory injunction in an order dated June 3,
1988 declaring among others, that:
[T]here is pending [a] motion for reconsideration dated October 20, 1987 filed by [Growth Link] with [NPC] x x x
[which denied Growth Links] request for reconsideration without even investigating x x x. The [NPC] condemned
[Growth Link] as a blacklisted bidder and supplier without hearing and thus deprived [it] of its right without due
process. x x x
and ordering that:
x x x [NPC], during the pendency of said motion for reconsideration and while the same is unresolved finally by the
Court, to temporarily LIFT the suspension of petitioner as duly accredited NPC supplier, CANCEL its name from
[NPCs] blacklist, and ALLOW [Growth Link] to participate and/or submit its bid proposal at NPC biddings, upon
the same bond of P2,245,821.53 previously filed by [Growth Link] x x x
Napocors motion for reconsideration of the aforecited order was denied on September 27, 1988.
After trial on the merits, the court a quo rendered the decision dated September 10, 1991 in favor of petitioner
Growth Link, Inc.[9]
The trial court found the NPC guilty of gross evident bad faith in its dealings with Growth Link as its duly
accredited supplier. Consequently, it ordered the NPC and its officers and members of the Board of Directors, to
jointly and severally pay Growth Link the following amounts:
a) P230,000.00 representing the cost of the replaced piston skirts under P.O No. 086653 plus 12% interest thereto
[sic] per annum from April 9, 1986 until fully paid;
P16,870.00 [which was] the amount deducted by [NPC] from [Growth Link]s outstanding collectibles, plus
12% interest thereto [sic] per annum from November 18, 1985 until fully paid;
P144,000.00 for payment of items delivered under P.O. No. 095435 plus 12 % interest thereto [sic] per annum
from November 13, 1986 until fully paid;
P27,650.00 for payment of items delivered under P.O. No. 096345 plus 12% interest thereto [sic] per annum
from April 4, 1987 until fully paid;

P182,070.00 for payment of items delivered under P.O. No. 096626 plus 12% interest thereto [sic] per annum
from April 4, 1987 until fully paid;
P176,356.00 representing unrealized commission on the cancelled Indent Order No 08114 dated May 24, 1985
plus 12% interest thereto [sic] per annum from November, 1985 until fully paid;
P1,249,745.00 representing unrealized commission on the Foreign Inquiry Nos. F2c84-3/5-1027 and 1028Tr
for Pielstick Engine Spares, plus 12% interest thereto [sic] per annum from September, 1996 until fully paid;
P6,216,583.00 representing unrealized commissions on various item bidded where [Growth Link] was the
lowest bidder but which was not awarded by NPC to it, plus 12% interest thereto [sic] per annum from July, 1986
until fully paid;
P 1,419,853.00 representing unpaid sommision for the disregarded lowest bid of [Growth Links] principal on
NPC Foreign Inquiry Nos. FPS85-11/6-005AA, plus 12 % interest thereto [sic] per annum from October, 1987 until
fully paid;
P2,000,000.00 for compensatory damage[s] suffered by petitioner due to loss of business relationship and
standing here and abroad;

P1,500,00.00 for moral and exemplary damages suffered by [Growth Link];


P30,000.00 plus 30% of the principal amount recoverable, as and for attorneys fees;


P40,000.00 as litigation expenses (premiums paid on the injunction bond, etc.); and


Costs of suit.[10]

Refusing to concede its solidary ability for the foregoing amounts, the NPC, and its officers and members of its
Board of Directors appealed the trial courts decision to the Court of Appeals and sought its reversal on the
following assignment of errors:
The respondent Court of Appeals rejected the first three assigned errors and in effect affirmed the trial courts
findings of the gross evident bad faith on the part of NPC. The Court of Appeals reasoned:
x x x We find the trial court based its conclusion of gross evident bad faith in Napocors dealings with [Growth
Link] on the following:
1. The writ of preliminary mandatory injunction dated September 28, 1988 which directed NPC, among other
things, to refrain, cease or desist from cancelling the standing accreditation of [Growth Link] with the [NPC] and
allow the former to participate in any bidding or award like any other accredited suppliers, was honored by NPC
more in its breach that in its compliance. NPC continued to disallow [Growth Link] to participate in any bidding.

The question of warranty for hiddent defects or implied warranty on the quality or fitnes of the items
delivered by petitioner and received by NPC could have been avoided had NPC complied with the requirement of
law x x x.
NPC never filed any action against [Growth Link] within six months period from the delivery of the piston skirts,
piston rings and other despite the fact that it was in possession, control, and disposition of the items x x x and
[Growth Link] could not do anything to prevent switching, damaging, and/or pilferage as the items are in full
possession and control of NPC. Thus [Growth Link] was left at the mercy of NPC who [sic] arbitrarily withheld
payment or deducted payment from other items unless the items which NPC concluded as defective be replaced by
[Growth Link].
Due process was denied by NPC to [Growth Link]. NPC just received with deaf ears and closed eyes, the
several letters of explanation of [Growth Link], and the latters request for reconsideration and/or investigation was
simply wastebasketed. And yet there was strong ground [for Growth Links] request considering that the items
alleged to be defective were not the same items delivered or shipped by [Growth Link's] foreign supplier direct to
NPC or NPCs end-user. But NPC condemned [Growth Link] as a blacklisted bidder and supplier without hearing
and deprived [Growth Link] of its rights without due process.
Additionally, We find the action of NAPOCOR in requiring [Growth Link] to replace the two (2) pielstick piston
skirts x x x unjustified. x x x [T]he pielstick skirts when delivered on January 16, 1985 were inspected by the
Quality Assurance Group of Napocor itself composed of Engrs. A.C. Mangosing, Jr. and Roberto Agcaoili whose
report stated that said piston skirts were subjected to actual visual inspection and were found conforming to
technical specifications per P.O. On the basis of such findings, the piston skirts were accepted and approved for
payment and February 25, 1985, Napocor paid Growth Link the net amount of P227,470.00 x x x.
In the fact-finding report and verification of the delivery of the pielstick piston skirts, we note with significance the
findings of R.E. Agcaoili, Chief Engineer, Inspection/Test of Napocor as approved by L.F. Osilla, Manager of
Napocor Assurance Group Utility Operations, that the delivered items are definitely piston skirts intended for
Pielstick Diesel Engine for General Santos Plant; both items (in one crate) appeared new; they were adequately
provided with protective wax covering and further preserved with pellucid plastic sheet wrappers; closer scrutiny on
the piston skirt x x x showed that there were no signs of damages and/or unusual imperfection except for slight dents
on the pheriphery [sic] of the piston pin hole which was considered insignificant and will not in any way affect the
soundness of the item. x x x When these pielstick piston skirts arrived at the Gen. Santos Diesel Plant and reinspected x x x the inspection report of Mr. Padilla stated that the delivered items were second hand with damages,
hence, they were rejected by the end-user and reshipped to Manila x x x.
During the negotiations with Napocor, Mr. Teodoro Miguel of Growth Link committed to replace the rejected items
x x x otherwise, Growth Link would be required to refund the amount of P227,470.00. On top of that, Napocor
deducted the sum of P16,870.50 from [Growth Links] outstanding collectibles as evidenced by PNB Check No.
102690 per NPC Credit Memo No. 030910.
x x x [Growth Link] was [also] made to answer for an alleged discrepancy in the Pielstick Engine Piston Rings for
the Panay Diesel Power Plant (PDPP-Dingle) which x x x was shipped from Japan direct to Napocor and accepted
and received by the end-user on May 30, 1985 but was questioned after a year later on June 3, 1986 by Mr. Romeo
Perlado, NPC VP-Visayas Region claiming that said piston rings did not reach itsz normal expected life of 12,000
RH and requested that they be replaced, otherwise, they will put on record that its supplier has a bad supply of
materials. [Growth Link] was treated similarly by Napocor with regard to x x x (4) pieces of Right Hand Exhaust
Valve Body which, upon delivery to NPCs old warehouse at Port Area, Manila on October 13, 1986, were
immediately rejected by the Quality Assurance Group on the ground that they were manufactured by Fuji Diesel
Co., Ltd., which is not a licensee of S.E.M.T.
The above instances are in addition to the grounds mentioned by the trial court as constitutive of the pressure
imposed by Napocor upon [Growth Link]. Because of the admission of Napocors witness, A.C. Mangosing, Jr. that
he knew of instances of switching cargoes in the Port of Manila x x x We cannot fault [Growth Link] for
entertaining the idea that there was a switching of the brand new pielstick with old ones considering the lapse of
time between the delivery and the rejection x x x coupled with the fact that when they were originally landed and
inspected, the same were found by Napocors own engineers to be brand new x x x. We therefore, agree and affirm

the lower courts finding that Napocors gross evident bad faith was reflected in the aforecited actions taken against
[Growth Link].
Moreover, we find no merit in Napocors contention that the trial court erred in applying Art. 1571 of the Civil
Code x x x. x x x We cannot accept this argument especially considering the facts clearly show that the pielsticks
piston skirts in question when delivered to Napocor were inspected, accepted and certified to by Napocors
representative as brand new and in accordance with its P.O. No. 086653. As a matter of fact, that shipment was
recommended for payment and actually paid for by Napocor. Moreover, the manufacturers certificate of
authenticity and warranty cited by Napocor that allows a rejected item to be returned for repair and replacement
provides that the claim (of defect) must be reported within a reasonable period from the date of delivery precisely
to prevent a substitution of the thing delivered x x x.
On the question of the lower courts findings that the Napocor breached its writ of preliminary injunction, another
factor upon which the lower court based its finding that Napocor committed gross evident bad faith, We only have
to cite by reference that portion of the decision appealed from x x x. Additionally, on the basis of the facts
established, it can readily be seen that Napocor virtually dragged its feet to thwart the effectivity of the writ of
preliminary mandatory injunction issued by the lower court.
But while respondent appellate court affirmed the trial courts finding of gross evident bad faith on the part of
NPC, it reversed the trial court insofar as it is found NPC liable for amounts claimed by Growth Link to be
unrealized commissions properly accruing to them had the NPC recognized them as the lowest and the most
advantageous bidder under several foreign inquiries. The Court of Appeals ruled:
An invitation to bid is not an offer which, if accepted, matures into a contract. In the language of Article 1326 of
the Civil Code,advertisements for bidders are simply invitations to make proposals and the advertiser is not bound
to accept the highest or lowest bidder, unless the contrary appears. The reservation in the Invitaiton to Bid, of the
advertisers right to reject any and all bids is one of the terms and conditions therein which the bidder has
accepted. (Surigao Mineral Reservation Board vs. Cloribel, 25 SCRA 491) and such reservation does not make it
obligatory for a government agency to award its contract to the lowest bidder. (C&C Commercial Corp. vs. Menor,
120 SCRA 112)
Under the guidance of the aforecited authorities, We find no justification for the award given by the trial court to
[Growth Link] in paragraphs g h and 'i' of the decision appealed from, which supposedly represent commissions
unrealized by [Growth Link] on the basis of mere Foreign Inquiries for the reason that Unlike the Puchase of Indent
Orders which are the result of approved bids and, therefore, give the winning bidder a vested right to its earnings
and commissions arising therefrom, [Foreign Inquiries] as mere invitations to make offers or proposals, do not, by
itself, produce a contract that would ensure earnings and/or commissions for the bidder. Hence the amounts
awarded by the trial court merely on the basis of [Growth Links] various unapproved bids are too speculative and
uncertain to justify the award.[12]
As to the awards for compensatory, moral and exemplary damages, the respondent Court of Appeals found
valid basis therefor under the circumstance of these consolidated cases, but respondent appellate court was no less
struck by the enormity of the amounts awarded by the trial court as damages. Thus it reduced the same in this wise:
x x x [W]hile we affirm the findings and conclusion of the trial court as valid basis of the award for damages, We
find the awards of P2,000,000.00 and P1,500,000.00 for compensatory damages and for moral and exemplary
damages, respectively, to be too huge, under the circumstances of this case that calls for this courts duty to tone
down petitioners fantastic claims (Baluyot vs. Lopez, 51 O.G. #2, p. 784). They are, therefore, hereby reduced
to P1,000,000.00 for compensatory damages and to P500,000.00 for moral and exemplary damages.
Likewise finding NPCs objection to the trial courts finding of solidarity liability to be justified, considering
that the officers and members of the Board of Directors of NPC were sued in their official capacities, the respondent
of the Court of Appeals held:
Finally, We find that the lower court erred in holding the individual respondents jointly and severally liable with
Napocor. It is significant to point out that both the original Petition and Amended Petition for Mandamus filed by
[Growth Link], contain identical allegations in identifying the individual respondents in this case, thus:
2. Respondent, NATIONAL POWER CORPORATION xxx; Respondents-Members of the NPC Board of
Directors; HON. EDGARDO B. ESPIRITU x x x is being sued in his official capacity as Chairman of the NPC
Board of Directors; HON. ERNESTO M. ABOITIZ x x x is being sued in his official capacity as the Vice-Chairman

of the NPC Board of Directors and President of the Respondent firm; HON. JUANITO N. FERRER, HON.
sued in their official capacities as Members of the NPC Board of Directors x x x; Respondent, HON. CONRADO
DEL ROSARIO x x x is being sued in his former official capacities as Vice-Chairman of the NPC Board and
President of Respondent firm x x x; and Respondent, MARCELINO ILAO x x x is being sued in his official
capacity as NPC Vice-President-General Counsel x x x.'
While the Amended Petition added the words or respondents to its prayer that the trial court order respondent
corporation to pay the amounts claimed therein, there is no allegation whatsoever that would justify the imposition
of a joint and several liability with (Napocor) of the individual respondents who, as officers of Napocor, were
being sued in their respective official capacities. Neither did the petitioner show much less claim, any circumstance
which would neccessitate the piercing of Napocors corporate veil so as to make the individual respondents
personally liable for Napocors obligation.[13]
From the Decision fo the Court of Appeals, both Growth Link and the NPC and its officers and members of the
Board of Directors invoke this courts review powers: Growth Link prays for the restoration of the amounts
awarded by the trial court as unrealized commissions in bids where it was the lowest and the most advantageous
bidder but which were disregarded in the face of NPCs unilateral and arbitrary blacklisting of Growth Link, for the
upgrading of the amounts granted as compensatory, moral and exemplary damages to their original amounts as
awarded by the trial court for the reinstatement of the finding of solidary liability among NPC and its officers and
members of the Board of Directors; while NPC prays only for the reduction of the amount granted as and by way of
attorneys fees, which prayer, should we point out, is significally premised on the acceptance of all the other
findings and conclusions of the Court of Appeals, including its affirmance of the trials courts finding of gross
evident bad faith on the part of NPC.
We find the instant consolidated petitions to be both wanting in merit.
G.R. No. 113103
A cursory review of the above errors raised by the NPC before the Court of Appeals, show that the NPC never
assigned the issue of the exorbitant amount awarded to Growth Link as and by way of attorneys fees, as an error on
appeal. Thus, insofar as the amount of the attorneys fees granted by the trial court is concerned, the same must be
deemed no longer open to modification, much less, reduction, the person supposedly aggrieved thereby having
resonantly been silent on this issue in its appeal before the respondent court.
At any rate, this court, in at least two (2) occassions, has allowed an award of 20%[14] to 25%[15] of the total
indebtedness involved in the litigation. In fact, the NPC cites these cases in the Petition.
In this case, Growth Link prayed for and was awarded by the trial court, the amount of P30,000.00 and 30% of
the amount recoverable, as and by way of attorneys fees. While said amount may itself be huge by ordinary
standards, we believe that the same is warranted when tested against the criteria that serve as reglementary guide for
the courts to determine the proper amount of attorneys fees due the winning party.
Thus, we agree with Growth Link when it pleads that:
We take the citations as an implied admission by [the NPC] that an award of 25% of the obligation, is not itself a
gargantuan, exorbitant and unconscionable. The matter of 5% differential will not make it so, if we consider the
complexities of the instant case, the determination, now conclusive, that [the NPC] acted with gross and evident bad
faith, in blacklisting private respondent x x x.
The determination of amount of attorneys fees largely depends on the courts discretion. So long as it has sound
basis, it will not be interfered with. x x x
Here the lower court was further guided by the complex nature of this case, involving as it did several causes of
action each of which proved difficult to establish, and made more so by petitioners sustained albeit unjustified,
resistance. x x x
Thus this suit was a compelled recourse against arbitrary and capricious conduct and the denial of the rudimentary
requirements of due process.[16]

Anent the claim of NPC that the decision of he trial court does not contain any discussion of the basis for the
award of attorneys fees, suffice it to say that the trial court undisputedly awarded exemplary damages, which award
is itself a legal justification, under Article 2208[17] of the Civil Code, for the award of attorneys fees.
G.R. No. 116000
First. Growth Link insists that the decision of the trial court should be deemed final and executory insofar as
NPCs officers and members of the Board of Directors are concerned, because they did not appeal the trial courts
decision. Growth Link specifically cites the Notice of Appeal filed by the NPC to be personal only to the NPC.
This submission, however, is, in the first place, belied by the caption of the Notice of Appeal in question,
which states, NATIONAL POWER CORPORATION, ET AL., Respondents. This same caption can be found in
NPCs Motion for Reconsideration. Significantly, Growth Links Opposition to the Motion for Reconsideration
made reference to the NPC officers and members of the Board of Directors, in its arguments. At any rate,
technicalities that defeat substantial justice are, by this courts policy, an unpreffered basis to deprive parties of their
statutory right to appeal a decision that is fatally flawed in certain respects.
In the second place, the finding solidarity liability among the NPC and its officers and Members of the Board
of Directors, is patently baseless. The decision of the trial court contains no such allegation, finding or conclusion
regarding particular acts committed by said officers and members of the Board of Directors that show them to have
individually guilty of unmistakable malice, bad faith, or ill-motive in their personal dealings with Growth Link. In
fact, it was only in the dispositive portion of the decision of the court a quo that solidary liability as such was first
NPCs officers and members of the Board of Directors were sued merely as nominal parties in their official
capacities as such. They were impleaded by Growth Link not in their personal capacities as individuals but in their
official capacities as officers and members of the Board of Directors through whom the NPC conducts business and
undertakes its operations pursuant to its avowed corporate purposes. Therefore, as a bonafide government
corporation, NPC should alone be liable for its corporate acts as duly authorized by its officers and directors.[18]
This is so, because a corporation is invested by law with a separate personality, separate and distinct from that of
the person composing it as well as from any other legal entity to which it may be related. (Tan Boon Be & Co. v.
Jarencio, 163 SCRA 205 [1988] citing Yutivo and 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]). A corporation is an
artificial person and can transact its business only through its officers and agents. Necessarily, somebody has to act
for it. Separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced and the
individual stockholders may be personally liable to obligations of the corporation only when the corporation is used
as a cloak or cover from fraud or illegality, or to work an injustice, or where necessary to achieve equity or when
necessary for the protection of creditors. (Sulo ng Bayan, Inc. v. Araneta, Inc., 72 SCRA 347 [1976] xxx).[19]
We repeat, there was nothing in Growth Links petition not in the mass of evidence proffered, before the
court a quo that established the factual or legal basis to hold the officers and members of the Board of Directors of
the NPC jointly and severally liable with the NPC for the damages suffered by Growth Link because of acts of gross
evident bad faith on the part of the NPC as a corporate entity acting through its officers and directors. The records
even bear out that every single offense taken by the NPC against Growth Link arose from a corporate decision and
was executed as a corporate act. Thus, the trial court gravely erred in holding said officers and directors to be jointly
and severally liable with the NPC for the damages suffered by Growth Link but caused by the NPC alone as a
corporate entity.
Second. Growth Link takes exception to the reduction made by the respondent Court of Appeals of the award
compensatory, moral and exemplary damages. It submits that the damages awarded by the lower court are not
even adequate compensation for the injuries visited upon petitioner by the precipitate and irresponsible conduct of
private respondent and that the amounts as determined by the trial court were even conservative in view of the
demonstrated income-potential of petitioner.
We empathize with Growth Link, especially in its owner-president, Teodoro Miguel, whose sincere testimony
as to irreparable damage wrought on his business and personal reputation by NPCs act of blacklisting his company,
does call for some reparation in the form of substantial damages.

However, substantial damages do not translate into excessive damages. It is well-settled that the award of
damages as well as attorneys fees lies upon the discretion of the court in the context of the facts and circumstances
of each case,[20] and this judicial discretion is largely addressed towards tempering any tendency to award excessive
damages so much so that it stands vulnerable to and actually magnetizes, attacks as to its being a result of passion,
prejudice and corruption.
Two million pesos (P2,000,000.00) as compensatory damages and one and a half million pesos
(P1,500,000.00) as moral and exemplary damages, are too much. While NPC may be accountable for lost profits
that Growth Link may have gained from its dealings with the NPC itself, NPC cannot be made to bear the burden of
answering for what other profits that Growth Link may have earned from another contracts with other
companies. NPC may have accredited Growth Link as a supplier, but it did not thereby become Growth Links
insurer for all and any profitable contracts that Growth Link may obtain. Thus, we find the reduction of the awards
of damages by the respondent Court of Appeals, to be warranted under the facts and circumstances of the instant
Third. Growth Link contests the deletion by the respondent Court of Appeals of the awards made by the trial
court for unrealized commissions form bids disregarded by the NPC albeit Growth Link was the lowest and most
advantageous bidder, on the ground that the said amounts were too speculative and uncertain. Growth Link cites
two (2) reasons: first, that the NPC admitted its liability for such unrealized commissions in its Answer; and second,
that the basis for the unrealized commissions was not necessarily contract but quasi-delict.
We disagree.
Growth Link insists that because the NPC allegedly, in its Answer, failed to deny the claims for unrealized
commissions as laid out in Growth Links petition, it had, in effect, admitted the existence and merit of such
claims. Growth link apparently relied on the general rule that non-denial of allegations in the complaint results in
admission thereof. This rule however, is, just like any other rule, not absolute and correspondingly admits of
x x x [I]n spite of the presence of judicial admission in a partys pleading, the trial court is still given leeway to
consider other evidence presented. This rule should apply with more reason when the parties had agreed to submit
an issue for resolution of the trial court on the basis of the evidence presented.[21]
Statements made in Answer are merely statements of fact which the party filing it expect to prove, but they are not
evidence. With more reason, statement made in the complaint, or in this case, in the Petition for Mandamus with
Preliminary Mandatory Injunction and Damages, which are not directly refuted in the Answer, are deemed
admissions but neither are they evidence that will prevail over documentary proofs.
Assuming arguendo that the NPC did not deny the claims for unrealized commissions as alleged by Growth
Link in its mandamus petition with damages, and that consequently these claims have been transmuted into judicial
admissions, these admissions cannot still prevail over the rules and regulation governing the bidding for NPC
contracts, which necessarily and inherently include the reservation by the NPC of its right to reject any or all
bids. By its own assertion, Growth Link has been a regular bidder for NPC contracts. It cannot deny, much less
pretend ignorance of, the reserved discretion of the NPC to accept or reject any bid. Neither could Growth Link
have forgotten the well-settled rule that this descretion is of such wide latitude that the courts will not generally
interfere with the exercise thereof by the government, unless it is apparent that it is used as a shield to fraudulent
award[22] or an unfairness or injustice clearly shown.[23]
We thus quote, with approval, the following postulations of the Solicitor General, in behalf of the NPC:
Clearly, it is not NAPOCORs ministerial duty to make an automatic award to [Growth Link] even if it was the
lowest bidder. As foresaid, NAPOCOR reserved the right to reject the bid of any bidder.' Thus, [Growth Link] has
no cause of action xxx xxx. Mandamus will not lie to compel the acceptance of the bid of an unsuccessful bidder
(Borromeo vs. City of Manila, et al., 62 Phil. 512 [1935]).
By participating in the public bidding, after NAPOCOR was ordered to cease from cancelling [Growth Link]
submitted itself to the conditions laid down by NAPOCOR, among which is the reservation of its right to reject any
and all bids to be made therein. x x x
Furthermore, Sec. 393 of the National Accounting and Auditing Manual provides:

Sec 393. Reservation of rights to reject any or all bids, - The contract will be awarded to the contractor whose
proposal appears to be more advantageous to the Government, but the right shall be reserved to reject any or all bids,
to waive any informality in the bids received, and to acceptor reject any items of any bid unless such bid is qualified
by specific limitations; also to disregard the bid of any failing bidder, known as such to the agency head or director,
or any bid which is obviously unbalanced or below what the work can be done for. The right shall also be reserved
to reject the bid of the bidder who has previously failed to perform properly or complete on time contracts of a
similar nature, or a bid of a bidder who is not in position to perform the contract. x x x
In fine, NAPOCOR has the right to reject any and all bids, not only fo [Growth Link] but of all other bidders, as
well, if warranted[24]
And then theres Growth Link submission that it claims for unrealized commisions are made proceeding not
from facts founded on contract but from facts establishing NPCs culpability under quasi-delict.
We however, find no allegation in Growth Links petition, no factual finding in the decision of the trial court
and no error assigned before the Court of Appeals, as to anything about NPCs liability for unrealized commissions
based on quasi-delict. We are hardly surprised, however, by this change of theory at this belated stage of
proceedings, because Growth Link indeed has no perfected contract whatsoever to show in order to prove that its
claims for unrealized commissions are anything more that an attempt to collect on mere proposal bids that may have
been the lowest and most advantageous in their class but nonetheless remain subject to the explicit reservation by
the NPC of its prerogative to reject any or all bids.
All told, we find the Decision of the Court of Appeals in CA-G.R. SP No. 26898 to have been rendered in
accordance with the applicable law and jurisprudence.
WHEREFORE, the instant consolidated petitions are HEREBY DISMISSED for lack of merit.
No pronouncement as to costs.