G.R. No.

170689

The Gonzales family owned two corporations, namely, the PNEI and Macris Realty
Corporation (Macris). PNEI provided transportation services to the public, and had its bus
terminal at the corner of Quezon and Roosevelt Avenues in Quezon City. The terminal stood
on four valuable pieces of real estate (known as Pantranco properties) registered under the
9
name of Macris. The Gonzales family later incurred huge financial losses despite attempts of
rehabilitation and loan infusion. In March 1975, their creditors took over the management of
PNEI and Macris. By 1978, full ownership was transferred to one of their creditors, the
National Investment Development Corporation (NIDC), a subsidiary of the PNB.

March 17, 2009

PANTRANCO EMPLOYEES ASSOCIATION (PEA-PTGWO) and PANTRANCO

RETRENCHED
EMPLOYEES
ASSOCIATION
(PANREA),
Petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC), PANTRANCO NORTH EXPRESS, INC.
(PNEI), PHILIPPINE NATIONAL BANK (PNB), PHILIPPINE NATIONAL BANK-MANAGEMENT
AND DEVELOPMENT CORPORATION (PNB-MADECOR), and MEGA PRIME REALTY AND
HOLDINGS CORPORATION (MEGA PRIME), Respondents.

Macris was later renamed as the National Realty Development Corporation

(Naredeco) and eventually merged with the National Warehousing Corporation (Nawaco) to
form the new PNB subsidiary, the PNB-Madecor.

x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 170705

In 1985, NIDC sold PNEI to North Express Transport, Inc. (NETI), a company owned
by Gregorio Araneta III. In 1986, PNEI was among the several companies placed under
sequestration by the Presidential Commission on Good Government (PCGG) shortly after the
historic events in EDSA. In January 1988, PCGG lifted the sequestration order to pave the way
for the sale of PNEI back to the private sector through the Asset Privatization Trust (APT). APT
thus took over the management of PNEI.

March 17, 2009

PHILIPPINE
NATIONAL
BANK,
Petitioner,
vs.
PANTRANCO EMPLOYEES ASSOCIATION, INC. (PEA-PTGWO), PANTRANCO RETRENCHED
EMPLOYEES ASSOCIATION (PANREA) AND PANTRANCO ASSOCIATION OF CONCERNED
EMPLOYEES (PACE), ET AL., PHILIPPINE NATIONAL BANK-MANAGEMENT DEVELOPMENT
CORPORATION (PNB-MADECOR), and MEGA PRIME REALTY HOLDINGS, INC., Respondents.

In 1992, PNEI applied with the Securities and Exchange Commission (SEC) for
suspension of payments. A management committee was thereafter created which
recommended to the SEC the sale of the company through privatization. As a cost-saving
measure, the committee likewise suggested the retrenchment of several PNEI employees.
Eventually, PNEI ceased its operation. Along with the cessation of business came the various
labor claims commenced by the former employees of PNEI where the latter obtained
favorable decisions.

DECISION
NACHURA, J.:
Before us are two consolidated petitions assailing the Court of Appeals (CA)
1
2
Decision dated June 3, 2005 and its Resolution dated December 7, 2005 in CA-G.R. SP No.
80599.

10

On July 5, 2002, the Labor Arbiter issued the Sixth Alias Writ of Execution
commanding the NLRC Sheriffs to levy on the assets of PNEI in order to satisfy the
P722,727,150.22 due its former employees, as full and final satisfaction of the judgment
awards in the labor cases. The sheriffs were likewise instructed to proceed against PNB, PNB11
Madecor and Mega Prime. In implementing the writ, the sheriffs levied upon the four
valuable pieces of real estate located at the corner of Quezon and Roosevelt Avenues, on
which the former Pantranco Bus Terminal stood. These properties were covered by Transfer
12
Certificate of Title (TCT) Nos. 87881-87884, registered under the name of PNB-Madecor.
Subsequently, Notice of Sale of the foregoing real properties was published in the newspaper
and the sale was set on July 31, 2002. Having been notified of the auction sale, motions to
quash the writ were separately filed by PNB-Madecor and Mega Prime, and PNB. They
13
likewise filed their Third-Party Claims. PNB-Madecor anchored its motion on its right as the

In G.R. No. 170689, the Pantranco Employees Association (PEA) and Pantranco
Retrenched Employees Association (PANREA) pray that the CA decision be set aside and a
new one be entered, declaring the Philippine National Bank (PNB) and PNB Management and
Development Corporation (PNB-Madecor) jointly and solidarily liable for the P722,727,150.22
National Labor Relations Commission (NLRC) judgment in favor of the Pantranco North
3
Express, Inc. (PNEI) employees; while in G.R. No. 170705, PNB prays that the auction sale of
4
the Pantranco properties be declared null and void.
5

The facts of the case, as found by the CA, and established in Republic of the Phils.
7
8
v. NLRC, Pantranco North Express, Inc. v. NLRC, and PNB MADECOR v. Uy, follow:
6

registered owner of the Pantranco properties, and Mega Prime as the successor-in-interest.
For its part, PNB sought the nullification of the writ on the ground that it was not a party to
14
the labor case. In its Third-Party Claim, PNB alleged that PNB-Madecor was indebted to the
former and that the Pantranco properties would answer for such debt. As such, the scheduled
15
auction sale of the aforesaid properties was not legally in order.

(1) PNB-Madecor and Mega Prime contended that it would be impossible for them
to comply with the requirement of the labor arbiter to pay to the PNEI employees the amount
of P7.8 million as a condition to the lifting of the levy on the properties, since the credit was
already garnished by Gerardo Uy and other creditors of PNEI. The NLRC found no evidence
that Uy had satisfied his judgment from the promissory note, and opined that even if the
credit was in custodia legis, the claim of the PNEI employees should enjoy preference under
the Labor Code.

On September 10, 2002, the Labor Arbiter declared that the subject Pantranco
properties were owned by PNB-Madecor. It being a corporation with a distinct and separate
personality, its assets could not answer for the liabilities of PNEI. Considering, however, that
PNB-Madecor executed a promissory note in favor of PNEI for P7,884,000.00, the writ of
16
execution to the extent of the said amount was concerned was considered valid.

(2) The PNEI employees contested the finding that PNB-Madecor was indebted to
the PNEI for only P7.8 million without considering the accrual of interest. But the NLRC said
that there was no evidence that demand was made as a basis for reckoning interest.

PNBs third-party claim to nullify the writ on the ground that it has an interest in
the Pantranco properties being a creditor of PNB-Madecor, on the other hand, was denied
17
because it only had an inchoate interest in the properties.

(3) The PNEI employees further argued that the labor arbiter may not properly
conclude from a decision of Judge Demetrio Macapagal Jr. of the RTC of Quezon City that
PNB-Madecor was the owner of the properties as his decision was reconsidered by the next
presiding judge, nor from a decision of the Supreme Court that PNEI was a mere lessee of the
properties, the fact being that the transfer of the properties to PNB-Madecor was done to
avoid satisfaction of the claims of the employees with the NLRC and that as a result of a civil
case filed by Mega Prime, the subsequent sale of the properties by PNB to Mega Prime was
rescinded. The NLRC pointed out that while the Macapagal decision was set aside by Judge
Bruselas and hence, his findings could not be invoked by the labor arbiter, the titles of PNBMadecor are conclusive and there is no evidence that PNEI had ever been an owner. The
Supreme Court had observed in its decision that PNEI owed back rentals of P8.7 million to
PNB-Madecor.

The dispositive portion of the Labor Arbiters September 10, 2002 Resolution is
quoted hereunder:
WHEREFORE, the Third Party Claim of PNB Madecor and/or Mega Prime Holdings,
Inc. is hereby GRANTED and concomitantly the levies made by the sheriffs of the NLRC on the
properties of PNB Madecor should be as it (sic) is hereby LIFTED subject to the payment by
PNB Madecor to the complainants the amount of P7,884,000.00.
The Motion to Quash and Third Party Claim of PNB is hereby DENIED.

(4) The PNEI employees faulted the labor arbiter for not finding that PNEI, PNB,
PNB-Madecor and Mega Prime were all jointly and severally liable for their claims. The NLRC
underscored the fact that PNEI and Macris were subsidiaries of NIDC and had passed through
and were under the Asset Privatization Trust (APT) when the labor claims accrued. The labor
arbiter was correct in not granting PNBs third-party claim because at the time the causes of
action accrued, the PNEI was managed by a management committee appointed by the PNB as
the new owner of PNRI (sic) and Macris through a deed of assignment or transfer of
ownership. The NLRC says at length that the same is not true with PNB-Madecor which is now
20
the registered owner of the properties.

The Motion to Quash of PNB Madecor and Mega Prime Holdings, Inc. is hereby
PARTIALLY GRANTED insofar as the amount of the writ exceeds P7,884,000.00.
The Motion for Recomputation and Examination of Judgment Awards is hereby
DENIED for want of merit.
The Motion to Expunge from the Records claimants/complainants Opposition dated
August 3, 2002 is hereby DENIED for lack of merit.
18

SO ORDERED.

21

The parties separate motions for reconsideration were likewise denied.

Thereafter, the matter was elevated to the CA by PANREA, PEA-PTGWO and the Pantranco
Association of Concerned Employees. The latter group, however, later withdrew its petition.
The former employees petition was docketed as CA-G.R. SP No. 80599.

On appeal to the NLRC, the same was denied and the Labor Arbiters disposition
19
was affirmed. Specifically, the NLRC concluded as follows:

30

PNB-Madecor and Mega Prime likewise filed their separate petition before the CA
22
which was docketed as CA-G.R. SP No. 80737, but the same was dismissed.

Labor Union-CCLU v. NLRC, the employees insist that where the employer corporation
ceases to exist and is no longer able to satisfy the judgment awards in favor of its employees,
31
the owner of the employer corporation should be made jointly and severally liable. They
added that malice or bad faith need not be proven to make the owners liable.

In view of the P7,884,000.00 debt of PNB-Madecor to PNEI, on June 23, 2004, an

auction sale was conducted over the Pantranco properties to satisfy the claim of the PNEI
23
employees, wherein CPAR Realty was adjudged as the highest bidder.

On the other hand, PNB anchors its petition on this sole assignment of error, viz.:

On June 3, 2005, the CA rendered the assailed decision affirming the NLRC
resolutions.

THE AUCTION SALE OF THE PROPERTY COVERED BY TCT NO. 87884 INTENDED TO
PARTIALLY SATISFY THE CLAIMS OF FORMER WORKERS OF PNEI IN THE AMOUNT OF
P7,884,000.00 (THE AMOUNT OF PNB-MADECORS PROMISSORY NOTE IN FAVOR OF PNEI) IS
NOT IN ORDER AS THE SAID PROPERTY IS NOT OWNED BY PNEI. FURTHER, THE SAID
PROMISSORY NOTE HAD ALREADY BEEN GARNISHED IN FAVOR OF GERARDO C. UY WHICH
LED TO THREE (3) PROPERTIES UNDER THE NAME OF PNB-MADECOR, NAMELY TCT NOS.
87881, 87882 AND 87883, BEING LEVIED AND SOLD ON EXECUTION IN THE "PNB-MADECOR
VS. UY" CASE (363 SCRA 128 [2001]) AND "GERARDO C. UY VS. PNEI" (CIVIL CASE NO. 9532
72685, RTC MANILA, BRANCH 38).

The appellate court pointed out that PNB, PNB-Madecor and Mega Prime are
corporations with personalities separate and distinct from PNEI. As such, there being no
cogent reason to pierce the veil of corporate fiction, the separate personalities of the above
corporations should be maintained. The CA added that the Pantranco properties were never
owned by PNEI; rather, their titles were registered under the name of PNB-Madecor. If PNB
and PNB-Madecor could not answer for the liabilities of PNEI, with more reason should Mega
Prime not be held liable being a mere successor-in-interest of PNB-Madecor.

PNB insists that the Pantranco properties could no longer be levied upon because
the promissory note for which the Labor Arbiter held PNB-Madecor liable to PNEI, and in turn
to the latters former employees, had already been satisfied in favor of Gerardo C. Uy. It
added that the properties were in fact awarded to the highest bidder. Besides, says PNB, the
subject properties were not owned by PNEI, hence, the execution sale thereof was not validly
33
effected.

24

Unsatisfied, PEA-PTGWO and PANREA filed their motion for reconsideration; while
25
PNB filed its Partial Motion for Reconsideration. PNB pointed out that PNB-Madecor was
made to answer for P7,884,000.00 to the PNEI employees by virtue of the promissory note it
(PNB-Madecor) earlier executed in favor of PNEI. PNB, however, questioned the June 23,
2004 auction sale as the P7.8 million debt had already been satisfied pursuant to this Courts
26
decision in PNB MADECOR v. Uy.
Both motions were denied by the appellate court.

Both petitions must fail.

27

G.R. No. 170689

In two separate petitions, PNB and the former PNEI employees come up to this
Court assailing the CA decision and resolution. The former PNEI employees raise the lone
error, thus:

Stripped of the non-essentials, the sole issue for resolution raised by the former
PNEI employees is whether they can attach the properties (specifically the Pantranco
properties) of PNB, PNB-Madecor and Mega Prime to satisfy their unpaid labor claims against
PNEI.

The Honorable Court of Appeals palpably departed from the established rules and
jurisprudence in ruling that private respondents Pantranco North Express, Inc. (PNEI),
Philippine National Bank (PNB), Philippine National Bank Management and Development
Corporation (PNB-MADECOR), Mega Prime Realty and Holdings, Inc. (Mega Prime) are not
jointly and severally answerable to the P722,727,150.22 Million NLRC money judgment
28
awards in favor of the 4,000 individual members of the Petitioners.

We answer in the negative.

First, the subject property is not owned by the judgment debtor, that is, PNEI.
Nowhere in the records was it shown that PNEI owned the Pantranco properties. Petitioners,
in fact, never alleged in any of their pleadings the fact of such ownership. What was
34
established, instead, in PNB MADECOR v. Uy and PNB v. Mega Prime Realty and Holdings
35
Corporation/Mega Prime Realty and Holdings Corporation v. PNB was that the properties

They claim that PNB, through PNB-Madecor, directly benefited from the operation
of PNEI and had complete control over the funds of PNEI. Hence, they are solidarily
29
answerable with PNEI for the unpaid money claims of the employees. Citing A.C. Ransom

were owned by Macris, the predecessor of PNB-Madecor. Hence, they cannot be pursued
against by the creditors of PNEI.

owned, conducted and controlled by the same parties, both law and equity will, when
necessary to protect the rights of third parties, disregard the legal fiction that two
45
corporations are distinct entities and treat them as identical or as one and the same.

We would like to stress the settled rule that the power of the court in executing
judgments extends only to properties unquestionably belonging to the judgment debtor
36
37
alone. To be sure, one mans goods shall not be sold for another mans debts. A sheriff is
not authorized to attach or levy on property not belonging to the judgment debtor, and even
38
incurs liability if he wrongfully levies upon the property of a third person.

Whether the separate personality of the corporation should be pierced hinges on

obtaining facts appropriately pleaded or proved. However, any piercing of the corporate veil
has to be done with caution, albeit the Court will not hesitate to disregard the corporate veil
when it is misused or when necessary in the interest of justice. After all, the concept of
46
corporate entity was not meant to promote unfair objectives.

Second, PNB, PNB-Madecor and Mega Prime are corporations with personalities
separate and distinct from that of PNEI. PNB is sought to be held liable because it acquired
PNEI through NIDC at the time when PNEI was suffering financial reverses. PNB-Madecor is
being made to answer for petitioners labor claims as the owner of the subject Pantranco
properties and as a subsidiary of PNB. Mega Prime is also included for having acquired PNBs
shares over PNB-Madecor.

As between PNB and PNEI, petitioners want us to disregard their separate

personalities, and insist that because the company, PNEI, has already ceased operations and
there is no other way by which the judgment in favor of the employees can be satisfied,
corporate officers can be held jointly and severally liable with the company. Petitioners rely
47
on the pronouncement of this Court in A.C. Ransom Labor Union-CCLU v. NLRC and
48
subsequent cases.

The general rule is that a corporation has a personality separate and distinct from
39
those of its stockholders and other corporations to which it may be connected. This is a
40
fiction created by law for convenience and to prevent injustice. Obviously, PNB, PNBMadecor, Mega Prime, and PNEI are corporations with their own personalities. The "separate
personalities" of the first three corporations had been recognized by this Court in PNB v.
Mega Prime Realty and Holdings Corporation/Mega Prime Realty and Holdings Corporation v.
41
PNB where we stated that PNB was only a stockholder of PNB-Madecor which later sold its
shares to Mega Prime; and that PNB-Madecor was the owner of the Pantranco properties.
Moreover, these corporations are registered as separate entities and, absent any valid
reason, we maintain their separate identities and we cannot treat them as one.

This reliance fails to persuade. We find the aforesaid decisions inapplicable to the
instant case.
For one, in the said cases, the persons made liable after the companys cessation of
operations were the officers and agents of the corporation. The rationale is that, since the
corporation 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. The corporation, only in
49
the technical sense, is the employer. In the instant case, what is being made liable is another
corporation (PNB) which acquired the debtor corporation (PNEI).
50

Moreover, in the recent cases Carag v. National Labor Relations Commission and
51
McLeod v. National Labor Relations Commission, the Court explained the doctrine laid down
in AC Ransom relative to the personal liability of the officers and agents of the employer for
the debts of the latter. In AC Ransom, the Court imputed liability to the officers of the
corporation on the strength of the definition of an employer in Article 212(c) (now Article
212[e]) of the Labor Code. Under the said provision, employer includes any person acting in
the interest of an employer, directly or indirectly, but does not include any labor organization
or any of its officers or agents except when acting as employer. It was clarified in Carag and
McLeod that Article 212(e) of the Labor Code, by itself, does not make a corporate officer
personally liable for the debts of the corporation. It added that the governing law on personal
52
liability of directors or officers for debts of the corporation is still Section 31 of the
Corporation Code.

Neither can we merge the personality of PNEI with PNB simply because the latter
acquired the former. Settled is the rule that where one corporation sells or otherwise
transfers all its assets to another corporation for value, the latter is not, by that fact alone,
42
liable for the debts and liabilities of the transferor.
Lastly, while we recognize that there are peculiar circumstances or valid grounds
43
that may exist to warrant the piercing of the corporate veil, none applies in the present
case whether between PNB and PNEI; or PNB and PNB-Madecor.
Under the doctrine of "piercing the veil of corporate fiction," the court looks at the
corporation as a mere collection of individuals or an aggregation of persons undertaking
business as a group, disregarding the separate juridical personality of the corporation unifying
44
the group. Another formulation of this doctrine is that when two business enterprises are

More importantly, as aptly observed by this Court in AC Ransom, it appears that

Ransom, foreseeing the possibility or probability of payment of backwages to its employees,
organized Rosario to replace Ransom, with the latter to be eventually phased out if the
strikers win their case. The execution could not be implemented against Ransom because of
the disposition posthaste of its leviable assets evidently in order to evade its just and due
53
obligations. Hence, the Court sustained the piercing of the corporate veil and made the
officers of Ransom personally liable for the debts of the latter.

legitimate functions, a subsidiarys separate existence shall be respected, and the liability of
the parent corporation as well as the subsidiary will be confined to those arising in their
57
respective businesses.
58

In PNB v. Ritratto Group, Inc., we outlined the circumstances which are useful in
the determination of whether a subsidiary is but a mere instrumentality of the parentcorporation, to wit:
1. The parent corporation owns all or most of the capital stock of the subsidiary;

Clearly, what can be inferred from the earlier cases is that the doctrine of piercing
the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public
convenience as when the corporate fiction is used as a vehicle for the evasion of an existing
obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect
fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is
a mere alter ego or business conduit of a person, or where the corporation is so organized
and controlled and its affairs are so conducted as to make it merely an instrumentality,
54
agency, conduit or adjunct of another corporation. In the absence of malice, bad faith, or a
specific provision of law making a corporate officer liable, such corporate officer cannot be
55
made personally liable for corporate liabilities.

2. The parent and subsidiary corporations have common directors or officers;

3. The parent corporation finances the subsidiary;
4. The parent corporation subscribes to all the capital stock of the subsidiary or
otherwise causes its incorporation;
5. The subsidiary has grossly inadequate capital;
6. The parent corporation pays the salaries and other expenses or losses of the
subsidiary;

Applying the foregoing doctrine to the instant case, we quote with approval the CA
disposition in this wise:

7. The subsidiary has substantially no business except with the parent corporation
or no assets except those conveyed to or by the parent corporation;

It would not be enough, then, for the petitioners in this case, the PNEI employees,
to rest on their laurels with evidence that PNB was the owner of PNEI. Apart from proving
ownership, it is necessary to show facts that will justify us to pierce the veil of corporate
fiction and hold PNB liable for the debts of PNEI. The burden undoubtedly falls on the
petitioners to prove their affirmative allegations. In line with the basic jurisprudential
principles we have explored, they must show that PNB was using PNEI as a mere adjunct or
instrumentality or has exploited or misused the corporate privilege of PNEI.

8. In the papers of the parent corporation or in the statements of its officers, the
subsidiary is described as a department or division of the parent corporation, or its business
or financial responsibility is referred to as the parent corporations own;
9. The parent corporation uses the property of the subsidiary as its own;
10. The directors or executives of the subsidiary do not act independently in the
interest of the subsidiary, but take their orders from the parent corporation;

We do not see how the burden has been met. Lacking proof of a nexus apart from
mere ownership, the petitioners have not provided us with the legal basis to reach the assets
56
of corporations separate and distinct from PNEI.

11. The formal legal requirements of the subsidiary are not observed.

Assuming, for the sake of argument, that PNB may be held liable for the debts of
PNEI, petitioners still cannot proceed against the Pantranco properties, the same being
owned by PNB-Madecor, notwithstanding the fact that PNB-Madecor was a subsidiary of
PNB. The general rule remains that PNB-Madecor has a personality separate and distinct from
PNB. The mere fact that a corporation owns all of the stocks of another corporation, taken
alone, is not sufficient to justify their being treated as one entity. If used to perform

None of the foregoing circumstances is present in the instant case. Thus, piercing of
PNB-Madecors corporate veil is not warranted. Being a mere successor-in-interest of PNBMadecor, with more reason should no liability attach to Mega Prime.
G.R. No. 170705

In its petition before this Court, PNB seeks the annulment of the June 23, 2004
execution sale of the Pantranco properties on the ground that the judgment debtor (PNEI)
never owned said lots. It likewise contends that the levy and the eventual sale on execution of
the subject properties was null and void as the promissory note on which PNB-Madecor was
made liable had already been satisfied.

as the debt being claimed by PNB is secured by the accessory contract of pledge of the entire
64
stockholdings of Mega Prime to PNB-Madecor.
The Court further notes that the Pantranco properties (or a portion thereof ) were
sold on execution to satisfy the unpaid obligation of PNB-Madecor to PNEI. PNB-Madecor was
thus made liable to the former PNEI employees as the judgment debtor of PNEI. It has long
been established in PNB-Madecor v. Uy and other similar cases that PNB-Madecor had an
unpaid obligation to PNEI amounting to more or less P7 million which could be validly
pursued by the creditors of the latter. Again, this strengthens the proper parties right to
question the validity of the execution sale, definitely not PNB.

It has been repeatedly stated that the Pantranco properties which were the subject
of execution sale were owned by Macris and later, the PNB-Madecor. They were never owned
by PNEI or PNB. Following our earlier discussion on the separate personalities of the different
corporations involved in the instant case, the only entity which has the right and interest to
question the execution sale and the eventual right to annul the same, if any, is PNB-Madecor
or its successor-in-interest. Settled is the rule that proceedings in court must be instituted by
the real party in interest.

Besides, the issue of whether PNB has a substantial interest over the Pantranco
65
properties has already been laid to rest by the Labor Arbiter. It is noteworthy that in its
Resolution dated September 10, 2002, the Labor Arbiter denied PNBs Third-Party Claim
66
primarily because PNB only has an inchoate right over the Pantranco properties. Such
67
conclusion was later affirmed by the NLRC in its Resolution dated June 30, 2003.
Notwithstanding said conclusion, PNB did not elevate the matter to the CA via a petition for
68
review. Hence it is presumed to be satisfied with the adjudication therein. That decision of
the NLRC has become final as against PNB and can no longer be reviewed, much less
69
reversed, by this Court. This is in accord with the doctrine that a party who has not appealed
cannot obtain from the appellate court any affirmative relief other than the ones granted in
70
the appealed decision.

A real party in interest is the party who stands to be benefited or injured by the
59
judgment in the suit, or the party entitled to the avails of the suit. "Interest" within the
meaning of the rule means material interest, an interest in issue and to be affected by the
decree, as distinguished from mere interest in the question involved, or a mere incidental
60
interest. The interest of the party must also be personal and not one based on a desire to
61
vindicate the constitutional right of some third and unrelated party. Real interest, on the
other hand, means a present substantial interest, as distinguished from a mere expectancy or
62
a future, contingent, subordinate, or consequential interest.
Specifically, in proceedings to set aside an execution sale, the real party in interest
is the person who has an interest either in the property sold or the proceeds thereof.
Conversely, one who is not interested or is not injured by the execution sale cannot question
63
its validity.

WHEREFORE, premises considered, the petitions are hereby DENIED for lack of
merit.
SO ORDERED.

In justifying its claim against the Pantranco properties, PNB alleges that Mega
Prime, the buyer of its entire stockholdings in PNB-Madecor was indebted to it (PNB).
Considering that said indebtedness remains unpaid, PNB insists that it has an interest over
PNB-Madecor and Mega Primes assets.
Again, the contention is bereft of merit. While PNB has an apparent interest in
Mega Primes assets being the creditor of the latter for a substantial amount, its interest
remains inchoate and has not yet ripened into a present substantial interest, which would
give it the standing to maintain an action involving the subject properties. As aptly observed
by the Labor Arbiter, PNB only has an inchoate right to the properties of Mega Prime in case
the latter would not be able to pay its indebtedness. This is especially true in the instant case,

G.R. No. 164326

Despite repeated demands, Seaoil refused to pay the remaining balance of

P2,593,766.20. Hence, on January 24, 1995, Autocorp filed a complaint for recovery of
personal property with damages and replevin in the Regional Trial Court of Pasig. The trial
court ruled for Autocorp. Hence, this appeal.

October 17, 2008

SEAOIL
PETROLEUM
CORPORATION,
vs.
AUTOCORP GROUP and PAUL Y. RODRIGUEZ, respondents.

petitioners,

Seaoil, on the other hand, alleges that the transaction is not as simple as described
above. It claims that Seaoil and Autocorp were only utilized as conduits to settle the
obligation of one foreign entity named Uniline Asia (herein referred to as Uniline), in favor of
another foreign entity, Focus Point International, Incorporated (Focus for short). Paul
Rodriguez (Rodriguez for brevity) is a stockholder and director of Autocorp. He is also the
owner of Uniline. On the other hand, Yu is the president and stockholder of Seaoil and is at
the same time owner of Focus. Allegedly, Uniline chartered MV Asia Property (sic) in the
amount of $315,711.71 from its owner Focus. Uniline was not able to settle the said amount.
Hence, Uniline, through Rodriguez, proposed to settle the obligation through conveyance of
vehicles and heavy equipment. Consequently, four units of Tatamobile pick-up trucks
procured from Autocorp were conveyed to Focus as partial payment. The excavator in
controversy was allegedly one part of the vehicles conveyed to Focus. Seaoil claims that
Rodriguez initially issued 12 postdated checks in favor of Autocorp as payment for the
excavator. However, due to the fact that it was company policy for Autocorp not to honor
postdated checks issued by its own directors, Rodriguez requested Yu to issue 12 PBCOM
postdated checks in favor of Autocorp. In turn, said checks would be funded by the
corresponding 12 Monte de Piedad postdated checks issued by Rodriguez. These Monte de
Piedad checks were postdated three days prior to the maturity of the PBCOM checks.

DECISION
NACHURA, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
1
Court assailing the Decision of the Court of Appeals (CA) dated May 20, 2004 in CA-G.R. CV
2
No. 72193, which had affirmed in toto the Decision of the Regional Trial Court (RTC) of Pasig
City, Branch 157, dated September 10, 2001 in Civil Case No. 64943.
The factual antecedents, as summarized by the CA, are as follows:
On September 24, 1994, defendant-appellant Seaoil Petroleum Corporation (Seaoil,
for brevity) purchased one unit of ROBEX 200 LC Excavator, Model 1994 from plaintiffappellee Autocorp Group (Autocorp for short). The original cost of the unit was P2,500,000.00
but was increased to P3,112,519.94 because it was paid in 12 monthly installments up to
September 30, 1995. The sales agreement was embodied in the Vehicle Sales Invoice No. A0209 and Vehicle Sales Confirmation No. 258. Both documents were signed by Francis Yu (Yu
for short), president of Seaoil, on behalf of said corporation. Furthermore, it was agreed that
despite delivery of the excavator, ownership thereof was to remain with Autocorp until the
obligation is fully settled. In this light, Seaoils contractor, Romeo Valera, issued 12 postdated
checks. However, Autocorp refused to accept the checks because they were not under
Seaoils name. Hence, Yu, on behalf of Seaoil, signed and issued 12 postdated checks for
P259,376.62 each with Autocorp as payee.

Seaoil claims that Rodriguez issued a stop payment order on the ten checks thus
constraining the former to also order a stop payment order on the PBCOM checks.
In short, Seaoil claims that the real transaction is that Uniline, through Rodriguez,
owed money to Focus. In lieu of payment, Uniline instead agreed to convey the excavator to
Focus. This was to be paid by checks issued by Seaoil but which in turn were to be funded by
3
checks issued by Uniline. x x x

The excavator was subsequently delivered on September 26, 1994 by Autocorp and
was received by Seaoil in its depot in Batangas.

As narrated above, respondent Autocorp filed a Complaint for Recovery of Personal

4
Property with Damages and Replevin against Seaoil before the RTC of Pasig City. In its
September 10, 2001 Decision, the RTC ruled that the transaction between Autocorp and
5
Seaoil was a simple contract of sale payable in installments. It also held that the obligation to
pay plaintiff the remainder of the purchase price of the excavator solely devolves on Seaoil.
Paul Rodriguez, not being a party to the sale of the excavator, could not be held liable
therefor. The decretal portion of the trial courts Decision reads, thus:

The relationship started to turn sour when the first check bounced. However, it was
remedied when Seaoil replaced it with a good check. The second check likewise was also good
when presented for payment. However, the remaining 10 checks were not honored by the
bank since Seaoil requested that payment be stopped. It was downhill from thereon.

WHEREFORE, judgment is hereby rendered in favor of plaintiff Autocorp Group and

against defendant Seaoil Petroleum Corporation which is hereby directed to pay plaintiff:

Whether or not the Court of Appeals gravely erred in its judgment based on
misapprehension of facts when it declared absence of facts which are contradicted by
presence of evidence on record.

- P2,389,179.23 plus 3% interest from the time of judicial demand until full
payment; and

III

- 25% of the total amount due as attorneys fees and cost of litigation.

Whether or not the dismissal of the third-party complaint would have the legal
effect of res judicata as would unjustly preclude petitioner from enforcing its claim against
respondent Rodriguez (third-party defendant) in a separate action.

The third-party complaint filed by defendant Seaoil Petroleum Corporation against

third-party defendant Paul Rodriguez is hereby DISMISSED for lack of merit.

IV
SO ORDERED.
Whether or not, given the facts in evidence, the lower courts should have pierced
the corporate veil.

Seaoil filed a Petition for Review before the CA. In its assailed Decision, the CA
6
dismissed the petition and affirmed the RTCs Decision in toto. It held that the transaction
between Yu and Rodriguez was merely verbal. This cannot alter the sales contract between
Seaoil and Autocorp as this will run counter to the parol evidence rule which prohibits the
introduction of oral and parol evidence to modify the terms of the contract. The claim that it
falls under the exceptions to the parol evidence rule has not been sufficiently proven.
Moreover, it held that Autocorps separate corporate personality cannot be disregarded and
the veil of corporate fiction pierced. Seaoil was not able to show that Autocorp was merely an
alter ego of Uniline or that both corporations were utilized to perpetrate a fraud. Lastly, it
held that the RTC was correct in dismissing the third-party complaint since it did not arise out
of the same transaction on which the plaintiffs claim is based, or that the third partys claim,
although arising out of another transaction, is connected to the plaintiffs claim. Besides, the
CA said, such claim may be enforced in a separate action.

The Petition lacks merit. We sustain the ruling of the CA.

We find no fault in the trial courts appreciation of the facts of this case. The
findings of fact of the trial court are conclusive upon this Court, especially when affirmed by
the CA. None of the exceptions to this well-settled rule has been shown to exist in this case.
Petitioner does not question the validity of the vehicle sales invoice but merely
argues that the same does not reflect the true agreement of the parties. However, petitioner
only had its bare testimony to back up the alleged arrangement with Rodriguez.
7

The Monte de Piedad checks the supposedly "clear and obvious link" between
the documentary evidence and the true transaction between the parties are equivocal at
best. There is nothing in those checks to establish such link. Rodriguez denies that there is
such an agreement.

Seaoil now comes before this Court in a Petition for Review raising the following
issues:

Unsubstantiated testimony, offered as proof of verbal agreements which tends to

8
vary the terms of a written agreement, is inadmissible under the parol evidence rule.

I
Whether or not the Court of Appeals erred in partially applying the parol evidence
rule to prove only some terms contained in one portion of the document but disregarded the
rule with respect to another but substantial portion or entry also contained in the same
document which should have proven the true nature of the transaction involved.

Rule 130, Section 9 of the Revised Rules on Evidence embodies the parol evidence
rule and states:
SEC. 9. Evidence of written agreements.When the terms of an agreement have
been reduced to writing, it is considered as containing all the terms agreed upon and there
can be, between the parties and their successors-in-interest, no evidence of such terms other
than the contents of the written agreement.

II

However, a party may present evidence to modify, explain or add to the terms of
the written agreement if he puts in issue in his pleading:

is the customer or buyer. The moment a party affixes his or her signature thereon, he or she
is bound by all the terms stipulated therein and is subject to all the legal obligations that may
16
arise from their breach.

(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;

Oral testimony on the alleged conditions, coming from a party who has an interest
in the outcome of the case, depending exclusively on human memory, is not as reliable as
17
written or documentary evidence.

(b) The failure of the written agreement to express the true intent and agreement
of the parties thereto;
(c) The validity of the written agreement; or

Hence, petitioners contention that the document falls within the exception to the
parol evidence rule is untenable. The exception obtains only where "the written contract is so
ambiguous or obscure in terms that the contractual intention of the parties cannot be
understood from a mere reading of the instrument. In such a case, extrinsic evidence of the
subject matter of the contract, of the relations of the parties to each other, and of the facts
and circumstances surrounding them when they entered into the contract may be received to
18
enable the court to make a proper interpretation of the instrument."

(d) The existence of other terms agreed to by the parties or their successors-ininterest after the execution of the written agreement.
The term "agreement" includes wills.
The parol evidence rule forbids any addition to, or contradiction of, the terms of a
written agreement by testimony or other evidence purporting to show that different terms
9
were agreed upon by the parties, varying the purport of the written contract.

Even assuming there is a shred of truth to petitioners contention, the same cannot
be made a basis for holding respondents liable therefor.

This principle notwithstanding, petitioner would have the Court rule that this case
falls within the exceptions, particularly that the written agreement failed to express the true
intent and agreement of the parties. This argument is untenable.

As pointed out by the CA, Rodriguez is a person separate and independent from
19
Autocorp. Whatever obligations Rodriguez contracted cannot be attributed to Autocorp and
vice versa. In fact, the obligation that petitioner proffers as its defense under the Lease
Purchase Agreement was not even incurred by Rodriguez or by Autocorp but by Uniline.

Although parol evidence is admissible to explain the meaning of a contract, it

cannot serve the purpose of incorporating into the contract additional contemporaneous
conditions which are not mentioned at all in the writing unless there has been fraud or
10
mistake. Evidence of a prior or contemporaneous verbal agreement is generally not
11
admissible to vary, contradict or defeat the operation of a valid contract.

20

The Lease Purchase Agreement clearly shows that the parties thereto are two
corporations not parties to this case: Focus Point and Uniline. Under this Lease Purchase
Agreement, it is Uniline, as lessee/purchaser, and not Rodriguez, that incurred the debt to
Focus Point. The obligation of Uniline to Focus Point arose out of a transaction completely
different from the subject of the instant case.

12

The Vehicle Sales Invoice is the best evidence of the transaction. A sales invoice is
a commercial document. Commercial documents or papers are those used by merchants or
13
businessmen to promote or facilitate trade or credit transactions. Business forms, e.g.,
order slip, delivery charge invoice and the like, are commonly recognized in ordinary
commercial transactions as valid between the parties and, at the very least, they serve as an
14
acknowledgment that a business transaction has in fact transpired. These documents are
not mere scraps of paper bereft of probative value, but vital pieces of evidence of commercial
15
transactions. They are written memorials of the details of the consummation of contracts.

It is settled that a corporation has a personality separate and distinct from its
individual stockholders or members, and is not affected by the personal rights, obligations
21
and transactions of the latter. The corporation may not be held liable for the obligations of
22
the persons composing it, and neither can its stockholders be held liable for its obligation.
Of course, this Court has recognized instances when the corporations separate
personality may be disregarded. However, we have also held that the same may only be done
in cases where the corporate vehicle is being used to defeat public convenience, justify
23
wrong, protect fraud, or defend crime. Moreover, the wrongdoing must be clearly and
24
convincingly established. It cannot be presumed.

The terms of the subject sales invoice are clear. They show that Autocorp sold to
Seaoil one unit Robex 200 LC Excavator paid for by checks issued by one Romeo Valera. This
does not, however, change the fact that Seaoil Petroleum Corporation, as represented by Yu,

To reiterate, the transaction under the Vehicle Sales Invoice is separate and distinct
from that under the Lease Purchase Agreement. In the former, it is Seaoil that owes
Autocorp, while in the latter, Uniline incurred obligations to Focus. There was never any
allegation, much less any evidence, that Autocorp was merely an alter ego of Uniline, or that
the two corporations separate personalities were being used as a means to perpetrate fraud
or wrongdoing.

subject of replevin and plaintiff [herein respondent Autocorp] is not legally entitled to any
30
writ of replevin." The claim is negated by the sales invoice which clearly states that "[u]ntil
after the vehicle is fully paid inclusive of bank clearing time, it remains the property of
Autocorp Group which reserves the right to take possession of said vehicle at any time and
31
place without prior notice."
Considering, first, that Focus Point was not a party to the sale of the excavator and,
second, that Seaoil indeed failed to pay for the excavator in full, the same still rightfully
belongs to Autocorp. Additionally, as the trial court found, Seaoil had already assigned the
32
same to its contractor for the construction of its depot in Batangas. Hence, Seaoil has
already enjoyed the benefit of the transaction even as it has not complied with its obligation.
It cannot be permitted to unjustly enrich itself at the expense of another.

Moreover, Rodriguez, as stockholder and director of Uniline, cannot be held

personally liable for the debts of the corporation, which has a separate legal personality of its
25
own. While Section 31 of the Corporation Code lays down the exceptions to the rule, the
same does not apply in this case. Section 31 makes a director personally liable for corporate
debts if he willfully and knowingly votes for or assents to patently unlawful acts of the
corporation. Section 31 also makes a director personally liable if he is guilty of gross
26
negligence or bad faith in directing the affairs of the corporation. The bad faith or
wrongdoing of the director must be established clearly and convincingly. Bad faith is never
27
presumed.

WHEREFORE, the foregoing premises considered, the Petition is hereby DENIED.

The Decision of the Court of Appeals dated May 20, 2004 in CA-G.R. CV No. 72193 is
AFFIRMED.
SO ORDERED.

The burden of proving bad faith or wrongdoing on the part of Rodriguez was, on
petitioner, a burden which it failed to discharge. Thus, it was proper for the trial court to have
dismissed the third-party complaint against Rodriguez on the ground that he was not a party
to the sale of the excavator.
Rule 6, Section 11 of the Revised Rules on Civil Procedure defines a third-party
complaint as a claim that a defending party may, with leave of court, file against a person not
a party to the action, called the third-party defendant, for contribution, indemnity,
subrogation or any other relief, in respect of his opponents claim.
The purpose of the rule is to permit a defendant to assert an independent claim
against a third party which he, otherwise, would assert in another action, thus preventing
28
multiplicity of suits. Had it not been for the rule, the claim could have been filed separately
29
from the original complaint.
Petitioners claim against Rodriguez was fully ventilated in the proceedings before
the trial court, tried and decided on its merits. The trial courts ruling operates as res judicata
against another suit involving the same parties and same cause of action. This is rightly so
because the trial court found that Rodriguez was not a party to the sale of the excavator. On
the other hand, petitioner Seaoils liability has been successfully established by respondent.
A last point. We reject Seaoils claim that "the ownership of the subject excavator,
having been legally and completely transferred to Focus Point International, Inc., cannot be

10

G.R. No. 149237

CHINA

June 11, 2006

BANKING

xxx
CORPORATION,

petitioner,

xxx

xxx

On December 28, 1988, respondent filed its answer, alleging that:

vs.
DYNE-SEM ELECTRONICS CORPORATION, respondent.

5.1 [t]he incorporators as well as present stockholders of [respondent] are totally

different from those of Dynetics, Inc., and not one of them has ever been a stockholder or
officer of the latter;

DECISION
CORONA, J.:

5.2 [n]ot one of the directors of [respondent] is, or has ever been, a director,
officer, or stockholder of Dynetics, Inc.;

On June 19 and 26, 1985, Dynetics, Inc. (Dynetics) and Elpidio O. Lim borrowed a
total of P8,939,000 from petitioner China Banking Corporation. The loan was evidenced by six
1
promissory notes.

5.3 [t]he various facilities, machineries and equipment being used by [respondent]
in its business operations were legitimately and validly acquired, under arms-length
transactions, from various corporations which had become absolute owners thereof at the
time of said transactions; these were not just "taken over" nor "acquired from Dynetics" by
[respondent], contrary to what plaintiff falsely and maliciously alleges;

The borrowers failed to pay when the obligations became due. Petitioner
2
consequently instituted a complaint for sum of money on June 25, 1987 against them. The
complaint sought payment of the unpaid promissory notes plus interest and penalties.

5.4 [respondent] acquired most of its present machineries and equipment as

second-hand items to keep costs down;

Summons was not served on Dynetics, however, because it had already closed
down. Lim, on the other hand, filed his answer on December 15, 1987 denying that "he
3
promised to pay [the obligations] jointly and severally to [petitioner]."

5.5 [t]he present plant site is under lease from Food Terminal, Inc., a governmentcontrolled corporation, and is located inside the FTI Complex in Taguig, Metro Manila, where
a number of other firms organized in 1986 and also engaged in the same or similar business
have likewise established their factories; practical convenience, and nothing else, was behind
*respondents+ choice of plant site;

On January 7, 1988, the case was scheduled for pre-trial with respect to Lim. The
case against Dynetics was archived.
4

On September 23, 1988, an amended complaint was filed by petitioner impleading

respondent Dyne-Sem Electronics Corporation (Dyne-Sem) and its stockholders Vicente
Chuidian, Antonio Garcia and Jacob Ratinoff. According to petitioner, respondent was formed
and organized to be Dynetics alter ego as established by the following circumstances:

5.6 [respondent] operates its own bonded warehouse under authority from the
Bureau of Customs which has the sole and absolute prerogative to authorize and assign
customs bonded warehouses; again, practical convenience played its role here since the
warehouse in question was virtually lying idle and unused when said Bureau decided to assign
6
it to [respondent] in June 1986.

Dynetics, Inc. and respondent are both engaged in the same line of business of
manufacturing, producing, assembling, processing, importing, exporting, buying, distributing,
marketing and testing integrated circuits and semiconductor devices;

On February 28, 1989, the trial court issued an order archiving the case as to
Chuidian, Garcia and Ratinoff since summons had remained unserved.

[t]he principal office and factory site of Dynetics, Inc. located at Avocado Road, FTI
Complex, Taguig, Metro Manila, were used by respondent as its principal office and factory
site;

After hearing, the court a quo rendered a decision on December 27, 1991 which
read:

[r]espondent acquired some of the machineries and equipment of Dynetics, Inc.

from banks which acquired the same through foreclosure;
[r]espondent retained some of the officers of Dynetics, Inc.

xxx [T]he Court rules that Dyne-Sem Electronics Corporation is not an alter ego of
Dynetics, Inc. Thus, Dyne-Sem Electronics Corporation is not liable under the promissory
notes.

11

xxx

xxx

xxx

jurisdiction of this Court in a petition for review on certiorari is limited to reviewing only
errors of law, not of fact, unless it is shown, inter alia, that: (a) the conclusion is grounded
entirely on speculations, surmises and conjectures; (b) the inference is manifestly mistaken,
absurd and impossible; (c) there is grave abuse of discretion; (d) the judgment is based on a
misapplication of facts; (e) the findings of fact of the trial court and the appellate court are
contradicted by the evidence on record and (f) the Court of Appeals went beyond the issues
13
of the case and its findings are contrary to the admissions of both parties.

WHEREFORE, judgment is hereby rendered ordering Dynetics, Inc. and Elpidio O.

Lim, jointly and severally, to pay plaintiff.
xxx

xxx

xxx

Anent the complaint against Dyne-Sem and the latters counterclaim, both are
hereby dismissed, without costs.

We have reviewed the records and found that the factual findings of the trial and
appellate courts and consequently their conclusions were supported by the evidence on
record.

SO ORDERED.

From this adverse decision, petitioner appealed to the Court of Appeals but the
9
appellate court dismissed the appeal and affirmed the trial courts decision. It found that
respondent was indeed not an alter ego of Dynetics. The two corporations had different
articles of incorporation. Contrary to petitioners claim, no merger or absorption took place
between the two. What transpired was a mere sale of the assets of Dynetics to respondent.
10
The appellate court denied petitioners motion for reconsideration.

The general rule is that a corporation has a personality separate and distinct from
14
that of its stockholders and other corporations to which it may be connected. This is a
15
fiction created by law for convenience and to prevent injustice.
Nevertheless, being a mere fiction of law, peculiar situations or valid grounds may
exist to warrant the disregard of its independent being and the piercing of the corporate
16
17
veil. In Martinez v. Court of Appeals, we held:

11

Hence, this petition for review with the following assigned errors:

The veil of separate corporate personality may be lifted when such personality is
used to defeat public convenience, justify wrong, protect fraud or defend crime; or used as a
shield to confuse the legitimate issues; or when the corporation is merely an adjunct, a
business conduit or an alter ego of another corporation or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation; or when the corporation
is used as a cloak or cover for fraud or illegality, or to work injustice, or where necessary to
achieve equity or for the protection of the creditors. In such cases, the corporation will be
considered as a mere association of persons. The liability will directly attach to the
stockholders or to the other corporation.

VI.
Issues
What is the quantum of evidence needed for the trial court to determine if the veil
of corporat[e] fiction should be pierced?
[W]hether or not the Regional Trial Court of Manila Branch 15 in its Decision dated
December 27, 1991 and the Court of Appeals in its Decision dated February 28, 2001 and
Resolution dated July 27, 2001, which affirmed en toto [Branch 15, Manila Regional Trial
Courts decision,+ have ruled in accordance with law and/or applicable *jurisprudence] to the
extent that the Doctrine of Piercing the Veil of Corporat[e] Fiction is not applicable in the case
12
at bar?

To disregard the separate juridical personality of a corporation, the wrongdoing

18
must be proven clearly and convincingly.

We find no merit in the petition.

In this case, petitioner failed to prove that Dyne-Sem was organized and controlled,
and its affairs conducted, in a manner that made it merely an instrumentality, agency, conduit
or adjunct of Dynetics, or that it was established to defraud Dynetics creditors, including
petitioner.

The question of whether one corporation is merely an alter ego of another is purely
one of fact. So is the question of whether a corporation is a paper company, a sham or
subterfuge or whether petitioner adduced the requisite quantum of evidence warranting the
piercing of the veil of respondents corporate entity. This Court is not a trier of facts. Findings
of fact of the Court of Appeals, affirming those of the trial court, are final and conclusive. The

The similarity of business of the two corporations did not warrant a conclusion that
19
respondent was but a conduit of Dynetics. As we held in Umali v. Court of Appeals, "the

12

mere fact that the businesses of two or more corporations are interrelated is not a
justification for disregarding their separate personalities, absent sufficient showing that the
corporate entity was purposely used as a shield to defraud creditors and third persons of their
rights."
Likewise, respondents acquisition of some of the machineries and equipment of
Dynetics was not proof that respondent was formed to defraud petitioner. As the Court of
20
Appeals found, no merger took place between Dynetics and respondent Dyne-Sem. What
21
took place was a sale of the assets of the former to the latter. Merger is legally distinct from
22
a sale of assets. Thus, where one corporation sells or otherwise transfers all its assets to
another corporation for value, the latter is not, by that fact alone, liable for the debts and
liabilities of the transferor.
Petitioner itself admits that respondent acquired the machineries and equipment
not directly from Dynetics but from the various corporations which successfully bidded for
them in an auction sale. The contracts of sale executed between the winning bidders and
23
respondent showed that the assets were sold for considerable amounts. The Court of
Appeals thus correctly ruled that the assets were not "diverted" to respondent as an alter ego
24
of Dynetics. The machineries and equipment were transferred and disposed of by the
winning bidders in their capacity as owners. The sales were therefore valid and the transfers
of the properties to respondent legal and not in any way in contravention of petitioners
rights as Dynetics creditor.
Finally, it may be true that respondent later hired Dynetics former Vice-President
Luvinia Maglaya and Assistant Corporate Counsel Virgilio Gesmundo. From this, however, we
cannot conclude that respondent was an alter ego of Dynetics. In fact, even the overlapping
of incorporators and stockholders of two or more corporations will not necessarily lead to
25
such inference and justify the piercing of the veil of corporate fiction. Much more has to be
proven.
Premises considered, no factual and legal basis exists to hold respondent Dyne-Sem
liable for the obligations of Dynetics to petitioner.
WHEREFORE, the petition is hereby DENIED.The assailed Court of Appeals decision
and resolution in CA-G.R. CV No. 40672 are hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.

13

.R. No. L-69494 June 10, 1986

A.C.

RANSOM

6. Back wages of the 22 strikers were subsequently computed at P164,984.00,

probably in early 1974. The exact date is not reflected in the record.
LABOR

UNION-CCLU,

petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, First Division, A.C. RANSOM (PHILS.)
CORPORATION, RUBEN HERNANDEZ, MAXIMO C. HERNANDEZ, JR., PORFIRIO R. VALENCIA,
LAURA H. CORNEJO, FRANCISCO HERNANDEZ, CELESTINO C. HERNANDEZ & MA. ROSARIO
HERNANDEZ, respondents.

7. Up to September 9, 1976, petitioner UNION had filed about ten (10) motions for
execution against RANSOM; but all of them could not be implemented, presumably for failure
to find leviable assets of RANSOM; although it appears that, in 1975, RANSOM had sold
machineries and equipment for P28million to Revelations Manufacturing Corporation.
8. Directly related to this case is the last Motion for Execution, dated December 18,
1978, filed by petitioner UNION wherein it asked that officers and agents of RANSOM be held
personally liable for payment of the back wages. That Motion was granted by Labor Arbiter,
Tito F. Genilo, on March 11, 1980 (The GENILO ORDER), wherein he expressly authorized a
Writ of Execution to be issued for P164,984.00 (the back wages) against RANSOM and seven
officers and directors of the Company who are the named individual respondents herein.
RANSOM took an appeal to NLRC which affirmed the GENILO ORDER, except as modified in
the body of its decision of July 31, 1984.

MELENCIO-HERRERA, J.:
The facts relevant to this case may be related as follows:
1. Respondent A. C. Ransom (Philippines) Corporation (RANSOM, for short) was
established in 1933 by Maximo C. Hernandez, Sr. It was a "family" corporation, the
stockholders of which were/are members of the Hernandez family. It has a compound in Las
Pinas Rizal, where it has been engaged in the manufacture mainly of ink and articles
associated with ink.

9. In RANSOM's appeal to the NLRC, two issues were raised:

(a) One of the issues was:

2. On June 6, 1961, employees of RANSOM, most of them being members of

petitioner Labor UNION, went on strike and established a picket line which, however, was
lifted on June 21st with most of the strikers returning and being allowed to resume their work
by RANSOM Twenty-two (22) strikers were refused reinstatement by the Company.

THE DECISION OF THE INDUSTRIAL RELATIONS COURT HAVING BECOME FINAL AND
EXECUTORY IN 1973, IS IT ENFORCEABLE BY A WRIT OF EXECUTION ISSUED IN 1980 OR MORE
THAN FIVE YEARS AFTER THE FINALITY OF THE DECISION SOUGHT TO BE ENFORCED?
The corresponding ruling made by NLRC was:

3. During 1969, the same Hernandez family organized another corporation, Rosario
Industrial Corporation (ROSARIO, for short) which also engaged, in the RANSOM Compound,
in the business of manufacture of ink and products associated with ink.

Perforce respondent's theory that execution proceedings must stop after the lapse
of five (5) years and that a motion to revive need be filed, must fail. Suffice it to state also that
the statute of limitations has been devised to operate primarily against those who sleep on
their rights, not against those who assert their right but fail for causes beyond their control.
The above recital of facts contradicts respondent's contention that the CIR decision of August
19, 1972 had remained dormant to require a motion to revive.

4. The strike became the subject of Cases Nos. 2848 ULP and 2880 ULP of the
Court of Industrial Relations which, on December 19, 1972, ordered RANSOM "its officers and
agents to reinstate the 22 strikers with back wages from July 25, 1969.
5. On April 2, 1973, RANSOM filed an application for clearance to close or cease
operations effective May 1, 1973, which was granted by the Ministry of Labor and
Employment in its Order of June 7, 1973, without prejudice to the right of employees to seek
redress of grievance, if any. Although it has stopped operations, RANSOM has continued its
personality as a corporation. For practical purposes, reinstatement of the 22 strikers has been
precluded. As a matter of fact, reinstatement is not an issue in this case.

(b) The second issue raised was:

IS THE JUDGMENT AGAINST A CORPORATION TO REINSTATE ITS DISMISSED
EMPLOYEES WITH BACKWAGES, ENFORCEABLE AGAINST ITS OFFICERS AND AGENTS IN THEIR
INDIVIDUAL, PRIVATE AND PERSONAL CAPACITIES WHO WERE NOT PARTIES IN THE CASE
WHERE THE JUDGMENT WAS RENDERED;

14

The NLRC ruling was:

employer, being the "person acting in the interest of (the) employer" RANSOM. The
corporation, only in the technical sense, is the employer.

As to the liability of the respondent's officers and agents, we agree with the
contention of the respondent-appellant that there is nothing in the Order dated May 11, 1986
that would justify the holding of the individual officers and agents of respondent in their
personal capacity. As a general rule, officers of the corporation are not liable personally for
the official acts unless they have exceeded the scope of their authority. In the absence of
evidence showing that the officers mentioned in the Order of the Labor Arbiter dated March
11, 1980 have exceeded their authority, the writ of execution can not be enforced against
them, especially so since they were not given a chance to be heard.

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 his 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.

RANSOM and the seven individual respondents in this case have not appealed from
the ruling of the NLRC that Section 6, Rule 39, is not invocable by them in regards to the
execution of the decision of December 19, 1972. Hence, the issue can no longer be raised
herein. Even if the said section were applicable, the 5-year period therein mentioned may not
have expired by December 18, 1978 because the period should be counted only from the
time the back wages were determined, which could have been in early 1974.

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, foreseeing 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 operation on May 1, 1973, after
the December 19, 1972 Decision of the Court of Industrial Relations was promulgated against
RANSOM.

We now come to the NLRC's decision upholding non-personal liabilities of the

individual respondents herein for back wages of the 22 strikers.
(a) Article 265 of the labor Code, in part. expressly provides:
Any worker whose employment has been terminated as a consequence of an
unlawful lockout shall be entitled to reinstatement with fill back wages.
Article 273 of the Code provides that:

(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 believe 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.

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:

(e) Considering that non-payment of the back wages of the 22 strikers has been a
continuing situation, it is our opinion What 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 x-ray have thereafter succeeded to the office of
president; otherwise, the 22 strikers may be deprived of their rights by the election of a
president without leviable assets.

(c) '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

15

WHEREFORE, the questioned Decision of the National Labor Relations Commission

is SET ASIDE, and the Order of Labor Arbiter Tito F. Genilo of March 11, 1980 is reinstated
with the modification that personal liability for the back wages due the 22 strikers shall be
limited to Ruben Hernandez, who was President of RANSOM in 1974, jointly and severally
with other Presidents of the same corporation who had been elected as such after 1972 or up
to the time the corporate life was terminated.

National Federation of Labor Unions (NAFLU) and Mariveles Apparel Corporation

Labor Union (MACLU) (collectively, complainants), on behalf of all of MAC's rank and file
employees, filed a complaint against MAC for illegal dismissal brought about by its illegal
closure of business. In their complaint dated 12 August 1993, complainants alleged the
following:
2. Complainant NAFLU is the sole and exclusive bargaining agent representing all
rank and file employees of [MAC]. That there is an existing valid Collective Bargaining
Agreement (CBA) executed by the parties and that at the time of the cause of action herein
below discussed happened there was no labor dispute between the Union and Management
except cases pending in courts filed by one against the other.

SO ORDERED.

G.R. No. 147590

ANTONIO

April 2, 2007
C.

CARAG,

3. That on July 8, 1993, without notice of any kind filed in accordance with pertinent
provisions of the Labor Code, [MAC], for reasons known only by herself [sic] ceased
operations with the intention of completely closing its shop or factory. Such intentions [sic]
was manifested in a letter, allegedly claimed by [MAC] as its notice filed only on the same day
that the operations closed.

Petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, ISABEL G. PANGANIBAN-ORTIGUERRA, as
Executive Labor Arbiter, NAFLU, and MARIVELES APPAREL CORPORATION LABOR UNION,
Respondents.

4. That at the time of closure, employees who have rendered one to two weeks
work were not paid their corresponding salaries/wages, which remain unpaid until time [sic]
of this writing.

DECISION
CARPIO, J.:

5. That there are other benefits than those above-mentioned which have been
unpaid by [MAC] at the time it decided to cease operations, benefits gained by the workers
both by and under the CBA and by operations [sic] of law.

The Case
1

This is a petition for review on certiorari assailing the Decision dated 29 February
2
3
2000 and the Resolution dated 27 March 2001 of the Court of Appeals (appellate court) in
4
CA-G.R. SP Nos. 54404-06. The appellate court affirmed the decision dated 17 June 1994 of
Labor Arbiter Isabel Panganiban-Ortiguerra (Arbiter Ortiguerra) in RAB-III-08-5198-93 and the
5
resolution dated 5 January 1995 of the National Labor Relations Commission (NLRC) in NLRC
CA No. L-007731-94.

6. That the closure made by [MAC] in the manner and style done is perce [sic]
illegal, and had caused tremendous prejudice to all of the employees, who suffered both
mental and financial anguish and who in view thereof merits [sic] award of all damages
(actual, exemplary and moral), [illegible] to set [an] example to firms who in the future will
[illegible] the idea of simply prematurely closing without complying [with] the basic
6
requirement of Notice of Closure. (Emphasis supplied)

Arbiter Ortiguerra held that Mariveles Apparel Corporation (MAC), MAC's Chairman
of the Board Antonio Carag (Carag), and MAC's President Armando David (David) (collectively,
respondents) are guilty of illegal closure and are solidarily liable for the separation pay of
MAC's rank and file employees. The NLRC denied the motion to reduce bond filed by MAC
and Carag.

Upon receipt of the records of the case, Arbiter Ortiguerra summoned the parties to
explore options for possible settlement. The non-appearance of respondents prompted
Arbiter Ortiguerra to declare the case submitted for resolution "based on the extant
pleadings."

The Facts

In their position paper dated 3 January 1994, complainants moved to implead Carag
and David, as follows:

16

x x x x In the present case, it is unfortunate for respondents that the records and
evidence clearly demonstrate that the individual complainants are entitled to the reliefs
prayed for in their complaint. However, any favorable judgment the Honorable Labor Arbiter
may render in favor of herein complainants will go to naught should the Office fails [sic] to
appreciate the glaring fact that the respondents [sic] corporation is no longer existing as it
suddenly stopped business operation since [sic] 8 July 1993. Under this given circumstance,
the complainants have no option left but to implead Atty. ANTONIO CARAG, in his official
capacity as Chairman of the Board along with MR. ARMANDO DAVID as President. Both are
also owners of the respondent corporation with office address at 10th Floor, Gamon Centre,
Alfaro Street, Salcedo Village[,] Makati[,] Metro Manila although they may be collectively
served with summons and other legal processes through counsel of record Atty. Joshua
Pastores of 8th Floor, Hanston Bldg., Emerald Avenue, Ortigas[,] Pasig, Metro Manila. This
inclusion of individual respondents as party respondents in the present case is to guarantee
the satisfaction of any judgment award on the basis of Article 212(c) of the Philippine Labor
Code, as amended, which says:

for example, criminal responsibility is with the "manager" or in his default, the person acting
7
as such (Ibid.) (Emphasis supplied)
Atty. Joshua L. Pastores (Atty. Pastores), as counsel for respondents, submitted a
position paper dated 21 February 1994 and stated that complainants should not have
impleaded Carag and David because MAC is actually owned by a consortium of banks. Carag
and David own shares in MAC only to qualify them to serve as MAC's officers.
Without any further proceedings, Arbiter Ortiguerra rendered her Decision dated 17
June 1994 granting the motion to implead Carag and David. In the same Decision, Arbiter
Ortiguerra declared Carag and David solidarily liable with MAC to complainants.
The Ruling of the Labor Arbiter
In her Decision dated 17 June 1994, Arbiter Ortiguerra ruled as follows:
This is a complaint for illegal dismissal brought about by the illegal closure and
cessation of business filed by NAFLU and Mariveles Apparel Corporation Labor Union for and
in behalf of all rank and file employees against respondents Mariveles Apparel Corporation,
Antonio Carag and Armando David [who are] its owners, Chairman of the Board and
President, respectively.

"Employer includes any person acting in the interest of an employer, directly or

indirectly. It does not, however, include any labor organization or any of its officers or agents
except when acting as employer."
The provision was culled from Section 2, Republic Act 602, the Minimum Wage Act.
If the employer 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." The corporation is the
employer, only in the technical sense. (A.C. Ransom Labor Union CCLU VS. NLRC, G.R. 69494,
June 10, 1986). Where the employer-corporation, AS IN THE PRESENT CASE, is no longer
existing and unable to satisfy the judgment in favor of the employee, the officer should be
held liable for acting on behalf of the corporation. (Gudez vs. NLRC, G.R. 83023, March 22,
1990). Also in the recent celebrated case of Camelcraft Corporation vs. NLRC, G.R. 90634-35
(June 6, 1990), Carmen contends that she is not liable for the acts of the company, assuming
it had [acted] illegally, because Camelcraft in a distinct and separate entity with a legal
personality of its own. She claims that she is only an agent of the company carrying out the
decisions of its board of directors, "We do not agree," said the Supreme Court. "She is, in fact
and legal effect, the corporation, being not only its president and general manager but also its
owner." The responsible officer of an employer can be held personally liable not to say even
criminally liable for nonpayment of backwages. This is the policy of the law. If it were
otherwise, corporate employers would have devious ways to evade paying backwages. (A.C.
Ransom Labor Union-CCLU V. NLRC, G.R. 69494, June 10, 1986). If no definite proof exists as
to who is the responsible officer, the president of the corporation who can be deemed to be
its chief operation officer shall be presumed to be the responsible officer. In Republic Act 602,

This case was originally raffled to the sala of Labor Arbiter Adolfo V. Creencia. When
the latter went on sick leave, his cases were re-raffled and the instant case was assigned to
the sala of the undersigned. Upon receipt of the record of the case, the parties were
summoned for them to be able to explore options for settlement. The respondents however
did not appear prompting this Office to submit the case for resolution based on extant
pleadings, thus this decision.
The complainants claim that on July 8, 1993 without notice of any kind the company
ceased its operation as a prelude to a final closing of the firm. The complainants allege that up
to the present the company has remained closed.
The complainants bewail that at the time of the closure, employees who have
rendered one to two weeks of work were not given their salaries and the same have
remained unpaid.
The complainants aver that respondent company prior to its closure did not even
bother to serve written notice to employees and to the Department of Labor and
Employment at least one month before the intended date of closure. The respondents did not
even establish that its closure was done in good faith. Moreover, the respondents did not pay

17

the affected employees separation pay, the amount of which is provided in the existing
Collective Bargaining Agreement between the complainants and the respondents.

3. Whether or not the complainants are entitled to an award of attorney's fees.

After a judicious and impartial consideration of the record, this Office is of the firm
belief that the complainants must prevail.

The complainants pray that they be allowed to implead Atty. Antonio Carag and Mr.
Armando David[,] owners and responsible officer[s] of respondent company to assure the
satisfaction of the judgment, should a decision favorable to them be rendered. In support of
their claims, the complainants invoked the ruling laid down by the Supreme Court in the case
of A.C. Ransom Labor Union CCLU vs. NLRC, G.R. No. 69494, June 10, 1986 where it was held
that [a] corporate officer can be held liable for acting on behalf of the corporation when the
latter is no longer in existence and there are valid claims of workers that must be satisfied.

The respondents described the cessation of operations in its premises as a

temporary shut-down. While such posturing may have been initially true, it is not so anymore.
The cessation of operations has clearly exceeded the six months period fixed in Article 286 of
the Labor Code. The temporary shutdown has ripened into a closure or cessation of
operations for causes not due to serious business losses or financial reverses. Consequently,
the respondents must pay the displaced employees separation pay in accordance with the
computation prescribed in the CBA, to wit, one month pay for every year of service. It must
be stressed that respondents did not controvert the verity of the CBA provided computation.

The complainants pray for the declaration of the illegality of the closure of
respondents' business. Consequently, their reinstatement must be ordered and their
backwages must be paid. Should reinstatement be not feasible, the complainants pray that
they be paid their separation pay in accordance with the computation provided for in the
CBA. Computations of separation pay due to individual complainants were adduced in
evidence (Annexes "C" to "C-44", Complainants' Position Paper). The complainants also pray
for the award to them of attorney's fee[s].

The complainants claim that Atty. Antonio Carag and Mr. Armando David should be
held jointly and severally liable with respondent corporation. This bid is premised on the
belief that the impleader of the aforesaid officers will guarantee payment of whatever may be
adjudged in complainants' favor by virtue of this case. It is a basic principle in law that
corporations have personality distinct and separate from the stockholders. This concept is
known as corporate fiction. Normally, officers acting for and in behalf of a corporation are not
held personally liable for the obligation of the corporation. In instances where corporate
officers dismissed employees in bad faith or wantonly violate labor standard laws or when the
company had already ceased operations and there is no way by which a judgment in favor of
employees could be satisfied, corporate officers can be held jointly and severally liable with
the company. This Office after a careful consideration of the factual backdrop of the case is
inclined to grant complainants' prayer for the impleader of Atty. Antonio Carag and Mr.
Armando David, to assure that valid claims of employees would not be defeated by the
closure of respondent company.

The respondents on the other hand by way of controversion maintain that the
present complaint was filed prematurely. The respondents deny having totally closed and
insist that respondent company is only on a temporary shut-down occasioned by the pending
labor unrest. There being no permanent closure any claim for separation pay must not be
given due course.
Respondents opposed the impleader of Atty. Antonio C. Carag and Mr. Armando
David saying that they are not the owners of Mariveles Apparel Corporation and they are only
minority stockholders holding qualifying shares. Piercing the veil of corporate fiction cannot
be done in the present case for such remedy can only be availed of in case of closed or family
owned corporations.

The complainants pray for the award to them of moral and exemplary damages,
suffice it to state that they failed to establish their entitlement to aforesaid reliefs when they
did not adduce persuasive evidence on the matter.

Respondents pray for the dismissal of the present complaint and the denial of
complainants' motion to implead Atty. Antonio C. Carag and Mr. Armando David as party
respondents.

The claim for attorney's fee[s] will be as it is hereby resolved in complainants' favor.
As a consequence of the illegal closure of respondent company, the complainants were
compelled to litigate to secure benefits due them under pertinent laws. For this purpose, they
secured the services of a counsel to assist them in the course of the litigation. It is but just and
proper to order the respondents who are responsible for the closure and subsequent filing of
the case to pay attorney's fee[s].

This Office is now called upon to resolve the following issues:

1. Whether or not the respondents are guilty of illegal closure;
2. Whether or not individual respondents could be held personally liable; and

18

WHEREFORE, premises considered, judgment is hereby rendered declaring

respondents jointly and severally guilty of illegal closure and they are hereby ordered as
follows:

Respondents also filed separate motions to reduce bond.

The Ruling of the NLRC
In a Resolution promulgated on 5 January 1995, the NLRC Third Division denied the
motions to reduce bond. The NLRC stated that to grant a reduction of bond on the ground
that the appeal is meritorious would be tantamount to ruling on the merits of the appeal. The
dispositive portion of the Resolution of the NLRC Third Division reads, thus:

1. To pay complainants separation pay computed on the basis of one (1) month for
every year of service, a fraction of six (6) months to be considered as one (1) year in the total
amount of P49,101,621.00; and
2. To pay complainants attorney's fee in an amount equivalent to 10% of the
judgment award.

PREMISES CONSIDERED, Motions to Reduce Bond for both respondents are hereby
DISMISSED for lack of merit. Respondents are directed to post cash or surety bond in the
amount of forty eight million one hundred one thousand six hundred twenty one pesos
(P48,101,621.00) within an unextendible period of fifteen (15) days from receipt hereof.

The claims for moral, actual and exemplary damages are dismissed for lack of
evidence.
8

SO ORDERED. (Emphasis supplied)

No further Motions for Reconsideration shall be entertained.

10

MAC, Carag, and David, through Atty. Pastores, filed their Memorandum before the
NLRC on 26 August 1994. Carag, through a separate counsel, filed an appeal dated 30 August
1994 before the NLRC. Carag reiterated the arguments in respondents' position paper filed
before Arbiter Ortiguerra, stating that:

SO ORDERED.

Respondents filed separate petitions for certiorari before this Court under Rule 65
of the 1964 Rules of Court. Carag filed his petition, docketed as G.R. No. 118820, on 13
February 1995. In the meantime, we granted MAC's prayer for the issuance of a temporary
restraining order to enjoin the NLRC from enforcing Arbiter Ortiguerra's Decision. On 31 May
1995, we granted complainants' motion for consolidation of G.R. No. 118820 with G.R. No.
118839 (MAC v. NLRC, et al.) and G.R. No. 118880 (David v. Arbiter Ortiguerra, et al.). On 12
July 1999, after all the parties had filed their memoranda, we referred the consolidated cases
11
to the appellate court in accordance with our decision in St. Martin Funeral Home v. NLRC.
Respondents filed separate petitions before the appellate court.

2.1 While Atty. Antonio C. Carag is the Chairman of the Board of MAC and Mr.
Armando David is the President, they are not the owners of MAC;
2.2 MAC is owned by a consortium of banks, as stockholders, and Atty. Antonio C.
Carag and Mr. Armando David are only minority stockholders of the corporation, owning only
qualifying shares;
2.3 MAC is not a family[-]owned corporation, that in case of a close [sic]
corporation, piercing the corporate veil its [sic] possible to hold the stockholders liable for the
corporation's liabilities;

The Ruling of the Appellate Court

On 29 February 2000, the appellate court issued a joint decision on the separate
petitions. The appellate court identified two issues as essential: (1) whether Arbiter
Ortiguerra properly held Carag and David, in their capacities as corporate officers, jointly and
severally liable with MAC for the money claims of the employees; and (2) whether the NLRC
abused its discretion in denying the separate motions to reduce bond filed by MAC and Carag.

2.4 MAC is a corporation with a distinct and separate personality from that of the
stockholders; piercing the corporate veil to hold the stockholders liable for corporate
liabilities is only true [for] close corporations (family corporations); this is not the prevailing
situation in MAC;

The appellate court held that the absence of a formal hearing before the Labor
Arbiter is not a cause for Carag and David to impute grave abuse of discretion. The appellate
court found that Carag and David, as the most ranking officers of MAC, had a direct hand at
the time in the illegal dismissal of MAC's employees. The failure of Carag and David to
observe the notice requirement in closing the company shows malice and bad faith, which

2.5 Atty. Antonio Carag and Mr. Armando David are professional managers and the
extension of shares to them are just qualifying shares to enable them to occupy subject
9
position.

19

justifies their solidary liability with MAC. The appellate court also found that the
circumstances of the present case do not warrant a reduction of the appeal bond. Thus:

2. Assuming, arguendo, that he had been accorded due process, is the decision
holding him solidarily liable supported by evidence when the only pleadings (not evidence)
before the Labor Arbiter and that of the Court of Appeals are the labor union's motion to
implead him as respondent and his opposition thereto, without position papers, without
evidence submitted, and without hearing on the issue of personal liability, and even when
bad faith or malice, as the only legal basis for personal liability, was expressly found absent
and wanting by [the] Labor Arbiter, as to render said decision null and void?

IN VIEW WHEREOF, the petitions are DISMISSED. The decision of Labor Arbiter
Isabel Panganiban-Ortiguerra dated June 17, 1994, and the Resolution dated January 5, 1995,
issued by the National Labor Relations Commission are hereby AFFIRMED. As a consequence
of dismissal, the temporary restraining order issued on March 2, 1995, by the Third Division of
the Supreme Court is LIFTED. Costs against petitioners.

3. Did the NLRC commit grave abuse of discretion in denying petitioner's motion to
14
reduce appeal bond?

12

SO ORDERED. (Emphasis in the original)

The appellate court denied respondents' separate motions for reconsideration.

13

The Ruling of the Court

In a resolution dated 20 June 2001, this Court's First Division denied the petition for
Carag's failure to show sufficiently that the appellate court committed any reversible error to
warrant the exercise of our discretionary appellate jurisdiction. Carag filed a motion for
reconsideration of our resolution denying his petition. In a resolution dated 13 August 2001,
this Court's First Division denied Carag's reconsideration with finality.

We find the petition meritorious.

On Denial of Due Process to Carag and David
Carag asserts that Arbiter Ortiguerra rendered her Decision of 17 June 1994 without
issuing summons on him, without requiring him to submit his position paper, without setting
any hearing, without giving him notice to present his evidence, and without informing him
15 16 17
18
that the case had been submitted for decision - in violation of Sections 2, 3, 4, 5(b), and
19
20
11(c) of Rule V of The New Rules of Procedure of the NLRC.

Despite our 13 August 2001 resolution, Carag filed a second motion for
reconsideration with an omnibus motion for leave to file a second motion for reconsideration.
This Court's First Division referred the motion to the Court En Banc. In a resolution dated 25
June 2002, the Court En Banc resolved to grant the omnibus motion for leave to file a second
motion for reconsideration, reinstated the petition, and required respondents to comment on
the petition. On 25 November 2003, the Court En Banc resolved to suspend the rules to allow
the second motion for reconsideration. This Court's First Division referred the petition to the
Court En Banc on 14 July 2004, and the Court En Banc accepted the referral on 15 March
2005.

It is clear from the narration in Arbiter Ortiguerra's Decision that she only
summoned complainants and MAC, and not Carag, to a conference for possible settlement. In
her Decision, Arbiter Ortiguerra stated that she scheduled the conference "upon receipt of
the record of the case." At the time of the conference, complainants had not yet submitted
their position paper which contained the motion to implead Carag. Complainants could not
have submitted their position paper before the conference since procedurally the Arbiter
21
directs the submission of position papers only after the conference. Complainants
submitted their position paper only on 10 January 1994, five months after filing the
complaint. In short, at the time of the conference, Carag was not yet a party to the case. Thus,
Arbiter Ortiguerra could not have possibly summoned Carag to the conference.

The Issues
Carag questions the appellate court's decision of 29 February 2000 by raising the
following issues before this Court:
1. Has petitioner Carag's right to due process been blatantly violated by holding him
personally liable for over P50 million of the corporation's liability, merely as board chairman
and solely on the basis of the motion to implead him in midstream of the proceedings as
additional respondent, without affording him the right to present evidence and in violation of
the accepted procedure prescribed by Rule V of the NLRC Rules of Procedure, as to render the
ruling null and void?

Carag vigorously denied receiving summons to the conference, and complainants

have not produced any order of Arbiter Ortiguerra summoning Carag to the conference. A
thorough search of the records of this case fails to show any order of Arbiter Ortiguerra
directing Carag to attend the conference. Clearly, Arbiter Ortiguerra did not summon Carag to
the conference.

20

When MAC failed to appear at the conference, Arbiter Ortiguerra declared the case
submitted for resolution. In her Decision, Arbiter Ortiguerra granted complainants' motion to
implead Carag and at the same time, in the same Decision, found Carag personally liable for
the debts of MAC consisting of P49,101,621 in separation pay to complainants. Arbiter
Ortiguerra never issued summons to Carag, never called him to a conference for possible
settlement, never required him to submit a position paper, never set the case for hearing,
never notified him to present his evidence, and never informed him that the case was
submitted for decision - all in violation of Sections 2, 3, 4, 5(b), and 11(c) of Rule V of The New
Rules of Procedure of the NLRC.

Third, since the conference on 10 May 1996 no order or notice as to what action
was taken by the Labor Arbiter in disposing the pending motions was ever received by private
respondents. They were not declared in default by the Labor Arbiter nor was petitioner
required to submit a bill of particulars.
Fourth, neither was there any order or notice requiring private respondents to file
their position paper, nor an order informing the parties that the case was already submitted
for decision. What private respondents received was the assailed decision adverse to them.
It is clear from the foregoing that there was an utter absence of opportunity to be
heard at the arbitration level, as the procedure adopted by the Labor Arbiter virtually
prevented private respondents from explaining matters fully and presenting their side of the
controversy. They had no chance whatsoever to at least acquaint the Labor Arbiter with
whatever defenses they might have to the charge that they illegally dismissed petitioner. In
fact, private respondents presented their position paper and documentary evidence only for
the first time on appeal to the NLRC.

Indisputably, there was utter absence of due process to Carag at the arbitration
level. The procedure adopted by Arbiter Ortiguerra completely prevented Carag from
explaining his side and presenting his evidence. This alone renders Arbiter Ortiguerra's
Decision a nullity insofar as Carag is concerned. While labor arbiters are not required to
conduct a formal hearing or trial, they have no license to dispense with the basic
requirements of due process such as affording respondents the opportunity to be heard. In
22
Habana v. NLRC, we held:

The essence of due process is that a party be afforded a reasonable opportunity to

be heard and to submit any evidence he may have in support of his defense. Where, as in this
case, sufficient opportunity to be heard either through oral arguments or position paper and
other pleadings is not accorded a party to a case, there is undoubtedly a denial of due
process.

The sole issue to be resolved is whether private respondents OMANFIL and

HYUNDAI were denied due process when the Labor Arbiter decided the case solely on the
basis of the position paper and supporting documents submitted in evidence by Habana and
De Guzman.

It is true that Labor Arbiters are not bound by strict rules of evidence and of
procedure. The manner by which Arbiters dispose of cases before them is concededly a
matter of discretion. However, that discretion must be exercised regularly, legally and within
the confines of due process. They are mandated to use every reasonable means to ascertain
the facts of each case, speedily, objectively and without regard to technicalities of law or
procedure, all in the interest of justice and for the purpose of accuracy and correctness in
adjudicating the monetary awards.

We rule in the affirmative. The manner in which this case was decided by the Labor
Arbiter left much to be desired in terms of respect for the right of private respondents to due
process First, there was only one conciliatory conference held in this case. This was on 10
May 1996. During the conference, the parties did not discuss at all the possibility of amicable
settlement due to petitioner's stubborn insistence that private respondents be declared in
default.

In this case, Carag was in a far worse situation. Here, Carag was not issued
summons, not accorded a conciliatory conference, not ordered to submit a position paper,
not accorded a hearing, not given an opportunity to present his evidence, and not notified
that the case was submitted for resolution. Thus, we hold that Arbiter Ortiguerra's Decision is
void as against Carag for utter absence of due process. It was error for the NLRC and the
Court of Appeals to uphold Arbiter Ortiguerra's decision as against Carag.

Second, the parties agreed to submit their respective motions - petitioner's motion
to declare respondents in default and private respondents' motion for bill of particulars - for
the consideration of the Labor Arbiter. The Labor Arbitration Associate, one Ms. Gloria Vivar,
then informed the parties that they would be notified of the action of the Labor Arbiter on
the pending motions.
xxx

On the Liability of Directors for Corporate Debts

21

This case also raises this issue: when is a director personally liable for the debts of
the corporation? The rule is that a director is not personally liable for the debts of the
corporation, which has a separate legal personality of its own. Section 31 of the Corporation
Code lays down the exceptions to the rule, as follows:

To hold a director personally liable for debts of the corporation, and thus pierce the
veil of corporate fiction, the bad faith or wrongdoing of the director must be established
24
25
clearly and convincingly. Bad faith is never presumed. Bad faith does not connote bad
judgment or negligence. Bad faith imports a dishonest purpose. Bad faith means breach of a
26
known duty through some ill motive or interest. Bad faith partakes of the nature of fraud. In
27
Businessday Information Systems and Services, Inc. v. NLRC, we held:

Liability of directors, trustees or officers. - Directors or trustees who wilfully and

knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of
gross negligence or bad faith in directing the affairs of the corporation or acquire any
personal or pecuniary interest in conflict with their duty as such directors or trustees shall be
liable jointly and severally for all damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons.

There is merit in the contention of petitioner Raul Locsin that the complaint against
him should be dismissed. A corporate officer is not personally liable for the money claims of
discharged corporate employees unless he acted with evident malice and bad faith in
terminating their employment. There is no evidence in this case that Locsin acted in bad faith
or with malice in carrying out the retrenchment and eventual closure of the company (Garcia
vs. NLRC, 153 SCRA 640), hence, he may not be held personally and solidarily liable with the
company for the satisfaction of the judgment in favor of the retrenched employees.

xxxx
Section 31 makes a director personally liable for corporate debts if he wilfully and
knowingly votes for or assents to patently unlawful acts of the corporation. Section 31 also
makes a director personally liable if he is guilty of gross negligence or bad faith in directing
the affairs of the corporation.

Neither does bad faith arise automatically just because a corporation fails to comply
with the notice requirement of labor laws on company closure or dismissal of employees. The
failure to give notice is not an unlawful act because the law does not define such failure as
unlawful. Such failure to give notice is a violation of procedural due process but does not
amount to an unlawful or criminal act. Such procedural defect is called illegal dismissal
because it fails to comply with mandatory procedural requirements, but it is not illegal in the
sense that it constitutes an unlawful or criminal act.

Complainants did not allege in their complaint that Carag wilfully and knowingly
voted for or assented to any patently unlawful act of MAC. Complainants did not present any
evidence showing that Carag wilfully and knowingly voted for or assented to any patently
unlawful act of MAC. Neither did Arbiter Ortiguerra make any finding to this effect in her
Decision.

For a wrongdoing to make a director personally liable for debts of the corporation,
the wrongdoing approved or assented to by the director must be a patently unlawful act.
Mere failure to comply with the notice requirement of labor laws on company closure or
dismissal of employees does not amount to a patently unlawful act. Patently unlawful acts are
those declared unlawful by law which imposes penalties for commission of such unlawful
acts. There must be a law declaring the act unlawful and penalizing the act.

Complainants did not also allege that Carag is guilty of gross negligence or bad faith
in directing the affairs of MAC. Complainants did not present any evidence showing that
Carag is guilty of gross negligence or bad faith in directing the affairs of MAC. Neither did
Arbiter Ortiguerra make any finding to this effect in her Decision.
Arbiter Ortiguerra stated in her Decision that:

An example of a patently unlawful act is violation of Article 287 of the Labor Code,
which states that "[V]iolation of this provision is hereby declared unlawful and subject to the
penal provisions provided under Article 288 of this Code." Likewise, Article 288 of the Labor
Code on Penal Provisions and Liabilities, provides that "any violation of the provision of this
Code declared unlawful or penal in nature shall be punished with a fine of not less than One
Thousand Pesos (P1,000.00) nor more than Ten Thousand Pesos (P10,000.00), or
imprisonment of not less than three months nor more than three years, or both such fine and
imprisonment at the discretion of the court."

In instances where corporate officers dismissed employees in bad faith or wantonly

violate labor standard laws or when the company had already ceased operations and there is
no way by which a judgment in favor of employees could be satisfied, corporate officers can
23
be held jointly and severally liable with the company.
After stating what she believed is the law on the matter, Arbiter Ortiguerra stopped
there and did not make any finding that Carag is guilty of bad faith or of wanton violation of
labor standard laws. Arbiter Ortiguerra did not specify what act of bad faith Carag committed,
or what particular labor standard laws he violated.

22

28

In this case, Article 283 of the Labor Code, requiring a one-month prior notice to
employees and the Department of Labor and Employment before any permanent closure of a
company, does not state that non-compliance with the notice is an unlawful act punishable
under the Code. There is no provision in any other Article of the Labor Code declaring failure
to give such notice an unlawful act and providing for its penalty.

http://elibrary.supremecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/2007/jan200
7.zip%3E9,df%7C2007/jan2007/146667.htm xxx
The
ruling
in
A.C.
Ransom
Labor
Union-CCLU
v.
NLRC,http://elibrary.supremecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/2007/j
an2007.zip%3E9,df%7C2007/jan2007/146667.htm - which the Court of Appeals cited, does
not apply to this case. We quote pertinent portions of the ruling, thus:

Complainants did not allege or prove, and Arbiter Ortiguerra did not make any
finding, that Carag approved or assented to any patently unlawful act to which the law
attaches a penalty for its commission. On this score alone, Carag cannot be held personally
liable for the separation pay of complainants.

(a) Article 265 of the Labor Code, in part, expressly provides:

This leaves us with Arbiter Ortiguerra's assertion that "when the company had
already ceased operations and there is no way by which a judgment in favor of employees
could be satisfied, corporate officers can be held jointly and severally liable with the
company." This assertion echoes the complainants' claim that Carag is personally liable for
MAC's debts to complainants "on the basis of Article 212(e) of the Labor Code, as amended,"
which says:

"Any worker whose employment has been terminated as a consequence of an

unlawful lockout shall be entitled to reinstatement with full backwages."
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."

'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. (Emphasis supplied)

(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:

Indeed, complainants seek to hold Carag personally liable for the debts of MAC
based solely on Article 212(e) of the Labor Code. This is the specific legal ground cited by
complainants, and used by Arbiter Ortiguerra, in holding Carag personally liable for the debts
of MAC.
29

"(c) '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."

30

We have already ruled in McLeod v. NLRC and Spouses Santos v. NLRC that
Article 212(e) of the Labor Code, by itself, does not make a corporate officer personally liable
for the debts of the corporation. The governing law on personal liability of directors for debts
of the corporation is still Section 31 of the Corporation Code. Thus, we explained in McLeod:

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.

Personal liability of corporate directors, trustees or officers attaches only when (1)
they assent to a patently unlawful act of the corporation, or when they are guilty of bad faith
or gross negligence in directing its affairs, or when there is a conflict of interest resulting in
damages to the corporation, its stockholders or other persons; (2) they consent to the
issuance of watered down stocks or when, having knowledge of such issuance, do not
forthwith file with the corporate secretary their written objection; (3) they agree to hold
themselves personally and solidarily liable with the corporation; or (4) they are made by
specific provision of law personally answerable for their corporate action.

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.
xxxx
(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, foreseeing 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

23

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.
http://elibrary.supremecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/2007/jan200
7.zip%3E9,df%7C2007/jan2007/146667.htm - (Emphasis supplied)

We come now to the personal liability of petitioner, Sunio, who was made jointly
and severally responsible with petitioner company and CIPI for the payment of the backwages
of private respondents. This is reversible error. The Assistant Regional Director's Decision
failed to disclose the reason why he was made personally liable. Respondents, however,
alleged as grounds thereof, his being the owner of one-half () interest of said corporation,
and his alleged arbitrary dismissal of private respondents.

Clearly, in A.C. Ransom, RANSOM, through its President, organized ROSARIO to

evade payment of backwages to the 22 strikers. This situation, or anything similar showing
malice or bad faith on the part of Patricio, does not obtain in the present case. In Santos v.
NLRC,
http://elibrary.supremecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/2007/jan200
7.zip%3E9,df%7C2007/jan2007/146667.htm - the Court held, thus:

Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager
of petitioner corporation. There appears to be no evidence on record that he acted
maliciously or in bad faith in terminating the services of private respondents. His act,
therefore, was within the scope of his authority and was a corporate act.
It is basic that a corporation is invested by law with a personality separate and
distinct from those of the persons composing it as well as from that of any other legal entity
to which it may be related. 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. Petitioner Sunio, therefore, should not have
been made personally answerable for the payment of private respondents' back
salaries.http://elibrary.supremecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/200
7/jan2007.zip%3E9,df%7C2007/jan2007/146667.htm -

It is true, there were various cases when corporate officers were themselves held by
the Court to be personally accountable for the payment of wages and money claims to its
employees. In A.C. Ransom Labor Union-CCLU vs. NLRC, for instance, the Court ruled that
under the Minimum Wage Law, the responsible officer of an employer corporation could be
held personally liable for nonpayment of backwages for "(i)f the policy of the law were
otherwise, the corporation employer (would) have devious ways for evading payment of
backwages." In the absence of a clear identification of the officer directly responsible for
failure to pay the backwages, the Court considered the President of the corporation as such
officer. The case was cited in Chua vs. NLRC in holding personally liable the vice-president of
the company, being the highest and most ranking official of the corporation next to the
President who was dismissed for the latter's claim for unpaid wages.

Thus, the rule is still that the doctrine of piercing the corporate veil applies only
when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud,
or defend crime. In the absence of malice, bad faith, or a specific provision of law making a
corporate officer liable, such corporate officer cannot be made personally liable for corporate
liabilities. Neither Article 212[e] nor Article 273 (now 272) of the Labor Code expressly makes
any corporate officer personally liable for the debts of the corporation. As this Court ruled in
H.L.
Carlos
Construction,
Inc.
v.
Marina
Properties
Corporation:http://elibrary.supremecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/
2007/jan2007.zip%3E9,df%7C2007/jan2007/146667.htm -

A review of the above exceptional cases would readily disclose the attendance of
facts and circumstances that could rightly sanction personal liability on the part of the
company officer. In A.C. Ransom, the corporate entity was a family corporation and execution
against it could not be implemented because of the disposition posthaste of its leviable assets
evidently in order to evade its just and due obligations. The doctrine of "piercing the veil of
corporate fiction" was thus clearly appropriate. Chua likewise involved another family
corporation, and this time the conflict was between two brothers occupying the highest
ranking positions in the company. There were incontrovertible facts which pointed to
extreme personal animosity that resulted, evidently in bad faith, in the easing out from the
company of one of the brothers by the other.

We concur with the CA that these two respondents are not liable. Section 31 of the
Corporation Code (Batas Pambansa Blg. 68) provides:
"Section 31. Liability of directors, trustees or officers. - Directors or trustees who
willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who
are guilty of gross negligence or bad faith ... shall be liable jointly and severally for all
damages resulting therefrom suffered by the corporation, its stockholders and other
persons."

The basic rule is still that which can be deduced from the Court's pronouncement in
Sunio vs. National Labor Relations Commission, thus:

24

The personal liability of corporate officers validly attaches only when (a) they assent
to a patently unlawful act of the corporation; or (b) they are guilty of bad faith or gross
negligence in directing its affairs; or (c) they incur conflict of interest, resulting in damages to
31
the corporation, its stockholders or other persons. (Boldfacing in the original; boldfacing
with underscoring supplied)

For Rooms 32/35:

From March 1, 1991 to August 31, 1991 P5,000.00/P10,000.00
From September 1, 1991 to February 29, 1992 P5,500.00/P11,000.00
From March 1, 1992 to February 28, 1993 P6,050.00/P12,100.00

Thus, it was error for Arbiter Ortiguerra, the NLRC, and the Court of Appeals to hold
Carag personally liable for the separation pay owed by MAC to complainants based alone on
Article 212(e) of the Labor Code. Article 212(e) does not state that corporate officers are
personally liable for the unpaid salaries or separation pay of employees of the corporation.
The liability of corporate officers for corporate debts remains governed by Section 31 of the
Corporation Code.

From March 1, 1993 to February 28, 1994 P6,655.00/P13,310.00

From March 1, 1994 to February 28, 1995 P7,320.50/P14,641.00
From March 1, 1995 to February 28, 1996 P8,052.55/P16,105.10
From March 1, 1996 to February 29, 1997 P8,857.81/P17,715.61

WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 29 February
2000 and the Resolution dated 27 March 2001 of the Court of Appeals in CA-G.R. SP Nos.
54404-06 insofar as petitioner Antonio Carag is concerned.

From March 1, 1997 to February 28, 1998 P9,743.59/P19,487.17

From March 1, 1998 to February 28, 1999 P10,717.95/P21,435.89

SO ORDERED.
G.R. No. 136409
SUBHASH

C.

From March 1, 1999 to February 28, 2000 P11,789.75/P23,579.48

March 14, 2008

PASRICHA

and

JOSEPHINE

A.

PASRICHA,

For Rooms 22 and 24:

Petitioners,

vs.
DON LUIS DISON REALTY, INC., Respondent.

Effective July 1, 1992 P10,000.00 with an increment of 10% every two years.

For Rooms 33 and 34:

DECISION

Effective April 1, 1992 P5,000.00 with an increment of 10% every two years.

NACHURA, J.:

For Rooms 36, 37 and 38:

This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking
1
the reversal of the Decision of the Court of Appeals (CA) dated May 26, 1998 and its
2
Resolution dated December 10, 1998 in CA-G.R. SP No. 37739 dismissing the petition filed by
petitioners Josephine and Subhash Pasricha.

Effective when tenants vacate said premises P10,000.00 with an increment of 10%
7
every two years.
Petitioners were, likewise, required to pay for the cost of electric consumption,
8
water bills and the use of telephone cables.

The facts of the case, as culled from the records, are as follows:
Respondent Don Luis Dison Realty, Inc. and petitioners executed two Contracts of
3
Lease whereby the former, as lessor, agreed to lease to the latter Units 22, 24, 32, 33, 34, 35,
36, 37 and 38 of the San Luis Building, located at 1006 M.Y. Orosa cor. T.M. Kalaw Streets,
Ermita, Manila. Petitioners, in turn, agreed to pay monthly rentals, as follows:

The lease of Rooms 36, 37 and 38 did not materialize leaving only Rooms 22, 24, 32,
9
33, 34 and 35 as subjects of the lease contracts. While the contracts were in effect,
petitioners dealt with Francis Pacheco (Pacheco), then General Manager of private
10
respondent. Thereafter, Pacheco was replaced by Roswinda Bautista (Ms. Bautista).
11
Petitioners religiously paid the monthly rentals until May 1992. After that, however, despite

25

repeated demands, petitioners continuously refused to pay the stipulated rent. Consequently,
respondent was constrained to refer the matter to its lawyer who, in turn, made a final
12
demand on petitioners for the payment of the accrued rentals amounting to P916,585.58.
Because petitioners still refused to comply, a complaint for ejectment was filed by private
respondent through its representative, Ms. Bautista, before the Metropolitan Trial Court
13
(MeTC) of Manila. The case was raffled to Branch XIX and was docketed as Civil Case No.
143058-CV.

WHEREFORE, the appealed decision is hereby reversed and set aside and another
one is rendered ordering defendants-appellees and all persons claiming rights under them, as
follows:
(1) to vacate the leased premised (sic) and restore possession thereof to plaintiffappellant;
(2) to pay plaintiff-appellant the sum of P967,915.80 representing the accrued rents
in arrears as of November 1993, and the rents on the leased premises for the succeeding
months in the amounts stated in paragraph 5 of the complaint until fully paid; and

Petitioners admitted their failure to pay the stipulated rent for the leased premises
starting July until November 1992, but claimed that such refusal was justified because of the
14
internal squabble in respondent company as to the person authorized to receive payment.
To further justify their non-payment of rent, petitioners alleged that they were prevented
from using the units (rooms) subject matter of the lease contract, except Room 35.
Petitioners eventually paid their monthly rent for December 1992 in the amount of
P30,000.00, and claimed that respondent waived its right to collect the rents for the months
of July to November 1992 since petitioners were prevented from using Rooms 22, 24, 32, 33,
15
and 34. However, they again withheld payment of rents starting January 1993 because of
16
respondents refusal to turn over Rooms 36, 37 and 38. To show good faith and willingness
to pay the rents, petitioners alleged that they prepared the check vouchers for their monthly
17
rentals from January 1993 to January 1994. Petitioners further averred in their Amended
18
Answer that the complaint for ejectment was prematurely filed, as the controversy was not
referred to the barangay for conciliation.

(3) to pay an additional sum equivalent to 25% of the rent accounts as and for
attorneys fees plus the costs of this suit.
20

SO ORDERED.

The court adopted the MeTCs finding on petitioners unjustified refusal to pay the
rent, which is a valid ground for ejectment. It, however, faulted the MeTC in dismissing the
case on the ground of lack of capacity to sue. Instead, it upheld Ms. Bautistas authority to
represent respondent notwithstanding the absence of a board resolution to that effect, since
21
her authority was implied from her power as a general manager/treasurer of the company.
Aggrieved, petitioners elevated the matter to the Court of Appeals in a petition for
22
23
review on certiorari. On March 18, 1998, petitioners filed an Omnibus Motion to cite Ms.
Bautista for contempt; to strike down the MeTC and RTC Decisions as legal nullities; and to
conduct hearings and ocular inspections or delegate the reception of evidence. Without
24
resolving the aforesaid motion, on May 26, 1998, the CA affirmed the RTC Decision but
25
deleted the award of attorneys fees.

For failure of the parties to reach an amicable settlement, the pre-trial conference
was terminated. Thereafter, they submitted their respective position papers.
On November 24, 1994, the MeTC rendered a Decision dismissing the complaint for
19
ejectment. It considered petitioners non-payment of rentals as unjustified. The court held
that mere willingness to pay the rent did not amount to payment of the obligation;
petitioners should have deposited their payment in the name of respondent company. On the
matter of possession of the subject premises, the court did not give credence to petitioners
claim that private respondent failed to turn over possession of the premises. The court,
however, dismissed the complaint because of Ms. Bautistas alleged lack of authority to sue
on behalf of the corporation.

26

Petitioners moved for the reconsideration of the aforesaid decision. Thereafter,

they filed several motions asking the Honorable Justice Ruben T. Reyes to inhibit from further
proceeding with the case allegedly because of his close association with Ms. Bautistas uncle27
in-law.
28

In a Resolution dated December 10, 1998, the CA denied the motions for lack of
merit. The appellate court considered said motions as repetitive of their previous arguments,
29
irrelevant and obviously dilatory. As to the motion for inhibition of the Honorable Justice
Reyes, the same was denied, as the appellate court justice stressed that the decision and the
30
resolution were not affected by extraneous matters. Lastly, the appellate court granted
respondents motion for execution and directed the RTC to issue a new writ of execution of
31
its decision, with the exception of the award of attorneys fees which the CA deleted.

Deciding the case on appeal, the Regional Trial Court (RTC) of Manila, Branch 1, in
Civil Case No. 94-72515, reversed and set aside the MeTC Decision in this wise:

26

Petitioners now come before this Court in this petition for review on certiorari
raising the following issues:

The petition lacks merit.

We uphold the capacity of respondent company to institute the ejectment case.
Although the Securities and Exchange Commission (SEC) suspended and eventually revoked
respondents certificate of registration on February 16, 1995, records show that it instituted
the action for ejectment on December 15, 1993. Accordingly, when the case was commenced,
35
its registration was not yet revoked. Besides, as correctly held by the appellate court, the
SEC later set aside its earlier orders of suspension and revocation of respondents certificate,
36
rendering the issue moot and academic.

I.
Whether this ejectment suit should be dismissed and whether petitioners are
entitled to damages for the unauthorized and malicious filing by Rosario (sic) Bautista of this
ejectment case, it being clear that [Roswinda] whether as general manager or by virtue of
her subsequent designation by the Board of Directors as the corporations attorney-in-fact
had no legal capacity to institute the ejectment suit, independently of whether Director
Pacanas Order setting aside the SEC revocation Order is a mere scrap of paper.

We likewise affirm Ms. Bautistas capacity to sue on behalf of the company despite
lack of proof of authority to so represent it. A corporation has no powers except those
expressly conferred on it by the Corporation Code and those that are implied from or are
incidental to its existence. In turn, a corporation exercises said powers through its board of
directors and/or its duly authorized officers and agents. Physical acts, like the signing of
documents, can be performed only by natural persons duly authorized for the purpose by
37
corporate by-laws or by a specific act of the board of directors. Thus, any person suing on
behalf of the corporation should present proof of such authority. Although Ms. Bautista
initially failed to show that she had the capacity to sign the verification and institute the
ejectment case on behalf of the company, when confronted with such question, she
38
immediately presented the Secretarys Certificate confirming her authority to represent the
company.

II.
Whether the RTCs and the Honorable Court of Appeals failure and refusal to
resolve the most fundamental factual issues in the instant ejectment case render said
decisions void on their face by reason of the complete abdication by the RTC and the
Honorable Justice Ruben Reyes of their constitutional duty not only to clearly and distinctly
state the facts and the law on which a decision is based but also to resolve the decisive factual
issues in any given case.
III.
Whether the (1) failure and refusal of Honorable Justice Ruben Reyes to inhibit
himself, despite his admission by reason of his silence of petitioners accusation that the
said Justice enjoyed a $7,000.00 scholarship grant courtesy of the uncle-in-law of respondent
"corporations" purported general manager and (2), worse, his act of ruling against the
petitioners and in favor of the respondent "corporation" constitute an unconstitutional
32
deprivation of petitioners property without due process of law.

There is ample jurisprudence holding that subsequent and substantial compliance

39
may call for the relaxation of the rules of procedure in the interest of justice. In Novelty
40
Phils., Inc. v. Court of Appeals, the Court faulted the appellate court for dismissing a petition
solely on petitioners failure to timely submit proof of authority to sue on behalf of the
41
corporation. In Pfizer, Inc. v. Galan, we upheld the sufficiency of a petition verified by an
employment specialist despite the total absence of a board resolution authorizing her to act
for and on behalf of the corporation. Lastly, in China Banking Corporation v. Mondragon
42
International Philippines, Inc, we relaxed the rules of procedure because the corporation
ratified the managers status as an authorized signatory. In all of the above cases, we brushed
aside technicalities in the interest of justice. This is not to say that we disregard the
requirement of prior authority to act in the name of a corporation. The relaxation of the rules
applies only to highly meritorious cases, and when there is substantial compliance. While it is
true that rules of procedure are intended to promote rather than frustrate the ends of justice,
and while the swift unclogging of court dockets is a laudable objective, we should not insist
43
on strict adherence to the rules at the expense of substantial justice. Technical and
procedural rules are intended to help secure, not suppress, the cause of justice; and a
deviation from the rigid enforcement of the rules may be allowed to attain that prime

In addition to Ms. Bautistas lack of capacity to sue, petitioners insist that

respondent company has no standing to sue as a juridical person in view of the suspension
33
and eventual revocation of its certificate of registration. They likewise question the factual
findings of the court on the bases of their ejectment from the subject premises. Specifically,
they fault the appellate court for not finding that: 1) their non-payment of rentals was
justified; 2) they were deprived of possession of all the units subject of the lease contract
except Room 35; and 3) respondent violated the terms of the contract by its continued refusal
to turn over possession of Rooms 36, 37 and 38. Petitioners further prayed that a Temporary
Restraining Order (TRO) be issued enjoining the CA from enforcing its Resolution directing the
34
issuance of a Writ of Execution. Thus, in a Resolution dated January 18, 1999, this Court
directed the parties to maintain the status quo effective immediately until further orders.

27

objective, for, after all, the dispensation of justice is the core reason for the existence of
44
courts.

This issue involves questions of fact, the resolution of which requires the evaluation
of the evidence presented. The MeTC, the RTC and the CA all found that petitioners failed to
perform their obligation to pay the stipulated rent. It is settled doctrine that in a civil case, the
conclusions of fact of the trial court, especially when affirmed by the Court of Appeals, are
50
final and conclusive, and cannot be reviewed on appeal by the Supreme Court. Albeit the
51
rule admits of exceptions, not one of them obtains in this case.

As to the denial of the motion to inhibit Justice Reyes, we find the same to be in
order. First, the motion to inhibit came after the appellate court rendered the assailed
decision, that is, after Justice Reyes had already rendered his opinion on the merits of the
case. It is settled that a motion to inhibit shall be denied if filed after a member of the court
had already given an opinion on the merits of the case, the rationale being that "a litigant
cannot be permitted to speculate on the action of the court x x x (only to) raise an objection
45
of this sort after the decision has been rendered." Second, it is settled that mere suspicion
that a judge is partial to one of the parties is not enough; there should be evidence to
substantiate the suspicion. Bias and prejudice cannot be presumed, especially when weighed
against a judges sacred pledge under his oath of office to administer justice without regard
for any person and to do right equally to the poor and the rich. There must be a showing of
bias and prejudice stemming from an extrajudicial source, resulting in an opinion on the
merits based on something other than what the judge learned from his participation in the
46
case. We would like to reiterate, at this point, the policy of the Court not to tolerate acts of
litigants who, for just about any conceivable reason, seek to disqualify a judge (or justice) for
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their own purpose, under a plea of bias, hostility, prejudice or prejudgment.

To settle this issue once and for all, we deem it proper to assess the array of factual
findings supporting the courts conclusion.
The evidence of petitioners non-payment of the stipulated rent is overwhelming.
Petitioners, however, claim that such non-payment is justified by the following: 1) the refusal
of respondent to allow petitioners to use the leased properties, except room 35; 2)
respondents refusal to turn over Rooms 36, 37 and 38; and 3) respondents refusal to accept
payment tendered by petitioners.
Petitioners justifications are belied by the evidence on record. As correctly held by
the CA, petitioners communications to respondent prior to the filing of the complaint never
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mentioned their alleged inability to use the rooms. What they pointed out in their letters is
that they did not know to whom payment should be made, whether to Ms. Bautista or to
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Pacheco. In their July 26 and October 30, 1993 letters, petitioners only questioned the
method of computing their electric billings without, however, raising a complaint about their
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failure to use the rooms. Although petitioners stated in their December 30, 1993 letter that
55
respondent failed to fulfill its part of the contract, nowhere did they specifically refer to
their inability to use the leased rooms. Besides, at that time, they were already in default on
their rentals for more than a year.

We now come to the more substantive issue of whether or not the petitioners may
be validly ejected from the leased premises.
Unlawful detainer cases are summary in nature. In such cases, the elements to be
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proved and resolved are the fact of lease and the expiration or violation of its terms.
Specifically, the essential requisites of unlawful detainer are: 1) the fact of lease by virtue of a
contract, express or implied; 2) the expiration or termination of the possessors right to hold
possession; 3) withholding by the lessee of possession of the land or building after the
expiration or termination of the right to possess; 4) letter of demand upon lessee to pay the
rental or comply with the terms of the lease and vacate the premises; and 5) the filing of the
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action within one year from the date of the last demand received by the defendant.

If it were true that they were allowed to use only one of the nine (9) rooms subject
of the contract of lease, and considering that the rooms were intended for a business
purpose, we cannot understand why they did not specifically assert their right. If we believe
petitioners contention that they had been prevented from using the rooms for more than a
year before the complaint for ejectment was filed, they should have demanded specific
performance from the lessor and commenced an action in court. With the execution of the
contract, petitioners were already in a position to exercise their right to the use and
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enjoyment of the property according to the terms of the lease contract. As borne out by the
records, the fact is that respondent turned over to petitioners the keys to the leased premises
and petitioners, in fact, renovated the rooms. Thus, they were placed in possession of the
premises and they had the right to the use and enjoyment of the same. They, likewise, had
the right to resist any act of intrusion into their peaceful possession of the property, even as

It is undisputed that petitioners and respondent entered into two separate

contracts of lease involving nine (9) rooms of the San Luis Building. Records, likewise, show
that respondent repeatedly demanded that petitioners vacate the premises, but the latter
refused to heed the demand; thus, they remained in possession of the premises. The only
contentious issue is whether there was indeed a violation of the terms of the contract: on the
part of petitioners, whether they failed to pay the stipulated rent without justifiable cause;
while on the part of respondent, whether it prevented petitioners from occupying the leased
premises except Room 35.

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against the lessor itself. Yet, they did not lift a finger to protect their right if, indeed, there
was a violation of the contract by the lessor.

may bring an action against the conflicting claimants to compel them to interplead and
litigate their several claims among themselves.

What was, instead, clearly established by the evidence was petitioners nonpayment of rentals because ostensibly they did not know to whom payment should be made.
However, this did not justify their failure to pay, because if such were the case, they were not
without any remedy. They should have availed of the provisions of the Civil Code of the
Philippines on the consignation of payment and of the Rules of Court on interpleader.

Otherwise stated, an action for interpleader is proper when the lessee does not
know to whom payment of rentals should be made due to conflicting claims on the property
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(or on the right to collect). The remedy is afforded not to protect a person against double
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liability but to protect him against double vexation in respect of one liability.
Notably, instead of availing of the above remedies, petitioners opted to refrain from
making payments.

Article 1256 of the Civil Code provides:

Article 1256. If the creditor to whom tender of payment has been made refuses
without just cause to accept it, the debtor shall be released from responsibility by the
consignation of the thing or sum due.

Neither can petitioners validly invoke the non-delivery of Rooms 36, 37 and 38 as a
justification for non-payment of rentals. Although the two contracts embraced the lease of
nine (9) rooms, the terms of the contracts - with their particular reference to specific rooms
and the monthly rental for each - easily raise the inference that the parties intended the lease
of each room separate from that of the others.lavvphil There is nothing in the contract which
would lead to the conclusion that the lease of one or more rooms was to be made dependent
upon the lease of all the nine (9) rooms. Accordingly, the use of each room by the lessee gave
rise to the corresponding obligation to pay the monthly rental for the same. Notably,
respondent demanded payment of rentals only for the rooms actually delivered to, and used
by, petitioners.

Consignation alone shall produce the same effect in the following cases:
xxxx
(4) When two or more persons claim the same right to collect;
x x x x.

It may also be mentioned that the contract specifically provides that the lease of
Rooms 36, 37 and 38 was to take effect only when the tenants thereof would vacate the
premises. Absent a clear showing that the previous tenants had vacated the premises,
respondent had no obligation to deliver possession of the subject rooms to petitioners. Thus,
petitioners cannot use the non-delivery of Rooms 36, 37 and 38 as an excuse for their failure
to pay the rentals due on the other rooms they occupied.1avvphil

Consignation shall be made by depositing the things due at the disposal of a judicial
authority, before whom the tender of payment shall be proved in a proper case, and the
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announcement of the consignation in other cases.
In the instant case, consignation alone would have produced the effect of payment
of the rentals. The rationale for consignation is to avoid the performance of an obligation
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becoming more onerous to the debtor by reason of causes not imputable to him.
Petitioners claim that they made a written tender of payment and actually prepared vouchers
for their monthly rentals. But that was insufficient to constitute a valid tender of payment.
Even assuming that it was valid tender, still, it would not constitute payment for want of
consignation of the amount. Well-settled is the rule that tender of payment must be
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accompanied by consignation in order that the effects of payment may be produced.

In light of the foregoing disquisition, respondent has every right to exercise his right
to eject the erring lessees. The parties contracts of lease contain identical provisions, to wit:
In case of default by the LESSEE in the payment of rental on the fifth (5th) day of
each month, the amount owing shall as penalty bear interest at the rate of FOUR percent
(4%) per month, to be paid, without prejudice to the right of the LESSOR to terminate his
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contract, enter the premises, and/or eject the LESSEE as hereinafter set forth;

Moreover, Section 1, Rule 62 of the Rules of Court provides:

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Moreover, Article 1673 of the Civil Code gives the lessor the right to judicially eject
the lessees in case of non-payment of the monthly rentals. A contract of lease is a consensual,
bilateral, onerous and commutative contract by which the owner temporarily grants the use

Section 1. When interpleader proper. Whenever conflicting claims upon the same
subject matter are or may be made against a person who claims no interest whatever in the
subject matter, or an interest which in whole or in part is not disputed by the claimants, he

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64

of his property to another, who undertakes to pay the rent therefor. For failure to pay the
rent, petitioners have no right to remain in the leased premises.
WHEREFORE, premises considered, the petition is DENIED and the Status Quo Order
dated January 18, 1999 is hereby LIFTED. The Decision of the Court of Appeals dated May 26,
1998 and its Resolution dated December 10, 1998 in CA-G.R. SP No. 37739 are AFFIRMED.
SO ORDERED.

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