G.R. No.
156759 June 5, 2013
ALLEN A. MACASAET, NICOLAS V. QUIJANO, JR., ISAIAS
ALBANO, LILY REYES, JANET BAY, JESUS R. GALANG,
AND RANDY HAGOS, Petitioners,
vs.
FRANCISCO R. CO, JR., Respondent.
DECISION
BERSAMIN, J.:
To warrant the substituted service of the summons and
copy of the complaint, the serving officer must first
attempt to effect the same upon the defendant in person.
Only after the attempt at personal service has become
futile or impossible within a reasonable time may the
officer resort to substituted service.
The Case
Petitioners – defendants in a suit for libel brought by
respondent – appeal the decision promulgated on March
8, 20021 and the resolution promulgated on January 13,
2003,2 whereby the Court of Appeals (CA) respectively
dismissed their petition for certiorari, prohibition and
mandamus and denied their motion for reconsideration.
Thereby, the CA upheld the order the Regional Trial Court
(RTC), Branch 51, in Manila had issued on March 12, 2001
denying their motion to dismiss because the substituted
service of the summons and copies of the complaint on
each of them had been valid and effective.3
Antecedents
On July 3, 2000, respondent, a retired police officer
assigned at the Western Police District in Manila, sued
Abante Tonite, a daily tabloid of general circulation; its
Publisher Allen A. Macasaet; its Managing Director Nicolas
V. Quijano; its Circulation Manager Isaias Albano; its
Editors Janet Bay, Jesus R. Galang and Randy Hagos; and
its Columnist/Reporter Lily Reyes (petitioners), claiming
damages because of an allegedly libelous article
petitioners published in the June 6, 2000 issue of Abante
Tonite. The suit, docketed as Civil Case No. 00-97907, was
raffled to Branch 51 of the RTC, which in due course issued
summons to be served on each defendant, including
Abante Tonite, at their business address at Monica
Publishing Corporation, 301-305 3rd Floor, BF
Condominium Building, Solana Street corner A. Soriano
Street, Intramuros, Manila.4
In the morning of September 18, 2000, RTC Sheriff Raul
Medina proceeded to the stated address to effect the
personal service of the summons on the defendants. But
his efforts to personally serve each defendant in the
address were futile because the defendants were then out
of the office and unavailable. He returned in the afternoon
of that day to make a second attempt at serving the
summons, but he was informed that petitioners were still
out of the office. He decided to resort to substituted
service of the summons, and explained why in his sheriff’s
return dated September 22, 2005,5 to wit:
SHERIFF’S RETURN
This is to certify that on September 18, 2000, I caused the
service of summons together with copies of complaint and
its annexes attached thereto, upon the following:
1. Defendant Allen A. Macasaet,
President/Publisher of defendant AbanteTonite,
at Monica Publishing Corporation, Rooms 301-
305 3rd Floor, BF Condominium Building, Solana
corner A. Soriano Streets, Intramuros, Manila, thru
his secretary Lu-Ann Quijano, a person of
sufficient age and discretion working therein, who
signed to acknowledge receipt thereof. That effort
(sic) to serve the said summons personally upon
said defendant were made, but the same were
ineffectual and unavailing on the ground that per
information of Ms. Quijano said defendant is
always out and not available, thus, substituted
service was applied;
2. Defendant Nicolas V. Quijano, at the same
address, thru his wife Lu-Ann Quijano, who signed
to acknowledge receipt thereof. That effort (sic) to
serve the said summons personally upon said
defendant were made, but the same were
ineffectual and unavailing on the ground that per
information of (sic) his wife said defendant is
always out and not available, thus, substituted
service was applied;
3. Defendants Isaias Albano, Janet Bay, Jesus R.
Galang, Randy Hagos and Lily Reyes, at the same
address, thru Rene Esleta, Editorial Assistant of
defendant AbanteTonite, a person of sufficient age
and discretion working therein who signed to
acknowledge receipt thereof. That effort (sic) to
serve the said summons personally upon said
defendants were made, but the same were
ineffectual and unavailing on the ground that per
information of (sic) Mr. Esleta said defendants is
(sic) always roving outside and gathering news,
thus, substituted service was applied.
Original copy of summons is therefore, respectfully
returned duly served.
Manila, September 22, 2000.
On October 3, 2000, petitioners moved for the dismissal of
the complaint through counsel’s special appearance in
their behalf, alleging lack of jurisdiction over their persons
because of the invalid and ineffectual substituted service
of summons. They contended that the sheriff had made no
prior attempt to serve the summons personally on each of
them in accordance with Section 6 and Section 7, Rule 14
of the Rules of Court. They further moved to drop Abante
Tonite as a defendant by virtue of its being neither a
natural nor a juridical person that could be impleaded as
a party in a civil action.
At the hearing of petitioners’ motion to dismiss, Medina
testified that he had gone to the office address of
petitioners in the morning of September 18, 2000 to
personally serve the summons on each defendant; that
petitioners were out of the office at the time; that he had
returned in the afternoon of the same day to again attempt
to serve on each defendant personally but his attempt had
still proved futile because all of petitioners were still out
of the office; that some competent persons working in
petitioners’ office had informed him that Macasaet and
Quijano were always out and unavailable, and that Albano,
Bay, Galang, Hagos and Reyes were always out roving to
gather news; and that he had then resorted to substituted
service upon realizing the impossibility of his finding
petitioners in person within a reasonable time.
On March 12, 2001, the RTC denied the motion to dismiss,
and directed petitioners to file their answers to the
complaint within the remaining period allowed by the
Rules of Court,6 relevantly stating:
Records show that the summonses were served upon
Allen A. Macasaet, President/Publisher of defendant
AbanteTonite, through LuAnn Quijano; upon defendants
Isaias Albano, Janet Bay, Jesus R. Galang, Randy Hagos and
Lily Reyes, through Rene Esleta, Editorial Assistant of
defendant Abante Tonite (p. 12, records). It is apparent in
the Sheriff’s Return that on several occasions, efforts to
served (sic) the summons personally upon all the
defendants were ineffectual as they were always out and
unavailable, so the Sheriff served the summons by
substituted service.
Considering that summonses cannot be served within a
reasonable time to the persons of all the defendants, hence
substituted service of summonses was validly applied.
Secretary of the President who is duly authorized to
receive such document, the wife of the defendant and the
Editorial Assistant of the defendant, were considered
competent persons with sufficient discretion to realize the
importance of the legal papers served upon them and to
relay the same to the defendants named therein (Sec. 7,
Rule 14, 1997 Rules of Civil Procedure).
WHEREFORE, in view of the foregoing, the Motion to
Dismiss is hereby DENIED for lack of merit..
Accordingly, defendants are directed to file their Answers
to the complaint within the period still open to them,
pursuant to the rules.
SO ORDERED.
Petitioners filed a motion for reconsideration, asserting
that the sheriff had immediately resorted to substituted
service of the summons upon being informed that they
were not around to personally receive the summons, and
that Abante Tonite, being neither a natural nor a juridical
person, could not be made a party in the action.
On June 29, 2001, the RTC denied petitioners’ motion for
reconsideration.7 It stated in respect of the service of
summons, as follows:
The allegations of the defendants that the Sheriff
immediately resorted to substituted service of summons
upon them when he was informed that they were not
around to personally receive the same is untenable.
During the hearing of the herein motion, Sheriff Raul
Medina of this Branch of the Court testified that on
September 18, 2000 in the morning, he went to the office
address of the defendants to personally serve summons
upon them but they were out. So he went back to serve
said summons upon the defendants in the afternoon of the
same day, but then again he was informed that the
defendants were out and unavailable, and that they were
always out because they were roving around to gather
news. Because of that information and because of the
nature of the work of the defendants that they are always
on field, so the sheriff resorted to substituted service of
summons. There was substantial compliance with the
rules, considering the difficulty to serve the summons
personally to them because of the nature of their job
which compels them to be always out and unavailable.
Additional matters regarding the service of summons
upon defendants were sufficiently discussed in the Order
of this Court dated March 12, 2001.
Regarding the impleading of Abante Tonite as defendant,
the RTC held, viz:
"Abante Tonite" is a daily tabloid of general circulation.
People all over the country could buy a copy of "Abante
Tonite" and read it, hence, it is for public consumption.
The persons who organized said publication obviously
derived profit from it. The information written on the said
newspaper will affect the person, natural as well as
juridical, who was stated or implicated in the news. All of
these facts imply that "Abante Tonite" falls within the
provision of Art. 44 (2 or 3), New Civil Code. Assuming
arguendo that "Abante Tonite" is not registered with the
Securities and Exchange Commission, it is deemed a
corporation by estoppels considering that it possesses
attributes of a juridical person, otherwise it cannot be held
liable for damages and injuries it may inflict to other
persons.
Undaunted, petitioners brought a petition for certiorari,
prohibition, mandamusin the CA to nullify the orders of
the RTC dated March 12, 2001 and June 29, 2001.
Ruling of the CA
On March 8, 2002, the CA promulgated its questioned
decision,8 dismissing the petition for certiorari,
prohibition, mandamus, to wit:
We find petitioners’ argument without merit. The rule is
that certiorari will prosper only if there is a showing of
grave abuse of discretion or an act without or in excess of
jurisdiction committed by the respondent Judge. A
judicious reading of the questioned orders of respondent
Judge would show that the same were not issued in a
capricious or whimsical exercise of judgment. There are
factual bases and legal justification for the assailed orders.
From the Return, the sheriff certified that "effort to serve
the summons personally xxx were made, but the same
were ineffectual and unavailing xxx.
and upholding the trial court’s finding that there was a
substantial compliance with the rules that allowed the
substituted service.
Furthermore, the CA ruled:
Anent the issue raised by petitioners that "Abante Tonite
is neither a natural or juridical person who may be a party
in a civil case," and therefore the case against it must be
dismissed and/or dropped, is untenable.
The respondent Judge, in denying petitioners’ motion for
reconsideration, held that:
xxxx
Abante Tonite’s newspapers are circulated nationwide,
showing ostensibly its being a corporate entity, thus the
doctrine of corporation by estoppel may appropriately
apply.
An unincorporated association, which represents itself to
be a corporation, will be estopped from denying its
corporate capacity in a suit against it by a third person
who relies in good faith on such representation.
There being no grave abuse of discretion committed by
the respondent Judge in the exercise of his jurisdiction, the
relief of prohibition is also unavailable.
WHEREFORE, the instant petition is DENIED. The assailed
Orders of respondent Judge are AFFIRMED.
SO ORDERED.9
On January 13, 2003, the CA denied petitioners’ motion for
reconsideration.10
Issues
Petitioners hereby submit that:
1. THE COURT OF APPEALS COMMITTED AN
ERROR OF LAW IN HOLDING THAT THE TRIAL
COURT ACQUIRED JURISDICTION OVER HEREIN
PETITIONERS.
2. THE COURT OF APPEALS COMMITTED
REVERSIBLE ERROR BY SUSTAINING THE
INCLUSION OF ABANTE TONITE AS PARTY IN
THE INSTANT CASE.11
Ruling
The petition for review lacks merit.
Jurisdiction over the person, or jurisdiction in personam –
the power of the court to render a personal judgment or
to subject the parties in a particular action to the judgment
and other rulings rendered in the action – is an element of
due process that is essential in all actions, civil as well as
criminal, except in actions in rem or quasi in rem.
Jurisdiction over the defendantin an action in rem or quasi
in rem is not required, and the court acquires jurisdiction
over an actionas long as it acquires jurisdiction over the
resthat is thesubject matter of the action. The purpose of
summons in such action is not the acquisition of
jurisdiction over the defendant but mainly to satisfy the
constitutional requirement of due process.12
The distinctions that need to be perceived between an
action in personam, on the one hand, and an action inrem
or quasi in rem, on the other hand, are aptly delineated in
Domagas v. Jensen,13 thusly:
The settled rule is that the aim and object of an action
determine its character. Whether a proceeding is in rem,
or in personam, or quasi in rem for that matter, is
determined by its nature and purpose, and by these only.
A proceeding in personam is a proceeding to enforce
personal rights and obligations brought against the
person and is based on the jurisdiction of the person,
although it may involve his right to, or the exercise of
ownership of, specific property, or seek to compel him to
control or dispose of it in accordance with the mandate of
the court. The purpose of a proceeding in personam is to
impose, through the judgment of a court, some
responsibility or liability directly upon the person of the
defendant. Of this character are suits to compel a
defendant to specifically perform some act or actions to
fasten a pecuniary liability on him. An action in personam
is said to be one which has for its object a judgment against
the person, as distinguished from a judgment against the
property to determine its state. It has been held that an
action in personam is a proceeding to enforce personal
rights or obligations; such action is brought against the
person. As far as suits for injunctive relief are concerned,
it is well-settled that it is an injunctive act in personam. In
Combs v. Combs, the appellate court held that proceedings
to enforce personal rights and obligations and in which
personal judgments are rendered adjusting the rights and
obligations between the affected parties is in personam.
Actions for recovery of real property are in personam.
On the other hand, a proceeding quasi in rem is one
brought against persons seeking to subject the property of
such persons to the discharge of the claims assailed. In an
action quasi in rem, an individual is named as defendant
and the purpose of the proceeding is to subject his
interests therein to the obligation or loan burdening the
property. Actions quasi in rem deal with the status,
ownership or liability of a particular property but which
are intended to operate on these questions only as
between the particular parties to the proceedings and not
to ascertain or cut off the rights or interests of all possible
claimants. The judgments therein are binding only upon
the parties who joined in the action.
As a rule, Philippine courts cannot try any case against a
defendant who does not reside and is not found in the
Philippines because of the impossibility of acquiring
jurisdiction over his person unless he voluntarily appears
in court; but when the case is an action in rem or quasi in
rem enumerated in Section 15, Rule 14 of the Rules of
Court, Philippine courts have jurisdiction to hear and
decide the case because they have jurisdiction over the res,
and jurisdiction over the person of the non-resident
defendant is not essential. In the latter instance,
extraterritorial service of summons can be made upon the
defendant, and such extraterritorial service of summons is
not for the purpose of vesting the court with jurisdiction,
but for the purpose of complying with the requirements of
fair play or due process, so that the defendant will be
informed of the pendency of the action against him and the
possibility that property in the Philippines belonging to
him or in which he has an interest may be subjected to a
judgment in favor of the plaintiff, and he can thereby take
steps to protect his interest if he is so minded. On the other
hand, when the defendant in an action in personam does
not reside and is not found in the Philippines, our courts
cannot try the case against him because of the
impossibility of acquiring jurisdiction over his person
unless he voluntarily appears in court.14
As the initiating party, the plaintiff in a civil action
voluntarily submits himself to the jurisdiction of the court
by the act of filing the initiatory pleading. As to the
defendant, the court acquires jurisdiction over his person
either by the proper service of the summons, or by a
voluntary appearance in the action.15
Upon the filing of the complaint and the payment of the
requisite legal fees, the clerk of court forthwith issues the
corresponding summons to the defendant.16 The
summons is directed to the defendant and signed by the
clerk of court under seal. It contains the name of the court
and the names of the parties to the action; a direction that
the defendant answers within the time fixed by the Rules
of Court; and a notice that unless the defendant so
answers, the plaintiff will take judgment by default and
may be granted the relief applied for.17 To be attached to
the original copy of the summons and all copies thereof is
a copy of the complaint (and its attachments, if any) and
the order, if any, for the appointment of a guardian ad
litem.18
The significance of the proper service of the summons on
the defendant in an action in personam cannot be
overemphasized. The service of the summons fulfills two
fundamental objectives, namely: (a) to vest in the court
jurisdiction over the person of the defendant; and (b) to
afford to the defendant the opportunity to be heard on the
claim brought against him.19 As to the former, when
jurisdiction in personam is not acquired in a civil action
through the proper service of the summons or upon a
valid waiver of such proper service, the ensuing trial and
judgment are void.20 If the defendant knowingly does an
act inconsistent with the right to object to the lack of
personal jurisdiction as to him, like voluntarily appearing
in the action, he is deemed to have submitted himself to
the jurisdiction of the court.21 As to the latter, the essence
of due process lies in the reasonable opportunity to be
heard and to submit any evidence the defendant may have
in support of his defense. With the proper service of the
summons being intended to afford to him the opportunity
to be heard on the claim against him, he may also waive
the process.21 In other words, compliance with the rules
regarding the service of the summons is as much an issue
of due process as it is of jurisdiction.23
Under the Rules of Court, the service of the summons
should firstly be effected on the defendant himself
whenever practicable. Such personal service consists
either in handing a copy of the summons to the defendant
in person, or, if the defendant refuses to receive and sign
for it, in tendering it to him.24 The rule on personal service
is to be rigidly enforced in order to ensure the realization
of the two fundamental objectives earlier mentioned. If,
for justifiable reasons, the defendant cannot be served in
person within a reasonable time, the service of the
summons may then be effected either (a) by leaving a copy
of the summons at his residence with some person of
suitable age and discretion then residing therein, or (b) by
leaving the copy at his office or regular place of business
with some competent person in charge thereof.25 The
latter mode of service is known as substituted service
because the service of the summons on the defendant is
made through his substitute.
It is no longer debatable that the statutory requirements
of substituted service must be followed strictly, faithfully
and fully, and any substituted service other than that
authorized by statute is considered ineffective.26 This is
because substituted service, being in derogation of the
usual method of service, is extraordinary in character and
may be used only as prescribed and in the circumstances
authorized by statute.27 Only when the defendant cannot
be served personally within a reasonable time may
substituted service be resorted to. Hence, the
impossibility of prompt personal service should be shown
by stating the efforts made to find the defendant himself
and the fact that such efforts failed, which statement
should be found in the proof of service or sheriff’s
return.28 Nonetheless, the requisite showing of the
impossibility of prompt personal service as basis for
resorting to substituted service may be waived by the
defendant either expressly or impliedly.29
There is no question that Sheriff Medina twice attempted
to serve the summons upon each of petitioners in person
at their office address, the first in the morning of
September 18, 2000 and the second in the afternoon of the
same date. Each attempt failed because Macasaet and
Quijano were "always out and not available" and the other
petitioners were "always roving outside and gathering
news." After Medina learned from those present in the
office address on his second attempt that there was no
likelihood of any of petitioners going to the office during
the business hours of that or any other day, he concluded
that further attempts to serve them in person within a
reasonable time would be futile. The circumstances fully
warranted his conclusion. He was not expected or
required as the serving officer to effect personal service by
all means and at all times, considering that he was
expressly authorized to resort to substituted service
should he be unable to effect the personal service within a
reasonable time. In that regard, what was a reasonable
time was dependent on the circumstances obtaining.
While we are strict in insisting on personal service on the
defendant, we do not cling to such strictness should the
circumstances already justify substituted service instead.
It is the spirit of the procedural rules, not their letter, that
governs.30
In reality, petitioners’ insistence on personal service by
the serving officer was demonstrably superfluous. They
had actually received the summonses served through
their substitutes, as borne out by their filing of several
pleadings in the RTC, including an answer with
compulsory counterclaim ad cautelam and a pre-trial brief
ad cautelam. They had also availed themselves of the
modes of discovery available under the Rules of Court.
Such acts evinced their voluntary appearance in the action.
Nor can we sustain petitioners’ contention that Abante
Tonite could not be sued as a defendant due to its not
being either a natural or a juridical person. In rejecting
their contention, the CA categorized Abante Tonite as a
corporation by estoppel as the result of its having
represented itself to the reading public as a corporation
despite its not being incorporated. Thereby, the CA
concluded that the RTC did not gravely abuse its
discretion in holding that the non-incorporation of Abante
Tonite with the Securities and Exchange Commission was
of no consequence, for, otherwise, whoever of the public
who would suffer any damage from the publication of
articles in the pages of its tabloids would be left without
recourse. We cannot disagree with the CA, considering
that the editorial box of the daily tabloid disclosed that
basis, nothing in the box indicated that Monica Publishing
Corporation had owned Abante Tonite.
WHEREFORE, the Court AFFIRMS the decision
promulgated on March 8, 2002; and ORDERS petitioners
to pay the costs of suit.
SO ORDERED.
SECOND DIVISION
G.R. No. 190187, September 28, 2016
THE PHILIPPINE GEOTHERMAL, INC. EMPLOYEES
UNION, Petitioner, v. UNOCAL PHILIPPINES, INC. (NOW
KNOWN AS CHEVRON GEOTHERMAL PHILIPPINES
HOLDINGS, INC.), Respondent.
DECISION
LEONEN, J.:
The merger of a corporation with another does not
operate to dismiss the employees of the corporation
absorbed by the surviving corporation. This is in keeping
with the nature and effects of a merger as provided under
law and the constitutional policy protecting the rights of
labor. The employment of the absorbed employees
subsists. Necessarily, these absorbed employees are not
entitled to separation pay on account of such merger in the
absence of any other ground for its award.
This resolves a Petition for Review on Certiorari1 filed by
Philippine Geothermal, Inc. Employees Union (Union)
assailing the Decision2 dated July 23, 2009 and the
Resolution3 dated November 9, 2009 of the Court of
Appeals Eighth Division in Unocal Philippines, Inc. (now
known as Chevron Geothermal Philippines Holdings, inc.) v.
The Philippine Geothermal, Inc. Employees Union. The
assailed Decision granted Unocal Philippines, Inc.'s
(Unocal Philippines) appeal and reversed the Secretary of
Labor's award of separation benefits to the Union. The
award was granted on the premise that the merger of
Unocal Philippines' parent corporation with another
corporation impliedly terminated the employment of the
Union's members. The assailed Resolution denied the
Union's Motion for Reconsideration.
Philippine Geothermal, Inc. Employees Union is a
legitimate labor union that stands as the bargaining agent
of the rank-and-file employees of Unocal
Philippines.4chanrobleslaw
Unocal Philippines, formerly known as Philippine
Geothermal, Inc., is a foreign corporation incorporated
under the laws of the State of California, United States of
America, licensed to do business in the Philippines for the
"exploration and development of geothermal resources as
alternative sources of energy."5 It is a wholly owned
subsidiary of Union Oil Company of California (Unocal
California),6 which, in turn, is a wholly owned subsidiary
of Union Oil Corporation (Unocal Corporation).7 Unocal
Philippines operates two (2) geothermal steam fields in
Tiwi, Albay and Makiling, Banahaw, Laguna, owned by the
National Power Corporation.8chanrobleslaw
On April 4, 2005, Unocal Corporation executed an
Agreement and Plan of Merger (Merger Agreement) with
Chevron Texaco Corporation (Chevron) and Blue Merger
Sub, Inc. (Blue Merger).9 Blue Merger is a wholly owned
subsidiary of Chevron.10 Under the Merger Agreement,
Unocal Corporation merged with Blue Merger, and Blue
Merger became the surviving corporation.11 Chevron then
became the parent corporation of the merged
corporations:12 After the merger, Blue Merger, as the
surviving corporation, changed its name to Unocal
Corporation.13chanrobleslaw
On January 31, 2006, Unocal Philippines executed a
Collective Bargaining Agreement with the
Union.14chanrobleslaw
However, on October 20, 2006, the Union wrote Unocal
Philippines asking for the separation benefits provided for
under the Collective Bargaining Agreement. According to
the Union, the Merger Agreement of Unocal Corporation,
Blue Merger, and Chevron resulted in the closure and
cessation of operations of Unocal Philippines and the
implied dismissal of its employees.15chanrobleslaw
Unocal Philippines refused the Union's request and
asserted that the employee-members were not
terminated and that the merger did not result in its
closure or the cessation of its operations.16chanrobleslaw
As Unocal Philippines and the Union were unable to agree,
they decided to submit the matter to the Department of
Labor and Employment's Administrative Intervention for
Dispute Avoidance Program.17However, they were unable
to arrive at "a mutually acceptable
agreement." chanrobleslaw
18
On November 24, 2006, the Union claimed that Unocal
Philippines was guilty of unfair labor practice and filed a
Notice of Strike.19 Later, the Union withdrew its Notice of
Strike.20chanrobleslaw
On February 5, 2007, the parties agreed to submit their
dispute for voluntary arbitration before the Department
of Labor and Employment, with the Secretary of Labor and
Employment as Voluntary Arbitrator.21 The case,
entitled In Re: Labor Dispute at Philippines, Inc./Chevron,
was docketed as OS-VA-2007-04.22chanrobleslaw
After the parties submitted their respective position
papers, the Secretary of Labor rendered the Decision23 on
January 15, 2008 ruling that the Union's members were
impliedly terminated from employment as a result of the
Merger Agreement. The Secretary of Labor found that the
merger resulted in new contracts and a new employer for
the Union's members. The new contracts allegedly
required the employees' consent; otherwise, there was no
employment contract to speak of.24 Thus, the Secretary of
Labor awarded the Union separation pay under the
Collective Bargaining Agreement.25cralawred The
dispositive portion of the Decision
reads:ChanRoblesVirtualawlibrary
WHEREFORE, this Office rules that Unocal and Chevron
merged into one corporate entity and the employees were
impliedly terminated from employment. Accordingly, they
are entitled to the separation benefits provided
under ARTICLE XII, SECTION 2 and ANNEX "B" of the
collective bargaining [agreement] between UNOCAL
PHILIPPINES, INC. and the PHILIPPINE GEOTHERMAL,
INC. EMPLOYEES UNION.
Pursuant to Section 7, Rule XIX of Department Order No.
40-03, series of 2003, this Decision shall be final and
executory after ten (10) calendar days from receipt hereof
and it shall not be subject of a motion for reconsideration.
SO ORDERED.26 (Emphasis in the original)
Unocal Philippines filed before the Court of Appeals a
Petition for Review27 questioning the Secretary of Labor's
Decision. Unocal Philippines claimed that the Union was
not entitled to separation benefits given that Unocal
Philippines was not a party to the merger,28 that it never
closed nor ceased its business, and that it did not
terminate its employees after the merger.29 It asserted
that its operations continued in the same manner, and
with the same manpower complement.30 Likewise, the
employees kept their tenure intact and experienced no
changes in their salaries and benefits.31chanrobleslaw
In the Decision32 dated July 23, 2009, the Court of Appeals
granted the appeal of Unocal Philippines and reversed the
Decision of the Secretary of Labor.33 It held that Unocal
Philippines has a separate and distinct juridical
personality from its parent company, Unocal Corporation,
which was the party that entered into the Merger
Agreement.34 The Court of Appeals ruled that Unocal
Philippines remained undissolved and its employees were
unaffected by the merger.35 It found that this was
evidenced by the Union's assumption of its role as the duly
recognized bargaining representative of all rank-and-file
employees a few months after the
merger.36chanrobleslaw
Moreover, the Court of Appeals found that although
Unocal Corporation became a part of Chevron, Unocal
Philippines still remained as a wholly owned subsidiary of
Unocal California after the merger.37 It ruled that in any
case, the Collective Bargaining Agreement only provided
for the payment of separation pay if a reduction in
workforce results from redundancy, retrenchment or
installation of labor-saving devices, or closure and
cessation of operations, all of which did not occur in this
case.38chanrobleslaw
The Court of Appeals also pointed out that the Union's
members merely wanted to discontinue their
employment with Unocal Philippines, but there was
nothing in the Labor Code nor in the parties' Collective
Bargaining Agreement that would sanction the payment of
separation pay to those who no longer wanted to work for
Unocal Philippines as a result of the merger.39 The
dispositive portion of the Decision
reads:ChanRoblesVirtualawlibrary
WHEREFORE, premises considered, the Decision dated
15 January 2008, of the Department of Labor and
Employment (DOLE) in OS-VA-2007-04 is
hereby REVERSEDand SET ASIDE.
SO ORDERED.40 (Emphasis in the original)
On November 9, 2009, the Court of Appeals denied the
Union's Motion for Reconsideration.41chanrobleslaw
Hence, this Petition42 was filed.
Petitioner Philippine Geothermal, Inc. Employees Union
claims that respondent Unocal Philippines, Inc. changed
its theory of the case when, in the proceedings before the
Secretary of Labor, it claimed that it entered into a merger
and not a sale, but later, in its appeal before the Court of
Appeals, argued that it was not a party to the
merger.43 Petitioner asserts that the Court of Appeals
erred in allowing respondent to change its theory of the
case on appeal and in deciding the case on the basis of this
changed theory.44chanrobleslaw
Petitioner further claims that the Court of Appeals erred
in reversing the Decision of the Secretary of Labor, who
properly ruled that petitioner's members are entitled to
separation pay.45 It claims that the merger resulted in (a)
"the severance of the juridical tie that existed between the
employees and its original employer, Unocal
Corporation,"46 and (b) the implied termination of the
employment of the Union's members, who had the right to
waive their continued employment with the absorbing
corporation.47 Petitioner insists that the the "cessation of
operations" contemplated in the Collective Bargaining
Agreement and the Memorandum of Agreement must be
liberally interpreted to include mergers,48 and that doubts
must be resolved in favor of labor.49chanrobleslaw
In the Resolution50 dated January 27, 2010, this Court
directed respondent to comment on the Petition.
Respondent filed its Comment51 on March 26, 2010. It
argues that it did not change its theory on appeal. It insists
that it has been consistent in arguing before the Secretary
of Labor and the Court of Appeals that it was never a party
to the merger between Unocal Corporation and Blue
Merger as it has always stated that it was Unocal
Corporation who entered into the Merger
Agreement.52 Respondent argues that even assuming that
it did change its theory on appeal, it may do so as an
exception to the rule since "a party may change [its] legal
theory when its factual bases would not require the
presentation of further evidence by the adverse party in
order to meet the issue raised in the new theory."53 It
posits that the alleged new theory would still be based on
the evidence presented before the Secretary of Labor,
hence, petitioner was.not placed at a legal personality to conduct business in the country. In the
disadvantage. chanrobleslaw
54
Respondent further argues that in any case, petitioner's
members still did not lose their employment as to warrant
the award of separation pay.55 The Memorandum of
Agreement, the Collective Bargaining Agreement, and the
contemporaenous acts of the parties show that
respondent shall pay separation pay only in case the
employees actually lose their jobs due to redundancy,
retrenchment or installation of labor-saving devices, or
closure and cessation of operation.56 As these
circumstances did not occur, respondent cannot grant
petitioner's members separation pay.
Petitioner filed itsReply57 on July 6, 2010. It insists that
respondent never claimed before the Secretary of Labor
that it was not covered by the merger.58 It maintains that
respondent only insisted on this argument when it
obtained the unfavorable decision from the Secretary of
Labor.59 Moreover, the Secretary of Labor was correct in
ruling that, indeed, there was a cessation of operations of
respondent when it merged with
Chevron.60chanrobleslaw
We resolve the following issues:
chanRoblesvirtualLawlibraryFirst, whether respondent
changed the theory of its case on appeal;
Second, whether the Merger Agreement executed by
Unocal Corporation, Blue Merger, and Chevron resulted in
the termination of the employment of petitioner's
members; and cralawlawlibrary
Lastly, whether petitioner's members are entitled to
separation benefits.
As regards the first issue, we rule that respondent did,
indeed, change the theory of its case on appeal.
In its Petition before the Court of Appeals, respondent
asserted that it was not a party to the merger as it was a
subsidiary of Unocal California and, thus, had a separate
and distinct personality from Unocal Corporation.
However, the following statement can be found in
respondent's Position Paper in the proceedings before the
Secretary of Labor:ChanRoblesVirtualawlibrary
3. . . . Following the merger, Blue Merger Sub Inc. which as
above stated is a wholly owned subsidiary of Chevron
Corporation changed its name to Unocal Corporation
retaining Unocal Philippines, Inc. as its Philippine Branch to
continue to operate the aforenamed geothermal plants as,
in fact[.]61 (Emphasis supplied)
Respondent alleges that it is a branch of Unocal
Coiporation. Claiming that it is a branch is inconsistent
with its allegation (on appeal) that it is a subsidiary of
another corporation. A branch and a subsidiary differ in
its corporate existence: a branch is not a legally
independent unit, while a subsidiary has a separate and
distinct personality from its parent corporation.
In Philippine Deposit Insurance Corp. v. Citibank:62
The Court begins by examining the manner by which a
foreign corporation can establish its presence in the
Philippines. It may choose to incorporate its own
subsidiary as a domestic corporation, in which case such
subsidiary would have its own separate and independent
alternative, it may create a branch in the Philippines, which
would not be a legally independent unit, and simply obtain
a license to do business in the Philippines.63 (Emphasis
supplied, citations omitted)
Respondent likewise made the following assertions in its
Position Paper in the proceedings before the Secretary of
Labor:ChanRoblesVirtualawlibrary
Based on the facts of this case, the Honorable Secretary of
Labor would certainly appreciate that the business
transaction entered into by respondent employer was in law
and in fact, a merger. Hence, there is no basis to the union's
claim.
. . . .
. . . In the present case, it is clear that the surviving
corporation, i.e. Unocal Philippines Inc. has continued the
business and operations of the absorbed corporation in an
unchanged manner, and using the same employees with
their tenure intact and under the same terms and
conditions of employment.64 (Emphasis supplied)
These statements reveal that not only did respondent fail
to assert that it was not a party to the Merger Agreement,
but it also referred to itself as the party who entered into
the transaction and became the surviving corporation in
the merger. Thus, the claim that respondent is not a party
to the merger is a new allegation raised for the first time
on appeal before the Court of Appeals.
Raising a factual question for the first time on appeal is not
allowed. In Tan v. Commission on Elections:65
The aforementioned issue is now raised only for the first
time on appeal before this Court. Settled is the rule that
issues not raised in the proceedings below (COMELEC en
banc) cannot be raised for the first time on appeal.
Fairness and due process dictate that evidence and issues
not presented below cannot be taken up for the first time
on appeal.
Thus, in Matugas v. Commission on Elections, we reiterated
this rule, saying:ChanRoblesVirtualawlibrary
The rule in appellate procedure is that a factual question
may not be raised for the first time on appeal, and
documents forming no part of the proofs before the
appellate court will not be considered in disposing of the
issues of" an action. This is true whether the decision
elevated for review originated from a regular court or an
administrative agency or quasi-judicial body, and whether
it was rendered in a civil case, a special proceeding, or a
criminal case. Piecemeal presentation of evidence is
simply not in accord with orderly justice.
Moreover, in Vda. De Gualberto v. Go, we also
held:ChanRoblesVirtualawlibrary
In Labor Congress of the Philippines v. NLRC, we have made
it clear that "to allow fresh issues on appeal is violative of
the rudiments of fair play, justice and due process."
Likewise, in Orosa v. Court of Appeals, the Court disallowed
it because "it would be offensive to the basic rule of fair
play, justice and due process if it considered [the] issue[s]
raised for the first time on appeal." We cannot take an
opposite stance in the present case.66 (Citations omitted)
Respondent did state that Unocal Corporation was the
party to the Merger Agreement with Blue Merger and
Chevron. Nonetheless, it did not use this allegation to
argue that it had a separate and distinct personality from
Unocal Corporation and is, thus, not a party to the Merger
Agreement. Respondent only raised this argument in its
appeal before the Court of Appeals.
Respondent's contention that it falls within the exception
to the rule likewise does not lie. Respondent cites Quasha
Ancheta Pena and Nolasco Law Office v. LCN Construction
Corp.67 and claims that it falls within the exception since it
did not present any additional evidence on the
matter:ChanRoblesVirtualawlibrary
In the interest of justice and within the sound discretion
of the appellate court, a party may change his legal theory
on appeal, only when the factual bases thereof would not
require presentation of any further evidence by the
adverse party in order to enable it to properly meet the
issue raised in the new
theory.68chanroblesvirtuallawlibrary
However, this paragraph states that it is the adverse
party that should no longer be required to present
additional evidence to contest the new claim, and not the
party presenting the new theory on appeal. Thus, it does
not matter that respondent no longer presented
additional evidence to support its new claim. The
petitioner, as the adverse party, should not have to
present further evidence on the matter before the new
issue may be considered. However, the issue of whether
respondent is a party to the Merger Agreement may be
proven otherwise by petitioner, through the presentation
of evidence that respondent is merely a branch and not a
subsidiary of Unocal Corporation. Thus, respondent's new
allegation does not fall under the exception to the rule.
Petitioner was denied the opportunity to present evidence
to disprove respondent's new claim. Therefore, the Court
of Appeals erred in taking into consideration this
argument.
As to the remaining issues, we rule in favor of respondent
and dismiss the Petition.
Both the Secretary of Labor and the Court of Appeals
found that what was entered into by Unocal Corporation,
Blue Merger, and Chevron is a merger. The primary issue
is what the effects of this merger on respondent's
employees are.
We find that, whether or not respondent is a party to the
Merger Agreement, there is no implied dismissal of its
employees as a consequence of the merger.
A merger is a consolidation of two or more corporations,
which results in one or more corporations being absorbed
into one surviving corporation.69 The separate existence
of the absorbed corporation ceases, and the surviving
corporation "retains its identity and takes over the rights,
privileges, franchises, properties, claims, liabilities and
obligations of the absorbed
corporation(s)."70chanrobleslaw
If respondent is a subsidiary of Unocal California, which,
in turn, is a subsidiary of Unocal Corporation, then the
merger of Unocal Corporation with Blue Merger and
Chevron does not affect respondent or any of its
employees. Respondent has a separate and distinct
personality from its parent corporation.
Nonetheless, if respondent is indeed a party to the merger,
the merger still does not result in the dismissal of its
employees.
The effects of a merger are provided under Section 80 of
the Corporation Code:ChanRoblesVirtualawlibrary
SEC. 80. Effects of merger or consolidation. — The merger
or consolidation, as provided in the preceding sections
shall have the following effects:
chanRoblesvirtualLawlibrary
1. The constituent corporations shall become a single
corporation which, in case of merger, shall be the
surviving corporation designated in the plan of merger;
and, in case of consolidation, shall be the consolidated
corporation designated in the plan of consolidation;
2. The separate existence of the constituent corporations
shall cease, except that of the surviving or the
consolidated corporation;
3. The surviving or the consolidated corporation shall
possess all the rights, privileges, immunities and powers
and shall be subject to all the duties and liabilities of a
corporation organized under this Code;
4. The surviving or the consolidated corporation shall
thereupon and thereafter possess all the rights, privileges,
immunities and franchises of each of the constituent
corporations; and all property, real or personal, and all
receivables due on whatever account, including
subscriptions to shares and other choses in action, and all
and every other interest of, or belonging to, or due to each
constituent corporation, shall be taken and deemed to be
transferred to and vested in such surviving or consolidated
corporation without further act or deed; and
5. The surviving or the consolidated corporation shall be
responsible and liable for all the liabilities and obligations
of each of the constituent corporations in the same manner
as if such surviving or consolidated corporation had itself
incurred such liabilities or obligations; and any claim,
action or proceeding pending by or against any of such
constituent corporations may be prosecuted by or against
the surviving or consolidated corporation, as the case may
be. Neither the rights of creditors nor any lien upon the
property of any of such constituent corporations shall be
impaired by such merger or consolidation. (Emphasis
supplied)
Although this provision does not explicitly state the
merger's effect on the employees of the absorbed
corporation, Bank of the Philippine Islands v. BPI
Employees Union-Davao Chapter-Federation of Unions in
BPI Unibank71 has ruled that the surviving corporation
automatically assumes the employment contracts of the
absorbed corporation, such that the absorbed
corporation's employees become part of the manpower
complement of the surviving corporation,
thus:ChanRoblesVirtualawlibrary
Taking a second look on this point, we have come to agree
with Justice Brion's view that it is more in keeping with the
dictates of social justice and the State policy of according
full protection to labor to deem employment contracts as
automatically assumed by the surviving corporation in a
merger, even in the absence of an express stipulation in the
articles of merger or the merger plan. In his dissenting
opinion, Justice Brion reasoned
that:ChanRoblesVirtualawlibrary
To my mind, due consideration of Section 80 of the
Corporation Code, the constitutionally declared policies
on work, labor and employment, and the specific FEBTC-
BPI situation — i.e., a merger with complete "body and
soul" transfer of all that FEBTC embodied and possessed
and where both participating banks were willing (albeit
by deed, not by their written agreement) to provide for the
affected human resources by recognizing continuity of
employment — should point this Court to a declaration
that in a complete merger situation where there is total
takeover by one corporation over another and there is
silence in the merger agreement on what the fate of the
human resource complement shall be, the latter should
not be left in legal limbo and should be properly provided
for, by compelling the surviving entity to absorb these
employees. This is what Section 80 of the Corporation
Code commands, as the surviving corporation has the
legal obligation to assume all the obligations and liabilities
of the merged constituent corporation.
Not to be forgotten is that the affected employees
managed, operated and worked on the transferred assets
and properties as their means of livelihood; they
constituted a basic component of their corporation during
its existence. In a merger and consolidation situation, they
cannot be treated without consideration of the applicable
constitutional declarations and directives, or, worse, be
simply disregarded. If they are so treated, it is up to this
Court to read and interpret the law so that they are treated
in accordance with the legal requirements of mergers and
consolidation, read in light of the social justice, economic
and social provisions of our Constitution. Hence, there is a
need for the surviving corporation to take responsibility for
the affected employees and to absorb them into its
workforce where no appropriate provision for the merged
corporation's human resources component is made in the
Merger Plan.72 (Emphasis supplied, citations omitted)
The rationale for this ruling is anchored on the nature and
effects of a merger as provided under Section 80 of the
Corporation Code, as well as the policies on work and
labor enshrined in the Constitution.73chanrobleslaw
To reiterate, Section 80 of the Corporation Code provides
that the surviving corporation shall possess all the rights,
privileges, properties, and receivables due of the absorbed
corporation. Moreover, all interests of, belonging to, or
due to the absorbed corporation "shall be taken and
deemed to be transferred to and vested in such surviving
or consolidated corporation without further act or
deed."74 The surviving corporation likewise acquires all
the liabilities and obligations of the absorbed corporation
as if it had itself incurred these liabilities or
obligations.75chanrobleslaw
This acquisition of all assets, interests, and liabilities of the
absorbed corporation necessarily includes the rights and
obligations of the absorbed corporation under its
employment contracts. Consequently, the surviving
corporation becomes bound by the employment contracts
entered into by the absorbed corporation. These
employment contracts are not terminated. They subsist
unless their termination is allowed by law.
This interpretation is consistent with the consitutional
provisions and policies on work and labor, which
provides:ChanRoblesVirtualawlibrary
ARTICLE II
. . . .
State Policies
. . . .
SECTION 18. The State affirms labor as a primary social economic force.
It shall protect the rights of workers and promote their welfare.
....
ARTICLE XIII
. . . .
Labor
SECTION 3. The State shall afford full protection to labor, local and
overseas, organized and unorganized, and promote full employment
and equality of employment opportunities for all.
It shall guarantee the rights of all workers to self-organization,
collective bargaining and negotiations, and peaceful concerted
activities, including the right to strike in accordance with law. They
shall be entitled to security of tenure, humane conditions of work, and
a living wage. They shall also participate in policy and decision-making
processes affecting their rights and benefits as may be provided by law.
The State shall promote the principle of shared responsibility between
workers and employers and the preferential use of voluntary modes in
settling disputes, including conciliation, and shall enforce their mutual
compliance therewith to foster industrial peace.
The State shall regulate the relations between workers and employers,
recognizing the right of labor to its just share in the fruits of production
and the right of enterprises to reasonable returns on investments, and
to expansion and growth.
These constitutional provisions ensure that workers'
rights are protected as they are imbued with public
interest. They likewise prevent an interpretation of any
law, rule, or agreement, which may violate worker's rights
acquired during their employment.
Associate Justice Arturo D. Brion's Dissenting Opinion
in Bank of the Philippine Islands v. BPI Employees Union-
Davao Chapter-Federation of Unions in BPI Unibank76 was
similarly premised on the constitutional protection
afforded to labor and the public interest carried by
employment contracts:ChanRoblesVirtualawlibrary
An employment contract or contract of service essentially
has value because it embodies work — the means of
adding value to basic raw materials and the processes for
producing goods, materials and services that become the
lifeblood of corporations and, ultimately, of the nation.
Viewed from this perspective, the employment contract or
contract of service is not an ordinary agreement that can
be viewed in strictly contractual sense. It embodies work
and production and carries with it a very significant
element of public interest; thus, the Constitution, no less,
accords full recognition and protection to workers and
their contribution to production.
. . . .
These constitutional statements and directives, aside from
telling us to consider work, labor and employment beyond
purely contractual terms, also provide us directions on
how our considerations should be made, i.e., with an eye
on the interests they represent — the individual, the
corporate, and more importantly, the
national. chanroblesvirtuallawlibrary
77
Associate Justice Brion likewise discussed the nature of a
merger agreement vis-a-vis the employment
contracts:ChanRoblesVirtualawlibrary
This recognition is not to objectify the workers as assets
and liabilities, but to recognize — using the spirit of the
law and constitutional standards — their necessary
involvement and need to be provided for in a merger
situation. Neither does this step, directly impacting on the
employees' individual employment contracts, detract
from the in personam character of these contracts. For in a
merger situation, no change of employer is involved; the
change is in the internal personality of the employer rather
than through the introduction of a new employer which
would have novated the contract. This conclusion
proceeds from the nature of a merger as a corporate
development regulated by law and the merger's
implementation through the parties' merger agreement.
. . . .
In the BPI-FEBTC situation, these employment contracts
are part of the obligations that the merging parties have to
account and make provisions for under the Constitution
and the Corporation Code; in the absence of any clear
agreement, these employment contracts subsist, subject
to the right of the employees to reject them as they cannot
be compelled to render service but can only be made to
answer in damages if the rejection constitutes a breach. In
other words, in mergers and consolidations, these contracts
should be held to be continuing, unless rejected by the
employees themselves or declared by the merging parties to
be subject to the authorized causes for termination of
employment under Sections 282 and 283 of the Labor Code.
In this sense, the merging parties' control and business
decision on how employees shall be affected, in the same
manner that the affected employees' decision on whether to
abide by the merger or to opt out, remain
unsullied.78 (Emphasis in the original)
Senior Associate Justice Antonio T. Carpio's Dissenting
Opinion79 likewise discusses the constitutional and legal
right to security of tenure as basis for ruling that the
employment contracts of the absorbed corporation
subsist in case of a merger:ChanRoblesVirtualawlibrary
Upon merger, BPI, as the surviving entity, absorbs FEBTC
and continues the combined business of the two banks.
BPI assumes the legal personality of FEBTC, and
automatically acquires FEBTC s rights, privileges and
powers, as well as its liabilities and obligations.
. . . .
Among the obligations and liabilities of FEBTC is to
continue the employment of FEBTC employees. These
employees have already acquired certain employment
status, tenure, salary and benefits. They are regular
employees of FEBTC. Since after the merger, BPI has
continued the business of FEBTC, FEBTC's obligation to
these employees is assumed by BPI, and BPI becomes
duty-bound to continue the employment of these FEBTC
employees.
Under Article 279 of the Labor Code, regular employees
acquire security of tenure, and hence, may not be
terminated by the employer except upon legal grounds. . . .
Without any of these legal grounds, the employer cannot
validly terminate the employment of regular employees;
otherwise, the employees' right to security of tenure
would be violated.
The merger of two corporations does not authorize the
surviving corporation to terminate the employees of the
absorbed corporation in the absence of just or authorized
causes as provided in Articles 282 and 283 of the Labor
Code. . . . Once an employee becomes permanent, he is
protected by the security of tenure clause in the
Constitution, and he can be terminated only for just or
authorized causes as provided by
law. chanroblesvirtuallawlibrary
80
These theories were dissents to the Decision in Bank of the
Philippine Islands. However, in the Resolution resolving
the Motion for Reconsideration in that case, this Court
found it necessary to interpret Section 80 of the
Corporation Code and the constitutional provisions on
labor as to strengthen the "judicial protection of the right
to security of tenure of employees affected by a merger
and [avoid] confusion regarding the status of various-
benefits."81 Thus, this Court ruled that the surviving
corporation automatically assumes the employment
contracts of the absorbed corporation. The absorbed
corporation's employees are not impliedly dismissed, but
become part of the manpower complement of the
surviving corporation.82chanrobleslaw
The merger of Unocal Corporation with Blue Merger and
Chevron does not result in an implied termination of the
employment of petitioner's members. Assuming
respondent is a party to the merger, its employment
contracts are deemed to subsist and continue by "the
combined operation of the Corporation Code and the
Labor Code under the backdrop of the labor and social
justice provisions of the Constitution."83chanrobleslaw
Petitioner insists that this is contrary to its freedom to
contract, considering its members did not enter into
employment contracts with the surviving corporation.
However, petitioner is not precluded from leaving the
surviving corporation. Although the absorbed employees
are retained as employees of the merged corporation, the
employer retains the right to terminate their employment
for a just or authorized cause. Likewise, the employees are
not precluded from severing their employment through
resignation or retirement. The freedom to contract and
the prohibition against involuntary servitude is still, thus,
preserved in this sense.84 This is the manner by which the
consent of the employees is considered by the law.
Hence, assuming respondent is a party to the merger, the
merger still does not operate to effect a termination of the
employment of respondent's employees. Should they be
unhappy with the surviving corporation, the employees
may retire or resign from employment.
Given these considerations, we rule that petitioner is not
entitled to the separation benefits it claims from
respondent.
Separation benefits are not granted to petitioner by law in
case of voluntary resignation,85 or by any contract it
entered into with respondent.
The Collective Bargaining Agreement86 between
petitioner and respondent
provides:ChanRoblesVirtualawlibrary
Article XII
RESPONSIBILITIES OF THE PARTIES AND INDUSTRIAL
PEACE
. . . .
Section 2. ADDITIONAL RESPONSIBILITIES
. . . .
In the event of closure, cessation of operations,
retrenchment, redundancy or installation of labor saving
devices, the COMPANY will pay just and fair compensation
for those who will be separated from the COMPANY. The
separation benefit is covered under a MEMORANDUM OF
AGREEMENT as agreed upon by both parties and shall
serve as a part of this agreement (Annex
B).87chanroblesvirtuallawlibrary
Likewise, the Memorandum of Agreement88 dated
November 1, 2005 betweeen petitioner and respondent
states:ChanRoblesVirtualawlibrary
WITHESSETH: That
WHEREAS, the COMPANY and the UNION recognize the possibility that
UNOCAL PHILIPPINES, INC. may undergo at its discretion reduction in
workforce as a result of redundancy, retrenchment or installation of
labor saving devices, or closure and cessation of operations.
WHEREAS, the COMPANY and the UNION agree that should any of the
above-cited conditions occur that may directly affect the tenure of
existing employees, the rights of the employees should be respected
and that the COMPANY will pay just and fair compensation for those
who will be separated from the COMPANY;
In view of the foregoing and in consideration of industrial peace and
this covenant, the parties hereby agree as follows:
chanRoblevirtualLawlibrary. . . .
2. The COMPANY will provide the following separation benefits for all
regular and probationary employees in the event that they lose their
jobs as a result of the conditions cited above;
 a. Separation Pay: 2.5 months multiplied by the
current monthly base pay plus monthly equivalent WHEREFORE, the Decision dated July 23, 2009 and the
of the 13th month and 14th month pay multiplied by
the number of years service.89 Resolution dated November 9, 2009 of the Court of
Appeals in CA-G.R. SP No. 102184 are AFFIRMED. The
Merger is not one of the circumstances where the Petition for Review is DENIED considering that no
employees may claim separation pay. The only instances reversible error was committed by the Court of Appeals.
where separation pay may be awarded to petitioner are:
(a) reduction in workforce as a result of redundancy; (b) SO ORDERED.chanRoblesvirtualLawlibrary
retrenchment or installation of labor-saving devices; or
(c) closure and cessation of operations. Leonardo-De Castro,**Mendoza, (Acting Chairperson),
and Jardeleza,***JJ., concur.
Redundancy has been defined by this Court as Velasco, Jr.,*J., I concur but this case is to be differentiated
follows:ChanRoblesVirtualawlibrary from G.R. No. 195615 (Bank of Commerce vs. RPN)
[W]e believe that redundancy, for purposes of our Labor
Code, exists where the services of an employee are in
excess of what is reasonably demanded by the actual THIRD DIVISION
requirements of the enterprise. Succinctly put, a position G.R. No. 198967, March 07, 2016
is redundant where it is superfluous, and superfluity of a JOSE EMMANUEL P. GUILLERMO, Petitioner,
position or positions may be the outcome of a number of v. CRISANTO P. USON, Respondent.
factors, such as overhiring of workers, decreased volume DECISION
of business, or dropping of a particular product line or PERALTA, J.:
service activity previously manufactured or undertaken Before the Court is a petition for review
by the enterprise. The employer has no legal obligation to on certiorari under Rule 45 of the Rules of Court seeking
keep in its payroll more employees than are necessary for to annul and set aside the Court of Appeals
the operation of its business.90 (Citations omitted) Decision1 dated June 8, 2011 and Resolution2 dated
Retrenchment, on the other hand, is the reduction of October 7, 2011 in CA G.R. SP No. 115485, which
personnel to save on costs on salaries and wages due to a affirmed in toto the decision of the National Labor
considerable decline in the volume of Relations Commission (NLRC).
business.91chanrobleslaw
The facts of the case follow.
Cessation and closure of business contemplates the
stopping of business operations of the employer whether On March 11, 1996, respondent Crisanto P. Uson (Uson)
on the employer's prerogative or on account of severe began his employment with Royal Class Venture Phils., Inc.
business losses.92chanrobleslaw (Royal Class Venture) as an accounting clerk.3 Eventually,
he was promoted to the position of accounting supervisor,
None of these instances are present here. The terms do not with a salary of Php13,000.00 a month, until he was
provide that a merger is one of the instances where allegedly dismissed from employment on December 20,
petitioner may claim separation benefits for its members. 2000.4
Neither can these circumstances be interpreted as to
contemplate a merger with another corporation. In any On March 2, 2001, Uson filed with the Sub-Regional
case, if title parties intended that petitioner ought to be Arbitration . Branch No. 1, Dagupan City, of the NLRC a
granted separation pay in case of a merger, it should have Complaint for Illegal Dismissal, with prayers for
been explicitly provided for in the contract. Absent this backwages, reinstatement, salaries and 13thmonth pay,
express intention, petitioner cannot claim separation pay. moral and exemplary damages and attorney's fees against
Royal Class Venture.5
On the contention that petitioner must be awarded the
separation pay in the interest of social justice, this Court Royal Class Venture did not make an appearance in the
has held that this award is granted only under the case despite its receipt of summons.6
following exceptional cases: (1) the dismissal of the
employee was not for serious misconduct; and (2) it did On May 15, 2001, Uson filed his Position Paper7 as
not reflect on the moral character of the complainant.
employee.93chanrobleslaw
On October 22, 2001, Labor Arbiter Jose G. De Vera
In this case, there is no dismissal of the employees on rendered a Decision8 in favor of the complainant Uson and
account of the merger. Petitioner does not deny that ordering therein respondent Royal Class Venture to
respondent actually continued its normal course of reinstate him to his former position and pay his
operations after the merger, and that its members, as backwages, 13th month pay as well as moral and
employees, resumed their work with their tenure, salaries, exemplary damages and attorney's fees.
wages, and other benefits intact. Petitioner was even able
to execute with respondent, after the merger, the Royal Class Venture, as the losing party, did not file an
Collective Bargaining Agreement from which it anchors its appeal of the decision.9 Consequently, upon Uson's motion,
claims. a Writ of Execution10 dated February 15, 2002 was issued
to implement the Labor Arbiter's decision.
Given these circumstances, petitioner is not entitled to
separation pay. Although the policy of the state is to rule On May 17, 2002, an Alias Writ of Execution11 was issued.
in favor of labor in light of the social justice provisions But with the judgment still unsatisfied, a Second Alias Writ
under the Constitution, this Court cannot unduly trample of Execution12 was issued on September 11, 2002.
upon the rights of management, which are likewise
entitled to respect in the interest of fair play. Again, it was reported in the Sheriff's Return that the
Second Alias Writ of Execution dated September 11, 2002
remained "unsatisfied." Thus, on November 14, 2002,
Uson filed a Motion for Alias Writ of Execution and to Hold
Directors and Officers of Respondent Liable for
Satisfaction of the Decision.13 The motion quoted from a
portion of the Sheriffs Return, which states:
chanRoblesvirtualLawlibrary
On September 12, 2002, the undersigned proceeded at the
stated present business office address of the respondent
which is at Minien East, Sta. Barbara, Pangasinan to serve
the writ of execution. Upon arrival, I found out that the
establishment erected thereat is not [in] the respondent's
name but JOEL and SONS CORPORATION, a family
corporation owned by the Guillermos of which, Jose
Emmanuel F. Guillermo the General Manager of the
respondent, is one of the stockholders who received the
writ using his nickname "Joey," [and who] concealed his
real identity and pretended that he [was] the brother of
Jose, which [was] contrary to the statement of the guard-
on-duty that Jose and Joey [were] one and the same
person. The former also informed the undersigned that
the respondent's (sic) corporation has been dissolved.
On the succeeding day, as per [advice] by the
[complainant's] counsel that the respondent has an
account at the Bank of Philippine Islands Magsaysay
Branch, A.B. Fernandez Ave., Dagupan City, the
undersigned immediately served a notice of garnishment,
thus, the bank replied on the same day stating that the
respondent [does] not have an account with the
branch.14ChanRoblesVirtualawlibrary
On December 26, 2002, Labor Arbiter Irenarco R.
Rimando issued an Order15 granting the motion filed by
Uson. The order held that officers of a corporation are
jointly and severally liable for the obligations of the
corporation to the employees and there is no denial of due
process in holding them so even if the said officers were
not parties to the case when the judgment in favor of the
employees was rendered.16Thus, the Labor Arbiter
pierced the veil of corporate fiction of Royal Class Venture
and held herein petitioner Jose Emmanuel Guillermo
(Guillermo), in his personal capacity, jointly and severally
liable with the corporation for the enforcement of the
claims of Uson.17
Guillermo filed, by way of special appearance, a Motion for
Reconsideration/To Set Aside the Order of December 26,
2002.18 The same, however, was not granted as, this time,
in an Order dated November 24, 2003, Labor Arbiter Niña
Fe S. Lazaga-Rafols sustained the findings of the labor
arbiters before her and even castigated Guillenno for his
unexplained absence in the prior proceedings despite
notice, effectively putting responsibility on Guillermo for
the case's outcome against him.19
On January 5, 2004, Guillermo filed a Motion for
Reconsideration of the above Order,20 but the same was
promptly denied by the Labor Arbiter in an Order dated
January 7, 2004.21
On January 26, 2004, Uson filed a Motion for Alias Writ of
Execution,22 to which Guillermo filed a Comment and
Opposition on April 2, 2004.23
On May 18, 2004, the Labor Arbiter issued an
Order24 granting Uson's Motion for the Issuance of an
Alias Writ of Execution and rejecting Guillermo's
arguments posed in his Comment and Opposition.
Guillermo elevated the matter to the NLRC by filing a
Memorandum of Appeal with Prayer for a (Writ of)
Preliminary Injunction dated June 10, 2004.25cralawred
In a Decision26 dated May 11, 2010, the NLRC dismissed
Guillermo's appeal and denied his prayers for injunction.
On August 20, 2010, Guillermo filed a Petition
for Certiorari27 before the Court of Appeals, assailing the
NLRC decision.
On June 8, 2011, the Court of Appeals rendered its assailed
Decision28 which denied Guillermo's petition and upheld
all the findings of the NLRC.
The appellate court found that summons was in fact
served on Guillermo as President and General Manager of
Royal Class Venture, which was how the Labor Arbiter
acquired jurisdiction over the company.29 But Guillermo
subsequently refused to receive all notices of hearings and
conferences as well as the order to file Royal Class
Venture's position paper.30 Then, it was learned during
execution that Royal Class Venture had been
dissolved.31 However, the Court of Appeals held that
although the judgment had become final and executory, it
may be modified or altered "as when its execution
becomes impossible or unjust."32 It also noted that the
motion to hold officers and directors like Guillermo
personally liable, as well as the notices to hear the same,
was sent to them by registered mail, but no pleadings
were submitted and no appearances were made by
anyone of them during the said motion's pendency.33 Thus,
the court held Guillermo liable, citing jurisprudence that
hold the president of the corporation liable for the latter's
obligation to illegally dismissed employees.34 Finally, the
court dismissed Guillermo's allegation that the case is an
intra-corporate controversy, stating that jurisdiction is
determined by the allegations in the complaint and the
character of the relief sought.35
From the above decision of the appellate court, Guillermo
filed a Motion for Reconsideration36 but the same was
again denied by the said court in the assailed
Resolution37 dated October 7, 2011.
Hence, the instant petition.
Guillermo asserts that he was impleaded in the case only
more than a year after its Decision had become final and
executory, an act which he claims to be unsupported in
law and jurisprudence.38 He contends that the decision
had become final, immutable and unalterable and that any
amendment thereto is null and void.39 Guillermo assails
the so-called "piercing the veil" of corporate fiction which
allegedly discriminated against him when he alone was
belatedly impleaded despite the existence of other
directors and officers in Royal Class Venture.40 He also
claims that the Labor Arbiter has no jurisdiction because
the case is one of an intra-corporate controversy, with the
complainant Uson also claiming to be a stockholder and
director of Royal Class Venture.41
In his Comment,42 Uson did not introduce any new
arguments but merely cited verbatim the disquisitions of
the Court of Appeals to counter Guillermo's assertions in
his petition.
To resolve the case, the Court must confront the issue of
whether an officer of a corporation may be included as
judgment obligor in a labor case for the first time only
after the decision of the Labor Arbiter had become final
and executory, and whether the twin doctrines of
"piercing the veil of corporate fiction" and personal
liability of company officers in labor cases apply.
The petition is denied.
In the earlier labor cases of Claparols v. Court of Industrial
Relations43 and A.C. Ransom Labor Union-CCLU v.
NLRC,44 persons who were not originally impleaded in the
case were, even during execution, held to be solidarity
liable with the employer corporation for the latter's
unpaid obligations to complainant-employees. These
included a newly-formed corporation which was
considered a mere conduit or alter ego of the originally
impleaded corporation, and/or the officers or
stockholders of the latter corporation.45 Liability attached,
especially to the responsible officers, even after final
judgment and during execution, when there was a failure
to collect from the employer corporation the judgment
debt awarded to its workers.46 In Naguiat v. NLRC,47 the
president of the corporation was found, for the first time
on appeal, to be solidarily liable to the dismissed
employees. Then, in Reynoso v. Court of Appeals,48 the veil
of corporate fiction was pierced at the stage of execution,
against a corporation not previously impleaded, when it
was established that such corporation had dominant
control of the original party corporation, which was a
smaller company, in such a manner that the latter's
closure was done by the former in order to defraud its
creditors, including a former worker.
The rulings of this Court in A.C. Ransom, Naguiat,
and Reynoso, however, have since been tempered, at least
in the aspects of the lifting of the corporate veil and the
assignment of personal liability to directors, trustees and
officers in labor cases. The subsequent cases of McLeod v.
NLRC,49Spouses Santos v. NLRC50 and Carag v. NLRC,51 have
all established, save for certain exceptions, the primacy of
Section 3152 of the Corporation Code in the matter of
assigning such liability for a corporation's debts, including
judgment obligations in labor cases. According to these
cases, a corporation is still an artificial being invested by
law with a personality separate and distinct from that of
its stockholders and from that of other corporations to
which it may be connected.53 It is not in every instance of
inability to collect from a corporation that the veil of
corporate fiction is pierced, and the responsible officials
are made liable. Personal liability attaches only when, as
enumerated by the said Section 31 of the Corporation
Code, there is a wilfull and knowing assent to patently
unlawful acts of the corporation, there is gross negligence
or bad faith in directing the affairs of the corporation, or
there is a conflict of interest resulting in damages to the
corporation.54 Further, in another labor case, Pantranco
Employees Association (PEA-PTGWO), et al. v. NLRC, et
al.,55 the doctrine of piercing the corporate veil is held to
apply 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, 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 made personally liable
for corporate liabilities.56 Indeed, in Reahs Corporation v.
NLRC,57 the conferment of liability on officers for a
corporation's obligations to labor is held to be an
exception to the general doctrine of separate personality
of a corporation.
It also bears emphasis that in cases where personal
liability attaches, not even all officers are made
accountable. Rather, only the "responsible officer," i.e., the
person directly responsible for and who "acted in bad
faith" in committing the illegal dismissal or any act
violative of the Labor Code, is held solidarily liable, in
cases wherein the corporate veil is pierced.58 In other
instances, such as cases of so-called corporate tort of a
close corporation, it is the person "actively engaged" in the
management of the corporation who is held liable.59 In the
absence of a clearly identifiable officer(s) directly
responsible for the legal infraction, the Court considers
the president of the corporation as such officer.60
The common thread running among the aforementioned
cases, however, is that the veil of corporate fiction can be
pierced, and responsible corporate directors and officers
or even a separate but related corporation, may be
impleaded and held answerable solidarily in a labor case,
even after final judgment and on execution, so long as it is
established that such persons have deliberately used the
corporate vehicle to unjustly evade the judgment
obligation, or have resorted to fraud, bad faith or malice in
doing so. When the shield of a separate corporate identity
is used to commit wrongdoing and opprobriously elude
responsibility, the courts and the legal authorities in a
labor case have not hesitated to step in and shatter the
said shield and deny the usual protections to the offending
party, even after final judgment. The key element is the
presence of fraud, malice or bad faith. Bad faith, in this
instance, does not connote bad judgment or negligence
but imports a dishonest purpose or some moral obliquity
and conscious doing of wrong; it means breach of a known
duty through some motive or interest or ill will; it partakes
of the nature of fraud.61
As the foregoing implies, there is no hard and fast rule on
when corporate fiction may be disregarded; instead, each
case must be evaluated according to its peculiar
circumstances.62 For the case at bar, applying the above
criteria, a finding of personal and solidary liability against
a corporate officer like Guillermo must be rooted on a
satisfactory showing of fraud, bad
faith or malice, or the presence of any of the justifications
for disregarding the corporate fiction. As stated
in McLeod,63 bad faith is a question of fact and is
evidentiary, so that the records must first bear evidence of
malice before a finding of such may be made.
It is our finding that such evidence exists in the record.
Like the A. C. Ransom, and Naguiat cases, the case at bar
involves an apparent family corporation. As in those two
cases, the records of the present case bear allegations and
evidence that Guillermo, the officer being held liable, is the
person responsible in the actual running of the company
and for the malicious and illegal dismissal of the
complainant; he, likewise, was shown to have a role in
dissolving the original obligor company in an obvious
"scheme to avoid liability" which jurisprudence has
always looked upon with a suspicious eye in order to
protect the rights of labor.64
Part of the evidence on record is the second page of the
verified Position Paper of complainant (herein
respondent) Crisanto P. Uson, where it was clearly alleged
that Uson was "illegally dismissed by the
President/General Manager of respondent corporation
(herein petitioner) Jose Emmanuel P. Guillermo when
Uson exposed the practice of the said President/General
Manager of dictating and undervaluing the shares of stock
of the corporation."65 The statement is proof that
Guillermo was the responsible officer in charge of running
the company as well as the one who dismissed Uson from
employment. As this sworn allegation is uncontroverted -
as neither the company nor Guillermo appeared before
the Labor Arbiter despite the service of summons and
notices - such stands as a fact of the case, and now
functions as clear evidence of Guillermo's bad faith in his
dismissal of Uson from employment, with the motive
apparently being anger at the latter's reporting of
unlawful activities.
Then, it is also clearly reflected in the records that it was
Guillermo himself, as President and General Manager of
the company, who received the summons to the case, and
who also subsequently and without justifiable cause
refused to receive all notices and orders of the Labor
Arbiter that followed.66This makes Guillermo responsible
for his and his company's failure to participate in the
entire proceedings before the said office. The fact is clearly
narrated in the Decision and Orders of the Labor Arbiter,
Uson's Motions for the Issuance of Alias Writs of Execution,
as well as in the Decision of the NLRC and the assailed
Decision of the Court of Appeals,67 which Guillermo did
not dispute in any of his belated motions or pleadings,
including in his petition for certiorari before the Court of
Appeals and even in the petition currently before this
Court.68 Thus, again, the same now stands as a finding of
fact of the said lower tribunals which binds this Court and
which it has no power to alter or revisit.69 Guillermo's
knowledge of the case's filing and existence and his
unexplained refusal to participate in it as the responsible
official of his company, again is an indicia of his bad faith
and malicious intent to evade the judgment of the labor
tribunals.
Finally, the records likewise bear that Guillermo dissolved
Royal Class Venture and helped incorporate a new firm,
located in the same address as the former, wherein he is
again a stockl1older. This is borne by the Sherif11s Return
which reported: that at Royal Class Venture's business
address at Minien East, Sta. Barbara, Pangasinan, there is
a new establishment named "Joel and Sons Corporation,"
a family corporation owned by the Guillermos in which
Jose Emmanuel F. Guillermo is again one of the
stockholders; that Guillermo received the writ of
execution but used the nickname "Joey" and denied being
Jose Emmanuel F. Guillermo and, instead, pretended to be
Jose's brother; that the guard on duty confirmed that Jose
and Joey are one and the same person; and that the
respondent corporation Royal Class Venture had been
dissolved.70 Again, the facts contained in the Sheriffs
Return were not disputed nor controverted by Guillermo,
either in the hearings of Uson's Motions for Issuance of
Alias Writs of Execution, in subsequent motions or
pleadings, or even in the petition before this Court.
Essentially, then, the facts form part of the records and
now stand as further proof of Guillermo's bad faith and
malicious intent to evade the judgment obligation.
The foregoing clearly indicate a pattern or scheme to
avoid the obligations to Uson and frustrate the execution
of the judgment award, which this Court, in the interest of
justice, will not countenance.
As for Guillermo's assertion that the case is an intra-
corporate controversy, the Court sustains the finding of
the appellate court that the nature of an action and the
jurisdiction of a tribunal are determined by the allegations
of the complaint at the time of its filing, irrespective of
whether or not the plaintiff is entitled to recover upon all
or some of the claims asserted therein.71 Although Uson is
also a stockholder and director of Royal Class Venture, it
is settled in jurisprudence that not all conflicts between a
stockholder and the corporation are intra-corporate; an
examination of the complaint must be made on whether
the complainant is involved in his capacity as a
stockholder or director, or as an employee.72 If the latter
is found and the dispute does not meet the test of what
qualities as an intra-corporate controversy, then the case
is a labor case cognizable by the NLRC and is not within
the jurisdiction of any other tribunal.73In the case at bar,
Uson's allegation was that he was maliciously and illegally
dismissed as an Accounting Supervisor by Guillermo, the
Company President and General Manager, an allegation
that was not even disputed by the latter nor by Royal Class
Venture. It raised no intra-corporate relationship issues
between him and the corporation or Guillermo; neither
did it raise any issue regarding the regulation of the
corporation. As correctly found by the appellate court,
Uson's complaint and redress sought were centered alone
on his dismissal as an employee, and not upon any other
relationship he had with the company or with Guillermo.
Thus, the matter is clearly a labor dispute cognizable by
the labor tribunals.chanrobleslaw
WHEREFORE, the petition is DENIED. The Court of
Appeals Decision dated June 8, 2011 and Resolution dated
October 7, 2011 in CA G.R. SP No. 115485 are AFFIRMED.
SO ORDERED.cralawlawlibrary
Velasco, Jr., (Chairperson), Perez, Reyes, and Jardeleza, JJ.,
concur.chanroblesvirtuallawlibrary
FIRST DIVISION
G.R. No. 184666, June 27, 2016
REPUBLIC OF THE PHILIPPINES, Petitioner, v. MEGA
PACIFIC ESOLUTIONS, INC., WILLY U. YU, BONNIE S. YU,
ENRIQUE T. TANSIPEK, ROSITA Y. TANSIPEK, PEDRO O.
TAN, JOHNSON W. FONG, BERNARD I. FONG,
AND *LAURIANO A. BARRIOS, Respondents.
DECISION
SERENO, C.J.:
The instant case is an offshoot of this Court's Decision
dated 13 January 2004 (2004 Decision) in a related case
entitled Information Technology Foundation of the
Philippines v. Commission on Elections.1chanrobleslaw
In the 2004 case, We declared void the automation
contract executed by respondent Mega Pacific eSolutions,
Inc. (MPEI) and the Commission on Elections (COMELEC)
for the supply of automated counting machines (ACMs) for
the 2004 national elections.
The present case involves the attempt of petitioner
Republic of the Philippines to cause the attachment of the
properties owned by respondent MPEI, as well as by its
incorporators and stockholders (individual respondents
in this case), in order to secure petitioner's interest and to
ensure recovery of the payments it made to respondents
for the invalidated automation contract.
At bench is a Rule 45 Petition assailing the Amended
Decision dated 22 September 2008 (Amended Decision)
issued by the Court of Appeals (CA) in CA-G.R. SP No.
95988.2 In said Amended Decision, the CA directed the
remand of the case to the Regional Trial Court of Makati
City, Branch 59 (RTC Makati) for the reception of evidence
in relation to petitioner's application for the issuance of a
writ of preliminary attachment. The CA had reconsidered
and set aside its previous Decision dated 31 January 2008
(First Decision)3 entitling petitioner to the issuance of said
writ.
Summarized below are the relevant facts of the case, some
of which have already been discussed in this Court's 2004
Decision:
The Facts
Republic Act No. 8436 authorized the COMELEC to use an
automated election system for the May 1998 elections.
However, the automated system failed to materialize and
votes were canvassed manually during the 1998 and the
2001 elections.
For the 2004 elections, the COMELEC again attempted to
implement the automated election system. For this
purpose, it invited bidders to apply for the procurement of
supplies, equipment, and services. Respondent MPEI, as
lead company, purportedly formed a joint venture -
known as the Mega Pacific Consortium (MPC) - together
with We Solv, SK C & C, ePLDT, Election.com and Oracle.
Subsequently, MPEI, on behalf of MPC, submitted its bid
proposal to COMELEC.
The COMELEC evaluated various bid offers and
subsequently found MPC and another company eligible to
participate in the next phase of the bidding process.4 The
two companies were referred to the Department of
Science and Technology (DOST) for technical evaluation.
After due assessment, the Bids and Awards Committee
(BAC) recommended that the project be awarded to MPC.
The COMELEC favorably acted on the recommendation
and issued Resolution No. 6074, which awarded the
automation project to MPC.
Despite the award to MPC, the COMELEC
and MPEI executed on 2 June 2003 the Automated
Counting and Canvassing Project Contract (automation
contract)5 for the aggregate amount of P1,248,949,088.
MPEI agreed to supply and deliver 1,991 units of ACMs
and such other equipment and materials necessary for the
computerized electoral system in the 2004 elections.
Pursuant to the automation contract, MPEI delivered
1,991 ACMs to the COMELEC. The latter, for its part, made
partial payments to MPEI in the aggregate amount of
P1.05 billion.
The full implementation of the automation contract was
rendered impossible by the fact that, after a painstaking
legal battle, this Court in its 2004 Decision declared the
contract null and void.6 We held that the COMELEC
committed a clear violation of law and jurisprudence, as
well as a reckless disregard of its own bidding rules and
procedure. In addition, the COMELEC entered into the
contract with inexplicable haste, and without adequately
checking and observing mandatory financial, technical,
and legal requirements. In a subsequent Resolution, We
summarized the COMELEC's grave abuse of discretion as
having consisted of the following:7
1. By a formal Resolution, it awarded the
project to "Mega Pacific Consortium," an
entity that had not participated in the
bidding. Despite this grant, Comelec
entered into the actual Contract with
"Mega Pacific eSolutions, Inc." (MPEI), a
company that joined the bidding process
but did not meet the eligibility
requirements.
2. Comelec accepted and irregularly paid for
MPEI's ACMs that had failed the accuracy
requirement of 99.9995 percent set up by
the Comelec bidding rules. Acknowledging
that this rating could have been too steep,
the Court nonetheless noted that "the
essence of public bidding is violated by the
practice of requiring very high standards
or unrealistic specifications that cannot be
met, x x x only to water them
down after the award is made. Such
scheme, which discourages the entry
of bona fide bidders, is in fact a sure
indication of fraud in the bidding,
designed to eliminate fair competition."
3. The software program of the counting
machines likewise failed to detect
previously downloaded precinct results
and to prevent them from being reentered.
This failure, which has not been corrected
x x x, would have allowed unscrupulous
persons to repeatedly feed into the
computers the results favorable to a
particular candidate, an act that would
have translated into massive election
fraud by just a few key strokes.
4. Neither were the ACMs able to print audit
trails without loss of data - a mandatory
requirement under Section 7 of Republic
Act No. 8436. Audit trails would enable the
Comelec to document the identities of the
ACM operators responsible for data entry
and downloading, as well as the times
when the various data were processed, in
order to forestall fraud and to identify the
perpetrators. The absence of audit trails
would have posed a serious threat to free
and credible elections.
5. Comelec failed to explain satisfactorily
why it had ignored its own bidding rules
and requirements. It admitted that the
software program used to test the ACMs
was merely a "demo" version, and that the
final one to be actually used in the
elections was still being developed. By
awarding the Contract and irregularly
paying for the supply of the ACMs without
having seen — much less, evaluated — the
final product being purchased, Comelec
desecrated the law on public bidding. It
would have allowed the winner to alter its
bid substantially, without any public
bidding.
All in all, Comelec subverted the essence of public bidding:
to give the public an opportunity for fair competition and
a clear basis for a precise comparison of bids.8(Emphasis
supplied)
As a consequence of the nullification of the automation
contract, We directed the Office of the Ombudsman to
determine the possible criminal liability of persons
responsible for the contract.9 This Court likewise directed
the Office of the Solicitor General to protect the
government from the ill effects of the illegal disbursement
of public funds in relation to the automation
contract.10chanrobleslaw
After the declaration of nullity of the automation contract,
the following incidents
transpired:ChanRoblesVirtualawlibrary
1. Private respondents in the 2004 case
moved for reconsideration of the 2004
Decision, but the motion was denied by
this Court in a Resolution dated 17
February 2004 (2004
Resolution).11chanrobleslaw
2. The COMELEC filed a "Most Respectful
Motion for Leave to Use the Automated
Counting Machines in the Custody of the
Commission on Elections for use in the 8
August 2005 Elections in the Autonomous
Region for Muslim Mindanao" dated 9
December 2004 (Motion for Leave to Use
ACMs), which was denied by this Court in
its Resolution dated 15 June 2005 (2005
Resolution).
3. Atty. Romulo B. Macalintal (Macalintal)
filed an "Omnibus Motion for Leave of
Court (1) to Reopen the Case; and (2) to
Intervene and Admit the Attached Petition
in Intervention," which was denied by this
Court in its Resolution dated 22 August
2006 (2006 Resolution);
and cralawlawlibrary
4. Respondent MPEI filed a Complaint for
Damages12 (Complaint) with the RTC
Makati, from which the instant case arose.
The above-mentioned incidents are discussed in more
detail below.
BACKGROUND PROCEEDINGS
Private respondents' Motion for Reconsideration
Private respondents in the 2004 case moved for
reconsideration of the 2004 Decision. Aside from
reiterating the procedural and substantive arguments
they had raised, they also argued that the 2004 Decision
had exposed them to possible criminal
prosecution.13chanrobleslaw
This Court denied the motion in its 2004 Resolution and
ruled that no prejudgment had been made on private
respondents' criminal liability. We further ruled that
although the 2004 Decision stated that the Ombudsman
shall "determine the criminal liability, if any, of the public
officials (and conspiring private individuals, if any)
involved in the subject Resolution and Contract," We did
not make any premature conclusion on any wrongdoing,
but precisely directed the Ombudsman to make that
determination after conducting appropriate proceedings
and observing due process.
Similarly, it appears from the record that several criminal
and administrative Complaints had indeed been filed with
the Ombudsman in relation to the declaration of nullity of
the automation contract.14 The Complaints were filed
against several public officials and the individual
respondents in this case.15chanrobleslaw
In a Resolution issued on 28 June 2006,16 the Ombudsman
recommended the filing of informations before the
Sandiganbayan against some of the public officials and the
individual respondents17 for violation of Section 3(e) of
Republic Act No. 3019 (the Anti-Graft and Corrupt
Practices Act). However, on 27 September 2006,18 upon
reconsideration, the Ombudsman reversed its earlier
ruling in a Supplemental Resolution (September
Resolution), directing the dismissal of the criminal cases
against the public officials, as well as the individual
respondents, for lack of probable cause.19chanrobleslaw
With this development, a Petition for Certiorari was filed
with this Court on 13 October 2006 and docketed as G.R.
No. 174777.20 In the Petition, several
individuals21 assailed the September Resolution of the
Ombudsman finding no probable cause to hold
respondents criminally liable. The case remains pending
with this Court as of this date.
COMELEC's Motion for Leave to Use ACMs in the ARMM
Elections
The COMELEC filed a motion with this Court requesting
permission to use the 1,991 ACMs previously delivered by
respondent MPEI, for the ARMM elections, then slated to
be held on 8 August 2005. In its motion, the COMELEC
claimed that automation of the ARMM elections was
mandated by Republic Act No. 9333, and since the
government had no available funds to finance the
automation of those elections, the ACMs could be utilized
for the 2005 elections.
This Court denied the Motion in Our 2005 Resolution. We
ruled that allowing the use of the ACMs would have the
effect of illegally reversing and subverting a final decision
We had promulgated. We further ruled that the COMELEC
was asking for permission to do what it had precisely been
prohibited from doing under the 2004 Decision. This
Court also ruled that the grant of the motion would bar or
jeopardize the recovery of government funds paid to
respondents. Considering that the COMELEC did not
present any evidence to prove that the defects had been
addressed, We held that the use of the ACMs and the
software would expose the ARMM elections to the same
electoral ills pointed out in the 2004 Decision.
Atty. Macalintal's Omnibus Motion
Atty. Romulo Macalintal sought to reopen the 2004 case in
order that he may be allowed to intervene as a taxpayer
and citizen. His purpose for intervening was to seek
another testing of the ACMs with the ultimate objective of
allowing the COMELEC to use them, this time for the 2007
national elections.
This Court denied his motion in Our 2006 Resolution,
ruling that Atty. Macalintal failed to demonstrate that
certain supervening events and legal circumstances had
transpired to justify the reliefs sought. We in fact found
that, after Our determination that the ACMs had failed to
pass legally mandated technical requirements in 2004,
they were simply put in storage. The ACMs had remained
idle and unused since the last evaluation, at which they
failed to hurdle crucial tests. Consequently, We ruled that
if the ACMs were not good enough for the 2004 national
elections or the 2005 ARMM elections, then neither would
they be good enough for the 2007 national elections,
considering that nothing was done to correct the flaws
that had been previously underscored in the 2004
Decision. We held that granting the motion would be
tantamount to rendering the 2004 Decision totally
ineffective and nugatory.
Moreover, because of our categorical ruling that the whole
bidding process was void and fraudulent, the proposal to
use the illegally procured, demonstratively defective, and
fraud-prone ACMs was rendered nonsensical.
Thus:ChanRoblesVirtualawlibrary
We stress once again that the Contract entered into by the
Comelec for the supply of the ACMs was declared VOID by
the Court in its Decision, because of clear violations of law
and jurisprudence, as well as the reckless disregard by the
Commission of its own bidding rules and procedure. In
addition, the poll body entered into the Contract with
inexplicable haste, without adequately checking and
observing mandatory financial, technical and legal
requirements. As explained in our Decision, Comelec's
gravely abusive acts consisted of the following:
chanRoblesvirtualLawlibraryx x x x conducting the bidding for the election automation
To muddle the issue, Comelec keeps on saying that the
"winning" bidder presented a lower price than the
only other bidder. It ignored the fact that the whole
bidding process was VOID and FRAUDULENT. How
then could there have been a "winning"
bid?22 (Emphasis supplied)
THE INSTANT CASE
Complaint for Damages filed by respondents with the
RTC Makati and petitioner's Answer with Counterclaim,
with an application for a writ of preliminary
attachment, from which the instant case arose
Upon the finality of the declaration of nullity of the
automation contract, respondent MPEI filed a Complaint
for Damages before the RTC Makati, arguing that,
notwithstanding the nullification of the automation
contract, the COMELEC was still bound to pay the amount
of P200,165,681.89. This amount represented the
difference between the value of the ACMs and the support
services delivered on one hand, and on the other, the
payment previously made by the
COMELEC.23chanrobleslaw
Petitioner filed its Answer with Counterclaim24 and
argued that respondent MPEI could no longer recover the
unpaid balance from the void automation contract, since
the payments made were illegal disbursements of public
funds. It contended that a null and void contract vests no
rights and creates no obligations, and thus produces no
legal effect at all. Petitioner further posited that
respondent MPEI could not hinge its claim upon the
principles of unjust enrichment and quasi-contract,
because such presume that the acts by which the authors
thereof become obligated to each other are lawful, which
was not the case herein.25cralawredchanrobleslaw
By way of a counterclaim, petitioner demanded from
respondents the return of the payments made pursuant to
the automation contract.26 It argued that individual
respondents, being the incorporators of MPEI, likewise
ought to be impleaded and held accountable for MPEI's
liabilities. The creation of MPC was, after all, merely an
ingenious scheme to feign eligibility to
bid.27chanrobleslaw
Pursuant to Section 1(d) of Rule 57 of the Rules of Court,
petitioner prayed for the issuance of a writ of preliminary
attachment against the properties of MPEI and individual
respondents. The application was grounded upon the
fraudulent misrepresentation of respondents as to their
eligibility to participate in the bidding for the COMELEC
automation project and the failure of the ACMs to comply
with mandatory technical requirements.28chanrobleslaw
Subsequently, the trial court denied the prayer for the
issuance of a writ of preliminary attachment,29 ruling that
there was an absence of factual allegations as to how the
fraud was actually committed.
The allegations of petitioner were found to be unreliable,
as the latter merely copied from the declarations of the
Supreme Court in Information Technology Foundation of
the Phils, v. COMELEC the factual allegations of MPEI's lack
of qualification and noncompliance with bidding
requirements. The trial court further ruled that the
allegations of fraud on the part of MPEI were not
supported by the COMELEC, the office in charge of
contract. It was likewise held that there was no evidence
that respondents harbored a preconceived plan not to
comply with the obligation; neither was there any
evidence that MPEI's corporate fiction was used to
perpetrate fraud. Thus, it found no sufficient basis to
pierce the veil of corporate fiction or to cause the
attachment of the properties owned by individual
respondents.
Petitioner moved to set aside the trial court's Order
denying the writ of attachment,30 but its motion was
denied.31chanrobleslaw
Appeal before the CA and the First Decision
Aggrieved, petitioner filed an appeal with the CA, arguing
that the trial court had acted with grave abuse of
discretion in denying the application for a writ of
attachment.
As mentioned earlier, the CA in its First
Decision32 reversed and set aside the trial court's Orders
and ruled that there was sufficient basis for the issuance
of a writ of attachment in favor of petitioner.
The appellate court explained that the averments of
petitioner in support of the latter's application actually
reflected pertinent conclusions reached by this Court in its
2004 Decision. It held that the trial court erred in
disregarding the following findings of fact, which
remained unaltered and unreversed: (1) COMELEC
bidding rules provided that the eligibility and capacity of
a bidder may be proved through financial documents
including, among others, audited financial statements for
the last three years; (2) MPEI was incorporated only on 27
February 2003, or 11 days prior to the bidding itself; (3)
in an attempt to disguise its ineligibility, MPEI
participated in the bidding as lead company of MPC, a
putative consortium, and submitted the incorporation
papers and financial statements of the members of the
consortium; and (4) no proof of the joint venture
agreement, consortium agreement, memorandum of
agreement, or business plan executed among the
members of the purported consortium was ever
submitted to the COMELEC.33chanrobleslaw
According to the CA, the foregoing were glaring indicia or
badges of fraud, which entitled petitioner to the issuance
of the writ. It further ruled that there was sufficient reason
to pierce the corporate veil of MPEI. Thus, the CA allowed
the attachment of the properties belonging to both MPEI
and individual respondents.34 The CA likewise ruled that
even if the COMELEC committed grave abuse of discretion
in capriciously disregarding the rules on public bidding,
this should not preclude or deter petitioner from pursuing
its claim against respondents. After all, the State is not
estopped by the mistake of its officers and
employees.35chanrobleslaw
Respondents moved for reconsideration36 of the First
Decision of the CA.
Motion for Reconsideration before the CA and the
Amended Decision
Upon review, the CA reconsidered its First Decision37 and
directed the remand of the case to the RTC Makati for the
reception of evidence of allegations of fraud and to
determine whether attachment should necessarily
issue.38chanrobleslaw
The CA explained in its Amended Decision that
respondents could not be considered to have fostered a
fraudulent intent to dishonor their obligation, since they
had delivered 1,991 units of ACMs.39 It directed petitioner
to present proof of respondents' intent to defraud
COMELEC during the execution of the automation
contract.40 The CA likewise emphasized that the Joint
Affidavit submitted in support of petitioner's application
for the writ contained allegations that needed to be
substantiated.41 It added that proof must likewise be
adduced to verify the requisite fraud that would justify the
piercing of the corporate veil of respondent
MPEI.42chanrobleslaw
The CA further clarified that the 2004 Decision did not
make a definite finding as to the identities of the persons
responsible for the illegal disbursement or of those who
participated in the fraudulent dealings.43 It instructed the
trial court to consider, in its determination of whether the
writ of attachment should issue, the illegal, imprudent and
hasty acts in awarding the automation contract by the
COMELEC. In particular, these acts consisted of: (1)
awarding the automation contract to MPC, an entity that
did not participate in the bidding; and (2) signing the
actual automation contract with respondent MPEI, the
company that joined the bidding without meeting the
eligibility requirement.44chanrobleslaw
Rule 45 Petition before Us
Consequently, petitioner filed the instant Rule 45
Petition,45 arguing that the CA erred in ordering the
remand of the case to the trial court for the reception of
evidence to determine the presence of fraud. Petitioner
contends that this Court's 2004 Decision was sufficient
proof of the fraud committed by respondents in the
execution of the voided automation
contract. Respondents allegedly committed fraud by
46
securing the automation contract, although MPEI was not
qualified to bid in the first place.47 Their claim that the
members of MPC bound themselves to the automation
contract was an indication of bad faith as the contract was
executed by MPEI alone.48 Neither could they deny that
the software submitted during the bidding process was
not the same one that would be used on election
day.49 They could not dissociate themselves from telltale
signs such as purportedly supplying software that later
turned out to be non-existent.50chanrobleslaw
In their respective Comments, respondents Willy Yu,
Bonnie Yu, Enrique Tansipek, and Rosita Tansipek
counter51 that this Court never ruled that individual
respondents were guilty of any fraud or bad faith in
connection with the automation contract, and that it was
incumbent upon petitioner to present evidence on the
allegations of fraud to justify the issuance of the
writ.52They likewise argue that the 2004 Decision cannot
be invoked against them, since petitioner and MPEI were
co-respondents in the 2004 case and not adverse parties
therein.53Respondents further contend that the
allegations of fraud are belied by their actual delivery of
1,991 units of ACMs to the COMELEC, which they claim is
proof that they never had any intention to evade
performance.54chanrobleslaw
They further allege that this Court, in its 2004 Decision,
even recognized that it had not found any wrongdoing on
their part, and that the Ombudsman had already made a
determination that no probable cause existed with respect
to charges of violation of Anti-Graft and Corrupt Practices
Act.55chanrobleslaw
Echoing the other respondents' arguments on the lack of
particularity in the allegations of fraud,56 respondents
MPEI, Johnson Wong, Bernard Fong, Pedro Tan, and
Lauriano Barrios likewise argue that they were not parties
to the 2004 case; thus, the 2004 Decision thereon is not
binding on them.57 Individual respondents likewise argue
that the findings of fact in the 2004 Decision were not
conclusive,58 considering that eight (8) of the fifteen (15)
justices allegedly refused to go along with the factual
findings as stated in the majority opinion.59Thereafter,
petitioner filed its Reply to the
Comments.60chanrobleslaw
Based on the submissions of both parties, the following
issues are presented to this Court for resolution:
1. Whether petitioner has sufficiently established
fraud on the part of respondents to justify the
issuance of a writ of preliminary attachment in its
favor; and cralawlawlibrary
2. Whether a writ of preliminary attachment may be
issued against the properties of individual
respondents, considering that they were not
parties to the 2004 case.
The Court's Ruling
The Petition is meritorious. A writ of preliminary
attachment should issue in favor of petitioner over the
properties of respondents MPEI, Willy Yu (Willy) and the
remaining individual respondents, namely: Bonnie S. Yu
(Bonnie), Enrique T. Tansipek (Enrique), Rosita Y.
Tansipek (Rosita), Pedro O. Tan (Pedro), Johnson W. Fong
(Johnson), Bernard I. Fong (Bernard), and Lauriano
Barrios (Lauriano). The bases for the writ are the
following:
1. Fraud on the part of respondent MPEI was
sufficiently established by the factual findings of
this Court in its 2004 Decision and subsequent
pronouncements.
2. A writ of preliminary attachment may issue over
the properties of the individual respondents using
the doctrine of piercing the corporate veil.
3. The factual findings of this Court that have become
final cannot be modified or altered, much less
reversed, and are controlling in the instant case.
4. The delivery of 1,991 units of ACMs does not
negate fraud on the part of respondents MPEI and
Willy.
5. Estoppel does not lie against the state when it acts
to rectify mistakes, errors or illegal acts of its
officials and agents.
6. The findings of the Ombudsman are not
controlling in the instant case.
DISCUSSION
I.
Fraud on the part of respondent MPEI was sufficiently
established by the factual findings of this Court in the
latter's 2004 Decision and subsequent
pronouncements.
Petitioner argues that the findings of this Court in the
2004 Decision serve as sufficient basis to prove that, at the
time of the execution of the automation contract, there
was fraud on the part of respondents that justified the
issuance of a writ of attachment. Respondents, however,
argue the contrary. They claim that fraud had not been
sufficiently established by petitioner.
We rule in favor of petitioner. Fraud on the part of
respondents MPEI and Willy, as well as of the other
individual respondents — Bonnie, Enrique, Rosita, Pedro,
Johnson, Bernard, and Lauriano — has been established.
A writ of preliminary attachment is a provisional remedy
issued upon the order of the court where an action is
pending. Through the writ, the property or properties of
the defendant may be levied upon and held thereafter by
the sheriff as security for the satisfaction of whatever
judgment might be secured by the attaching creditor
against the defendant.61 The provisional remedy of
attachment is available in order that the defendant may
not dispose of the property attached, and thus prevent the
satisfaction of any judgment that may be secured by the
plaintiff from the former.62chanrobleslaw
The purpose and function of an attachment or
garnishment is twofold. First, it seizes upon property of an
alleged debtor in advance of final judgment and holds it
subject to appropriation, thereby preventing the loss or
dissipation of the property through fraud or other means.
Second, it subjects the property of the debtor to the
payment of a creditor's claim, in those cases in which
personal service upon the debtor cannot be
obtained.63 This remedy is meant to secure a contingent
lien on the defendant's property until the plaintiff can, by
appropriate proceedings, obtain a judgment and have the
property applied to its satisfaction, or to make some
provision for unsecured debts in cases in which the means
of satisfaction thereof are liable to be removed beyond the
jurisdiction, or improperly disposed of or concealed, or
otherwise placed beyond the reach of
creditors.64chanrobleslaw
Petitioner relied upon Section 1(d), Rule 57 of the Rules of
Court as basis for its application for a writ of preliminary
attachment. This provision
states:ChanRoblesVirtualawlibrary
Section 1. Grounds upon which attachment may issue. At
the commencement of the action or at any time before
entry of judgment, a plaintiff or any proper party may
have the property of the adverse party attached as
security for the satisfaction of any judgment that may be
recovered in the following cases:
chanRoblesvirtualLawlibrary
xxxx
(d) In an action against a party who has been guilty of
a fraud in contracting the debt or incurring the
obligation upon which the action is brought, or in
theperformance thereof. (Emphasis supplied)
For a writ of preliminary attachment to issue under the
above-quoted rule, the applicant must sufficiently show
the factual circumstances of the alleged fraud.65 In Metro,
Inc. v. Lara's Gift and Decors, Inc.,66 We
explained:ChanRoblesVirtualawlibrary
To sustain an attachment on this ground, it must be shown
that the debtor in contracting the debt or incurring the
obligation intended to defraud the creditor. The fraud
must relate to the execution of the agreement and
must have been the reason which induced the other
party into giving consent which he would not have
otherwise given. To constitute a ground for attachment
in Section 1(d), Rule 57 of the Rules of Court, fraud should
be committed upon contracting the obligation sued upon.
A debt is fraudulently contracted if at the time of
contracting it the debtor has a preconceived plan or
intention not to pay, as it is in this case. x x x.
The applicant for a writ of preliminary attachment must
sufficiently show the factual circumstances of the alleged
fraud because fraudulent intent cannot be inferred from
the debtor's mere non-payment of the debt or failure to
comply with his obligation. (Emphasis supplied)
An amendment to the Rules of Court added the phrase "in
the performance thereof" to include within the scope of
the grounds for issuance of a writ of preliminary
attachment those instances relating to fraud in the
performance of the obligation.67chanrobleslaw
Fraud is a generic term that is used in various senses and
assumes so many different degrees and forms that courts
are compelled to content themselves with comparatively
few general rules for its discovery and defeat. For the
same reason, the facts and circumstances peculiar to each
case are allowed to bear heavily on the conscience and
judgment of the court or jury in determining the presence
or absence of fraud. In fact, the fertility of man's invention
in devising new schemes of fraud is so great that courts
have always declined to define it, thus, reserving for
themselves the liberty to deal with it in whatever form it
may present itself.68chanrobleslaw
Fraud may be characterized as the voluntary execution of
a wrongful act or a wilful omission, while knowing and
intending the effects that naturally and necessarily arise
from that act or omission.69 In its general sense, fraud is
deemed to comprise anything calculated to deceive—
including all acts and omission and concealment involving
a breach of legal or equitable duty, trust, or confidence
justly reposed—resulting in damage to or in undue
advantage over another.70 Fraud is also described as
embracing all multifarious means that human ingenuity
can device, and is resorted to for the purpose of securing
an advantage over another by false suggestions or by
suppression of truth; and it includes all surprise, trick,
cunning, dissembling, and any other unfair way by which
another is cheated.71chanrobleslaw
While fraud cannot be presumed, it need not be proved by
direct evidence and can well be inferred from attendant
circumstances.72 Fraud by its nature is not a thing
susceptible of ocular observation or readily demonstrable
physically; it must of necessity be proved in many cases by
inferences from circumstances shown to have been
involved in the transaction in question.73chanrobleslaw
In the case at bar, petitioner has sufficiently discharged
the burden of demonstrating the commission of fraud by
respondent MPEI in the execution of the automation
contract in the two ways that were enumerated earlier
and discussed below:

chanRoblesvirtualLawlibraryA. Respondent MPEI had
perpetrated a scheme against petitioner to secure the
automation contract by using MPC as supposed bidder
and eventually succeeding in signing the automation
contract as MPEI alone, an entity which was ineligible
to bid in the first place.
To avoid any confusion relevant to the basis of fraud, We
quote herein the pertinent portions of this Court's 2004
Decision with regard to the identity, existence, and
eligibility of MPC as bidder:74
On the question of the identity and the existence of the real
bidder, respondents insist that, contrary to petitioners'
allegations, the bidder was not Mega Pacific eSolutions,
Inc. (MPEI), which was incorporated only on February
27, 2003, or 11 days prior to the bidding itself. Rather,
the bidder was Mega Pacific Consortium (MPC), of which
MPEI was but a part. As proof thereof, they point to the
March 7, 2003 letter of intent to bid, signed by the
president of MPEI allegedly for and on behalf of MPC. They
also call attention to the official receipt issued to MPC,
acknowledging payment for the bidding documents, as
proof that it was the "consortium" that participated in the
bidding process.
We do not agree. The March 7, 2003 letter, signed by only
one signatory — "Willy U. Yu, President, Mega Pacific
eSolutions, Inc., (Lead Company/Proponent) For: Mega
Pacific Consortium" — and without any further proof,
does not by itself prove the existence of the consortium. It
does not show that MPEI or its president have been duly
pre-authorized by the other members of the putative
consortium to represent them, to bid on their collective
behalf and, more important, to commit them jointly and
severally to the bid undertakings. The letter is purely self-
serving and uncorroborated.
Neither does an official receipt issued to MPC,
acknowledging payment for the bidding documents,
constitute proof that it was the purported consortium that
participated in the bidding. Such receipts are issued by
cashiers without any legally sufficient inquiry as to the
real identity or existence of the supposed payor.
To assure itself properly of the due existence (as well as
eligibility and qualification) of the putative consortium,
Comelec's BAC should have examined the bidding
documents submitted on behalf of MPC. They would have
easily discovered the following fatal flaws.
x x x x
The Eligibility Envelope was to contain legal
documents such as articles of incorporation, x x x to
establish the bidder's financial capacity.
In the case of a consortium or joint venture desirous of
participating in the bidding, it goes without saying that the
Eligibility Envelope would necessarily have to include a
copy of the joint venture agreement, the consortium
agreement or memorandum of agreement — or a business
plan or some other instrument of similar import —
establishing the due existence, composition and scope of
such aggrupation. Otherwise, how would Comelec know
who it was dealing with, and whether these parties are
qualified and capable of delivering the products and
services being offered for bidding?
In the instant case, no such instrument was submitted
to Comelec during the bidding process. x x x
x x x x
However, there is no sign whatsoever of any joint
venture agreement, consortium agreement,
memorandum of agreement, or business plan
executed among the members of the purported
consortium.
The only logical conclusion is that no such agreement
was ever submitted to the Comelec for its
consideration, as part of the bidding process.
It thus follows that, prior the award of the Contract,
there was no documentary or other basis for Comelec
to conclude that a consortium had actually been
formed amongst MPEI, SK C&C and WeSolv, along with
Election.com and ePLDT. Neither was there anything to
indicate the exact relationships between and among these
firms; their diverse roles, undertakings and prestations, if
any, relative to the prosecution of the project, the extent
of their respective investments (if any) in the supposed
consortium or in the project; and the precise nature and
extent of their respective liabilities with respect to the
contract being offered for bidding. And apart from the self-
serving letter of March 7, 2003, there was not even any
indication that MPEI was the lead company duly
authorized to act on behalf of the others.
x x x x
Hence, had the proponent MPEI been evaluated based
solely on its own experience, financial and
operational track record or lack thereof, it would
surely not have qualified and would have been
immediately considered ineligible to bid, as
respondents readily admit.
x x x x
At this juncture, one might ask: What, then, if there are
four MOAs instead of one or none at all? Isn't it enough
that there are these corporations coming together to carry
out the automation project? Isn't it true, as respondent
aver, that nowhere in the RFP issued by Comelec is it
required that the members of the joint venture execute a
single written agreement to prove the existence of a joint
venture. x x x
x x x x
The problem is not that there are four agreements instead
of only one. The problem is that Comelec never bothered to
check. It never based its decision on documents or other
proof that would concretely establish the existence of the
claimed consortium or joint venture or agglomeration.
x x x x
True, copies of financial statements and incorporation
papers of the alleged "consortium" members were
submitted. But these papers did not establish the
existence of a consortium, as they could have been
provided by the companies concerned for purposes other
than to prove that they were part of a consortium or joint
venture.
x x x x
In brief, despite the absence of competent proof as to
the existence and eligibility of the alleged consortium
(MPC), its capacity to deliver on the Contract, and the
members' joint and several liability therefor, Comelec
nevertheless assumed that such consortium existed
and was eligible. It then went ahead and considered
the bid of MPC, to which the Contract was eventually
awarded, in gross violation of the former's own
bidding rules and procedures contained in its RFP.
Therein lies Comclec's grave abuse of discretion.
Sufficiency of the Four Agreements
Instead of one multilateral agreement executed by, and
effective and binding on, all the five "consortium
members" — as earlier claimed by Commissioner Tuason
in open court — it turns out that what was actually
executed were four (4) separate and distinct bilateral
Agreements. Obviously, Comelec was furnished copies
of these Agreements only after the bidding process
had been terminated, as these were not included in
the Eligibility Documents. x x x
x x x x
At this point, it must be stressed most vigorously that
the submission of the four bilateral Agreements to
Comelec after the end of the bidding process did
nothing to eliminate the grave abuse of discretion it
had already committed on April 15, 2003.
Deficiencies Have Not Been "Cured"
In any event, it is also claimed that the automation
Contract awarded by Comelec incorporates all documents
executed by the "consortium" members, even if these
documents are not referred to therein. x x x
x x x x
Thus, it is argued that whatever perceived deficiencies
there were in the supplementary contracts - those entered
into by MPEI and the other members of the "consortium"
as regards their joint and several undertakings — have
been cured. Better still, such deficiencies have supposedly
been prevented from arising as a result of the above-
quoted provisions, from which it can be immediately
established that each of the members of MPC assumes the
same joint and several liability as the other members.
The foregoing argument is unpersuasive. First, the
contract being referred to, entitled "The Automated
Counting and Canvassing Project Contract," is
between Comelec and MPEI, not the alleged
consortium, MPC. To repeat, it is MPEI - not MPC - that
is a party to the Contract. Nowhere in that Contract is
there any mention of a consortium or joint venture, of
members thereof, much less of joint and several
liability. Supposedly executed sometime in May 2003,
the Contract bears a notarization date of June 30, 2003,
and contains the signature of Willy U. Yu signing as
president of MPEI (not for and on behalf of MPC),
along with that of the Comelec chair. It provides in
Section 3.2 that MPEI (not MPC) is to supply the
Equipment and perform the Services under the
Contract, in accordance with the appendices thereof;
nothing whatsoever is said about any consortium or
joint venture or partnership.
xxxx
Eligibility of a Consortium Based on the Collective
Qualifications of Its Members
Respondents declare that, for purposes of assessing the
eligibility of the bidder, the members of MPC should be
evaluated on a collective basis. Therefore, they contend,
the failure of MPEI to submit financial statements (on
account of its recent incorporation) should not by
itself disqualify MPC, since the other members of the
"consortium" could meet the criteria set out in the
RFP.
x x x x
Unfortunately, this argument seems to assume that the
"collective" nature of the undertaking of the members of
MPC, their contribution of assets and sharing of risks, and
the "community" of their interest in the performance of
the Contract entitle MPC to be treated as a joint venture or
consortium; and to be evaluated accordingly on the basis
of the members' collective qualifications when, in fact, the
evidence before the Court suggest otherwise.
x x x x
Going back to the instant case, it should be recalled
that the automation Contract with Comelec was not
executed by the "consortium" MPC - or by MPEI for
and on behalf of MPC - but by MPEI, period. The said
Contract contains no mention whatsoever of any
consortium or members thereof. This fact alone
seems to contradict all the suppositions about a joint
undertaking that would normally apply to a joint
venture or consortium: that it is a commercial
enterprise involving a community of interest, a
sharing of risks, profits and losses, and so on.
x x x x
To the Court, this strange and beguiling arrangement of
MPEI with the other companies does not qualify them to
be treated as a consortium or joint venture, at least of the
type that government agencies like the Comelec should be
dealing with. With more reason is it unable to agree to the
proposal to evaluate the members of MPC on a collective
basis. (Emphases supplied)
These findings found their way into petitioner's
application for a writ of preliminary attachment,75 in
which it claimed the following as bases for fraud: (1)
respondents committed fraud by securing the election
automation contract and, in order to perpetrate the fraud,
by misrepresenting the actual bidder as MPC and MPEI as
merely acting on MPC's behalf; (2) while knowing that
MPEI was not qualified to bid for the automation contract,
respondents still signed and executed the contract; and
(3) respondents acted in bad faith when they claimed that
they had bound themselves to the automation contract,
because it was not executed by MPC—or by MPEI on
MPC's behalf—but by MPEI alone.76chanrobleslaw
We agree with petitioner that respondent MPEI
committed fraud by securing the election automation
contract; and, in order to perpetrate the fraud, by
misrepresenting that the actual bidder was MPC and not
MPEI, which was only acting on behalf of MPC. We
likewise rule that respondent MPEI has defrauded
petitioner, since the former still executed the automation
contract despite knowing that it was not qualified to bid
for the same.
The established facts surrounding the eligibility,
qualification and existence of MPC — and of MPEI for that
matter — and the subsequent execution of the automation
contract with the latter, when all taken together,
constitute badges of fraud that We simply cannot ignore.
MPC was considered an illegitimate entity, because its
existence as a joint venture had not been established.
Notably, the essential document/s that would have shown
its eligibility as a joint venture/consortium were not
presented to the COMELEC at the most opportune time,
that is, during the qualification stage of the bidding
process. The concealment by respondent MPEI of the
essential documents showing its eligibility to bid as part a
joint venture is too obvious to be missed. How could it not
have known that the very document showing MPC as a
joint venture should have been included in their eligibility
envelope?
Likewise notable is the fact that these supposed
agreements, allegedly among the supposed consortium
members, were belatedly provided to the
COMELEC after the bidding process had been terminated;
these were not included in the Eligibility Documents
earlier submitted by MPC. Similarly, as found by this Court,
these documents did not prove any joint venture
agreement among the parties in the first place, but were
actually individual agreements executed by each member
of the supposed consortium with respondent MPEI.
More startling to the dispassionate mind is the
incongruence between the supposed actual bidder MPC,
on one hand, and, on the other, respondent MPEI, which
executed the automation contract. Significantly,
respondent MPEI was not even eligible and qualified to
bid in the first place; and yet, the automation contract
itself was executed and signed singly by respondent MPEI,
not on behalf of the purported bidder MPC, without any
mention whatsoever of the members of the supposed
consortium.
From these established facts, We can surmise that in order
to secure the automation contract, respondent MPEI
perpetrated a scheme against petitioner by using MPC as
supposed bidder and eventually succeeding in signing the
automation contract as MPEI alone. Worse, it was
respondent MPEI alone, an entity that was ineligible to bid
in the first place, that eventually executed the automation
contract.
To a reasonable mind, the entire situation reeks of fraud,
what with the misrepresentation of identity and
misrepresentation as to creditworthiness. It is in these
kinds of fraudulent instances, when the ability to abscond
is greatest, to which a writ of attachment is precisely
responsive.
Further, the failure to attach the eligibility documents is
tantamount to failure on the part of respondent MPEI to
disclose material facts. That omission constitutes fraud.
Pursuant to Article 1339 of the Civil Code,77 silence or
concealment does not, by itself, constitute fraud, unless
there is a special duty to disclose certain facts, or unless
the communication should be made according to good
faith and the usages of commerce.78chanrobleslaw
Fraud has been defined to include an inducement through
insidious machination. Insidious machination refers to a
deceitful scheme or plot with an evil or devious purpose.
Deceit exists where the party, with intent to
deceive, conceals or omits to state material facts and,
by reason of such omission or concealment, the other
party was induced to give consent that would not
otherwise have been given.79chanrobleslaw
One form of inducement is covered within the scope of the
crime of estafa under Article 315, paragraph 2, of the
Revised Penal Code, in which, any person who defrauds
another by using fictitious name, or falsely pretends to
possess power, influence, qualifications, property, credit,
agency, business or imaginary transactions, or by means
of similar deceits executed prior to or simultaneously with
the commission of fraud is held criminally liable. In Joson
v. People,80 this Court explained the element of
defraudation by means of deceit, by giving a definition of
fraud and deceit, in this wise:ChanRoblesVirtualawlibrary
What needs to be determined therefore is whether or not
the element of defraudation by means of deceit has been
established beyond reasonable doubt.
In the case of People v. Menil, Jr., the Court has defined
fraud and deceit in this
wise:ChanRoblesVirtualawlibrary
Fraud, in its general sense, is deemed to comprise
anything calculated to deceive, including all acts,
omissions, and concealment involving a breach of legal or
equitable duty, trust, or confidence justly reposed,
resulting in damage to another, or by which an undue and
unconscientious advantage is taken of another. It is a
generic term embracing all multifarious means which
human ingenuity can devise, and which are resorted to by
one individual to secure an advantage over another by
false suggestions or by suppression of truth and includes
all surprise, trick, cunning, dissembling and any unfair
way by which another is cheated. On the other hand,
deceit is the false representation of a matter of fact,
whether by words or conduct, by false or misleading
allegations, or by concealment of that which should
have been disclosed which deceives or is intended to
deceive another so that he shall act upon it to his legal
injury. (Emphases supplied)
For example, in People v. Comila,81 both accused-
appellants therein represented themselves to the
complaining witnesses to have the capacity to send them
to Italy for employment, even as they did not have the
authority or license for the purpose. It was such
misrepresentation that induced the complainants to part
with their hard-earned money for placement and medical
fees. Both accused-appellants were criminally held liable
for estafa.
In American jurisprudence, fraud may be predicated on a
false introduction or identification.82 In Union Co. v.
Cobb,83 the defendant therein procured the merchandise
by misrepresenting that she was Mrs. Taylor Ray and at
another time she was Mrs. Ben W. Chiles, and she forged
their name on charge slips as revealed by the exhibits of
the plaintiff. The sale of the merchandise was induced by
these representations, resulting in injury to the plaintiff.
In Raser v. Moomaw,84 it was ruled that the essential
elements necessary to constitute actionable fraud and
deceit were present in the complaint. It was alleged that,
to induce plaintiff to procure a loan, defendant introduced
him to a woman who was falsely represented to be Annie
L. Knowles of Seattle, Washington, the owner of the
property, and that plaintiff had no means of ascertaining
her true identity. On the other hand, defendant knew, or in
the exercise of reasonable caution should have known,
that she was an impostor, and that plaintiff relied on the
representations, induced his client to make the loan, and
had since been compelled to repay it. In the same case, the
Court ruled that false representations as to the identity of
a person are actionable, if made to induce another to act
thereon, and such other does so act thereon to his
prejudice.85chanrobleslaw
In this case, analogous to the fraud and deceit exhibited in
the above-mentioned circumstances, respondent MPEI
had no excuse not to be forthright with the documents
showing MPC's eligibility to bid as a joint venture. The
Invitation to Bid, as quoted in our 2004 Decision, could not
have been any clearer when it stated that only bids from
qualified entities, such as a joint venture, would be
entertained:ChanRoblesVirtualawlibrary
INVITATION TO APPLY FOR ELIGIBILITY AND TO BID
The Commission on Elections (COMELEC), pursuant to the
mandate of Republic Act Nos. 8189 and 8436, invites
interested offerers, vendors, suppliers or lessors to apply
for eligibility and to bid for the procurement by purchase,
lease, lease with option to purchase, or otherwise,
supplies, equipment, materials and services needed for a
comprehensive Automated Election System, consisting of
three (3) phases: (a) registration/verification of voters,
(b) automated counting and consolidation of votes, and (c)
electronic transmission of election results, with an
approved budget of TWO BILLION FIVE HUNDRED
MILLION (Php2,500,000,000) Pesos.
Only bids from the following entities shall be
entertained:
x x x x
d. Manufacturers, suppliers and/or distributors
forming themselves into a joint venture, i.e., a group of
two (2) or more manufacturers, suppliers and/or
distributors that intend to be jointly and severally
responsible or liable for a particular contract,
provided that Filipino ownership thereof shall be at
least sixty percent (60%); and cralawlawlibrary
e. Cooperatives duly registered with the Cooperatives
Development Authority.86 (Emphases supplied)
No reasonable mind would argue that documents showing
the very existence of a joint venture need not be included
in the bidding envelope showing its existence,
qualification, and eligibility to undertake the project,
considering that the purpose of prequalification in any
public bidding is to determine, at the earliest opportunity,
the ability of the bidder to undertake the
project.87chanrobleslaw
As found by this Court in its 2004 Decision, it appears that
the documents that were submitted after the bidding,
which respondents claimed would prove the existence of
the relationship among the members of the consortium,
were actually separate agreements individually executed
by the supposed members with MPEI. We had ruled that
these documents were highly irregular, considering that
each of the four different and separate bilateral
Agreements was valid and binding only between MPEI
and the other contracting party, leaving the other
"consortium" members total strangers thereto.
Consequently, the other consortium members had
nothing to do with one another, as each one dealt only
with MPEI.88chanrobleslaw
Considering that they merely showed MPEI's individual
agreements with the other supposed members, these
agreements confirm to our mind the fraudulent intent on
the part of respondent MPEI to deceive the relevant
officials about MPC. The intent was to cure the deficiency
of the winning bid, which intent miserably failed. Said this
Court:89
We are unconvinced, PBAC was guided by the rules,
regulations or guidelines existing before the bid proposals
were opened on November 10, 1989. The basic rule in
public bidding is that bids should be evaluated based
on the required documents submitted before and not
after the opening of bids. Otherwise, the foundation of
a fair and competitive public bidding would be
defeated. Strict observance of the rules, regulations,
and guidelines of the bidding process is the only
safeguard to a fair, honest and competitive public
bidding.
In underscoring the Court's strict application of the
pertinent rules, regulations and guidelines of the public
bidding process, We have ruled in C & C Commercial vs.
Menor (L-28360, January 27, 1983, 120 SCRA 112), that
Nawasa properly rejected a bid of C & C Commercial to
supply asbestos cement pressure which bid did not
include a tax clearance certificate as required by
Administrative Order No. 66 dated June 26, 1967. In Caltex
(Phil.) Inc., et. al. vs. Delgado Brothers, Inc. et. al., (96 Phil.
368, 375), We stressed that public biddings are held for the
protection of the public and the public should be given the
best possible advantages by means of open competition
among the bidders.
x x x x
INTER TECHNICAL's failure to comply with what is
perceived to be an elementary and customary
practice in a public bidding process, that is, to enclose
the Form of Bid in the original and eight separate
copies of the bidding documents submitted to the
bidding committee is fatal to its cause. All the four pre-
qualified bidders which include INTER TECHNICAL were
subject to Rule IB 2.1 of the Implementing Rules and
Regulations of P.D. 1594 in the preparation of bids, bid
bonds, and pre-qualification statement and Rule IB 2.8
which states that the Form of Bid, among others, shall
form part of the contract. INTER TECHNICAL's
explanation that its bid form was inadvertently left in the
office (p. 6, Memorandum for Private Respondent, p.
355, Rollo) will not excuse compliance with such a simple
and basic requirement in the public bidding process
involving a multi-million project of the
Government. There should be strict application of the
pertinent public bidding rules, otherwise the
essential requisites of fairness, good faith, and
competitiveness in the public bidding process would
be rendered meaningless. (Emphases supplied)
All these circumstances, taken together, reveal a scheme
on the part of respondent MPEI to perpetrate fraud
against the government. The purpose of the scheme was
to ensure that MPEI, an entity that was ineligible to bid in
the first place, would eventually be awarded the contract.
While respondent argues that it was merely a passive
participant in the bidding process, We cannot ignore its
cavalier disregard of its participation in the now voided
automation contract.
B. Fraud on the part of respondent MPEI was further
shown by the fact that despite the failure of its ACMs to
pass the tests conducted by the DOST, respondent still
acceded to being awarded the automation contract.
Another token of fraud is established by Our findings in
relation to the failure of the ACMs to pass the tests of the
DOST. We quote herein the pertinent portions of this
Court's 2004 Decision in relation
thereto:ChanRoblesVirtualawlibrary
After respondent "consortium" and the other bidder, TIM,
had submitted their respective bids on March 10, 2003,
the Comelec's BAC — through its Technical Working
Group (TWG) and the DOST — evaluated their technical
proposals.
x x x x
According to respondents, it was only after the TWG and
the DOST had conducted their separate tests and
submitted their respective reports that the BAC, on the
basis of these reports formulated its
comments/recommendations on the bids of the
consortium and TIM.
The BAG, in its Report dated April 21, 2003, recommended
that the Phase II project involving the acquisition of
automated counting machines be awarded to MPEI. x x x
x x x x
The BAC, however, also stated on page 4 of its Report:
"Based on the 14 April 2003 report (Table 6) of the
DOST, it appears that both Mega-Pacific and TIM (Total
Information Management Corporation) failed to meet
some of the requirements. x x x
xxxx
Failure to Meet the Required Accuracy Rating
The first of the key requirements was that the counting
machines were to have an accuracy rating of at least
99.9995 percent. The BAC Report indicates that both
Mega Pacific and TIM failed to meet this standard.
The key requirement of accuracy rating happens to be
part and parcel of the Comelec's Request for Proposal
(RFP). x x x operators), the date and time the canvass data were
x x x x
x x x Whichever accuracy rating is the right standard —
whether 99.995 or 99.9995 percent — the fact remains that
the machines of the so-called "consort him" failed to even
reach the lesser of the two. On this basis alone, it ought to
have been disqualified and its bid rejected outright.
At this point, the Court stresses that the essence of
public bidding is violated by the practice of requiring
very high standards or unrealistic specifications that
cannot be met — like the 99.9995 percent accuracy
rating in this case — only to water them
down after the bid has been award.[sic] Such scheme,
which discourages the entry of prospective bona
fide bidders, is in fact a sure indication of fraud in the
bidding, designed to eliminate fair competition.
Certainly, if no bidder meets the mandatory
requirements, standards or specifications, then no
award should be made and a failed bidding declared.
x x x x
Failure of Software to Detect Previously Downloaded Data
Furthermore, on page 6 of the BAC Report, it appears
that the "consortium" as well as TIM failed to meet
another key requirement — for the counting
machine's software program to be able to detect
previously downloaded precinct results and to prevent
these from being entered again into the counting
machine. This same deficiency on the part of both bidders
reappears on page 7 of the BAC Report, as a result of the
recurrence of their failure to meet the said key
requirement.
That the ability to detect previously downloaded data at
different canvassing or consolidation levels is deemed of
utmost importance can be seen from the fact that it is
repeated three times in the RFP. x x x.
Once again, though, Comelec chose to ignore this crucial
deficiency, which should have been a cause for the gravest
concern. x x x.
xxxx
Inability to Print the Audit Trail
But that grim prospect is not all. The BAC Report, on pages
6 and 7, indicate that the ACMs of both bidders were
unable to print the audit trail without any loss of data. In
the case of MPC, the audit trail system was "not yet
incorporated" into its ACMs.
x x x x
Thus, the RFP on page 27 states that the ballot counting
machines and ballot counting software must print an
audit trail of all machine operations for
documentation and verification purposes.
Furthermore, the audit trail must be stored on the internal
storage device and be available on demand for future
printing and verifying. On pages 30-31, the RFP also
requires that the city/municipal canvassing system
software be able to print an audit trail of the
canvassing operations, including therein such data as
the date and time the canvassing program was started, the
log-in of the authorized users (the identity of the machine
downloaded into the canvassing system, and so on and so
forth. On page 33 of the RFP, we find the same audit trail
requirement with respect to
the provincial/district canvassing system software; and
again on pages 35-36 thereof, the same audit trail
requirement with respect to the national canvassing
system software.
x x x x
The said provision which respondents have quoted
several times, provides that ACMs are to possess certain
features divided into two classes: those that the statute
itself considers mandatory and other features or
capabilities that the law deems optional. Among those
considered mandatory are "provisions for audit
trails"! x x x.
In brief, respondents cannot deny that the provision
requiring audit trails is indeed mandatory,
considering the wording of Section 7 of RA
8436. Neither can Respondent Comelec deny that it has
relied on the BAC Report, which indicates that the
machines or the software was deficient in that respect.
And yet, the Commission simply disregarded this
shortcoming and awarded the Contract to private
respondent, thereby violating the very law it was
supposed to implement.90 (Emphases supplied)
The above-mentioned findings were further echoed by
this Court in its 2006 Resolution with a categorical
conclusion that the bidding process was void and
fraudulent.91chanrobleslaw
Again, these factual findings found their way into the
application of petitioner for a writ of preliminary
attachment,92 as it claimed that respondents could not
dissociate themselves from their telltale acts of supplying
defective machines and nonexistent software.93 The latter
offered no defense in relation to these claims.
We see no reason to deviate from our finding of fraud on
the part of respondent MPEI in the 2004 Decision and
2006 Resolution. Despite its failure to meet the mandatory
requirements set forth in the bidding procedure,
respondent still acceded to being awarded the contract.
These circumstances reveal its ploy to gain undue
advantage over the other bidders in general, even to the
extent of cheating the government.
The word "bidding" in its comprehensive sense means
making an offer or an invitation to prospective contractors,
whereby the government manifests its intention to make
proposals for the purpose of securing supplies, materials,
and equipment for official business or public use, or for
public works or repair.94 Three principles involved in
public bidding are as follows: (1) the offer to the public;
(2) an opportunity for competition, and (3) a basis for an
exact comparison of bids. A regulation of the matter,
which excludes any of these factors, destroys the
distinctive character of the system and thwarts the
purpose of its adoption.95chanrobleslaw
In the instant case, We infer from the circumstances that
respondent MPEI welcomed and allowed the award of the
automation contract, as it executed the contract despite
the full knowledge that it had not met the mandatory
requirements set forth in the RFP. Respondent acceded to
and benefitted from the watering down of these
mandatory requirements, resulting in undue advantage in
its favor. The fact that there were numerous mandatory
requirements that were simply set aside to pave the way
for the award of the automation contract does not escape
the attention of this Court. Respondent MPEI, through
respondent Willy, signed and executed the automation
contract with COMELEC. It is therefore preposterous for
respondent argue that it was a "passive participant" in the
whole bidding process.
We reject the CA's denial of petitioner's plea for the
ancillary remedy of preliminary attachment, considering
that the cumulative effect of the factual findings of this
Court establishes a sufficient basis to conclude that fraud
had attended the execution of the automation contract.
Such fraud is deducible from the 2004 Decision and
further upheld in the 2006 Resolution. It was incongruous,
therefore, for the CA to have denied the application for a
writ of preliminary attachment, when the evidence on
record was the same that was used to demonstrate the
propriety of the issuance of the writ of preliminary
attachment. This was the same evidence that We had
already considered and passed upon, and on which We
based Our 2004 Decision to nullify the automation
contract. It would not be right for this Court to ignore
these illegal transactions, as to do so would be tantamount
to abandoning its constitutional duty of safeguarding
public interest.
II.
Application of the piercing doctrine justifies the
issuance of a writ of preliminary attachment over the
properties of the individual respondents.
Individual respondents argue that since they were not
parties to the 2004 case, any factual findings or
conclusions therein should not be binding upon
them.96 Since they were strangers to that case, they are not
bound by the judgment rendered by this Court.97 They
claim that their fundamental right to due process would
be violated if their properties were to be attached for a
purported corporate debt on the basis of a court ruling in
a case in which they were not given the right or
opportunity to be heard.98chanrobleslaw
We cannot subscribe to this argument. In the first place, it
could not be reasonably expected that individual
respondents would be impleaded in the 2004 case. As
admitted by respondents, the issues resolved in the 2004
Decision were limited to the following: (1) whether to
declare Resolution No. 6074 of the COMELEC null and
void; (2) whether to enjoin the implementation of any
further contract that may have been entered into by
COMELEC with MPC or MPEI; and (3) whether to compel
COMELEC to conduct a rebidding of the project. To
implead individual respondents then was improper,
considering that the automation contract was entered into
by respondent MPEI. This Court even acknowledged this
fact by directing that the liabilities of persons responsible
for the nullity of the contract be determined in another
appropriate proceeding and by directing the OSG to
undertake measures to protect the interests of the
government.
At any rate, individual respondents have been fully
afforded the right to due process by being impleaded and
heard in the subsequent proceedings before the courts a
quo. Finally, they cannot argue violation of due process, as
respondent MPEI, of which they are
incorporators/stockholders, remains vulnerable to the
piercing of its corporate veil.
A. There are red flags indicating that MPEI was used to
perpetrate the fraud against petitioner, thus allowing
the piercing of its corporate veil.
Petitioner seeks the issuance of a writ of preliminary
attachment over the personal assets of the individual
respondents, notwithstanding the doctrine of separate
juridical personality.99 It invokes the use of the doctrine of
piercing the corporate veil, to which the canon of separate
juridical personality is vulnerable, as a way to reach the
personal properties of the individual respondents.
Petitioner paints a picture of a sham corporation set up by
all the individual respondents for the purpose of securing
the automation contract.
We agree with petitioner.
Veil-piercing in fraud cases requires that the legal fiction
of separate juridical personality is used for fraudulent or
wrongful ends.100 For reasons discussed below, We see
red flags of fraudulent schemes in public procurement, all
of which were established in the 2004 Decision, the
totality of which strongly indicate that MPEI was a sham
corporation formed merely for the purpose of perpetrating
a fraudulent scheme.
The red flags are as follows: (1) overly narrow
specifications; (2) unjustified recommendations and
unjustified winning bidders; (3) failure to meet the terms
of the contract; and (4) shell or fictitious company. We
shall discuss each in detail.
Overly Narrow Specifications
The World Bank's Fraud and Corruption Awareness
Handbook: A Handbook for Civil Servants Involved in Public
Procurement, (Handbook) identifies an assortment of
fraud and corruption indicators and relevant schemes in
public procurement.101 One of the schemes recognized by
the Handbook is rigged
specifications:ChanRoblesVirtualawlibrary
Scheme: Rigged specifications. In a competitive market
for goods and services, any specifications that seem to be
drafted in a way that favors a particular company
deserve closer scrutiny. For example, specifications
that are too narrow can be used to exclude other
qualified bidders or justify improper sole source
awards. Unduly vague or broad specifications can
allow an unqualified bidder to compete or justify
fraudulent change orders after the contract is awarded.
Sometimes, project officials will go so far as to allow the
favored bidder to draft the
specifications.102chanroblesvirtuallawlibrary
In Our 2004 Decision, We identified a red flag of rigged
bidding in the form of overly narrow specifications. As
already discussed, the accuracy requirement of 99.9995
percent was set up by COMELEC bidding rules. This Court
recognized that this rating was "too high and was a sure
indication of fraud in the bidding, designed to
eliminate fair competition."103Indeed, "the essence of
public bidding is violated by the practice of requiring very
high standards or unrealistic specifications that cannot be
met...only to water them down after the bid has been
award(ed)."104chanrobleslaw
Unjustified Recommendations and Unjustified Winning
Bidders
Questionable evaluation in a Bid Evaluation Report (BER)
is an indicator of bid rigging. The Handbook
expounds:ChanRoblesVirtualawlibrary
Questionable evaluation and unusual bid patterns
may emerge in the BER. After the completion of the
evaluation process, the Bid Evaluation Committee
should present to the implementing agency its BER,
which describes the results and the process by which
the BEC has evaluated the bids received. The BER may
include a number of indicators of bid rigging, e.g.,
questionable disqualifications, and unusual bid
patterns.105chanroblesvirtuallawlibrary
The Handbook lists unjustified recommendations and
unjustified winning bidders as red flags of a rigged
bidding.106chanrobleslaw
The red flags of questionable recommendation and
unjustified awards are raised in this case. As earlier
discussed, the project was awarded to MPC, which proved
to be a nonentity. It was MPEI that actually participated in
the bidding process, but it was not qualified to be a bidder
in the first place. Moreover, its ACMs failed the accuracy
requirement set by COMELEC. Yet, MPC — the nonentity
— obtained a favorable recommendation from the BAC,
and the automation contract was awarded to the former.
Failure to Meet Contract Terms
Failure to meet the terms of a contract is regarded as a
fraud by the Handbook:ChanRoblesVirtualawlibrary
Scheme: Failure to meet contract terms. Firms may
deliberately fail to comply with contract requirements.
The contractor will attempt to conceal such actions often
by falsifying or forging supporting documentation and bill
for the work as if it were done in accordance with
specifications. In many cases, the contractors must bribe
inspection or project personnel to accept the substandard
goods or works, or supervision agents are coerced to
approve substandard work. x x
x107chanroblesvirtuallawlibrary
As mentioned earlier, this Court already found the ACMs
to be below the standards set by the COMELEC. We
reiterated their noncompliant status in Our 2005 and
2006 Resolutions.
As early as 2005, when the COMELEC sought permission
from this Court to utilize the ACMs in the then scheduled
ARMM elections, We declared that the proposed use of the
machines would expose the ARMM elections to the same
dangers of massive electoral fraud that would have been
inflicted by the projected automation of the 2004 national
elections. We based this pronouncement on the fact that
the COMELEC failed to show that the deficiencies had
been cured.108 Yet again, this Court in 2006 blocked
another attempt to use the ACMs, this time for the 2007
elections. We reiterated that because the ACMs had
merely remained idle and unused since their last
evaluation, in which they failed to hurdle the crucial tests,
then their defects and deficiencies could not have been
cured by then.109chanrobleslaw
Based on the foregoing, the ACMs delivered were plagued
with defects that made them fail the requirements set for
the automation project.
Shell or fictitious company
The Handbook regards a shell or fictitious company as a
"serious red flag," a concept that it elaborates
upon:ChanRoblesVirtualawlibrary
Fictitious companies are by definition fraudulent and
may also serve as fronts for government officials. The
typical scheme involves corrupt government officials
creating a fictitious company that will serve as a "vehicle"
to secure contract awards. Often, the fictitious—or
ghost— company will subcontract work to lower cost and
sometimes unqualified firms. The fictitious company may
also utilize designated losers as subcontractors to deliver
the work, thus indicating collusion.
Shell companies have no significant assets, staff or
operational capacity. They pose a serious red flag as a
bidder on public contracts, because they often hide the
interests of project or government officials, concealing a
conflict of interest and opportunities for money
laundering. Also, by definition, they have no
experience.110chanroblesvirtuallawlibrary
MPEI qualifies as a shell or fictitious company. It was
nonexistent at the time of the invitation to bid; to be
precise, it was incorporated only 11 days before the
bidding. It was a newly formed corporation and, as such,
had no track record to speak of.
Further, MPEI misrepresented itself in the bidding
process as "lead company" of the supposed joint venture.
The misrepresentation appears to have been an attempt
to justify its lack of experience. As a new company, it was
not eligible to participate as a bidder. It could do so only
by pretending that it was acting as an agent of the putative
consortium.

The timing of the incorporation of MPEI is particularly
noteworthy. Its close nexus to the date of the invitation to
bid and the date of the bidding (11 days) provides a strong
indicium of the intent to use the corporate vehicle for
fraudulent purposes. This proximity unmistakably
indicates that the automation contract served as
motivation for the formation of MPEI: a corporation had
to be organized so it could participate in the bidding by
claiming to be an agent of a pretended joint venture.
The timing of the formation of MPEI did not escape the
scrutiny of Justice Angelina Sandoval-Gutierrez, who
made this observation in her Concurring Opinion in the
2004 Decision:ChanRoblesVirtualawlibrary
At this juncture, it bears stressing that MPEI was
incorporated only on February 27, 2003 as evidenced by
its Certificate of Incorporation. This goes to show that
from the time the COMELEC issued its Invitation to Bid
(January 28, 2003) and Request for Proposal (February 17,
2003) up to the time it convened the Pre-bid Conference
(February 18, 2003), MPEI was literally a non-existent
entity. It came into being only on February 27, 2003 or
eleven (11) days prior to the submission of its bid, i.e.
March 10, 2003. This poses a legal obstacle to its
eligibility as a bidder. The Request for Proposal requires
the bidder to submit financial documents that will
establish to the BAC's satisfaction its financial capability
which include:ChanRoblesVirtualawlibrary
(1) audited financial statements of the Bidder's firm for the
last three (3) calendar years, stamped "RECEIVED" by the
appropriate government agency, to show its capacity to
finance the manufacture and supply of Goods called for and
a statement or record of volumes of sales;
(2) Balance Sheet;
(3) Income Statement; and cralawlawlibrary
(4) Statement of Cash Flow.
As correctly pointed out by petitioners, how could MPEI
comply with the above requirement of audited financial
statements for the last three (3) calendar years if it came
into existence only eleven (11) days prior to the bidding?
To do away with such complication, MPEI asserts that it
was MP CONSORTIUM who submitted the bid on March 10,
2003. It pretends compliance with the requirements by
invoking the financial capabilities and long time existence
of the alleged members of the MP CONSORTIUM, namely,
Election.Com, WeSolv, SK CeC, ePLDT and Oracle. It wants
this Court to believe that it is MP CONSORTIUM who was
actually dealing with the COMELEC and that its (MPEI)
participation is merely that of a "lead company and
proponent" of the joint venture. This is hardly convincing.
For one, the contract for the supply and delivery of ACM
was between COMELEC and MPEI, not MP
CONSORTIUM. As a matter of fad, there cannot be found in
the contract any reference to the MP CONSORTIUM or any
member thereof for that matter. For another, the
agreements among the alleged members of MP
CONSORTIUM do not show the existence of a joint-venture
agreement. Worse, MPEI cannot produce the agreement
as to the "joint and several liability" of the alleged
members of the MP CONSORTIUM as required by this
Court in its Resolution dated October 7,
2003. chanroblesvirtuallawlibrary
111
Respondent MPEI was formed to perpetrate the fraud
against petitioner.
The totality of the red flags found in this case leads Us to
the inevitable conclusion that MPEI was nothing but a
sham corporation formed for the purpose of defrauding
petitioner. Its ultimate objective was to secure the
P1,248,949,088 automation contract. The scheme was to
put up a corporation that would participate in the bid and
enter into a contract with the COMELEC, even if the former
was not qualified or authorized to do so.
Without the incorporation of MPEI, the defraudation of
the government would not have been possible. The
formation of MPEI paved the way for its participation in
the bid, through its claim that it was an agent of a
supposed joint venture, its misrepresentations to secure
the automation contract, its misrepresentation at the time
of the execution of the contract, its delivery of the
defective ACMs, and ultimately its acceptance of the
benefits under the automation contract.
The foregoing considered, veil-piercing is justified in this
case.
We shall next consider the question of whose assets shall
be reached by the application of the piercing doctrine.
B. Because all the individual respondents actively
participated in the perpetration of the fraud against
petitioner, their personal assets may be subject to a
writ of preliminary attachment by piercing the
corporate veil.
A corporation's privilege of being treated as an entity
distinct and separate from the stockholders is confined to
legitimate uses, and is subject to equitable limitations to
prevent its being exercised for fraudulent, unfair, or illegal
purposes.112 As early as the 19th century, it has been held
that:ChanRoblesVirtualawlibrary
The general proposition that a corporation is to be
regarded as a legal entity, existing separate and apart from
the natural persons composing it, is not disputed; but that
the statement is a mere fiction, existing only in idea, is well
understood, and not controverted by any one who
pretends to accurate knowledge on the subject. It has been
introduced for the convenience of the company in making
contracts, in acquiring property for corporate purposes, in
suing and being sued, and to preserve the limited liability
of the stockholder by distinguishing between the
corporate debts and property of the company and of the
stockholders in their capacity as individuals. All fictions
of law have been introduced for the purpose of
convenience, and to subserve the ends of justice. It is
in this sense that the maxim in fictione juris subsistit
aequitasis used, and the doctrine of fictions applied. But
when they are urged to an intent and purpose not
within the reason and policy of the fiction, they have
always been disregarded by the courts. Broom's, Legal
Maxims 130. "It is a certain rule," says Lord Mansfield, C.J.,
"that a fiction of law never be contradicted so as to defeat
the end for which it was invented, but for every other
purpose it may be contradicted." Johnson v. Smith, 2 Burr,
962.113chanroblesvirtuallawlibrary
The main effect of disregarding the corporate fiction is
that stockholders will be held personally liable for the acts
and contracts of the corporation, whose existence, at least
for the purpose of the particular situation involved, is
ignored.114chanrobleslaw
We have consistently held that when the notion of legal
entity is used to defeat public convenience, justify wrong,
protect fraud, or defend crime, the law will regard the
corporation as an association of persons.115 Thus,
considering that We find it justified to pierce the corporate
veil in the case before Us, MPEI must, perforce, be treated
as a mere association of persons whose assets are
unshielded by corporate fiction. Such persons' individual
liability shall now be determined with respect to the
matter at hand.
Contrary to respondent Willy's claims, his participation in
the fraud is clearly established by his unequivocal
agreement to the execution of the automation contract
with the COMELEC, and his signature that appears on the
voided contract. As far back as in the 2004 Decision, his
participation as a signatory' to the automation contract
was already established:ChanRoblesVirtualawlibrary
The foregoing argument is unpersuasive. First, the
contract being referred to, entitled "The Automated
Counting and Canvassing Project Contract," is between
Comelec and MPEI, not the alleged consortium, MPC. To
repeat, it is MPEI - not MPC - that is a party to the
Contract. Nowhere in that Contract is there any mention of
a consortium or joint venture, of members thereof much less
of joint and several liability. Supposedly executed
sometime in May 2003, the Contract bears a notarization
date of June 30, 2003, and contains the signature of
Willy U. Yu signing as president of MPEI (not for and
on behalf of MPC), along with that of the Comelec chair.
It provides in Section 3.2 that MPEI (not MPC) is to supply
the Equipment and perform the Services under the
Contract, in accordance with the appendices thereof;
nothing whatsoever is said about any consortium or joint
venture or partnership. x x x (Emphasis supplied)
That his signature appears on the automation contract
means that he agreed and acceded to its terms.116 His
participation in the fraud involves his signing and
executing the voided contract.
The execution of the automation contract with a non-
eligible entity and the subsequent award of the contract
despite the failure to meet the mandatory requirements
were "badges of fraud" in the procurement process that
should have been recognized by the CA to justify the
issuance of the writ of preliminary attachment against the
properties of respondent Willy.
With respect to the other individual respondents,
petitioner, in its Answer with Counterclaim,
alleged:ChanRoblesVirtualawlibrary
30. Also, inasmuch as MPEI is in truth a mere shell
corporation with no real assets in its name, incorporated
merely to feign eligibility for the bidding of the automated
contract when it in fact had none, to the great prejudice of
the Republic, plaintiffs individual incorporators should
likewise be made liable together with MPEI for the
automated contract amount paid to and received by the
latter. The following circumstances altogether manifest
that the individual incorporators merely cloaked
themselves with the veil of corporate fiction to perpetrate
a fraud and to eschew liability therefor, thus:
chanRoblesvirtualLawlibraryx x x x matter is that there could not have been fraud, as these
f. From the time it was incorporated until today,
MPEI has not complied with the reportorial
requirements of the Securities and Exchange
Commission;
g. Individual incorporators, acting fraudulently
through MPEI, and in violation of the bidding
rules, then subcontracted the automation
contract to four (4) other corporations, namely:
WeSolve Corporation, SK C&C, ePLDT and
election.com, to comply with the capital
requirements, requisite five (5)-year corporate
standing and the technical qualifications of the
Request for Proposal;
x x x x117chanroblesvirtuallawlibrary
In response to petitioner's allegations, respondents Willy
and Bonnie stated in their Reply and Answer (Re: Answer
with Counterclaim dated 28 June 2004):118
3.3 As far as plaintiff MPEI and defendants-in-
counterclaim are concerned, they dealt with the
COMELEC with full transparency and in utmost good
faith. All documents support its eligibility to bid for the
supply of the ACMs and their peripheral services, were
submitted to the COMELEC for its evaluation in full
transparency. Pertinently, neither plaintiff MPEI nor any
of its directors, stockholders, officers or employees had
any participation in the evaluation of the bids and
eventual choice of the winning
bidder.119chanroblesvirtuallawlibrary
Respondents Johnson's and Bernard's denials were made
in paragraphs 2.17 and 3.3 of their Answer with
Counterclaim to the Republic's Counterclaim, to wit:120
2.17 The erroneous conclusion of fact and law in
paragraph 30 (f) and (g) of the Republic's answer is
denied, having been pleaded in violation of the
requirement, that only ultimate facts arc to be stated in the
pleadings and they are falsehoods. The truth of the matter
is that there could not have been fraud, as these
agreements were submitted to the COMELEC for its
evaluation and assessment, as to the qualification of the
Consortium as a bidder, a showing of transparency in
plaintiffs dealings with the Republic.121chanrobleslaw
3.3 As far as plaintiff MPEI and defendants-in-
counterclaim are concerned, they dealt with the
COMELEC with full transparency and in utmost good
faith. All documents support its eligibility to bid for the
supply of the automated counting machines and its
peripheral services, were submitted to the COMELEC for
its evaluation in full transparency. Pertinently, the
plaintiff or any of its directors, stockholders, officers or
employees had no participation in the evaluation of the
bids and eventual choice of the winning
bidder.122chanroblesvirtuallawlibrary
As regards Enrique and Rosita, the relevant paragraphs in
the Answer with Counterclaim to the Republic's
Counterclaim123 are quoted
below:ChanRoblesVirtualawlibrary
2.17. The erroneous conclusion of fact and law in
paragraph 30 (F) and (G) of the Republic's answer is
denied, having been pleaded in violation of the
requirement, that only ultimate facts are to be stated in
the pleadings and they are falsehoods. The truth of the
agreements were submitted to the COMELEC for its
evaluation and assessment, as to the qualification of the
Consortium as a bidder, a showing of transparency in
plaintiffs dealings with the Republic.124chanrobleslaw
3.3. As far as the plaintiff and herein answering
defendants-in-counterclaim are concerned, they dealt
with the Commission on Elections with full
transparency and in utmost good faith. All documents
in support of its eligibility to bid for the supply of the
automated counting machines and its peripheral services
were submitted to the Commission on Elections for its
evaluation in full transparency. Pertinently, the plaintiff or
any of its directors, stockholders, officers or employees
had no participation in the evaluation of the bids and
eventual choice of the winning
bidder.125chanroblesvirtuallawlibrary
Pedro and Laureano offer a similar defense in paragraph
3.3 of their Reply and Answer with Counterclaim to the
Republic's Counterclaim126 dated 28 June 2004, which
reads:ChanRoblesVirtualawlibrary
3.3. As far as plaintiff MPEI and defendants-in-
counterclaim are concerned, they dealt with the
COMELEC with full transparency and in utmost good
faith. All documents support its eligibility to bid for the
supply of the ACMs and their peripheral services, were
submitted to the COMELEC for its evaluation in full
transparency. Pertinently, neither plaintiff MPEI nor any
of its directors, stockholders, officers or employees had
any participation in the evaluation of the bids and
eventual choice of the winning
bidder. chanroblesvirtuallawlibrary
127
It can be seen from the above-quoted paragraphs that the
individual respondents never denied their participation in
the questioned transactions of MPEI, merely raising the
defense of good faith and shifting the blame to the
COMELEC. The individual respondents have, in effect,
admitted that they had knowledge of and participation in
the fraudulent subcontracting of the automation contract
to the four corporations.
It bears stressing that the remaining individual
respondents, together with respondent Willy,
incorporated MPEI. As incorporators, they are expected to
be involved in the management of the corporation and
they are charged with the duty of care. This is one of the
reasons for the requirement of ownership of at least one
share of stock by an
incorporator:ChanRoblesVirtualawlibrary
The reason for this, as explained by the lawmakers, is to
avoid the confusion and/or ambiguities arising in a
situation under the old corporation law where there exists
one set of incorporators who are not even shareholders
and another set of directors/incorporators who must
all be shareholders of the corporation. The people who
deal with said corporation at such an early stage are
confused as to who are the persons or group really
authorized to act in behalf of the corporation.
(Proceedings of the Batasan Pambansa on the Proposed
Corporation Code). Another reason may be anchored
on the presumption that when an incorporator has
pecuniary interest in the corporation, no matter how
minimal, he will be more involved in the management
of corporate affairs and to a greater degree, be
concerned with the welfare of the
corporation.128chanroblesvirtuallawlibrary
As incorporators and businessmen about to embark on a
new business venture involving a sizeable capital (P300
million), the remaining individual respondents should
have known of Willy's scheme to perpetrate the fraud
against petitioner, especially because the objective was a
billion peso automation contract. Still, they proceeded
with the illicit business venture.
It is clear to this Court that inequity would result if We do
not attach personal liability to all the individual
respondents. With a definite finding that MPEI was used
to perpetrate the fraud against the government, it would
be a great injustice if the remaining individual
respondents would enjoy the benefits of incorporation
despite a clear finding of abuse of the corporate vehicle.
Indeed, to allow the corporate fiction to remain intact
would not subserve, but instead subvert, the ends of
justice.
III.
The factual findings of this Court that have become
final cannot be modified or altered, much less
reversed, and are controlling in the instant case.
Respondents argue that the 2004 Decision did not resolve
and could not have resolved the factual issue of whether
they had committed any fraud, as the Supreme Court is not
a trier of facts; and the 2004 case, being a certiorari case,
did not deal with questions of fact.129chanrobleslaw
Further, respondents argue that the findings of this Court
ought to be confined only to those issues actually raised
and resolved in the 2004 case, in accordance with the
principle of conclusiveness of judgment.130 They explain
that the issues resolved in the 2004 Decision were only
limited to the following: (1) whether to declare COMELEC
Resolution No. 6074 null and void; (2) whether to enjoin
the implementation of any further contract that may have
been entered into by COMELEC with MPC or MPEI; and (3)
whether to compel COMELEC to conduct a rebidding of the
project.131chanrobleslaw
It is obvious that respondents are merely trying to escape
the implications or effects of the nullity of the automation
contract that they had executed. Section 1, Rule 65 of the
Rules of Court, clearly sets forth the instances when a
petition for certiorari can be used as a proper
remedy:ChanRoblesVirtualawlibrary
Section 1. Petition for certiorari. — When any tribunal,
board or officer exercising judicial or quasi-judicial
functions has acted without or in excess of its jurisdiction,
or with grave abuse of discretion amounting to lack or
excess of jurisdiction, and there is no appeal, or any plain,
speedy, and adequate remedy in the ordinary course of
law. a person aggrieved thereby may file a verified
petition in the proper court, alleging the facts with
certainty and praying that judgment be rendered
annulling or modifying the proceedings of such tribunal,
board or officer, and granting such incidental reliefs as law
and justice may require.
The term "grave abuse of discretion" has a specific
meaning. An act of a court or tribunal can only be
considered to have been committed with grave abuse of
discretion when the act is done in a "capricious or
whimsical exercise of judgment as is equivalent to lack of
jurisdiction."132 The abuse of discretion must be so patent
and gross as to amount to an "evasion of a positive duty or
to a virtual refusal to perform a duty enjoined by law, or
to act at all in contemplation of law, as where the power is
exercised in an arbitrary and despotic manner by reason
of passion and hostility."133 Furthermore, the use of a
petition for certiorari is restricted only to "truly
extraordinary cases wherein the act of the lower court or
quasi-judicial body is wholly void."134 From the foregoing
definition, it is clear that the special civil action of
certiorari under Rule 65 can only strike down an act for
having been done with grave abuse of discretion if the
petitioner could manifestly show that such act was patent
and gross.135chanrobleslaw
We had to ascertain from the evidence whether the
COMELEC committed grave abuse of discretion, and in the
process, were justified in making some factual findings.
The conclusions derived from the factual findings are
inextricably intertwined with this Court's determination
of grave abuse of discretion. They have a direct bearing
and are in fact necessary to illustrate that the award of the
automation contract was done hastily and in direct
violation of law. This Court has indeed made factual
findings based on the evidence presented before it; in turn,
these factual findings constitute the controlling legal rule
between the parties that cannot be modified or amended
by any of them. This Court is bound to consider the factual
findings made in the 2004 Decision in order to declare that
there is fraud for the purpose of issuing the writ of
preliminary attachment.
Respondents appear to have misunderstood the
implications of the principle of conclusiveness of
judgment on their cause. Contrary to their claims, the
factual findings are conclusive and have been established
as the controlling legal rule in the instant case, on the basis
of the principle of res judicata—more particularly, the
principle of conclusiveness of judgment.
This doctrine of res judicata which is set forth in Section
47 of Rule 39 of the Rules of Court136 lays down two main
rules, namely: (1) the judgment or decree of a court of
competent jurisdiction on the merits concludes the
litigation between the parties and their privies and
constitutes a bar to a new action or suit involving the same
cause of action either before the same or any other
tribunal; and (2) any right, fact, or matter in issue directly
adjudicated or necessarily involved in the determination
of an action before a competent court in which a judgment
or decree is rendered on the merits is conclusively settled
by the judgment therein and cannot again be litigated
between the parties and their privies whether or not the
claims or demands, purposes, or subject matters of the
two suits are the same.137chanrobleslaw
These two main rules mark the distinction between the
principles governing the two typical cases in which a
judgment may operate as evidence.138 The first general
rule stated above and corresponding to the afore-quoted
paragraph (b) of Section 47, Rule 39 of the Rules of Court,
is referred to as "bar by former judgment"; while the
second general rule, which is embodied in paragraph (c)
of the same section and rule, is known as "conclusiveness
of judgment."139chanrobleslaw
In Calalang v. Register of Deeds of Quezon City,140 We
discussed the concept of conclusiveness of judgment as
pertaining even to those matters essentially
connected with the subject of litigation in the first action.
This Court explained therein that the bar on re-litigation
extends to those questions necessarily implied in the final
judgment, although no specific finding may have been
made in reference thereto, and although those matters
were directly referred to in the pleadings and were not
actually or formally presented. If the record of the former
trial shows that the judgment could not have been
rendered without deciding a particular matter, it will be
considered as having settled that matter as to all future
actions between the parties; and if a judgment necessarily
presupposes certain premises, they are as conclusive as
the judgment itself:ChanRoblesVirtualawlibrary
The second concept — conclusiveness of judgment —
states that a fact or question which was in issue in a
former suit and was there judicially passed upon and
determined by a court of competent jurisdiction, is
conclusively settled by the judgment therein as far as
the parties to that action and persons in privity with
them are concerned and cannot be again litigated in
any future action between such parties or their
privies, in the same court or any other court of
concurrent jurisdiction on either the same or
different cause of action, while the judgment remains
unreversed by proper authority. It has been held that in
order that a judgment in one action can be conclusive as
to a particular matter in another action between the same
parties or their privies, it is essential that the issue be
identical. If a particular point or question is in issue in
the second action, and the judgment will depend on
the determination of that particular point or question,
a former judgment between the same parties or their
privies will be final and conclusive in the second if that
same point or question was in issue and adjudicated
in the first suit (Nabus v. Court of Appeals, 193 SCRA 732
[1991]). Identity of cause of action is not required but
merely identity of issue.
Justice Fcliciano, in Smith Bell & Company (Phils.), Inc. v.
Court of Appeals (197 SCRA 201, 210 [1991]),
reiterated Lopez v. Reyes (76 SCRA 179 [1977]) in regard
to the distinction between bar by former judgment which
bars the prosecution of a second action upon the same
claim, demand, or cause of action, and conclusiveness of
judgment which bars the relitigation of particular facts or
issues in another litigation between the same parties on a
different claim or cause of action.
The general rule precluding the re-litigation of
material facts or questions which were in issue and
adjudicated in former action are commonly applied to
all matters essentially connected with the subject
matter of the litigation. Thus, it extends to questions
necessarily implied in the final judgment, although no
specific finding may have been made in reference
thereto and although such matters were directly
referred to in the pleadings and were not actually or
formally presented. Under this rule, if the record of
the former trial shows that the judgment could not
have been rendered without deciding the particular
matter, it will be considered as having settled that
matter as to all future actions between the parties and
if a judgment necessarily presupposes certain
premises, they are as conclusive as the judgment
itself.141 (Emphases supplied)
The foregoing disquisition finds application to the case at
bar.
Undeniably, the present case is merely an adjunct of the
2004 case, in which the automation contract was declared
to be a nullity. Needless to say, the 2004 Decision has since
become final. As earlier explained, this Court arrived at
several factual findings showing the illegality of the
automation contract; in turn, these findings were used as
basis to justify the declaration of nullity.
A closer scrutiny of the 2004 Decision would reveal that
the judgment could not have been rendered without
deciding particular factual matters in relation to the
following: (1) identity, existence and eligibility of MPC as
a bidder; (2) failure of the ACMs to pass DOST technical
tests; and (3) remedial measures undertaken by the
COMELEC after the award of the automation contract.
Under the principle of conclusiveness of judgment, We are
precluded from re-litigating these facts, as these were
essential to the question of nullity. Otherwise stated, the
judgment could not have been rendered without
necessarily deciding on the above-enumerated factual
matters.
Thus, under the principle of conclusiveness of judgment,
those material facts became binding and conclusive on the
parties, in this case MPEI and, ultimately, the persons that
comprised it. When a right or fact has been judicially tried
and determined by a court of competent jurisdiction, or
when an opportunity for that trial has been given, the
judgment of the court—as long as it remains
unreversed—should be conclusive upon the parties
and those in privity with them.142 Thus, the CA should
not have required petitioner to present further evidence
of fraud on the part of respondent Willy and MPEI, as it
was already necessarily adjudged in the 2004 case.
To allow respondents to argue otherwise would be
violative of the principle of immutability of judgment.
When a final judgment becomes executory, it becomes
immutable and unalterable and may no longer undergo
any modification, much less any reversal.143 In Navarro v.
Metropolitan Bank & Trust Company144 this Court
explained that the underlying reason behind this principle
is to avoid delay in the administration of justice and to
avoid allowing judicial controversies to drag on
indefinitely, viz.:ChanRoblesVirtualawlibrary
No other procedural law principle is indeed more
settled than that once a judgment becomes final, it is
no longer subject to change, revision, amendment or
reversal, except only for correction of clerical errors,
or the making of nunc pro tunc entries which cause no
prejudice to any party, or where the judgment itself is
void. The underlying reason for the rule is two-fold: (1) to
avoid delay in the administration of justice and thus make
orderly the discharge of judicial business, and (2) to put
judicial controversies to an end, at the risk of occasional
errors, inasmuch as controversies cannot be allowed to
drag on indefinitely and the rights and obligations of every
litigant must not hang in suspense for an indefinite period
of time. As the Court declared in Yau v. Silverio,
Litigation must end and terminate sometime and
somewhere, and it is essential to an effective and efficient
administration of justice that, once a judgment has
become final, the winning party be, not through a mere
subterfuge, deprived of the fruits of the verdict. Courts
must therefore guard against any scheme calculated to
bring about that result. Constituted as they are to put an
end to controversies, courts should frown upon any
attempt to prolong them.
Indeed, just as a losing party has the right to file an appeal
within the prescribed period, the winning party also has
the correlative right to enjoy the finality of the resolution
of his case by the execution and satisfaction of the
judgment. Any attempt to thwart this rigid rule and deny
the prevailing litigant his right to savor the fruit of his
victory must immediately be struck down. x x x. (Emphasis
supplied)145chanroblesvirtuallawlibrary
In the instant case, adherence to respondents' position
would mean a complete disregard of the factual findings
We made in the 2004 Decision, and would certainly be
tantamount to reversing the same. This would invariably
cause further delay in the efforts to recover the amounts
of government money illegally disbursed to respondents
back in 2004.
Next, respondents argue that the findings of fact in the
2004 Decision are not conclusive146 considering that eight
(8) of the fifteen (15) justices of this Court refused to go
along with the factual findings as stated in the majority
opinion.147 This argument fails to convince.
Fourteen (14) Justices participated in the promulgation of
the 2004 Decision. Out of the fourteen (14) Justices, three
(3) Justices registered their dissent,148 and two (2)
Justices wrote their Separate Opinions, each
recommending the dismissal of the Petition.149 Of the nine
(9) Justices who voted to grant the Petition, four (4) joined
the ponente in his disposition of the case,150 and two (2)
Justices wrote Separate Concurring Opinions.151 As to the
remaining two (2) Justices, one (1) Justice152 merely
concurred in the result, while the other joined another
Justice in her Separate Opinion.153chanrobleslaw
Contrary to the allegations of respondents, an
examination of the voting shows that nine (9) Justices
voted in favor of the majority opinion, without any
qualification regarding the factual findings made therein.
In fact, the two (2) Justices who wrote their own
Concurring Opinions echoed the lack of eligibility of MPC
and the failure of the ACMs to pass the mandatory
requirements.
Finally, respondents cannot argue that, from the line of
questioning of then Justice Leonardo A. Quisumbing
during the oral arguments in the 2004 case, he did not
agree with the factual findings of this Court. Oral
arguments before this Court are held precisely to test the
soundness of each proponent's contentions. The
questions and statements propounded by Justices during
such an exercise are not to be construed as their definitive
opinions. Neither are they indicative of how a Justice shall
vote on a particular issue; indeed, Justice Quisumbing
clearly states in the 2004 Decision that he concurs in the
results. At any rate, statements made by Our Members
during oral arguments are not stare decisis; what is
conclusive are the decisions reached by the majority of the
Court.
IV.
The delivery of 1,991 units of ACMs does not negate
fraud on the part of respondents Willy and MPEI.
The CA in its Amended Decision explained that
respondents could not be considered to have fostered a
fraudulent intent to not honor their obligation, since they
delivered 1,991 units of ACMs.154 In turn, respondents
argue that respondent MPEI had every intention of
fulfilling its obligation, because it in fact delivered the
ACMs as required by the automation
contract. chanrobleslaw
155
We disagree with the CA and respondents. The fact that
the ACMs were delivered cannot induce this Court to
disregard the fraud respondent MPEI had employed in
securing the award of the automation contract, as
established above. Furthermore, they cannot cite the fact
of delivery in their favor, considering that the ACMs
delivered were substandard and noncompliant with the
requirements initially set for the automation project.
In Our 2004 Decision, We already found the ACMs to be
below the standards set by the COMELEC. The
noncompliant status of these ACMs was reiterated by this
Court in its 2005 and 2006 Resolutions. The CA therefore
gravely erred in considering the delivery of 1,991 ACMs as
evidence of respondents' willingness to perform the
obligation (and thus, their lack of fraud) considering that,
as exhaustively discussed earlier, the ACMs delivered
were plagued with defects and failed to meet the
requirements set for the automation project.
Under Article 1233 of the New Civil Code, a debt shall not
be understood to have been paid, unless the thing or
service in which the obligation consists has been
completely delivered or rendered. In this case,
respondents cannot be considered to
have performed their obligation, because the ACMs were
defective.
V.
Estoppel does not lie against the State when it acts to
rectify the mistakes, errors or illegal acts of its
officials and agents.
Respondents claim that the 2004 Decision may not be
invoked against them, since the petitioner and the
respondents were co-respondents and not adverse parties
in the 2004 case. Respondents further explain that since
petitioner and respondents were on the same side at the
time, had the same interest, and took the same position on
the validity and regularity of the automation contract,
petitioner cannot now invoke the 2004 Decision against
them.156chanrobleslaw
Contrary to respondents' contention, estoppel generally
finds no application against the State when it acts to
rectify mistakes, errors, irregularities, or illegal acts of its
officials and agents, irrespective of rank. This principle
ensures the efficient conduct of the affairs of the State
without any hindrance to the implementation of laws and
regulations by the government. This holds true even if its
agents' prior mistakes or illegal acts shackle government
operations and allow others—some by malice—to profit
from official error or misbehavior, and even if the
rectification prejudices parties who have meanwhile
received benefit.157 Indeed, in the 2004 Decision, this
Court even directed the Ombudsman to determine the
possible criminal liability of public officials and private
persons responsible for the contract, and the OSG to
undertake measures to protect the government from the
ill effects of the illegal disbursement of public
funds.158chanrobleslaw
The equitable doctrine of estoppel for the prevention of
injustice and is for the protection of those who have been
misled by that which on its face was fair and whose
character, as represented, parties to the deception will not,
in the interest of justice, be heard to deny.159 It cannot
therefore be utilized to insulate from liability the very
perpetrators of the injustice complained of.
VI.
The findings of the Office of the Ombudsman are not
controlling in the instant case.
Respondents further claim that this Court has recognized
the fact that it did not determine or adjudge any fraud that
may have been committed by individual respondents.
Rather, it referred the matter to the Ombudsman for the
determination of criminal liability.160 The Ombudsman in
fact made its own determination that there was no
probable cause to hold individual respondents criminally
liable.161chanrobleslaw
Respondents miss the point. The main issue in the instant
case is whether respondents are guilty of fraud in
obtaining and executing the automation contract, to
justify the issuance of a writ of preliminary attachment in
petitioner's favor. Meanwhile, the issue relating to the
proceedings before the Ombudsman (and this Court in G.R.
No. 174777) pertains to the finding of lack of probable
cause for the possible criminal liability of respondents
under the Anti-Graft and Corrupt Practices Act.
The matter before Us involves petitioner's application for
a writ of preliminary attachment in relation to its recovery
of the expended amount under the voided contract, and
not the determination of whether there is probable cause
to hold respondents liable for possible criminal liability
due to the nullification of the automation contract.
Whether or not the Ombudsman has found probable cause
for possible criminal liability on the part of respondents is
not controlling in the instant case.
CONCLUSION
If the State is to be serious in its obligation to develop and
implement coordinated anti-corruption policies that
promote proper management of public affairs and public
property, integrity, transparency and accountability,162 it
needs to establish and promote effective practices aimed
at the prevention of corruption,163 as well as strengthen
our efforts at asset recovery.164chanrobleslaw
As a signatory to the United Nations Convention Against
Corruption (UNCAC),165 the Philippines acknowledges its
obligation to establish appropriate systems of
procurement based on transparency, competition and
objective criteria in decision-making that are effective in
preventing corruption.166 To promote transparency, and
in line with the country's efforts to curb corruption, it is
useful to identify certain fraud indicators or "red flags"
that can point to corrupt activity.167 This case - arguably
the first to provide palpable examples of what could be
reasonably considered as "red flags" of fraud and
malfeasance in public procurement - is the Court's
contribution to the nation's continuing battle against
corruption, in accordance with its mandate to dispense
justice and safeguard the public interest.
WHEREFORE, premises considered, the Petition
is GRANTED. The Amended Decision dated 22 September
2008 of the Court of Appeals in CA-G.R. SP. No. 95988
is ANNULLED AND SET ASIDE. A new one is
entered DIRECTING the Regional Trial Court of Makati
City, Branch 59, to ISSUE in Civil Case No. 04-346,
entitled Mega Pacific eSolutions, Inc., vs. Republic of the
Philippines, the Writ of Preliminary Attachment prayed for
by petitioner Republic of the Philippines against the
properties of respondent Mega Pacific eSolutions, Inc., and
Willy U. Yu, Bonnie S. Yu, Enrique T. Tansipek, Rosita Y.
Tansipek, Pedro O. Tan, Johnson W. Fong, Bernard I. Fong
and Lauriano Barrios.
No costs.
SO ORDERED.chanRoblesvirtualLawlibrary
Leonardo-De Castro, Bersamin, Perlas-Bernabe,
and Caguioa, JJ., concur.
FIRST DIVISION
November 21, 2016
G.R. No. 193816
ERSON ANG LEE DOING BUSINESS as "SUPER
LAMINATION SERVICES," Petitioner
vs.
SAMAHANG MANGGAGAWA NG SUPER LAMINATION
(SMSLS-NAFLU-KMU), Respondent
DECISION
SERENO, CJ.:
This is a Petition for Review on Certiorari under Rule 45 of
the Rules of Court on the Decision1 and Resolution2 of the
Court of Appeals (CA) affirming the assailed Decision3 of
the Department of Labor and Employment (DOLE). DOLE
allowed the conduct of certification election among the
rank-and-file employees of Super Lamination Services
(Super Lamination), Express Lamination Services, Inc.
(Express Lamination), and Express Coat Enterprises, Inc.
(Express Coat).
THE ANTECEDENT FACTS
Petitioner Erson Ang Lee (petitioner), through Super
Lamination, is a duly registered entity principally engaged
in the business of providing lamination services to the
general public. Respondent Samahan ng mga Manggagawa
ng Super Lamination Services (Union A) is a legitimate
labor organization, which is also a local chapter affiliate of
the National Federation of Labor Unions - Kilusang Mayo
Uno.4 It appears that Super Lamination is a sole
proprietorship under petitioner's name,5 while Express
Lamination and Express Coat are duly incorporated
entities separately registered with the Securities and
Exchange Commission (SEC).6
On 7 March 2008, Union A filed a Petition for Certification
Election7 to represent all the rank-and-file employees of
Super Lamination.8
Notably, on the same date, Express Lamination Workers'
Union (Union B) also filed a Petition for Certification
Election to represent all the rank-and-file employees of
Express Lamination.9
Also on the same date, the Samahan ng mga Manggagawa
ng Express Coat Enterprises, Inc. (Union C) filed a Petition
for Certification Election to represent the rank-and-file
employees of Express Coat.10
Super Lamination, Express Lamination, and Express Coat,
all represented by one counsel, separately claimed in their
Comments and Motions to Dismiss that the petitions must
be dismissed on the same ground - lack of employer-
employee relationship between these establishments and
the bargaining units that Unions A, B, and C seek to
represent as well as these unions' respective
members.11 Super Lamination, in its Motion, posited that
a majority of the persons who were enumerated in the list
of members and officers of Union A were not its
employees, but were employed by either Express
Lamination or Express Coat.12 Interestingly, both Express
Lamination and Express Coat, in turn, maintained the
same argument - that a majority of those who had
assented to the Petition for Certification Election were not
employees of either company, but of one of the two other
companies involved.13
All three Petitions for Certification Election of the Unions
were denied. On 21 May 2008, an Order was issued by
DOLE National Capital Region (NCR) Med-Arbiter Michael
Angelo Parado denying the respective petitions of Unions
B and C on the ground that there was no existing
employer-employee relationship between the members of
the unions and the companies concerned. On 23 May 2008,
DOLE NCR Med-Arbiter Alma Magdaraog-Alba also denied
the petition of respondent Union A on the same ground.14
The three unions filed their respective appeals before the
Office of the DOLE Secretary, which consolidated the
appeal because the involved companies alternately
referred to one another as the employer of the members
of the bargaining units sought to be represented.15 The
unions argued that their petitions should have been
allowed considering that the companies involved were
unorganized, and that the employers had no concomitant
right to oppose the petitions. They also claimed that while
the questioned employees might have been assigned to
perform work at the other companies, they were all under
one management's direct control and supervision.16
DOLE, through Undersecretary Romeo C. Lagman,
rendered the assailed Decision, the dispositive portion of
which reads as follows:
WHEREFORE, premises considered, the appeals filed by
Express Lamination Workers Union (ELWU-NAFLU-KMU),
Samahang Manggagawa ng Express Coat Enterprises, Inc.
(SMEC-NAFLU-KMU) and Samahang Manggagawa ng
Super Lamination Services (SMSLS-NAFLU-KMU) are
hereby GRANTEDand the Orders dated 21 May 2008 of
DOLE-NCR Mediator-Arbiter Michael Angelo T. Parado are
hereby REVERSED and SET ASIDE. The Order dated 23
May 2008 of DOLE NCR Mediator-Arbiter Alma E.
Magdaraog-Alba is likewise REVERSED and SET ASIDE.
Accordingly, let the entire records of this be remanded to
the regional office of origin for the immediate conduct of
certification election among the rank-and-file employees
of Express Lamination Services, Inc., Super Lamination
Services and Express Coat Enterprises Inc., after the
conduct of pre-election conference/s, with the following
as choices;
1. Express Lamination Workers Union-
NAFLU-KMU;
2. Samahan ng mga Manggagawa ng Super
Lamination Services-NAFLU-KMU;
3. Samahang ng mga Manggagawa ng
Express Coat Enterprises, Inc.-NAFLU-
KMU; and
4. "No Union."
The employer/s and/or contending union(s) are hereby
directed to submit to the Regional Office of origin, within
ten (10) days from receipt of this Decision, a certified list
of employees in the bargaining unit or the payrolls
covering the members of the bargaining unit for the last
three (3) months prior to the issuance of the Decision.
SO DECIDED.17 (Emphases in the original)
DOLE found that Super Lamination, Express Lamination,
and Express Coat were sister companies that had a
common human resource department responsible for
hiring and disciplining the employees of the three
companies. The same department was found to have also
given them daily instructions on how to go about their
work and where to report for work. It also found that the
three companies involved constantly rotated their
workers, and that the latter's identification cards had only
one signatory.18
To DOLE, these circumstances showed that the companies
were engaged in a work-pooling scheme, in light of which
they might be considered as one and the same entity for
the purpose of determining the appropriate bargaining
unit in a certification election.19 DOLE applied the concept
of multi-employer bargaining under Sections 5 and 6 of
DOLE Department Order 40-03, Series of 2003. Under that
concept, the creation of a single bargaining unit for the
rank-and-file employees of all three companies was not
implausible and was justified under the given
circumstances.20 Thus, it considered these rank-and-file
employees as one bargaining unit and ordered the
conduct of a certification election as uniformly prayed for
by the three unions.
Aggrieved, petitioner instituted an appeal before the CA,
which denied his Petition and affirmed the Decision of
DOLE.1âwphi1 It sided with DOLE in finding that Super
Lamination, Express Lamination, and Express Coat were
sister companies that had adopted a work-pooling scheme.
Therefore, it held that DOLE had correctly applied the
concept of multi-employer bargaining in finding that the
three companies could be considered as the same entity,
and their rank-and-file employees as comprising one
bargaining unit.21
Petitioner filed a Motion for Reconsideration of the CA
Decision, but the motion was denied.22 Therefore, he now
comes to this Court through the present Petition.
ISSUES
From the established facts and arguments, we cull the
issues as follows:
 1. Whether the application of the doctrine of
piercing the corporate veil is warranted
2. Whether the rank-and-file employees of Super
Lamination, Express Lamination, and Express
Coat constitute an appropriate bargaining unit
THE COURT'S RULING
We deny the petition.
An application of the doctrine of
piercing the corporate veil is
warranted.
Petitioner argues that separate corporations cannot be
treated as a single bargaining unit even if their businesses
are related,23 as these companies are indubitably distinct
entities with separate juridical personalities.24 Hence, the
employees of one corporation cannot be allowed to vote
in the certification election of another corporation, lest the
abovementioned rule be violated.25
Petitioner's argument, while correct, is a general rule. This
Court has time and again disregarded separate juridical
personalities under the doctrine of piercing the corporate
veil. It has done so in cases where a separate legal entity is
used to defeat public convenience, justify wrong, protect
fraud, or defend crime, among other grounds.26 In any of
these situations, the law will regard it as an association of
persons or, in case of two corporations, merge them into
one.27
A settled formulation of the doctrine of piercing the
corporate veil is that when two business enterprises are
owned, conducted, and controlled by the same parties,
both law and equity will, when necessary to protect the
rights of third parties, disregard the legal fiction that these
two entities are distinct and treat them as identical or as
one and the same.28
This formulation has been applied by this Court to cases in
which the laborer has been put in a disadvantageous
position as a result of the separate juridical personalities
of the employers involved.29 Pursuant to veil-piercing, we
have held two corporations jointly and severally liable for
an employee's back wages.30 We also considered a
corporation and its separately-incorporated branches as
one and the same for purposes of finding the corporation
guilty of illegal dismissal.31 These rulings were made
pursuant to the fundamental doctrine that the corporate
fiction should not be used as a subterfuge to commit
injustice and circumvent labor laws.32
Here, a certification election was ordered to be held for all
the rank-and- file employees of Super Lamination, Express
Lamination, and Express Coat.1âwphi1 The three
companies were supposedly distinct entities based on the
fact that Super Lamination is a sole proprietorship while
Express Lamination and Express Coat were separately
registered with the SEC.33 The directive was therefore, in
effect, a piercing of the separate juridical personalities of
the corporations involved. We find the piercing to be
proper and in accordance with the law as will be discussed
below.
The following established facts show that Super
Lamination, Express Lamination, and Express Coat are
under the control and management of the same party -
petitioner Ang Lee. In effect, the employees of these three
companies have petitioner as their common employer, as
shown by the following facts:
1. Super Lamination, Express Lamination, and Express
Coat were engaged in the same business of providing
lamination services to the public as admitted by petitioner
in his petition.34
2. The three establishments operated and hired
employees through a common human resource
department as found by DOLE in a clarificatory
hearing.35 Though it was not clear which company the
human resource department was officially attached to,
petitioner admits in his petition that such department
was shared by the three companies for purposes of
convenience.36
3. The workers of all three companies were constantly
rotated and periodically assigned to Super Lamination or
Express Lamination or Express Coat to perform the same
or similar tasks.37 This finding was further affirmed when
petitioner admitted in his petition before us that the Super
Lamination had entered into a work-pooling agreement
with the two other companies and shared a number of
their employees.38
4. DOLE found and the CA affirmed that the common
human resource department imposed disciplinary
sanctions and directed the daily performance of all the
members of Unions A, B, and C.39
5. Super Lamination included in its payroll and SSS
registration not just its own employees, but also the
supposed employees of Express Lamination and Express
Coat. This much was admitted by petitioner in his Motion
to Dismiss40 which was affirmed by the Med-Arbiter in the
latter's Order.41
6. Petitioner admitted that Super Lamination had issued
and signed the identification cards of employees who
were actually working for Express Lamination and
Express Coat.42
7. Super Lamination, Express Lamination, and Express
Coat were represented by the same counsel who
interposed the same arguments in their motions before
the Med-Arbiters and DOLE.43
Further, we discern from the synchronized movements of
petitioner and the two other companies an attempt to
frustrate or defeat the workers' right to collectively
bargain through the shield of the corporations' separate
juridical personalities. We make this finding on the basis
of the motions to dismiss filed by the three companies.
While similarly alleging the absence of an employer-
employee relationship, they alternately referred to one
another as the employer of the members of the bargaining
units sought to be represented respectively by the unions.
This fact was affirmed by the Med-Arbiters' Orders finding
that indeed, the supposed employees of each
establishment were found to be alternately the employees
of either of the two other companies as well. This was
precisely the reason why DOLE consolidated the appeals
filed by Unions A, B, and C.44
Due to the finger-pointing by the three companies at one
another, the petitions were dismissed. As a result, the
three unions were not able to proceed with the conduct of
the certification election. This also caused confusion
among the employees as to who their real employer is, as
Union A claims in its Comment.45
We hold that if we allow petitioner and the two other
companies to continue obstructing the holding of the
election in this manner, their employees and their
respective unions will never have a chance to choose their
bargaining representative. We take note that all three
establishments were unorganized. That is, no union
therein was ever duly recognized or certified as a
bargaining representative.46
Therefore, it is only proper that, in order to safeguard the
right of the workers and Unions A, B, and C to engage in
collective bargaining, the corporate veil of Express
Lamination and Express Coat must be pierced. The
separate existence of Super Lamination, Express
Lamination, and Express Coat must be disregarded. In
effect, we affirm the lower tribunals in ruling that these
companies must be treated as one and the same unit for
purposes of holding a certification election.
Petitioner has cited Diatagon Labor Federation Local v.
Ople47 and lndophil Textile Mill Worker Union v. Calica48 in
which this Court refused to treat separate corporations as
a single bargaining unit. Those cases, however, are not
substantially identical with this case and would not
warrant their application herein. Unlike in the instant case,
the corporations involved were found to be completely
independent or were not involved in any act that
frustrated the laborers' rights.
In Diatagon,49 we refused to include the 236 employees of
Georgia Pacific International Corporation in the
bargaining unit of the employees of Liangga Bay Logging
Co., Inc. This Court's refusal was in light of the fact that the
two corporations were indubitably distinct entities with
separate corporate identities and origins. Moreover, there
was no discernible attempt to frustrate any of their labor-
related rights, as the only conflict was over which
bargaining unit they belonged to.
In Indophil,50 this Court refused to pierce the corporate
veil of Indophil Textile Mill and Indophil Acrylic
Manufacturing. We found that the creation of Indophil
Acrylic was not a device to evade the application of the
collective bargaining agreement (CBA) between
petitioner union and Indophil Textile Mill. This Court
further found that despite the similarity in their business
operations, the separate personalities of the two
corporations were maintained and were not used for any
of the purposes specified under the law that would
warrant piercing. It is also apparent in this case that the
workers' rights were not being hampered by the
employers concerned, as the only issue between them was
the extent of the subject CBA's application.
In this case, not only were Super Lamination, Express
Lamination, and Express Coat found to be under the
control of petitioner, but there was also a discernible
attempt to disregard the workers' and unions' right to
collective bargaining.
The foregoing considered, we find no error in the CA' s
affirmance of the DOLE directive. We affirm DOLE's
application by analogy of the concept of multi-employer
bargaining to justify its Decision to treat the three
companies as one. While the multi-employer bargaining
mechanism is relatively new and purely optional under
Department Order No. 40-03, it illustrates the State's
policy to promote the primacy of free and responsible
exercise of the right to collective bargaining.51 The
existence of this mechanism in our labor laws affirm
DOLE's conclusion that its treatment of the employees of
the three companies herein as a single bargaining unit is
neither impossible nor prohibited.52 It is justified under
the circumstances discussed above.
Besides, it is an established rule that factual findings of
labor officials, who are deemed to have acquired expertise
in matters within their jurisdiction, are generally
accorded by the courts not only respect but even finality
when supported by substantial evidence; i.e., that amount
of relevant evidence which a reasonable mind might
accept as adequate to justify a conclusion.53
The bargaining unit of the rank-and-
file employees of the three companies
is appropriate.
Petitioner argues that there is no showing that the rank-
and-file employees of the three companies would
constitute an appropriate bargaining unit on account of
the latter's different geographical locations.54 This
contention lacks merit. The basic test for determining the
appropriate bargaining unit is the application of a
standard whereby a unit is deemed appropriate if it affects
a grouping of employees who have substantial, mutual
interests in wages, hours, working conditions, and other
subjects of collective bargaining.55 We have ruled that
geographical location can be completely disregarded if the
communal or mutual interests of the employees are not
sacrificed.56
In the present case, there was communal interest among
the rank-and-file employees of the three companies based
on the finding that they were constantly rotated to all
three companies, and that they performed the same or
similar duties whenever rotated.57 Therefore, aside from
geographical location, their employment status and
working conditions were so substantially similar as to
justify a conclusion that they shared a community of
interest. This finding is consistent with the policy in favor
of a single-employer unit, unless the circumstances
require otherwise.58The more solid the employees are, the
stronger is their bargaining capacity.59
As correctly observed by the CA and DOLE, while there is
no prohibition on the mere act of engaging in a work-
pooling scheme as sister companies, that act will not be
tolerated, and the sister companies' separate juridical
personalities will be disregarded, if they use that scheme
to defeat the workers' right to collective bargaining. The
employees' right to collectively bargain with their
employers is necessary to promote harmonious labor-
management relations in the interest of sound and stable
industrial peace.60
WHEREFORE, the Petition for Review on Certiorari under
Rule 45 is DENIED for lack of merit. The Court of Appeals
Decision61 and Resolution62 in CA-G.R. SP No. 109486 are
hereby AFFIRMED.
SO ORDERED.
Reyno C. Dimson Vs. Gerry T. Chua; G.R. No. 192318;
December 5, 2016
DECISION
REYES, J.:
This is a petition for review on certiorari[1] assailing the
Decision[2] dated August 13, 2009 and Resolution[3] dated
April 14, 2010 of the Court of Appeals (CA) in CA-G.R. SP
No. 02575-MIN. The appellate court nullified and set aside
the Resolutions dated January 11, 2008[4] and July 31,
2008[5] of the National Labor Relations Commission
(NLRC) in NLRC MAC-10-009909-2007, which affirmed
the Order[6] dated August 16, 2007 of the Labor Arbiter
(LA) in NLRC RAB Case No. 12-01-00005-03, granting
Reyno C. Dimson’s (petitioner) motion for the issuance of
an amended alias writ of execution[7] to include Gerry T.
Chua (respondent), as well as the other corporate officers
of South East Asia Sugar Mill Corporation (SEASUMCO)
and Mindanao Azucarera Corporation (MAC), to be held
solidarily liable with the said corporations for the money
claims of the employees of SEASUMCO.
The Facts
The instant case filed by the petitioner, representing the
other 14 complainants, against the respondent, is an
offshoot of the labor case entitled “Reyno Dimson, et al. v.
SEASUMCO, MAC, United Coconut Planters Bank (UPCB),
and Cotabato Sugar Central Co., Inc. (COSUCECO).”
On September 22, 2003, the said labor case for illegal
dismissal with monetary claims was decided in favor of
the complainants.[8] Hence, SEASUMCO and MAC, as well
as the members of their board of directors, were ordered
to pay jointly and severally the sum of Three Million Eight
Hundred Twenty-Seven Thousand Four Hundred Seventy
Pesos and Fifty-One Centavos (P3,827,470.51). The
dispositive portion reads:
WHEREFORE, premises considered, judgment is hereby
rendered: A) Declaring that the Complainants were
illegally separated from their employment, and
consequently, they are entitled to payment of separation
pay equivalent to one month pay per year of service and
to payment of backwages reckoned from June 2000 until
the finality of this decision and to payment of Service
Incentive Leave Pay and 13thmonth pay.
b) Declaring Respondents SEASUMCO and x x x MAC,
including their respective presidents and board of
directors jointly and severally liable to all the monetary
entitlements of all Complainants as above granted.
c) Dismissing the complaints/claims against Respondents
UCPB and COSUCECO for lack of employer-employee
relationship; and
d) Ordering Respondents SEASUMCO and MAC, its
respective presidents and members of the board of
directors to pay jointly and severally the Complainants the
amount of THREE MILLION EIGHT HUNDRED
TWENTY[-]SEVEN THOUSAND FOUR HUNDRED
SEVENTY & 51/100 (P3,827,470.51) covering the
entitlements representing partial computations of the
complainants’ entitlement herein.
All other claims are dismissed for lack of legal and factual
basis.
SO ORDERED.[9]
The LA’s decision became final and executory but the
judgment remained unsatisfied. Consequently, the
petitioner filed an Ex-parte Motion[10] for the issuance of
an amended alias writ of execution asking for the inclusion
of the board of directors and corporate officers of
SEASUMCO and MAC to hold them liable for satisfaction of
the said decision.
In an Order[11] dated August 16, 2007, the LA granted the
motion; hence, an amended alias writ of execution[12] was
issued which now included the respondent.
Aggrieved, the respondent elevated the matter to the
NLRC by filing a Memorandum of Appeal[13] arguing that
he was denied due process.
In a Resolution[14] dated January 11, 2008, the NLRC
dismissed the appeal for lack of merit and sustained the
findings of the LA.
The respondent filed a Motion for Reconsideration,[15] but
the NLRC Resolution[16] dated July 31, 2008 denied his
motion. Hence, he filed a petition for certiorari with
application for temporary restraining order
(TRO)/preliminary injunction[17] before the CA. He
maintained that the labor tribunals violated his right to
due process when the LA authorized the issuance of the
amended alias writ of execution against him for the
corporation’s judgment debt, although he has never been
a party to the underlying suit.
Meanwhile, upon the petitioner’s motion, a Second Alias
Writ of Execution[18]was issued on November 3, 2008,
since the previous writ dated August 17, 2007 has already
expired. Pursuant to this, on December 2, 2008, a
Certificate of Sale/Award[19] was issued to the petitioner
upon the levy on execution that was made over the shares
of stocks belonging to the respondent at New Frontier
Sugar Corporation (NFSC) totaling 105,344 shares with
the total amount of P10,534,400.00.
On January 30, 2009, the CA denied the respondent’s
application for a TRO and set the case for hearing on the
propriety of the issuance of a writ of preliminary
injunction (WPI).[20]
In the Resolution[21] dated April 16, 2009, the CA issued a
WPI enjoining the NLRC, its sheriff and any person acting
for and its behalf from transferring in the names of the
petitioner and other private respondents in the NLRC case,
the respondent shares of stocks with NFSC pending
resolution of the petition.
On August 13, 2009, the CA rendered the assailed
judgment, which nullified and set aside the rulings of the
NLRC, and made the WPI permanent.[22] The CA held that
the respondent was indeed denied due process based on
the following ratiocination:
In the case at bar, the records clearly show that [the
respondent] was never served summons with respect to
NLRC RAB Case No. 12-01- 00005-03. He, thus, cannot be
made liable for any findings of the LA respecting private
respondents’ monetary claims. Moreover, as can likewise
be gleaned from the records, private respondents
monetary claims are claims against the corporation of
which [the respondent] is merely an officer.[23]
In overturning the NLRC’s decision, the CA emphasized
that the LA cannot acquire jurisdiction over the person of
the respondent without the latter being served with
summons, and in the absence of service of summons or a
valid waiver thereof, the hearings and judgment’ rendered
by the LA are null and void. The CA emphasized the rule
that a corporation is clothed with a personality distinct
from that of its officers and the petitioner has not shown
any ground that would necessitate the piercing of the
corporate veil and disregarding SEASUMCO’s corporate
fiction. Fm1hermore, the CA also noted with curiosity the
respondent’s claim that Agosto Sia (Sia), a co-respondent
and likewise similarly situated as him, allegedly appealed
the Order dated August 16, 2007 of the LA to the
NLRC[24] and yet the latter granted Sia’s appeal.[25]
Upset by the foregoing disquisition, the petitioner moved
for reconsideration[26] but it was denied by the
CA.[27] Hence, the present petition for review on certiorari.
The Issue
The main issue in this case is whether the respondent can
be held solidarily liable with the corporation, of which he
was an officer and a stockholder, when he was not served
with summons and was never impleaded as a party to the
case.
Ruling of the Court
The petition has no merit.
The issue of whether the respondent is personally liable
for the monetary awards granted in favor of the petitioner,
arising from the complainants’ alleged illegal termination,
while basically a question of law pertinent for a Rule 45
review, nevertheless, hinges for its resolution on a factual
issue, the question of whether there had been improper
service of summons upon the respondent which renders
the judgment by the LA against him null and void.
Moreover, the inconsistent rulings of the LA and the NLRC,
on the one hand, and of the CA, on the other, in the present
petition, make this case fall within the ambit of this Court’s
review.
Despite that, the issue posited in this case is not novel
since a catena of cases involving the question of denial of
due process and the propriety of a corporate officers’
solidary liability with the corporation has already come
before this Court.
In the main, the crux of the petitioner’s argument focuses
only on the liberal application of the rules of procedure
and evidence before the NLRC. The petitioner contends
that lack of summons is not indicative of lack of due
process. Although expressly admitting that the
respondent was not named as party in the illegal dismissal
case before the LA, the petitioner argues that it does not
mean that the respondent was denied due process since
the latter was given the opportunity to express his
defenses before the labor tribunals.
On the other hand, the respondent questions his inclusion
in the decision of the labor tribunals below. He contends
that the LA did not acquire jurisdiction over his person
and emphasizes that he was never impleaded as a party
respondent to the case but was merely included in the
order for writ of execution of the money claims of the
petitioner. He also questions his solidary liability with the
corporation.
The respondent’s assertions are not without basis, as can
be seen from Sections 3[28] and 6[29] of Rule III of the 2005
Revised Rules of Procedure of the NLRC governing the
issuance and services of notices and resolutions, including
summons, in cases filed before the LAs.
Following the explicit language of the NLRC Rules, notices
or summons shall be served on the parties to the case
personally. The same rule allows under special
circumstances, that service of summons may be effected
in accordance with the provisions of the Rules of Court.
The service of summons in cases before the LAs shall be
served on the parties personally or by registered mail,
provided that in special circumstances, service of
summons may be effected in accordance with the
pertinent provisions of the Rules of Court.
Supplementary or applied by analogy to these provisions
are the provisions and prevailing jurisprudence in Civil
Procedure. Where there is then no service of summons on
or a voluntary general appearance by the defendant, the
court acquires no jurisdiction to pronounce a judgment in
the case.[30]
It is basic that the LA cannot acquire jurisdiction over the
person of the respondent without the latter being served
with summons. However, if there is no valid service of
summons, he court can still acquire jurisdiction over the
person of the defendant by virtue of the latter’s voluntary
appearance.[31]
In this case, since the respondent is one of the officers of
SEASUMCO, service of summons must be made to him
personally or by registered mail. However, as borne by the
records, it is evident that no service of summons and
notices were served on the respondent and he was not
impleaded in NLRC RAB Case No. 12-01-00005-03. He was
hauled to the case after he reacted to the improper
execution of his properties and was actually dragged to
court by mere motion of the petitioner with whom he has
no privity of contract and after the decision in the main
case had already become final and executory. The
respondent only received the copy of the assailed Order
dated August 17, 2007 of the LA on September 5, 2007.[32]
It can be recalled that the petitioners’ original complaints
for illegal dismissal with money claims were only against
SEASUMCO, MAC, UCPB and COSUCECO. For these
complaints, the LA issued summons to a conference for a
possible settlement to the said corporations, including its
chairman Margarita Sia and Michael Angala. The Court
scanned the records but found nothing to indicate that
summons with respect to the said complaints were ever
served upon the respondent. The petitioner in fact does
not even dispute the respondent’s claim that no summons
or notices were ever issued and served on him either
personally or through registered mail. True to his claim,
the respondent, indeed, was never summoned by the LA.
Besides, even assuming that the respondent has
knowledge of a labor case against SEASUMCO, this will not
serve the same purpose as summons to him.
More so, the respondent did not voluntarily appear before
the LA as to submit himself to its jurisdiction. Contrary to
the petitioner’s position, the validity of a judgment or
order of a court or quasi-judicial tribunal which has
become final and executory may be attacked when the
records show that it lacked jurisdiction to render the
judgment. For a judgment rendered against one in a case
where jurisdiction over his person was not acquired is
void, and a void judgment maybe assailed or impugned at
any time either directly or collaterally by means of a
petition filed in the same or separate case, or by resisting
such judgment in any action or proceeding wherein it is
invoked.[33]
Guided by the foregoing norms, the CA properly concluded
that the proceedings before the LA deprived the
respondent of due process. Considering that the
respondent was never impleaded as a party respondent
and was never validly served with summons, the LA never
acquired jurisdiction over his person. Perforce, the
proceedings conducted and the decision rendered are
nugatory and without effect. This utter lack of jurisdiction
voids any liability of the respondent for any monetary
award or judgment in favor of the petitioner.
It has not escaped the Court’s attention that the
respondent’s co-officer, Sia, also filed an appeal before the
NLRC which the latter granted despite the fact that they
were similarly situated. The Court agrees with the finding
of the CA on this matter:
Indeed, we find it strange, if not queer that [the
respondent] who was similarly situated as that of Sia,
would have been treated differently by [NLRC]. Both were
in the same, if not exact, situation. [The respondent] and
Sia, as the records show, were never impleaded as
respondents in the complaint filed before the [LA] and
neither too were they served with summons to enable
them to file their answer before that level. Nevertheless,
as the record shows, Sia’s appeal was granted excluding
him from liability for the reason that precisely he was not
impleaded as a party to the case nor summons served on
him. Strangely, however, as aforestated, [the
respondent’s] appeal was denied and was held liable for
the monetary claims of private respondents. It would thus,
clearly appear from the records that [NLRC] adopted two
inconsistent positions in treating the appeals interposed
by [the respondent] and Sia. The records likewise show
that both [the respondent] and Sia were represented by
the same counsel. For unknown reasons or for reasons
only known to [NLRC], [the respondent’s] and Sia’s appeal
were treated differently notwithstanding the identical
situation they were in.[34]
While it is true that the LA and the NLRC are not bound by
technical rules of evidence and procedure, such should not
be interpreted so as to dispense with the fundamental and
essential right of every person to due process of law.[35]“At
all events, even if administrative tribunals exercising
quasi-judicial powers are not strictly bound by procedural
requirements, they are still bound by law and equity to
observe the fundamental requirements of due process.”[36]
Finally, the Court sustains the CA’s ruling that the
respondent, as one of SEASUMCO’s corporate officer and
stockholder, should not be held solidarily liable with the
corporation for its monetary liabilities with the petitioner.
Here, the LA pierced the veil of corporate fiction of
SEASUMCO and held the respondent, in his personal
capacity, jointly and severally liable with the corporation
for the enforcement of the monetary awards to the
petitioner. Even assuming that the labor tribunals had
jurisdiction over the respondent, it was still improper to
hold him liable for SEASUMCO’s obligations to its
employees.
In the recent case of Jose Emmanuel P. Guillermo v. Crisanto
P. Uson,[37] the Court resolved the twin doctrines of
piercing the veil of corporate fiction and personal liability
of company officers in labor cases. According to the Court:
The common thread running among the aforementioned
cases, however, is that the veil of corporate fiction can be
pierced, and responsible corporate directors and officers
or even a separate but related corporation, may be
impleaded and held answerable solidarity in a labor case,
even after final judgment and on execution, so long as it is
established that such persons have deliberately used the
corporate vehicle to unjustly evade the judgment
obligation, or have resorted to fraud, bad faith or malice in
doing so. When the shield of a separate corporate identity
is used to commit wrongdoing and opprobriously elude
responsibility, the courts and the legal authorities in a
labor case have not hesitated to step in and shatter the
said shield and deny the usual protections to the offending
party, even after final judgment. The key element is the
presence of fraud, malice or bad faith. Bad faith, in this
instance, does not connote bad judgment or negligence
but imports a dishonest purpose or some moral obliquity
and conscious doing of wrong; it means breach of a known
duty through motive or interest or ill will; it partakes of
the nature of fraud.
As the foregoing implies, there is no hard and fast rule on
when corporate fiction may be disregarded; instead, each
case must be evaluated according to its peculiar
circumstances. For the case at bar, applying the above
criteria, a finding of personal and solidary liability against
a corporate Officer like Guillermo must be rooted on a
satisfactory showing of fraud, bad faith or malice, or the
presence of any of the justifications for disregarding the
corporate fiction. x x x.[38](Citations omitted)
“A corporation is a juridical entity with a legal personality
separate and distinct from those acting for and in its
behalf and, in general, from the people comprising it. Thus,
as a general rule, an officer may not be held liable for the
corporation’s labor obligations unless he acted with
evident malice and/or bad faith in dismissing an
employee.”[39] Section 31[40] of the Corporation Code is the
governing law on personal liability of officers for the debts
of the corporation. To hold a director or officer personally
liable for corporate obligations, two requisites must
concur: (1) it must be alleged in the complaint that the
director or officer assented to patently unlawful acts of the
corporation or that the officer was guilty of gross
negligence or bad faith; and (2) there must be proof that
the officer acted in bad faith.[41]
Based on the records, the petitioner and the private
respondents in the NLRC case failed to specifically allege
either in their complaint or position paper that the
respondent, as an officer of SEASUMCO, willfully and
knowingly assented to the corporations’ patently
unlawful act of closing the corporation, or that the
respondent had been guilty of gross negligence or bad
faith in directing the affairs of the corporation. In fact,
there was no evidence at all to show the respondent’s
participation in the petitioner’s illegal dismissal. Clearly,
the twin requisites of allegation and proof of bad faith,
necessary to hold the respondent personally liable for the
monetary awards to the petitioner, are lacking.
The respondent is merely one of the officers of SEASUMCO
and to single him out and require him to personally
answer for the liabilities of SEASUMCO are without basis.
In the absence of a finding that he acted with malice or bad
faith, it was error for the labor tribunals to hold him
responsible.
The Court had repeatedly emphasized that the piercing of
the veil of corporate fiction is frowned upon and can only
be done if it has been clearly established that the separate
and distinct personality of the corporation is used to
justify a wrong, protect fraud, or perpetrate a
deception.[42] To disregard the separate juridical
personality of a corporation, the wrongdoing must be
established clearly and convincingly. It cannot be
presumed.
WHEREFORE, the petition is DENIED. The Decision dated
August 13, 2009 and Resolution dated April 14, 2010 of
the Court of Appeals in CA-G.R. SP No. 02575-MIN
are AFFIRMED.
SO ORDERED.
Velasco, Jr., (Chairperson), Peralta, Perez, and Jardeleza, JJ.,
concur.
FIRST DIVISION
G.R. No. 184520 March 13, 2013
ROLANDO DS.TORRES, Petitioner,
vs.
RURAL BANK OF SAN JUAN, INC., ANDRES CANO CHUA,
JOBEL GO CHUA, JESUS CANO CHUA, MEINRADO
DALISAY, JOSE MANALANSAN III, OFELIA GINA BE and
NATY ASTRERO, Respondents.
DECISION
REYES, J.:
This Petition for Review on Certiorari,1 under Rule 45 of
the Rules of Court, seeks to reverse and set aside the
Decision2 dated February 21, 2008 of the Court of Appeals
(CA) in CA-G.R. SP No. 94690 dismissing the complaint for
illegal dismissal filed by petitioner Rolando OS. Torres
(petitioner) against respondent Rural Bank of San Juan,
Inc. (RBSJT) and its officers who are the herein individual
respondents, namely: Andres Cano Chua (Andres), Jobel
Go Chua (Jobel), Jesus Cano Chua (Jesus), Meinrado
Dalisay, Jose Manalansan III (Jose), Ofelia Ginabe (Ofelia)
and Naty Astrero (collectively referred to as
respondents).3
Likewise assailed is the CA Resolution4 dated June 3, 2008
which denied reconsideration.
The antecedents
Culled from the rulings of the labor tribunals and the
appellate court are the ensuing factual milieu:5
The petitioner was initially hired by RBSJI as Personnel
and Marketing Manager in 1991. After a six-month
probationary period and finding his performance to be
satisfactory, RBSJI renewed his employment for the same
post to a permanent/regular status. In June 1996, the
petitioner was offered the position of Vice-President for
RBSJI’s newly created department, Allied Business
Ventures. He accepted the offer and concomitantly
relinquished his post. The vacancy created was filled by
respondent Jobel who temporarily held the position
concurrently as a Corporate Planning and Human
Resources Development Head.
On September 24, 1996, the petitioner was temporarily
assigned as the manager of RBSJI’s N. Domingo branch in
view of the resignation of Jacinto Figueroa (Jacinto).
On September 27, 1996, Jacinto requested the petitioner
to sign a standard employment clearance pertaining to his
accountabilities with RBSJI. When the petitioner declined
his request, Jacinto threw a fit and shouted foul invectives.
To pacify him, the petitioner bargained to issue a
clearance but only for Jacinto’s paid cash advances and
salary loan.
About seven months later or on April 17, 1997,
respondent Jesus issued a memorandum to the petitioner
requiring him to explain why no administrative action
should be imposed on him for his unauthorized issuance
of a clearance to Jacinto whose accountabilities were yet
to be audited. Jacinto was later found to have unliquidated
cash advances and was responsible for a questionable
transaction involving ₱11 million for which RBSJI is being
sued by a certain Actives Builders Manufacturing
Corporation. The memorandum stressed that the
clearance petitioner issued effectively barred RBSJI from
running after Jacinto.6
The petitioner submitted his explanation on the same day
clarifying that the clearance was limited only to Jacinto’s
paid cash advances and salary loan based on the receipts
presented by Lily Aguilar (Lily), the cashier of N. Domingo
branch. He emphasized that he had no foreknowledge nor
was he forewarned of Jacinto’s unliquidated cash
advances and questionable transactions and that the
clearance did not extend to those matters.7
After conducting an investigation, RBSJI’s Human
Resources Department recommended the petitioner’s
termination from employment for the following reasons,
to wit:
1. The issuance of clearance to Mr. Jacinto
Figueroa by the petitioner have been prejudicial to
the Bank considering that damages [sic] found
caused by Mr. Figueroa during his stay with the
bank;
2. The petitioner is not in any authority to issue
said clearance which is a violation of the Company
Code of Conduct and Discipline under Category B
Grave Offense No. 1 (falsifying or misrepresenting
persons or other company records, documents or
papers) equivalent to termination; and
3. The nature of his participation in the issuance of
the said clearance could be a reasonable ground
for the Management to believe that he is unworthy
of the trust and confidence demanded by his
position which is also a ground for termination
under Article 282 of the Labor Code.8
On May 19, 1997, RBSJI’s Board of Directors adopted the
above recommendation and issued Resolution No. 97-102
terminating the petitioner from employment, the import
of which was communicated to him in a Memorandum
dated May 30, 1997.9
Feeling aggrieved, the petitioner filed the herein
complaint for illegal dismissal, illegal deduction, non-
payment of service incentive, leave pay and retirement
benefits.10 The petitioner averred that the supposed loss
of trust and confidence on him was a sham as it is in fact
the calculated result of the respondents’ dubious plot to
conveniently oust him from RBSJI.
He claimed that he was deceived to accept a Vice-
President position, which turned out to be a mere clerical
and menial work, so the respondents can install Jobel, the
son of a major stockholder of RBSJI, as Personnel and
Marketing Manager. The plot to oust the petitioner
allegedly began in 1996 when Jobel annexed the
Personnel and Marketing Departments to the Business
Development and Corporate Planning Department thus
usurping the functions of and displacing the petitioner,
who was put on a floating status and stripped of
managerial privileges and allowances.
The petitioner further alleged that he was cunningly
assigned at N. Domingo branch so he can be implicated in
the anomalous transaction perpetrated by Jacinto. He
narrated that on September 27, 1996, the officers of RBSJI,
namely: Jobel, Andres, Jose and Ofelia, were actually at the
N. Domingo branch but they all suspiciously left him to
face the predicament caused by Jacinto.
He recounted that the next day he was assigned back at
the Tarlac extension office and thereafter repeatedly
harassed and forced to resign. He tolerated such
treatment and pleaded that he be allowed to at least reach
his retirement age. On March 7, 1996, he wrote a letter to
George Cano Chua (George) expressing his detestation of
how the "new guys" are dominating the operations of the
company by destroying the image of pioneer employees,
like him, who have worked hard for the good image and
market acceptability of RBSJI. The petitioner requested for
his transfer to the operations or marketing department.
His request was, however, not acted upon.
The petitioner claimed that on March 19, 1997,
respondent Jesus verbally terminated him from
employment but he later on retracted the same and
instead asked the petitioner to tender a resignation letter.
The petitioner refused. A month thereafter, the petitioner
received the memorandum asking him to explain why he
cleared Jacinto of financial accountabilities and thereafter
another memorandum terminating him from employment.
For their part, the respondents maintained that the
petitioner was validly dismissed for loss of trust and
confidence precipitated by his unauthorized issuance of a
financial accountability clearance sans audit to a resigned
employee. They averred that a copy of the clearance
mysteriously disappeared from RBSJI’s records hence, the
petitioner’s claim that it pertained only to Jacinto’s paid
cash advances and salary loan cannot stand for being
uncorroborated.
Attempts at an amicable settlement were made but the
same proved futile hence, the Labor Arbiter11 (LA)
proceeded to rule on the complaint.
Ruling of LA
In its Decision12 dated November 27, 1998, the LA
sustained the claims of the petitioner as against the
factually unsubstantiated allegation of loss of trust and
confidence propounded by the respondents. The LA
observed that the petitioner’s selfless dedication to his job
and efforts to achieve RBSJI’s stability, which the
respondents failed to dispute, negate any finding of bad
faith on his part when he issued a clearance of
accountabilities in favor of Jacinto. As such, the said act
cannot serve as a valid and justifiable ground for the
respondents to lose trust and confidence in him.
The LA further held that the failure of both parties to
present a copy of the subject clearance amidst the
petitioner’s explanation that it did not absolutely release
Jacinto from liability, should work against the
respondents since it is the proof that will provide basis for
their supposed loss of trust and confidence.
The LA upheld the petitioner’s contention that the loss of
trust and confidence in him was indeed a mere
afterthought to justify the respondents’ premeditated
plan to ease him out of RBSJI. The LA’s conclusion was
premised on the convergence of the following
circumstances: (1) the petitioner’s stint from 1991-1996
was not marred with any controversy or complaint
regarding his performance; (2) when Jobel joined RBSJI in
the latter part of 1996, he took over the department led by
the petitioner thus placing the latter in a floating status;
and (3) the petitioner’s temporary transfer to the N.
Domingo branch was designed to deliberately put him in
a bind and blame him on whatever course of action he may
take to resolve the same.
Accordingly, the petitioner was found to have been
illegally dismissed and thus accorded the following reliefs
in the decretal portion of the LA Decision, viz:
WHEREFORE, premises considered, judgment is hereby
rendered ordering respondent Bank and individual
respondents, to reinstate [the petitioner to his previous or
equivalent position, without loss of seniority rights and
other benefits and privileges appurtaining [sic] to him,
and to pay the petitioner the following:
1. The petitioner’s partial backwages and other
emoluments in the form of allowances, as gasoline,
maintenance, representation, uniform and
membership allowances, from the time of his
dismissal up to his actual date of reinstatement,
which as of this date amount to:
Backwages (Partial) ……………………
₱244,800.00
Gasoline Allowances …………………..
63,000.00
 Maintenance Allowance ……………….
45,000.00
Representation Allowance ……………..
54,000.00
Membership Allowance ………………..
12,000.00
Uniform Allowance ……………………
8,000.00
Total ………₱426,800.00
2. The petitioner’s 13th month pay from the time
of his dismissal up to actual date of reinstatement,
which as of this date amounts to Twenty-Seven
Thousand Two Hundred (₱27,200.00) Pesos;
3. Moral and exemplary damages in the amount of
Fifty Thousand ([P]50,000.00) Pesos each,
respectively; and
4. Attorney’s fees amounting to ten percent (10%)
of the total award, specifically amounting to Fifty-
Five Thousand Nine Hundred Twenty-Three Pesos
and Eight ([P]55,923.08) Centavos.
All other claims are hereby Dismissed for lack of merit.
SO ORDERED.13
Ruling of the National Labor Relations Commission
(NLRC)
In its Resolution14 dated April 14, 2000, the NLRC
disagreed with the LA’s conclusion and opined that it was
anchored on irrelevant matters such as the petitioner’s
performance and the preferential treatment given to
relatives of RBSJI’s stockholders. The NLRC held that the
legality of the petitioner’s dismissal must be based on an
appreciation of the facts and the proof directly related to
the offense charged, which NLRC found to have weighed
heavily in favor of the respondents.
The NLRC remarked that the petitioner was indisputably
not authorized to issue the clearance. Also, the tantrums
and furious attitude exhibited by Jacinto are not valid
reasons to submit to his demands. The fact that the N.
Domingo branch had been sued civilly on February 25,
1997 for a tax scam while under Jacinto’s leadership,
should have alerted the petitioner into issuing him a
clearance. The action taken by the petitioner lacked the
prudence expected from a man of his stature thus
prejudicing the interests of RBSJI. Accordingly, the
dispositive portion of the decision reads:
WHEREFORE, the decision appealed from is hereby
REVERSED and SET ASIDE. Let a new one [sic] entered
DISMISSING the instant case for lack of merit. However,
respondent should pay the petitioner his proportionate
13th month pay for 1997 as he was dismissed on May 30,
1997.
SO ORDERED.15
The petitioner sought reconsideration16 which was
admitted by the NLRC in an Order dated September 30,
2005. From such Order, the respondents filed a motion for
reconsideration on the ground that the petitioner failed to
present a copy of his purported motion bearing the
requisite proof of filing.17
Traversing both motions, the NLRC issued its
Decision18 dated March 3, 2006: (1) granting the
petitioner’s plea for the reconsideration of its Resolution
dated April 14, 2000 thus effectively reversing and
nullifying the same; and (2) denying the respondents’
motion for reconsideration of the Order dated September
30, 2005.
Anent the first disposition, the NLRC accorded weight to
the explanations proffered by the petitioner that the
clearance issued to Jacinto was limited only to his paid
cash advances and salary loan. The NLRC further held that
the offense imputed to the petitioner is not covered by
Category B, Grave Offense No. 1 of RBSJI’s Code of Conduct
and Discipline as it does not appear that he falsified or
misrepresented personal or other company records,
documents or papers.19
Taking an entirely opposite stance, the NLRC declared that
the clearance issued by the petitioner did not prejudice
RBSJI’s interest as it was limited in scope and did not
entirely clear Jacinto from all his financial accountabilities.
Also, the petitioner was only "a day old" at the N. Domingo
branch and thus he cannot be reasonably expected to be
aware of the misdeeds purportedly committed by
Jacinto.20
For the foregoing reasons, the NLRC reversed its earlier
ruling and reinstated the LA’s Decision dated November
27, 1998, thus:
WHEREFORE, the Arbiter’s decision of 27 November 1998
is hereby AFFIRMED and REINSTATED.
Accordingly, the Resolution of 14 April 2000 is REVERSED
and SET ASIDE.
Finally, the respondents’ Motion for Reconsideration
dated 2 November 2005 is DENIED for lack of merit.
SO ORDERED.21
Ruling of the CA
The respondents sought recourse with the CA,22 which in
its Decision23 dated February 21, 2008 reversed and set
aside the NLRC Decision dated March 3, 2006 and ruled
that the petitioner was dismissed for a just cause. The
appellate court articulated that as the Acting Manager of
RBSJI’s N. Domingo branch, the petitioner held a highly
sensitive and critical position which entailed the
conscientious observance of company procedures. Not
only was he unauthorized to issue the clearance, he also
failed to exercise prudence in clearing Jacinto of his
accountabilities given the fact that the same were yet to be
audited. Such omission financially prejudiced RBSJI and it
amounted to gross negligence and incompetence
sufficient to sow in his employer the seed of mistrust and
loss of confidence.24The decretal portion of the CA
Decision thus reads:
IN VIEW OF ALL THE FOREGOING, the petition is
GRANTED. The March 03, 2006 Decision of the National
Labor Relations Commission is REVERSED and SET ASIDE.
The April 14, 2000 Decision of the National Labor
Relations Commission is hereby REINSTATED. No costs.
SO ORDERED.25
The petitioner moved for reconsideration26 but the
motion was denied in the CA Resolution27 dated June 3,
2008. Hence, the present appeal.
Arguments of the parties
The petitioner avers that the respondents’ claim of loss of
trust and confidence is not worthy of credence since they
failed to present a copy of the clearance purportedly
showing that he cleared Jacinto of all his financial
accountabilities and not merely as to his paid cash
advances and salary loan. He points out that RBSJI must be
in custody thereof considering that it is a vital official
record.
The petitioner insists that the alleged loss of trust and
confidence in him is a mere subterfuge to cover the
respondents’ ploy to oust him out of RBSJI. He asserts that
the seven-month gap between the date when he issued the
subject clearance and the date when he was sent a
memorandum for the said act shows that the respondents’
supposed loss of trust and confidence was a mere
afterthought.28
On the other hand, the respondents invoke the
ratiocinations of the CA that they were justified in losing
the trust and confidence reposed on the petitioner since
he failed to exercise the degree of care expected of his
managerial position. They reiterate the petitioner’s
admission that no audit was yet conducted as to the
accountabilities of Jacinto when he issued the clearance.
The respondents further assert that as a former Personnel
Manager, the petitioner is well-aware of RBSJI’s policy
that before a resigned employee can be cleared of
accountabilities, he must be first examined or audited.
However, the petitioner opted to violate this policy and
yield to Jacinto’s tantrums.29
The above arguments yield the focal issue of whether or
not the petitioner was validly dismissed from employment.
The Court’s Ruling
The petition is impressed with merit.
Settled is the rule that when supported by substantial
evidence, the findings of fact of the CA are conclusive and
binding on the parties and are not reviewable by this
Court.30 As such, only errors of law are reviewed by the
Court in petitions for review of CA decisions. By way of
exception, however, the Court will exercise its equity
jurisdiction and re-evaluate, review and re-examine the
factual findings of the CA when, as in this case, the same
are contradicting31 with the findings of the labor tribunals.
The respondents failed to prove that the petitioner was
dismissed for a just cause.
As provided in Article 28232 of the Labor Code and as
firmly entrenched in jurisprudence,33 an employer has the
right to dismiss an employee by reason of willful breach of
the trust and confidence reposed in him.
To temper the exercise of such prerogative and to
reconcile the same with the employee’s Constitutional
guarantee of security of tenure, the law imposes the
burden of proof upon the employer to show that the
dismissal of the employee is for just cause failing which
would mean that the dismissal is not justified. Proof
beyond reasonable doubt is not necessary but the factual
basis for the dismissal must be clearly and convincingly
established.34
Further, the law mandates that before validity can be
accorded to a dismissal premised on loss of trust and
confidence, two requisites must concur, viz: (1) the
employee concerned must be holding a position of trust;
and (2) the loss of trust must be based on willful breach of
trust founded on clearly established facts.35
There is no arguing that the petitioner was part of the
upper echelons of RBSJI’s management from whom
greater fidelity to trust is expected. At the time when he
committed the act which allegedly led to the loss of RBSJI’s
trust and confidence in him, he was the Acting Manager of
N. Domingo branch. It was part of the petitioner’s
responsibilities to effect a smooth turn-over of pending
transactions and to sign and approve instructions within
the limits assigned to the position under existing
regulations.36 Prior thereto and ever since he was
employed, he has occupied positions that entail the power
or prerogative to dictate management policies – as
Personnel and Marketing Manager and thereafter as Vice-
President.
The presence of the first requisite is thus certain. Anent
the second requisite, the Court finds that the respondents
failed to meet their burden of proving that the petitioner’s
dismissal was for a just cause.
The act alleged to have caused the loss of trust and
confidence of the respondents in the petitioner was his
issuance, without prior authority and audit, of a clearance
to Jacinto who turned out to be still liable for unpaid cash
advances and for an ₱11-million fraudulent transaction
that exposed RBSJI to suit. According to the respondents,
the clearance barred RBSJI from running after Jacinto. The
records are, however, barren of any evidence in support
of these claims.
As correctly argued by the petitioner and as above set
forth, the onus of submitting a copy of the clearance
allegedly exonerating Jacinto from all his accountabilities
fell on the respondents. It was the single and absolute
evidence of the petitioner’s act that purportedly kindled
the respondents’ loss of trust. Without it, the respondents’
allegation of loss of trust and confidence has no leg to
stand on and must thus be rejected. Moreover, one can
reasonably expect that a copy of the clearance, an
essential personnel document, is with the respondents.
Their failure to present it and the lack of explanation for
such failure or the document’s unavailability props up the
presumption that its contents are unfavorable to the
respondents’ assertions.
At any rate, the absence of the clearance upon which the
contradicting claims of the parties could ideally be
resolved, should work against the respondents. With only
sworn pleadings as proof of their opposite claims on the
true contents of the clearance, the Court is bound to apply
the principle that the scales of justice should be tilted in
favor of labor in case of doubt in the evidence presented.37
RBSJI also failed to substantiate its claim that the
petitioner’s act estopped them from pursuing Jacinto for
his standing obligations. There is no proof that RBSJI
attempted or at least considered to demand from Jacinto
the payment of his unpaid cash advances. Neither was
RBSJI able to show that it filed a civil or criminal suit
against Jacinto to make him responsible for the alleged
fraud. There is thus no factual basis for RBSJI’s allegation
that it incurred damages or was financially prejudiced by
the clearance issued by the petitioner.
More importantly, the complained act of the petitioner did
not evince intentional breach of the respondents’ trust
and confidence. Neither was the petitioner grossly
negligent or unjustified in pursuing the course of action he
took.
It must be pointed out that the petitioner was caught in
the quandary of signing on the spot a standard
employment clearance for the furious Jacinto sans any
information on his outstanding accountabilities, and
refusing to so sign but risk alarming or scandalizing RBSJI,
its employees and clients. Contrary to the respondents’
allegation, the petitioner did not concede to Jacinto’s
demands. He was, in fact, able to equalize two equally
undesirable options by bargaining to instead clear Jacinto
only of his settled financial obligations after proper
verification with branch cashier Lily. It was only after Lily
confirmed Jacinto’s recorded payments that the petitioner
signed the clearance. The absence of an audit was
precisely what impelled the petitioner to decline signing a
standard employment clearance to Jacinto and instead
issue a different one pertaining only to his paid
accountabilities.
Under these circumstances, it cannot be concluded that
the petitioner was in any way prompted by malicious
motive in issuing the clearance. He was also able to ensure
that RBSJI’s interests are protected and that Jacinto is
pacified. He did what any person placed in a similar
situation can prudently do. He was able to competently
evaluate and control Jacinto’s demands and thus prevent
compromising RBSJI’s image, employees and clients to an
alarming scene.
The Court has repeatedly emphasized that the act that
breached the trust must be willful such that it was done
intentionally, knowingly, and purposely, without
justifiable excuse, as distinguished from an act done
carelessly, thoughtlessly, heedlessly or
inadvertently.38 The conditions under which the clearance
was issued exclude any finding of deliberate or conscious
effort on the part of the petitioner to prejudice his
employer.
Also, the petitioner did not commit an irregular or
prohibited act. He did not falsify or misrepresent any
company record as it was officially confirmed by Lily that
the items covered by the clearance were truly settled by
Jacinto. Hence, the respondents had no factual basis in
declaring that the petitioner violated Category B Grave
Offense No. 1 of the Company Code of Conduct and
Discipline.
The respondents cannot capitalize on the petitioner’s lack
of authority to issue a clearance to resigned employees.
First, it remains but an unsubstantiated allegation despite
the several opportunities for them in the proceedings
below to show, through bank documents, that the
petitioner is not among those officers so authorized.
Second, it is the Court’s considered view that by virtue of
the petitioner’s stature in respondent bank, it was well-
within his discretion to sign or certify the truthfulness of
facts as they appear in RBSJI’s records. Here, the records
of RBSJI cashier Lily clearly showed that Jacinto paid the
cash advances and salary loan covered by the clearance
issued by the petitioner.
Lastly, the seven-month gap between the clearance
incident and the April 17, 1997 memorandum asking the
petitioner to explain his action is too lengthy to be ignored.
It likewise remains uncontroverted that during such
period, respondent Jesus verbally terminated the
petitioner only to recall the same and instead ask the latter
to tender a resignation letter. When the petitioner refused,
he was sent the memorandum questioning his issuance of
a clearance to Jacinto seven months earlier. The
confluence of these undisputed circumstances supports
the inference that the clearance incident was a mere
afterthought used to gain ground for the petitioner’s
dismissal.
Loss of trust and confidence as a ground for dismissal has
never been intended to afford an occasion for abuse
because of its subjective nature. It should not be used as a
subterfuge for causes which are illegal, improper and
unjustified. It must be genuine, not a mere afterthought
intended to justify an earlier action taken in bad faith.39
All told, the unsubstantiated claims of the respondents fall
short of the standard proof required for valid termination
of employment. They failed to clearly and convincingly
establish that the petitioner’s act of issuing a clearance to
Jacinto rendered him unfit to continue working for RBSJI.
The petitioner was illegally dismissed from employment
and is entitled to back wages, to be computed from the
date he was illegally dismissed until the finality of this
decision.40
The disposition of the case made by the LA in its Decision
dated November 27, 1998, as affirmed by the NLRC in its
Decision dated March 6, 2006, is most in accord with the
above disquisitions hence, must be reinstated. However,
the monetary awards therein should be clarified.
The petitioner is entitled to separation pay in lieu of
reinstatement and his back wages shall earn legal interest.
In accordance with current jurisprudence, the award of
back wages shall earn legal interest at the rate of six
percent (6%) per annum from the date of the petitioner’s
illegal dismissal until the finality of this
decision. Thereafter, it shall earn 12% legal interest until
41
fully paid42 in accordance with the guidelines in Eastern
Shipping Lines, Inc., v. Court of Appeals.43
In addition to his back wages, the petitioner is also entitled
to separation pay. It cannot be gainsaid that animosity and
antagonism have been brewing between the parties since
the petitioner was gradually eased out of key positions in
RBSJI and to reinstate him will only intensify their hostile
working atmosphere.44 Thus, based on strained relations,
separation pay equivalent to one (1) month salary for
every year of service, with a fraction of a year of at least
six (6) months to be considered as one (1) whole year,
should be awarded in lieu of reinstatement, to be
computed from date of his engagement by RBSJI up to the
finality of this decision.45
The award of separation pay in case of strained relations
is more beneficial to both parties in that it liberates the
employee from what could be a highly oppressive work
environment in as much as it releases the employer from
the grossly unpalatable obligation of maintaining in its
employ a worker it could no longer trust.46
The award of moral and exemplary damages is not
warranted.
In M+W Zander Philippines, Inc. v. Enriquez,47 the Court
decreed that illegal dismissal, by itself alone, does not
entitle the dismissed employee to moral damages;
additional facts must be pleaded and proven to warrant
the grant of moral damages, thus:
Moral damages are recoverable only where the dismissal
of the employee was attended by bad faith or fraud, or
constituted an act oppressive to labor, or was done in a
manner contrary to morals, good customs or public policy.
Such an award cannot be justified solely upon the premise
that the employer fired his employee without just cause or
due process. Additional facts must be pleaded and proven
to warrant the grant of moral damages under the Civil
Code, i.e., that the act of dismissal was attended by bad
faith or fraud, or constituted an act oppressive to labor, or
was done in a manner contrary to morals, good customs
or public policy; and, of course, that social humiliation,
wounded feelings, grave anxiety, and similar injury
resulted therefrom.48 (Citations omitted)
Bad faith does not connote bad judgment or negligence; it
imports a dishonest purpose or some moral obliquity and
conscious doing of wrong; it means breach of a known
duty through some motive or interest or ill will; it partakes
of the nature of fraud.49
Here, the petitioner failed to prove that his dismissal was
attended by explicit oppressive, humiliating or demeaning
acts. The following events merely sketch the struggle for
power within the upper management of RBSJI between
the "old guys" and the "new guys"; they do not
convincingly prove that the respondents schemed to
gradually ease the petitioner out, viz: (1) his promotion as
Vice-President; (2) his replacement by Jobel as Personnel
and Marketing Manager; (2) his designation as Acting
Manager of N. Domingo branch and the recall thereof on
the very next day; (3) the presence of Andres, Jose and
Ofelia at the N. Domingo branch in the morning of
September 27, 1996; and (4) George’s inaction on the
petitioner’s request to be transferred to the operations or
marketing department. As disagreeable as they may seem,
these acts cannot be equated with bad faith that can justify
an award of damages.
Since no moral damages can be granted under the facts of
the case, exemplary damages cannot also be awarded.50
The solidary liability of individual respondents as
corporate officers must be recalled.
In the same vein, the individual respondents cannot be
made solidarily liable with RBSJI for the illegal dismissal.
Time and again, the Court has held that a corporation has
its own legal personality separate and distinct from those
of its stockholders, directors or officers. Hence, absent any
evidence that they have exceeded their authority,
corporate officers are not personally liable for their
official acts. Corporate directors and officers may be held
solidarily liable with the corporation for the termination
of employment only if done with malice or in bad
faith.51 As discussed above, the acts imputed to the
respondents do not support a finding of bad faith.
In addition, the lack of a valid cause for the dismissal of an
employee does not ipso facto mean that the corporate
officers acted with malice or bad faith. There must be an
independent proof of malice or bad faith,52 which is absent
in the case at bar.
The award of 13th month pay is ncorrect.
Being a managerial employee, the petitioner is not entitled
to 13th month pay.1âwphi1 Pursuant to Memorandum
Order No. 28, as implemented by the Revised Guidelines
on the Implementation of the 13th Month Pay Law dated
November 16, 1987, managerial employees are exempt
from receiving such benefit without prejudice to the
granting of other bonuses, in lieu of the 13th month pay,
to managerial employees upon the employer’s
discretion.53
The award of attorney’s fees is proper.
It is settled that where an employee was forced to litigate
and, thus, incur expenses to protect his rights and interest,
the award of attorney’s fees is legally and morally
justifiable.54 Pursuant to Article 111 of the Labor Code, ten
percent (10%) of the total award is the reasonable amount
of attorney’s fees that can be awarded.
WHEREFORE, the petition is GRANTED. The Decision
dated February 21, 2008 and Resolution dated June 3,
2008 of the Court of Appeals in CA-G.R. SP No. 94690 are
REVERSED and SET ASIDE. The Decision of the Labor
Arbiter dated November 27, 1998 is REINSTATED with
the following MODIFICATIONS/CLARIFICATIONS:
Petitioner Rolando DS. Torres is entitled to the payment
of: (a) back wages reckoned from May 30, 1997 up to the
finality of this Decision, with interest at six percent (6%)
per annum, and 12% legal interest thereafter until fully
paid; and (b) in lieu of reinstatement, separation pay
equivalent to one (1) month salary for every year of
service, with a fraction of at least six (6) months to be
considered as one (1) whole year, to be computed from
the date of his employment up to the finality of this
decision.
The amounts awarded as moral damages, exemplary
damages and 13th month pay are DELETED. Only
respondent Rural Bank of San Juan, Inc. is liable for the
illegal dismissal and the consequential monetary awards
arising therefrom. The other portions of and monetary
awards in the Labor Arbiter's Decision dated November
27, 1998 are AFFIRMED.
SO ORDERED.
G.R. No. 185100 July 9, 2014
GIRLY G. ICO, Petitioner,
vs.
SYSTEMS TECHNOLOGY INSTITUTE, INC., MONICO V.
JACOB and PETER K. FERNANDEZ, Respondents.
DECISION
DEL CASTILLO, J.:
When another employee is soon after appointed to a
position which the employer claims has been abolished,
while the employee who had to vacate the same is
transferred against her will to a position which does not
e:x.ist in the corporate structure, there is evidently a case
of illegal constructive dismissal.
Before us is a Petition for Review on
Certiorari1 questioning the October 27, 2008 Decision2 of
the Court of Appeals (CA) which dismissed the petition in
CA-G.R. SP No. 104437, entitled "Girly G. Jco, Petitioner,
versus National Labor Relations Commission (First
Division), Systems Technology Institute, Inc., Monico V.
Jacob and Peter K Femandez, Respondents."
Factual Antecedents
Respondent Systems Technology Institute, Inc. (STI) is an
educational institution duly incorporated, organized, and
existing under Philippine laws. Respondents Monico V.
Jacob (Jacob) and Peter K. Fernandez (Fernandez) are STI
officers, the former being the President and Chief
Executive Officer (CEO) and the latter Senior Vice-
President.
STI offers pre-school, elementary, secondary and tertiary
education, as well as post-graduate courses either through
franchisees or STI wholly-owned schools.3
Petitioner Girly G. Ico,a masteral degree holder with
doctorate units earned,4 was hired as Faculty Member
bySTI College Makati (Inc.), which operates STI College-
Makati (STI-Makati). STI College Makati (Inc.) is a wholly-
owned subsidiary of STI.5
At STI, petitioner servedunder contract from June1997 to
March 1998. In April 1998, she was recalled to STI’s
Makati Central Office orHeadquarters (STIHQ) and
promoted to the position of Dean of STI College-
Parañaque (STIParañaque). In November1999, she was
again recalled to STI-HQ and STI appointed her as Full-
Time Assistant Professor I reporting directly to STI’s
Academic Services Division (ASD).
In June 2000, petitioner was promoted to the position of
Dean under ASD, and assigned to STI College-Guadalupe
(STI-Guadalupe), where she served as Dean from June 5,
2000 up to October 28, 2002.6
Meanwhile, petitioner’s position as Deanwas reclassified
from "Job Grade 4" to "Job Grade Manager B"with a
monthly salary of ₱37,483.58 effective April 1, 2002,7 up
from the ₱27,000.00salary petitioner was then receiving.
After petitioner’s stint as Dean of STI-Guadalupe, she was
promoted to the position of Chief Operating Officer (COO)
of STI-Makati, under the same position classification and
salary level of "Job Grade Manager B". She concurrently
served as STI-Makati School Administrator.8
Sometime in July 2003,or during petitioner’s stint as COO
and School Administrator of STI-Makati, a Plan of
Merger9 was executed between STI and STI College Makati
(Inc.), whereby the latter would be absorbed by STI. The
merger was approved by the Securities and Exchange
Commission on November 12, 2003. STI College Makati
(Inc.) thus ceased to exist, and STI-Makati was placed
under STI’s Education Management Division (EMD).10
In a March 12, 2004 Memorandum,11 STI – "[i]n line with
the recently approved organizational structure effective
August 1, 2003"12 – updated petitioner’s appointment as
COO, "Job Grade Manager B" witha gross monthly salary of
₱37,483.58. She was re-appointed as COO of STI-Makati,
under the supervision of the AcademicServices Group of
the EMD and reporting directly to the Head thereof, herein
respondent Fernandez. However,petitioner was not given
the salary commensurate to her position as COO, which by
this time appeared to be pegged at ₱120,000.00.13 It
likewise appears that she was not given benefits and
privileges which holdersof equivalent positions were
entitled to, such as a car plan.14
Two months after confirming petitioner’s appointment as
STI-Makati COO, another Memorandum15 dated May 18,
2004 was issued by STI Human Resources Division Head,
Yolanda Briones (Briones), signed and approved by STI
Senior Vice-President for Corporate Services Division
Jeanette B. Fabul (Fabul), and noted by respondent Jacob
–
a) Cancelling, effective May 20, 2004, petitioner’s
COO assignment at STI-Makati, citing
management’s decision to undertake an
"organizational restructuring" in line with the
merger of STI and STI-Makati;
 b) Ordering petitioner to report to STI-HQ on May
20, 2004 and to turn over her work to one Victoria
Luz (Luz), who shall function as STI-Makati’s
School Administrator; and
c) Appointing petitioner, effective May 20, 2004,
as STI’s Compliance Manager with the same "Job
Grade Manager B" rank and salarylevel, reporting
directly to SchoolCompliance Group Head Armand
Paraiso (Paraiso).
According to STI, the "organizational re-structuring" was
undertaken "in order to streamline operations. In the
process, the positions of Chief Executive Officer and Chief
Operating Officer of STI Makati were abolished."16
On May 18, 2004, Fernandez summoned petitioner to his
office, where the following conversation – which appears
to have been recorded by petitioner with the knowledge
and consent of Fernandez – took place:
F: (Fernandez) I’m sure you know already why you are
here.
P: (Petitioner) No, sir. Nanalo ba tayo sa Winners’ Circle…
F: Girly, let’s stop this. You will be pulled out [from] STI
CollegeMakati[.] x x x [T]urn over toVicky Luz everything
tomorrow.
P: Sir? What have I done? May I know what is the reason
of (sic) an immediate transfer and a short period of turn-
over?
F: I don’t trust you anymore. I’ve beenhearing too many
things from [sic] you and as your CEO, you don’t submit to
me FSP monthly. Me high school student ka na inenroll
para lang makasali sa basketball.
P: Sir, that’s not true.
F: Would you like me to call Liezel? ([H]e stood up and
called Ms. Liezel Diego)
P: Yes, sir.
F: Liezel, how many times did STI College-Makati
submitted [sic] to you the FSP?
L: (Liezel Diego) Sir, sa akin po 2 beses peromeron pa po
ke Ervie.
Tanong ko lang po ke Ervie kung ilan sa kanya.
P: Sir, can I have one minute to call STI College-Makati to
fax the data of the receiving copies of the FSP?
F: Irrelevant! I don’t have time.
P: Sir, you will please put that in writing[. It] is a very
strong accusation you are making and I think I should
defend myself.
F: No way! You cannot get anything from me. Why? Sothat
when I will provide such then you will go toLabor? (in a
shouting manner)
P: Sir, what is this all about? Please tell me the real score.
I am honest to you and I believe I am performing well. Is
this what I deserve?
F: Don’t talk to me about honesty (again said in a shouting
manner and fuming mad). Girly, don’t push me to the limit!
Don’t let me do things that you will regret later. Don’t be
like Chito (Salazar, the former STI President) who have
[sic] left STI without proving to everybody whether [sic]
he have [sic] done wrong or not. I don’t want that to
happen to you!
P: Sir, can I have one minute to go outside. I can no longer
bear this?
(begging with both hands [together] as a sign of
surrender)
F: No! (still shouting) I don’t have time. Here’s the letter
from HR[.] I want you to sign this.
P: Sir, I’m sorry but I will not sign. I think it should be HR
who will give this to me.
F: You want me to call HR? You wantme to call Atty.
Pascua? You want me to call people outside [to] witness
that you refused to sign? (still shouting) I don’t care if you
have a tape recorder there with you. After all, that will not
be a [sic] valid evidence in court.
xxxx
F: Ok. Don’t make me loose [sic] my temper again (with a
soft voice already). You just sign this (giving to me the
[May 18, 2004 Memorandum]). Don’t go to Bohol anymore.
If ever you will win in the Winners’ Circle, you can get the
tripjust like what happened to Redger (Agudo, the former
COO of STI College-Makati).
P: Sir, what will be the consequence if I will not sign this?
F: I will file a case against you. What do you call this?
(pausing for a little while then uttered the word)
Disobedience!
P: Ok, sir, but please I want to know what exactly my
violation is (while signing the paper). Now that we will be
parting ways, I am still hoping that you can tell [sic] the
violationsthat I made, if there is any.
F: You can have it after 2-3 weeks time. Besides, we are not
parting ways (with a sarcastic smile). I am still your boss
in Audit. Audit and Compliance is still under my
supervision.
P: Thank you, sir. (I went out in [sic] his room still
trembling)17
Incidentally, by this time, petitioner had garnered the
following awards and distinctions:
1) Silver Awardee, 2004 STI Winners’ Circle
Awards, 17thSTI Leaders’ Convention;
2) STI Academic Winners’ Circle Award as Dean of
STI-Guadalupe given at the 2002 STI Leaders’
Convention;
3) Academic Head of the Year for 2002, as Dean of
STI-Guadalupe; and
4) 2001 STI Winners’ Circle, as Academic Head,
STI-Guadalupe.18
On May 20, 2004, petitioner reported toher new office at
STI’s School Compliance Group, only to find out that all
members ofthe department had gone to Baguio City for a
planning session. Petitioner, who was not apprised of the
official trip, was thus left behind. That same day, an official
communication19 was disseminated throughout STI,
announcing Jacob’s appointment as the new STI President
and CEO, Fernandez as the new COO of STI-Makati,and Luz
as the new STI-Makati School Administrator; however,
petitioner’s appointment as Compliance Manager was left
out.
In a May 24, 2004 letter20 to Jacob, petitioner took
exception to the incidents of May 18 and 20, 2004,
claiming that she became the victim of a series of
discriminatory acts and objecting to the manner by which
she was transferred, asserting that she was illegally
demoted and that her name was tarnished as a result of
the demotion and transfer. Jacob replied through a June 7,
2004 letter21 advising petitioner that her letter was
forwarded to Fernandez for comment.
Prior to that, on May 25, 2004, during the 17th STI Leaders
Convention held in Panglao, Bohol, petitioner’s
achievement as a Silver Awardee for the 2004 STI Winners’
Circle Awards was announced, but she did notattend,
claiming that she was too embarrassed to attend owing to
the events leading to her transfer, which to her was a
demotion.22 STI withheld petitioner’s prize – a South
Korea trip termed "Travel Incentive Award" for the
Winners’ Circle for STI fiscal year 2003-2004 – "pending
the final result of the investigations being conducted" by
STI relative to irregularities and violations of company
policies allegedly committed by petitioner.23
It appears that from May 28, 2004 up to June 10, 2004,
STI’s Corporate Auditor/Audit Advisory Group conducted
anaudit of STI-Makati covering the whole period of
petitioner’s stint as COO/School Administrator therein. In
a report (Audit Report) later submitted to Fernandez, the
auditors claim to have discovered irregularities,
specifically –
1. Appointment papers of STI-Makati employees
did not have the written approval of Fernandez
inhis capacity as CEO;
2. There were instances where employees became
regular after only an abbreviated probationary
period, and in some cases,the employees did not
undergo probation;
3. Petitioner failed to fully liquidate cash advances
amounting to ₱60,000.00, relative tothe purchase
of books;
4. There was a lack of internal controlsin regard to
cost of planning sessions, liquidation reports,
journal entries, use of petty cash fund, and
inventory; and
5. Petitioner and other employees falsified school
records in order to enable high school players to
play for STI-Makati’s volleyball team.24
In a June 17, 2004 Memorandum25 to Jacob, Fernandez
cited the above Audit Report and recommended that an
investigation committee be formed to investigate
petitioner for grave abuse of authority, falsification, gross
dishonesty, maligning and causing intrigues, commission
of acts tending tocast negativity upon his person
(Fernandez), and other charges. Fernandez recommended
that petitioner be placed under preventive suspension
pending investigation. Meanwhile, with respect to
petitioner’s May 24, 2004 letter, it appears that Fernandez
did not submit a comment or answer thereto.
Jacob approved Fernandez’s recommendations, and on
June 21, 2004, a Memorandum26 was issued placing
petitioner under preventive suspension and banning her
entry to any of STI’s premiseseffective June 22, 2004 up to
July 16, 2004, citing "(an) Audit investigation being
conducted relative to the offenses" for which petitioner
was charged, namely:
I. FACULTY MANUAL
a) Making malicious, obscene or libelous
statements about the person of any member of the
academic community.
b) Threatening, intimidating, coercingor harassing
another person within the school premises.
c) Commission of acts inimicalto student’s [sic]
interest.
II. STI-HO POLICY MANUAL
A. Class 3 –
1. Making false or malicious statements
against another employee.
2. Causing intrigues tending to cast insult,
dishonor and discredit to another
employee.
3. Reading or gaining access to
files,records, memos, correspondence and
other classified documents of the company.
[B] Class 4 –
1. Concealing errors of omission or
commission, thus negatively prejudice
[sic] the interest of the company.
[C] Class 5 –
1. Falsifying timekeeping reports and
records, drawing salary/allowance, in any
form, or money by virtue of falsified
timekeeping report of records, vouchers,
receipts and the like.
2. Giving false and untruthful statements
of [sic] concealing material facts in an
investigation conducted byan authorized
representative of the company.
3. Misappropriating or withholding
company funds.
4. All acts of dishonesty, which cause [sic]
tend to cause prejudice to the company.27
On June 24, 2004, petitioner received another
Memorandum28 from Briones dated June 23, 2004, this
time stating that charges havealready been filed against
her allegedly "based on the Audit Findings", yet
makingreference to the June 21, 2004 Memorandum and
without informing petitioner of the particulars of the
charges or the results of the audit. Nor was a copy of the
said audit findings attached to the memorandum.
In a June 28, 2004 demand letter29 addressed to
Jacob,petitioner protested anew her alleged maltreatment,
claiming illegal constructive dismissal and demanding
immediate reinstatement to her COO position and the
payment of actual and other damages, under pain of suit.
In a June 30, 2004 letter, petitioner was notified of a
hearing scheduled for July 2, 2004 and required to submit
her written explanation to the charges. It appears,
however, that petitioner did not receive the said
letter.30 On even date, petitioner filed with the National
Labor Relations Commission (NLRC) a labor case against
herein respondents, Fabul and Briones. Docketed as NLRC
NCR Case No. 00-06-07767-04, the Complaint31 alleged
illegal constructive dismissal and illegal suspension,
withclaims for regularization as well as for underpayment
of salaries, holiday pay, service incentive leave, 13th -
month pay, moral and exemplary damages, and attorney’s
fees.
In a July 12, 2004 Memorandum32 to petitioner, STI lifted
petitioner’s suspension and ordered her to return towork
on July 13, 2004, with full salary from the time of her
suspension.
In a July 13, 2004 electronic mail message33 sent by STI’s
Reuel Virtucio (Virtucio) to petitioner, the latter was
invited to a July 19, 2004 "meeting with the committee
formed to act on the complaint filed against (petitioner)
by (Fernandez)."34 The committee was composed ofSTI’s
officers, namely Amiel Sangalang (Sangalang); Flerdeliza
Catalina Domingo (Domingo); and Virtucio.
On July 19, 2004, during the supposed scheduled meeting
with the committee, petitioner was furnished with several
documents; however, no copy of the formal complaint or
written chargewas given to her.The meeting was
adjourned without the committee setting another meeting
for the submission of petitioner’s answer; nor was a
hearing set for the presentation of the parties’ evidence.35
Thereafter, petitioner wenton sanctioned leave of absence.
After the lapse of her approved leave, she reported for
workseveral times. After August 9, 2004, however, she no
longer reported for work.
On August 17, 2004, STI issued another Memorandum36 to
petitioner, informing her that her South Korea
travelincentive award was being withheld, as the
investigation covering her alleged involvement in
irregularities and violations of company policies was still
pending.
In a January 13, 2005 letter cumnotice of termination
signed by Jacob, petitioner was dismissed from STI
effective January 11, 2005.37
The Labor Arbiter Decision
In her Position Paper,38 petitioner claimed that during her
stint as COO of STI-Makati and up to her transfer and
appointment as Compliance Manager, she was
discriminated against and unfairly treated by
respondents; that she was denied a) the salary
corresponding to the COO position in the amount of
₱100,000.00 – ₱120,000.00, b) her prizes as Winners’
Circle awardee, aswell as c) her benefits such as a car plan
and honorarium of ₱8,500.00 monthly.She likewise
contended that her removal as STI-Makati COO and
transfer to the School Compliance Group as Compliance
Manager was illegal and constituted a demotion
amounting to constructive dismissal, as she was not given
prior notice of the transfer; forced to give her written
conformity thereto; placed in an embarrassing situation
thereafter; and never given any task or work while she
held such position. She added that the alleged
reorganization which caused her removal as STI-Makati
COO was a sham, calculated to ease her out inthe guise of
a restructuring; that she was illegally placed under
suspension for alleged offenses which respondents could
not substantiate and which she was not informedabout;
that she was not accorded due process during the conduct
of the purported investigation; and that as a consequence
of the discrimination and unfair treatment she received
from respondents, she suffered untold injury. Petitioner
thus pleaded:
WHEREFORE, complainant respectfully prays that, after
due proceedings, judgment be rendered ordering
respondents, jointly and severally, as follows:
1. To reinstate complainant to her former position
as COO without loss to [sic] her seniority rights
with backwages and other benefits, such the [sic]
monthly ₱8,500.00 honorarium, among others, to
be paid until fully reinstated with the necessary
adjustments to equal the salary and benefits now
being received by her replacement, respondent
Peter K. Fernandez.
2. To pay complainant the unpaid salaryand
benefits differential due her as COO computed
from November 5, 2002 to equal the salary and
benefits of respondent Peter K. Fernandez, plus
the legal rate of interest thereon from the same
date until fully paid.
3. To pay the money equivalent, plus the legal rate
[sic] interest thereon until fully paid, of
complainant’s awards as a Silver Awardee in its
STI 17th Winners’ Circle, consisting of the tripto
Panglao, Bohol from May 25 to 27, 2004 and Korea
from September 21 to 24, 2004.
4. To pay complainant the unpaid Holiday Pay duly
adjusted as above [sic] and with legal interest
thereon until fully paid.
5. To pay complainant the proportionate 13th
[-]month pay for the current year with legal
interestthereon until fully paid.
6. To pay complainant moral damages in [sic] sum
of ₱3 Million and exemplary damages in the
amount of ₱2 Million, including attorney’s fees,
and expenses of litigation.
Complainant prays for such other reliefs just and
equitable in the premises.39
In their Position Paper,40 the respondents in NLRC NCR
Case No. 00-06-07767-04 claimed that petitioner was
removed as STI-Makati COO pursuant to a reorganization
aimed atstreamlining STI’s operations after the merger; as
a result, the positions of STI-Makati CEO and COO were
abolished. They argued that petitioner was merely
"laterally transferred" to the School Compliance Group as
Compliance Manager, and was not demoted in rank; nor
did she suffer a diminution in her salary and benefits, as
the positions of STI-Makati COO and Compliance Manager
are equivalent in rank under the STI structure, that is, they
both fall under "Job Grade Manager B". They added that
petitioner committed anomalies and irregularities, as
stated above, which became the subject of an Audit
Report.41They asserted that the abolition of a position in
STI is a recognized prerogative of management which may
not be interfered with absent malice or bad faith, and
more so when done pursuant to a valid corporate
restructuring; the abolition of the CEO, COO, Treasurer,
Corporate Secretary, and Director positions in STI-Makati
was pursued as a matterof course because with the
merger, STI-Makati ceased to exist as it was absorbed by
STI, and consequently these positions became
unnecessary. Petitioner’s transfer was justified as an
exercise of STI’s prerogative and right to transfer its
employees when called for, and was done reasonably,
without malice or bad faith, and without unnecessarily
inconveniencing petitioner.
Respondents added that petitioner’s suspension was vital
for the protection of sensitive data and to ensure the
smooth conduct of the investigation, and in order that she
may not gain access to sensitive information which, if
divulged to government agenciessuch as the Commission
on Higher Education (CHED), would result in the
denial/withholding of permits to STI.42 On petitioner’s
claim for regularization, respondents claimed that this
was unnecessary since petitioner was already a regular
employee of STI. Regarding petitioner’s money claims,
respondents argued that petitioner could not be entitled
to them, as she received all her salaries, benefits and
entitlementsduring her stint with STI. Finally,
respondents contended that petitioner was not entitled to
damages and attorney’s fees, since she was not illegally
dismissed and, in carrying out her transfer, they did not
act with malice, bad faith, orin a wanton and oppressive
manner.
In her Reply43 to respondents’ Position Paper, petitioner
noted that while STI and STI College Makati (Inc.) merged,
there was in fact no restructuring that took place which
required her transfer and demotion; onthe contrary, the
merger created 29 additional vacant positions in STI.
Petitioner added that no prior announcement of the
restructuring of STI-Makati was made, which thus renders
such reorganization of questionable integrity; instead, the
merger was utilized as a tool to ease her out, through the
bogus reorganization. She contended that Fernandez had
prejudged her case even before an investigation into the
alleged anomalies could be conducted. Petitioner likewise
notedthat even her appointment as Compliance Manager
was a sham, because no such vacant position existed
within the School Compliance Group, as the only two
Compliance Manager positions were then occupied by
Eddie Musico (Musico) and Reynaldo Gozum
(Gozum);44 the only other vacant positions in that
department were those for lower level Compliance
Officers. In effect, petitioner was in fact made a mere
ComplianceOfficer, which meant that she was effectively
demoted. Petitioner claimed as well that her demotion
was highlighted by the fact that while she had a masteral
degreeand doctorate units, all the others within the School
Compliance Group – including her superior, Paraiso –
were mere bachelor’s degree holders.
Finally, petitioner maintained that the multiple charges
lodged against her were without basis, and respondents
failed to prove them byadequate evidence.
On the other hand, respondents maintained in their Reply
(to Complainant’s Position Paper)45 that as to salary and
benefits, petitioner was not discriminated against, and
was merely given a compensation package commensurate
to her rank as "Job Grade Manager B", taking into
consideration her length of service at STI.Her salary was
thus at par with those of other STI employees of
equivalent rank and similar durations ofemployment.
They added that honoraria are not given to its
employees,as well as to those who are deployed to
company-owned schools such as STI-Makati. Respondents
asserted further that the reorganization was not a ruse to
ease petitioner out; it was necessary as a means toward
streamlining STI’s operations. Fernandez characterized
petitioner’s account of their conversation as
inaccurate.46 Respondents likewise debunked petitioner’s
claims that she was discriminated against while she held
the position of Compliance Manager, saying that this claim
was specious and exaggerated. They added that even
though Fernandez was later appointed COO of STI-Makati
after petitioner was appointed Compliance Manager, his
work assuch STI-Makati COO was limited to performance
of oversight functions, which functions he already
performs as SeniorVice-President of the Education
Management Division of STI. With regard to the July 19,
2004 meeting, respondents argued that nothing was
achieved during said meeting owing to petitioner’s and
her counsel’s "quarrelsome attitude" and insistence
thatshe be furnished the written charges against her as
well as the supporting evidenceor documents, which
would have been unnecessary if she only cooperated
during said meeting and answered the charges against her.
They underscored the fact that during said meeting,
petitioner was furnished with a copy of the charges
against her, including all other documents, particularlythe
Audit Findings.
On March 31, 2006, LaborArbiter Renaldo O. Hernandez
issued a Decision47 in NLRC Case No. 00-06-07767-04,
decreeing as follows:
WHEREFORE, premises considered, judgment is hereby
finding [sic] complainant to have been illegally
constructively and in bad faith dismissed by respondents
in her legally acquired status as regular employee thus,
ORDERING respondents SYSTEMS TECHNOLOGY
INSTITUTE, INC. and/or MONICO V. JACOB, PETER K.
FERNANDEZ in solido:
1) To reinstate her to her former position, without
loss of seniority rights and benefits, allowances,
which reinstatement aspect, actual or in the
payroll, is immediately executory, even pending
appeal.
2) To pay complainant’s full back wages, which
should legally start from date of her illegal
constructive dismissal/illegal demotion on
05/18/2004, but reckoned from date of the illegal
suspension when she was physically prevented/
barred from working on 06/22/2004, based on
her gross monthly salary ₱37,483.58, 15 days
Vacation Leave/yearand 15 days Sick Leave/year,
13th [-] month pay, and other benefits accruingto
her in her regular position as COO until actually
reinstated, which as of date amounts to:
Basic ₱37,483.58 x 21 months = ₱787,155.18
13th[-]month pay 1/12 thereof = 65,596.26
VL 15 days/yr ₱1,249.45 x 15 x 1.75
= 32,798.13
years
SL 15 days/yr ₱1,249.45 x 15 x 1.75
= 32,798.13
years
Total F/B as of date = ₱918,347.70
3) To pay her moral and exemplary damages in the
combined amount of ₱1,000,000.00.
4) To pay her the monetary equivalentof the
awards due her as her being proclaimed as a Silver
Awardee of US$630.00 for the Korean travel from
09/21-24/2004, and the round trip ticket
US$350.00, hotel accommodation and expenses to
be paid, viz. 1. PhilippineTravel Tax ₱1,620.00,
NAIA Terminal Fee ₱550.00, Visa Processing Fee
₱500.00, War Risk Tax US$12.00, Seoul Tax
US$15.00, Ticket Insurance US$3.00, Travel
Insurance ₱420.00, Tour Guide and Driver’s Tip
US$4.00/day.
5) To pay her 10% of the entire computable award
herein as attorney’s fees.
SO ORDERED.48
The Labor Arbiter found that petitioner was illegally
dismissed, and respondents were guilty of malice and bad
faith in the handling of her case. He held that petitioner’s
transfer – which STI claimed was the result of STI’s
restructuring – was irregular, because at the time of such
transfer, the reorganization and restructuring of STI-
Makati had already been effected; STI’s March 12, 2004
Memorandum topetitioner – which confirmed and
renewed her appointment as STI-Makati COO – was
precisely issued as a consequence of the merger and
reorganization,which took place as early as November
2003. STI’s claim that petitioner’s lateral transferwas
necessary is thus contrived.
In addition, the Labor Arbiter declared that even as
petitioner was appointed to the position of Compliance
Manager, such position did not actually exist in STI’s new
corporate structure; under the Compliance Group, which
was headed by Paraiso, there were only two Compliance
Manager positions which were at the time occupied by
Musico and Gozum, and the only other vacant positions in
the Compliance Group were for Compliance Officers. In
effect, petitioner was appointed to the position of a mere
Compliance Officer, which was lower in rank.
The Labor Arbiter held further that during the process of
her illegal transfer, petitioner was harassed, humiliated,
and oppressed, thus:
1. On May 18, 2004, she was subjected to threats
and intimidation by Fernandez, the latter bullying
and forcing her toreceive the May 18, 2004
Memorandum while petitioner was inside his
office;
2. On the day she reported to her new position as
Compliance Manager, the whole
ComplianceGroup team left for a three-day out-of-
town planning session, without respondents
informing her or including her in the official event
as she should be;
3. On May 20, 2004, an official written
announcement was made regarding Jacob’s
appointment as new STI President and CEO,
Fernandez as new STI-Makati COO, and Luz as new
STI-Makati School Administrator. Adding insult to
injury, petitioner’s appointment as Compliance
Manager was intentionally left out;
4. Petitioner, given her illustrious career in STI –
having risen from the ranks as a faculty member,
to full-time professor, to Dean, and finally to the
position of STI-Makati COO, and having achieved
multiple awards and distinctions – was thereafter
treated "as a non-entity" by respondents.
The Labor Arbiter added that the purported audit and
investigation of petitioner’s alleged irregularities was a
sham, as the same was conducted without official sanction
from STI and without petitioner’s knowledge; it was
founded on hearsay evidence and based on charges
known only to Fernandez; it was conducted merely to
conceal respondents’ shabby treatment of petitioner, and
without apprising petitioner of the writtenformal charges
against her.
Finally, respondents wereadjudged guilty of malice, bad
faith, acts oppressive to labor and contrary to morals,
good customs and public policy, which caused upon
petitioner suffering and humiliation which entitles her to
an award of moral and exemplary damages, as well as
attorney’s fees.
Ruling of the National LaborRelations Commission
Respondents interposed an appeal with the NLRC,
docketed as NLRC NCR Case No. 050756-06.In an October
31, 2007 Decision,49 the NLRC decreed, thus:
WHEREFORE, the [D]ecision appealed from is VACATED
and SET ASIDE and a new one entered dismissingthe
complaint for lack of merit.
SO ORDERED.50
In reversing the Labor Arbiter’s Decision and finding that
there was no illegal constructive dismissal,the NLRC held
that any action taken by STI after the merger can be
reasonably concluded as one of the valid consequences
thereof; the regulation of manpower is a management
prerogative enjoyed by STI, and it was free to regulate
according to its own discretion and judgment all aspects
of petitioner’s employment. Inthis light, and since no
concrete evidence was presented by petitioner to show
that respondents acted with maliceor bad faith, the NLRC
held that it may not be said that the abolition of the
position of STI-Makati COO was done to unduly ease her
out of STI.
The NLRC added that while it may be conceded that a
heated argument between petitioner and Fernandez took
place during their May 18, 2004 meeting, the charged
emotional outbreaks were nonetheless occasioned by
extraneous matters injected during such meeting, and
consequently, Fernandez may not be faulted for insisting
that petitioner receive the May 18, 2004 Memorandum
ordering petitioner’s transfer.
Moreover, the NLRC declared that petitioner’s preventive
suspension was not done irregularly, as it was based on
charges leveled against her and made pursuant to an
administrativeinvestigation then being conducted;
likewise, it held that the pending investigation justified
the withholding ofpetitioner’s Korea travel incentive
award.
Finally, the NLRC noted that petitioner’s failure to report
for work after August 9, 2004 should betaken against her,
and on this note it would be unfair to hold respondents
liable for illegal constructive dismissal.
Petitioner moved for reconsideration,but in a March 28,
2008 Resolution,51 the NLRC denied the same.
Ruling of the Court of Appeals
Petitioner went up to the CA via certiorari. On October 27,
2008, the CA issued the assailedDecision, decreeing as
follows:
WHEREFORE, premises considered, the Petition is
DENIED for lack of merit. Costs against petitioner.
SO ORDERED.52
According to the CA, the NLRC was correct in finding that
as a result of the November 2003 merger of STI and STI-
Makati, petitioner’s transfer to her new position as
Compliance Manager became necessary, as the position of
STIMakati COO – which petitioner then held– was
abolished as a result of a reorganization that was
implemented pursuant to the merger. It noted further that
the March 12, 2004 confirmation53 of petitioner’s
appointment as STI-Makati COO was done pursuant to an
August 2003 reorganization – or one that was
implemented priorto the November 2003merger; thus,
petitioner’s transfer and appointment as Compliance
Manager days later,per the May 18, 2004 Memorandum,
may not be said to be irregular, as it was made in
accordance with a newreorganization or restructuring
program implemented in accordance with the November
2003 merger.
The CA held further that petitioner’stransfer was made
pursuant to the valid exercise of STI’s prerogative
toabolish certain positions and transfer/ reassign its
employees, for valid reasons and in accordance with the
requirements of its business. Since petitioner’s
transferwas not attended by malice or bad faith, as it was
shown to be necessary following the merger and abolition
of the position that she held, and was done without
diminution in rank, salary and benefits, there could be no
cause of action against respondents for illegal dismissal.
The appellate court did not give credence to petitioner’s
allegations of discrimination and harassmenteither, as it
found them to be self-serving and unsubstantiated.
Regarding her suspension, the CA affirmed the NLRC’s
view that the same was not irregularly imposed; the
withholding of her travel award was justified as well.
Issues
Petitioner now submits the following issues for the Court’s
resolution:
I
THE COURT OF APPEALS ERRED IN DEVIATING FROM
THE 18 MAY 2004 EMPLOYMENT UPDATE CLEARLY
ADMITTING AN INVALID ABOLITION OF PETITIONER’S
POSITION WITH STI’SAPPOINTMENT OF HER
REPLACEMENT AND RENAMING HER OFFICE AS
"SCHOOL ADMINISTRATOR".
II
AS THERE WAS NO VALID ABOLITION OF PETITIONER’S
POSITION AS COO, THE COURT OF APPEALS ERRED IN
FRAMING A CASE OF VALID LATERAL TRANSFER
INSTEAD OF CONSTRUCTIVE DISMISSAL DONE IN BAD
FAITH.54
Petitioner’s Arguments
In a nutshell, petitioner argues in her Petition and
Reply55 that her appointment as Compliance Manager is
illegal, because the abolition of the STIMakati COO
position and the creation of the position of Compliance
Manager were contrived and fabricated. She adds that her
appointment to the position of Compliance Manager was
in fact a demotion: she was relegated to a position where
she did not have any staff to supervise; her work became
merely mechanical in nature; she became a mere
Compliance Officer reporting to the Compliance Group
Head; and her work was severely limited.
Petitioner adds that contrary to the CA’s pronouncement,
she was subjected to harassment and discrimination,
humiliated and became the victim of STI’s fraudulent
scheme to illegally oust her from her position as STI-
Makati COO. She cites: 1) the May 18, 2004 incident, noting
the treatment accorded her by Fernandez and the manner
by which she was allegedly forced to receive the
Memorandum of even date; 2)the investigation into
alleged irregularities, which she characterized as sham; 3)
her preventive suspension, which she claims was illegal
for being based on non-existent charges; and 4) the
withholding of her travel award.
Petitioner insists that her suspension was illegal, as her
new employment as Compliance Manager did not put her
in a position where she would have access to sensitive STI
records;thus, she was never a serious threat to such extent
that respondents believed she was. Besides, the
investigation into allegations of irregularities committed
by her, which was the cause for her suspension as well,
was a sham for violating her rightsto a hearing and due
process. Respondents’ Arguments
In their Comment,56 respondents maintain that the
merger of STI and STIMakati required the abolition of the
Chairman, President/CEO, COO, Treasurer and Corporate
Secretary positions in STI-Makati; likewise, it became
necessary to effect a reorganization of STI’s corporate
structure inorder to streamline its operations. Petitioner’s
transfer was in line with such merger and reorganization;
no bad faith may thus be inferred from their actions, which
were carried out legally and pursuant to STI’s rights,
prerogatives, and needs at the time.
Respondents argue further that petitioner’s transfer did
not amount to a demotion in rank, as the positions of COO
and Compliance Manager are of equal importance; in fact,
the functions of Compliance Manager are much broader in
scope as they involve the conduct of operations and
academic audits of allof STI’s schools, and not just STI-
Makati. As to salaryand benefits, petitioner as Compliance
Manager is given the same salary and benefits which she
received at the time she was STI-Makati COO.
Respondents add that, ascorrectly held by the NLRC and
CA, petitioner was never subjected to harassment and
humiliation, thus:
1. Petitioner was not excluded from the
Compliance Group’s planning session held in
Baguio City. At the timeof petitioner’s transfer,
Briones was not aware of the scheduled Baguio
trip, and thus petitioner was not duly informed
thereof. Thus, her inability to attend the official
event may not be blamed on respondents;
2. Petitioner was assigned ample work at the
Compliance Group, contrary to her claims that she
virtually did nothing in her new position;
3. It is not true that petitioner was not given her
own room as Compliance Manager in order to
humiliate her. She could not begiven a room
simply on account of office space constraints.
On petitioner’s suspension, respondents reiterate that
petitioner’s threats to divulge sensitive information and
jeopardize STI’s then pending permit applications
justified the taking of drastic measures to insure that
company records are kept intact and free from access; the
preventive suspension of petitioner thus became
necessary. Moreover, an audit investigation was then
being conducted on alleged irregularities committed by
petitioner; preventive suspension as a preliminary step in
the investigation is thus authorized.
Our Ruling
The Petition is granted.
As a rule, this Court is not a trier of facts, and thus the
findings of fact of the NLRC and CA are final and conclusive
and will not be reviewed on appeal. However, there are
well-recognized exceptions to the rule, such as when its
judgment is based on a misapprehension of facts or
relevant facts not disputed by the parties were overlooked
which, if properly considered, would justify a different
conclusion. Petitioner’s case falls under these exceptions.
Both the NLRC and CA found thatpetitioner was not
constructively dismissed, for the following reasons:
1. Petitioner’s position as STI-Makati COO was
abolished as a necessary result of the merger of
STI and STI-Makati,and the restructuring of STI
aimed at streamlining its operations;
2. Petitioner was merely "laterally transferred" to
the Compliance Group as Compliance Manager,
with no diminution in rank, salary and benefits;
and
3. The reorganization of STI was done in good faith
and in the exercise of the management prerogative.
In the same manner, petitioner’s transfer was a)
made in the exercise of the management
prerogative to transfer employees when
necessary; b) done in good faith; and c)not
unreasonable, inconvenient or prejudicial to her
interests.
It appears, however, that the position of STI-Makati COO
was actually never abolished. As a matter of fact, soon
after petitioner was removed from the position,
Fernandez was appointed to take her place as STI-Makati
COO; his appointment was even publicly announced via an
official communication disseminated company-wide. This
thus belies respondents’ claim thatthe position of STI-
Makati COO became unnecessary and was thus abolished.
Respondents may argue, as they did in their Reply57 to
petitioner’s Position Paper, that Fernandez’s appointment
as STI-Makati COO replacing petitioner was merely for
oversight purposes. Whatever the reason could be for
Fernandez’s appointment as STI-Makati COO, the fact still
remains that such position continued to exist.
Next, petitioner’s appointment as Compliance Manager
appears to be contrived as well. At the time of petitioner’s
appointment, the only two Compliance Manager positions
within STI’s compliance department – the School
Compliance Group – were already filled up as they were
then occupiedby Musico and Gozum.58 None of them has
been dismissed or resigned. Nor could petitioner have
been appointed head ofthe department, as Paraiso was
very much in charge thereof, as its ComplianceGroup Head.
The only positionswithin the department that were at the
time vacant were those of Compliance Officers, which are
of lower rank. In other words,petitioner could not have
been validly appointed as Compliance Manager, a position
within STI that was then very much occupied; if ever,
petitioner took the position of a mereCompliance Officer,
the only vacant position within the department.
Thirdly, even though it isclaimed that from May 28, 2004
up to June 10, 2004, STI’s Corporate Auditor/Audit
Advisory Group conducted an audit of STIMakati covering
the whole period of petitioner’s stint as COO/School
Administrator, it appears that even prior to such audit,
petitioner’s superior – Fernandez – had already prejudged
her case. The May 18, 2004 conversation between
petitioner and Fernandez inside the latter’s office is quite
revealing.
The May 18 conversation between petitioner and
Fernandez, taken in conjunction with the Court’s findings
that the position of STI-Makati COO was never abolished
and that petitioner’s appointment as Compliance Manager
was contrived, confirms the view that petitioner was not
transferred to the School Compliance Group as a matter of
necessity, but as punishment for her perceived
irregularities. In effect, petitioner was demoted and
relegated to a position of insignificance within STI, there
to suffer for what her employer alleged were
transgressions committed by her. To all intents and
purposes, petitioner was punished even before she could
be tried.
Fernandez’s declarations during the May 18 conversation
undoubtedly provide the true motive behind petitioner’s
removal as STI-Makati COO:
a. After "hearing too many things" about petitioner,
Fernandez simply lost confidence in her – meaning
that Fernandez had made up his mind about
petitioner after hearing rumors about her; b.
Fernandez accused petitioner of specific
violations, without the benefit of accurate
information and without giving her the
opportunity to refute the accusations;
c. Fernandez has no time to listen to petitioner’s
explanations, despite her pleas to be heard;
d. Fernandez refused to provide petitioner with
the evidence or other basis for his accusations, in
spite of petitioner’s request for him to put the
same in writing;
 e. Fernandez has prejudged petitioner, and
intimated to her that she was dishonest, even
before she could be heard; and
f. Fernandez threatened petitioner, that if she
pushed him further, she would suffer the fate of a
former employee who was separated fromSTI
without the benefit of clearing his name. In other
words, she could find herself without a job at STI
even before her innocence or guilt could be
established.
From the May 18 conversation alone, it can be seen that
petitioner’s fate in STI was a foregone conclusion. She was
threatened to accept her fate or else she would find herself
without work, either through dismissal or forced
resignation. Evidently, she became the subject of an illegal
constructive dismissal in the guise of a transfer.
The supposed audit conducted from May 28, 2004 up to
June 10, 2004 by STI’s Corporate Auditor/Audit Advisory
Group was a mere afterthought, as it was apparent that as
early as May 18, 2004, petitioner has been found guilty of
whatever transgressions she was being charged with,
founded or unfounded. The same is true with respect to
her preventive suspension; it was imposed with malice
and bad faith, and calculated to harass her further, if not
trick her into believing that respondents were properly
addressing her case. Needless to say, all proceedings and
actions taken in regard to petitioner’s employment and
case, beginning on May 18, 2004, were all but a farce, done
or carried out in bad faith, with the objective of harassing
and humiliating her, all in the fervent hope that she would
fold up and quit.
Constructive dismissal exists where there is cessation of
work because ‘continued employment is rendered
impossible, unreasonable or unlikely, as an offer involving
a demotion in rank or a diminution in pay’ and other
benefits. Aptly called a dismissal in disguise or anact
amounting to dismissal but made to appear as if it were
not, constructive dismissal may, likewise, exist if an act of
clear discrimination, insensibility, or disdain by an
employer becomes so unbearable on the part of the
employee that it could foreclose any choice by him except
to forego his continued employment. In cases of a transfer
of an employee, the rule is settled that the employer is
charged with the burden of proving that its conduct and
action are for valid and legitimate grounds such as
genuine business necessity and that the transfer is not
unreasonable, inconvenient or prejudicial to the employee.
If the employer cannot overcome this burden of proof, the
employee’s transfer shall be tantamount to unlawful
constructive dismissal.59
There is no doubt that petitioner was subjected to
indignities and humiliated by the respondents. As
correctly observed by the Labor Arbiter, she was bullied,
threatened, shouted at, and treated insolently by
Fernandez on May 18, 2004 inside the latter’s own office.
She was shamedwhen, on her very first day at the School
Compliance Group, all of the employees of the department
have gone on an official out-of-town event without her and,
as a result,she was left alone at the office for several days.
Respondents did not even have the courtesy to offer her
the opportunity to catch up with the group sothat she
could makeit to the event, even if belatedly. Then again, on
May 20, 2004, STI made an official companywide
announcement of Jacob’s appointment as new STI
President and CEO, Fernandez as new STI-Makati COO,
and Luz asnew STI-Makati School Administrator, but
petitioner’s appointment as new Compliance Manager
was inconsiderately excluded. Respondents made her go
through the rigors of a contrived investigation, causing
her to incur unnecessary legal expenses as a result of her
hiring the services of counsel. Her well-deserved awards
and distinctions were unduly withheld in the guise of
continuing investigation – which obviously was taking too
long to conclude; investigation began formally on May 28,
2004 (start of audit), yet by August 17 (date of
memorandum informing petitioner of the withholding of
Korea travel award), the investigation was still allegedly
ongoing. She was deprived of the privilege to attend
company events where she would have received her well-
deserved awards with pride and honor, and her colleagues
would have been inspired by her in return. Certainly,
respondents made sure that petitioner suffered a
humiliating fate and consigned to oblivion.
Indeed, petitioner could not be faulted for taking an
indefinite leave of absence, and for altogether failing to
report for work after August 9, 2004. Human nature
dictates that petitioner should refuse to subject herself to
further embarrassment and indignitiesfrom the
respondents and her colleagues. All told, petitioner was
deemed constructively dismissed as of May 18, 2004.
Finally, since the position of STI-Makati COO was never
abolished, it follows that petitioner should bereinstated to
the very same position, and there to receive exactly what
Fernandez gets by way of salaries, benefits, privileges and
emoluments, without diminution in amount and extent.
Petitioner, multi-awarded, deserving and loyal, is entitled
to what Fernandez receives, and is deemed merely to take
over the office from him; moreover, the position of Chief
Operations Officer is not merely an ordinary managerial
position, asit is a senior managerial office. In turn,
Fernandez – or anyone who currently occupies the
position of STIMakati COO – must vacatethe office and
hand over the same to petitioner.
It is correct for petitioner to have included among the
reliefs prayed for in her Complaint that she be paid the
salary, benefits and privileges being enjoyed by Fernandez
currently. The Court, in granting said relief, deems it only
fair that she should be entitled to what Fernandez is
receiving. Not only that the position requires greater
expertise in many areas,or that it involves great
responsibility, or that petitioner deserves it from the point
of view of her qualifications and experience; but it would
be to prevent another form of oppressive practice, where
an employee is appointed toa senior management position,
there to enjoy only the prestige or title, but not the
benefitscommensurate with the work and responsibility
assumed. It would likewise prevent a situation where, as
in this case, an employer – obliged by law or the courts to
reinstate an "unwanted" employee holding a senior
management position – is given an opportunity to
retaliate by limiting the employee’s salary, privileges and
benefits to a certain level – low or high, so long as it is
within the managerial range– that is however 1) not
commensurate with the work and responsibility assumed
by the employee, or 2) discriminatory, or 3) indicative of
a tendency to favor only one or some employees.
Nonetheless, the Court failsto discern any bad faithor
negligence on the part of respondent Jacob. The principal
character that figures prominently in this case is
Fernandez; he alone relentlessly caused petitioner’s
hardships and suffering. He alone is guilty of persecuting
petitioner. Indeed, some of his actions were without
sanction of STI itself, and were committedoutside of the
authority given to him by the school; they bordered on the
personal, rather than official. His superior, Jacob, may
have been, for the most part, clueless of what Fernandez
was doing to petitioner. After all, Fernandez was the Head
of the Academic Services Group of the EMD, and petitioner
directly reported to him at the time; his position enabled
him to pursue a course of action with petitioner that Jacob individual holders,"1 it is a derivative suit, not an
was largely unaware of. individual suit or class/representative suit, that a
A corporation, as a juridical entity, may act only through stockholder must resort to.
its directors, officers and employees. Obligations incurred
as a result of the directors’ and officers’ acts as corporate This resolves consolidated cases involving a Complaint for
agents, are nottheir personal liability but the direct Declaration of Nullity of Issuances, Transfers and Sale of
responsibility of the corporation they represent. As a rule, Shares in People's Broadcasting Service, Inc. and All
they are only solidarily liable with the corporation for the Posterior Subscriptions and Increases thereto with
illegal termination of servicesof employees if they acted Damages.2 The Complaint did not implead as parties the
with malice or bad faith. concerned corporation, some of the transferees,
To hold a director or officer personally liable for corporate transferors and other parties involved in the assailed
obligations, two requisites must concur: (1) it must be transactions. The Petition3 docketed as G.R. No. 174909
alleged in the complaint that the director or officer assails the Court of Appeals Decision affirming the
assented to patently unlawful acts of the corporation or dismissal of the Complaint and sustaining the award of
that the officer was guilty of gross negligence or bad faith; P25,000,000.00 as moral damages and P5,000,000.00 as
and (2) there must be proof that the officer acted in bad exemplary damages in favor of Rogelio Florete, Sr. The
faith.60 Petition4 docketed as G.R. No. 177275 assails the Court of
WHEREFORE, the Petition is GRANTED. The October 27, Appeals Decision that disallowed the immediate execution
2008 Decision of the Court of Appeals in CA-G.R. SP No. of the same award of damages.
104437 is ANNULLED andSET ASIDE. The March 31, 2006
Decision ofLabor Arbiter Renaldo O. Hernandez in Spouses Marcelino Florete, Sr. and Salome Florete (now
NLRCCase No. 00-06-07767-04 is hereby REINSTATED, both deceased) had four (4) children: Marcelino Florete, Jr.
WITH MODIFICATIONS, in that: (Marcelino, Jr.), Maria Elena Muyco (Ma. Elena), Rogelio
1. Respondent Systems Technology Institute, Inc., Florete, Sr. (Rogelio, Sr.), and Teresita Menchavez
is ordered to REINSTATEpetitioner Girly G. Ico to (Teresita), now deceased.5chanroblesvirtuallawlibrary
the position of STI-Makati College Chief Operating
Officer and pay her the exact salary, benefits, People's Broadcasting Service, Inc. (People's
privileges, and emoluments which respondent Broadcasting) is a private corporation authorized to
Peter K. Fernandez is receiving, but not less than operate, own, maintain, install, and construct radio and
what petitioner was receiving at the time of her television stations in the Philippines.6 In its incorporation
illegal constructive dismissal on May 18, 2004; on March 8, 1966,7 it had an authorized capital stock of
2. Respondent Monico V. Jacob is ABSOLVED of P250,000.00 divided into 2,500 shares at PI00.00 par
any liability; value per share.8
3. Respondent Peter K. Fernandez is ordered to
VACATEthe said office of STI-Makati Chief Twenty-five percent (25%) of the corporation's
Operating Officer and turn over the same to authorized capital stock were then subscribed to as
petitioner; follows:
4. The award of backwages shall earn LEGAL
INTERESTat the rate of six per cent(6%) per Stockholder Number of Shares
annumfrom the date of the petitioner’s illegal
Marcelino Florete, Sr. 250 shares
dismissal until fully paid;61
(Marcelino, Sr.)
5. Finally, the appropriate Computation Division of
the NLRC is hereby ordered to COMPUTE AND Salome Florete (Salome) 100 shares
UPDATEthe award as herein established WITH
DISPATCH. Ricardo Berlin (Berlin) 50 shares
SO ORDERED.
Pacifico Sudario (Sudario) 50 shares
SECOND DIVISION
G.R. No. 174909, January 20, 2016 Atty. Santiago Divinagracia 50 shares10
MARCELINO M. FLORETE, JR., MARIA ELENA F. MUYCO (Divinagracia), now deceased9
AND RAUL A. MUYCO, Petitioners, v. ROGELIO M.
FLORETE, IMELDA C. FLORETE, DIAMEL
CORPORATION, ROGELIO C. FLORETE JR., AND
On November 17, 1967, Berlin and Sudario resigned from
MARGARET RUTH C. FLORETE, Respondents.
their positions as General Manager and Station Supervisor,
respectively.11 Berlin and Sudario each transferred 20
G.R. NO. 177275
shares to Raul Muyco and Estrella
ROGELIO M. FLORETE SR., Petitioner, v. MARCELINO M.
Mirasol.12chanroblesvirtuallawlibrary
FLORETE, JR., MARIA ELENA F. MUYCO AND RAUL A.
MUYCO, Respondents.
Salome died on November 22, 1980.13 Marcelino, Sr.
DECISION
suffered a stroke on July 12, 1982, which left him
LEONEN, J.:
paralyzed and bedridden until his death on October 3,
A stockholder may suffer from a wrong done to or
1990.14 After Marcelino, Sr.'s stroke, their son, Rogelio, Sr.
involving a corporation, but this does not vest in the
started managing the affairs of People's
aggrieved stockholder a sweeping license to sue in his or
Broadcasting.15chanroblesvirtuallawlibrary
her own capacity. The determination of the stockholder's
appropriate remedy—whether it is an individual suit, a
In October 1993, People's Broadcasting sought the
class suit, or a derivative suit—hinges on the object of the
services of the accounting and auditing firm Sycip Gorres
wrong done. When the object of the wrong done is the
Velayo and Co. in order to determine the ownership of
corporation itself or "the whole body of its stock and
equity in the corporation.16 On November 2, 1994, Sycip
property without any severance or distribution among
Gorres Velayo and Co. submitted a report detailing the Cons - 1,25 (1,
movements of the corporation's shares from November
olidat 0 25
23, 1967 to December 8, 1989.17 The relevant portion of
ed 0)
this report reads:
Broa
B. PEOPLE'S BROADCASTING SERVICE, INC. (PBS)
dcasti
ng
The movements in the capital stock accounts (by
beneficial stockholders) are as follows: Total 1,260 1,25 249, 251,8
0 375. 75.00
Benef Share Addi Tr Tr Tr Incr Share 00
icial holdi tion ans ans ans ease holdi
Stock ngs al fer fer fer (F) ngs
holde Nov. Subs of of of Oct. (A) The People's Broadcasting Service, Inc. was
r 27, cript Sh Sh Sh 31, incorporated in 1965 with an authorized capital
1967 ion are are are 1993 stock of P250,000 divided into 2,500 shares at
(A) Sep s of s of s of PI00 par value. As of November 23, 1967, the
t. 1, Sto Sto Sto total subscribed shares of stock was [sic] 1,260.
198 ck ck ck The 610 shares issued in the name of
2 (B) Ma (D) Jun [Newsounds Broadcasting Network, Inc.] was
rch e 5, [sic] authorized by the Board of Directors in
1, 19 payment for the obligation of the Corporation to
19 87 [Newsounds Broadcasting Network, Inc.].
83 (E)
(C) ....

Marc 560 - 75 (6 - 62,3 62,97 (B) On August 5, 1982, the Board of Directors passed
elino 0 80 44.1 4.19 Resolution No. 4 which authorized Atty.
M. ) 9 Divinagracia to negotiate the purchase of two
Flore stations of Consolidated Broadcasting System,
te, Sr. Inc. (CBS), DYMF and DXMF in Cebu and Davao,
respectively. In consideration thereof, [People's
Salo 30 (30) - - - Broadcasting Service, Inc.] shall issue 1,250
me M. shares of stock in favor of [Consolidated
Flore Broadcasting System, Inc.]. In pursuance thereof,
te on September 1, 1982, the Corporation issued
the remaining 1,240 shares of unissued capital
Rogel 20 5 11 37 (5) 149, 151,1 stock to [Consolidated Broadcasting System,
io M. 10 0 624. 24.75 Inc.]. To complete the consideration of 1,250
Flore 75 shares, it was explained that [Salome]
te transferred her 10 shares to [Consolidated
Broadcasting System, Inc.] and distributed her
Ma. 20 5 - - (2 2,49 2,493 remaining 20 shares to her children, at 5 shares
Elena 5) 3.68 .68 each.
F.
Muyc (C) On March 1, 1983, all the 610 shares of
o [Newsounds Broadcasting Network, Inc.] were
transferred to [Rogelio, Sr.]. We were not able to
Teres - 5 - 20 (2 2,49 2,493 determine the person who endorsed the
ita F. 5) 3.69 .69 certificate in [sic] behalf [of] [Newsounds
Menc Broadcasting Network, Inc.] as the certificate was
havez not found on file. On the same day, the entire
investment of [Consolidated Broadcasting
Marc - 5 - 20 (2 2,49 2,493 System, Inc.] were transferred to [Marcelino, Sr.]
elino 0) 3.44 .44 and [Rogelio, Sr.] at the proportion of 750 shares
M. and 500 shares, respectively. The cancelled
Flore certificates of [Consolidated Broadcasting
te, Jr. System, Inc.] were endorsed by [Rogelio, Sr.] in
[sic] its behalf.
Santi 20 - - 27 75 29,9 30,29
ago C. 0 25.2 0.25 (D) On February 28 and August 1, 1983, [Marcelino,
Divin 5 Sr.] transferred 680 shares from his block to the
agrac following:
ia

News 610 - (6
Transferee No. of Date of Transfer
ound 10
Shares
Broa )
dcasti Rogelio M. Florete 370 February 28,
ng18
[Sr.] 1983
 Santiago C. 270 August 1, 1983 5. Santiago Divinagracia 30,289.25
Divinagracia
6. Imelda Florete 1,000.00
Marcelino M. Florete, 20 August 1, 1983
Jr. 7. Rogelio Florete, Jr. 100.00

Teresita F. 20 August 1, 1983 8. Margaret Ruth Florete 100.00

Menchavez
9. Raul Muyco 10.00
Total 680
10. Manuel Villa, Jr. 10.00

11 .Gregorio Rubias 1.00

(E) On June 3, 1987, the Corporation effected the
transfer of 75 shares to [Divinagracia] by virtue
of the deeds of sale executed by the transferors
concerned in his favor.
(F) On December 8, 1989, the [Securities and
Exchange Commission] approved the application
of the Corporation to increase the authorized
capital stock to P100,000,000.00 divided into
1,000,000 shares at P100 par value. Of the
increase, 249,375 shares were subscribed for
P24,937,500 and P6,234,375 thereof was paid-
up. The subscribers to the increase were as
indicated in the foregoing.
There were no other transactions affecting the interest of
the beneficial stockholders up to October 31, 1993 except
transfers to and from designated
nominees[.] chanroblesvirtuallawlibrary
19
Even as it tracked the movements of shares, Sycip Gorres
Velayo and Co. declined to give a categorical statement on
equity ownership as People's Broadcasting's corporate
records were incomplete.20 The report contained the
following disclaimer on the findings regarding the
corporation's capital structure:
Because the procedures included certain assumptions as
represented by the corporate secretaries mentioned in
Attachment I and we have not verified the documents
supporting some of the transactions, we do not express an
opinion on the capital stock accounts of the respective
companies [including People's Broadcasting] as at
October 31, 1993.21 (Emphasis supplied)
On February 1, 1997, the Board of Directors of People's
Broadcasting approved Sycip Gorres Velayo and Co.'s
report.22chanroblesvirtuallawlibrary
In the meantime, Rogelio, Sr. transferred a portion of his
shareholdings to the members of his immediate family,
namely: Imelda Florete, Rogelio Florete, Jr., and Margaret
Ruth Florete, as well as to Diamel Corporation, a
corporation owned by Rogelio, Sr.'s
family.23chanroblesvirtuallawlibrary
As of April 27, 2002, the stockholders of record of People's
Broadcasting were the
following:24chanroblesvirtuallawlibrary
Stockholder No. of Shares
1. Diamel Corporation 30,000.00
2. Rogelio Florete [Sr.] 153,881.53
3. Marcelino Florete, Jr. 18,240.99
4. Ma. Elena Muyco 18,227.23
12. Cyril Regaldao 1.00
13. Jose Mari Trenas 1.00
14. Enrico Jacomille 1.00
15. Joseph Vincent Go 1.00
16. Jerry Trenas 1.00
17. Efrain Trenas 10.00
On June 23, 2003, Marcelino, Jr., Ma. Elena, and Raul
Muyco (Marcelino, Jr. Group) filed before the Regional
Trial Court a Complaint25 for Declaration of Nullity of
Issuances, Transfers and Sale of Shares in People's
Broadcasting Service, Inc. and All Posterior Subscriptions
and Increases thereto with Damages26 against Diamel
Corporation, Rogelio, Sr., Imelda Florete, Margaret Florete,
and Rogelio Florete, Jr. (Rogelio, Sr. Group).
On July 25, 2003, the Rogelio, Sr. Group filed their Answer
with compulsory
counterclaim.27chanroblesvirtuallawlibrary
On August 2, 2005, the Regional Trial Court issued a
Decision (which it called a "Placitum") dismissing the
Marcelino, Jr. Group's Complaint. It ruled that the
Marcelino, Jr. Group did not have a cause of action against
the Rogelio, Sr. Group and that the former is estopped
from questioning the assailed movement of shares of
People's Broadcasting. It also ruled that indispensible
parties were not joined in their Complaint.
According to the trial court, the indispensable parties
would include:
[Marcelino, Sr.] and/or his estate and/or his heirs,
[Salome] and/or her estate and/or her heirs,
[Divinagracia] and/or his estate and/or his successors-in-
interest, [Teresita] and/or her estate and/or her own
successors-in-interest, the other [People's Broadcasting
Service, Inc.] stockholders who may be actually beneficial
owners and not purely nominees, all the so called nominal
stockholders. . . [and] the various [People's Broadcasting
Service, Inc.] Corporate Secretaries[.]"28chanrobleslaw
The Regional Trial Court granted Rogelio, Sr.'s
compulsory counterclaim for moral and exemplary
damages amounting to P25,000,000.00 and
P5,000,000.00, respectively, reasoning that Rogelio, Sr.
suffered from the besmirching of his personal and
commercial reputation.29chanroblesvirtuallawlibrary
The dispositive portion of the Regional Trial Court
Decision reads:
WHEREFORE, premises duly considered, the instant
"Complaint" of the plaintiffs is hereby DISMISSED for lack
of merit.
The "Counterclaim" of defendant Rogelio Florete Sr. is
hereby given DUE COURSE but only insofar as the claims
for moral and exemplary damages are concerned.
Consequently, the plaintiffs herein are hereby ordered to
pay, jointly and severally, defendant Rogelio Florete Sr.,
the following sums, to wit:
1. TWENTY FIVE MILLION PESOS (P25,000,000.00) as
and for MORAL DAMAGES; and,
2. FIVE MILLION PESOS (P5,000,000.00) as and for
EXEMPLARY DAMAGES.
The "Counterclaim(s)" of the other defendants and the
prayer for the recovery of attorney's fees and litigation
expenses of defendant Rogelio Florete, Sr. are hereby
DISMISSED likewise for lack of merit.
SO ORDERED.30chanrobleslaw
On August 15, 2005, Rogelio, Sr. filed a Motion for the
immediate execution of the award of moral and exemplary
damages pursuant to Rule I, Section 431 of the Interim
Rules of Procedure Governing Intra-Corporate
Controversies.32chanroblesvirtuallawlibrary
On September 8, 2005, the Marcelino, Jr. Group filed
before the Court of Appeals a Petition for Review33 with a
prayer for the issuance of a temporary restraining order
and/or writ of preliminary injunction to deter the
immediate execution of the trial court Decision awarding
damages to Rogelio, Sr.34 The Court of Appeals issued a
temporary restraining order and, subsequently, a writ of
preliminary injunction.35chanroblesvirtuallawlibrary
In its Decision36 dated March 29, 2006, the Court of
Appeals denied the Marcelino, Jr. Group's Petition and
affirmed the trial court Decision.37 It also lifted the
temporary restraining order and writ of preliminary
injunction.38chanroblesvirtuallawlibrary
The Court of Appeals ruled that the Marcelino, Jr. Group
did not have a cause of action against those whom they
have impleaded as defendants. It also noted that the
principal obligors in or perpetrators of the assailed
transactions were persons other than those in the Rogelio,
Sr. Group who have not been impleaded as parties. Thus,
the Court of Appeals emphasized that the following
parties were indispensable to the case: People's
Broadcasting; Marcelino, Sr.; Consolidated Broadcasting
System, Inc.; Salome; Divinagracia; Teresita; and "other
stockholders of [People's Broadcasting] to whom the
shares were transferred or the nominees of the
stockholders."39chanroblesvirtuallawlibrary
The Court of Appeals further emphasized that the estates
of Marcelino, Sr. and Salome had long been settled, with
those in the Marcelino, Jr. Group participating (in their
capacity as heirs). As the Marcelino, Jr. Group failed to act
to protect their supposed interests in shares originally
accruing to Marcelino, Sr. and Salome, the group is
estopped from questioning the distribution of Marcelino,
Sr.'s and Salome's assets.40 Furthering the conclusion that
the Marcelino, Jr. Group was bound by estoppel, the Court
of Appeals noted that the Marcelino, Jr. Group was well
aware of the matters stated in the report furnished by
Sycip Gorres Velayo and Co. but failed to act on any
supposed error in the report. Instead, the Marcelino, Jr.
Group waited ten (10) years before filing their Complaint.
In the interim, they even participated in the affairs of
People's Broadcasting, voting their shares and electing
members of the Board of
Directors.41chanroblesvirtuallawlibrary
On April 26, 2006, the Marcelino, Jr. Group filed a Motion
for Reconsideration dated April 24,
2006.42chanroblesvirtuallawlibrary
Pending resolution of the Marcelino, Jr. Group's Motion for
Reconsideration, Rogelio, Sr. filed before the Regional
Trial Court a Motion to resolve his earlier motion for the
immediate execution of the awards of moral and
exemplary damages, which was filed on August 15,
2005.43 The Regional Trial Court granted the Motion in its
Order dated May 18, 2006.44 On May 23, 2006, a Writ of
Execution was issued to enforce the award of moral and
exemplary damages.45chanroblesvirtuallawlibrary
The Marcelino, Jr. Group filed a Petition for
Certiorari46 before the Court of Appeals questioning the
Regional Trial Court Order to immediately execute its
Decision.47 On June 13, 2006, the Court of Appeals issued
a temporary restraining order and, subsequently, a writ of
preliminary injunction.48 The Court of Appeals reversed
the trial court Order of immediate execution in the
Decision promulgated on November 28, 2006.49 It also
annulled the writ of execution issued pursuant to the
Order of immediate execution. Rogelio, Sr. filed a Motion
for Reconsideration,50 but it was denied on February 23,
2007.51chanroblesvirtuallawlibrary
On September 15, 2006, the Court of Appeals denied the
Marcelino, Jr. Group's Motion for Reconsideration dated
April 24, 2006.52chanroblesvirtuallawlibrary
Hence, on November 17, 2006, the Marcelino, Jr. Group
filed the Petition53 docketed as GR. No. 174909.
Since the Court of Appeals Decision disallowed the
immediate execution of the Regional Trial Court Decision,
Rogelio, Sr. filed on May 7, 2007 the Petition54 docketed as
GR. No. 177275.
On March 16, 2009, this court ordered the consolidation
of the Petitions docketed as GR. No. 174909 and GR. No.
177275.
For resolution are the following issues:
First, whether it was proper for the Regional Trial Court
to dismiss the Complaint filed by the Marcelino, Jr. Group;
Second, assuming that it was error for the Regional Trial
Court to dismiss the Complaint and that the case may be
decided on the merits, whether the transfers of shares
assailed by the Marcelino, Jr. Group should be nullified;
and
Lastly, whether the Regional Trial Court's award of moral
and exemplary damages in favor of Rogelio, Sr. may be
executed at this juncture of the proceedings.
The Marcelino, Jr. Group insists that they have sufficiently
established causes of action accruing to them and against
the Rogelio, Sr. Group.55 They add that they have
impleaded all indispensable parties.56 Thus, they claim
that it was an error for the Regional Trial Court to dismiss
their Complaint. They assert that a resolution of the case
on the merits must ensue.
The Marcelino, Jr. Group seeks to nullify the following
transactions on the shares of stock of People's
Broadcasting, as noted in the report of Sycip Gorres Velayo
and Co.:
(a) Issuance of 1,240 shares to Consolidated
Broadcasting System, Inc. on September 1, 1982,
(b) Transfer of 10 shares from Salome to
Consolidated Broadcasting System, Inc. on
September 1, 1982,
(c) Issuance of 610 shares to Newsounds
Broadcasting Network, Inc. on November 17,
1967,
(d) Transfer of 610 shares from Newsounds
Broadcasting Network, Inc. to Rogelio, Sr. on
March 1, 1983,
(e) Transfer of 750 shares from Consolidated
Broadcasting System, Inc. to Marcelino, Sr. on
March 1, 1983,
(f) Transfer of 500 shares from Consolidated
Broadcasting System, Inc. to Rogelio, Sr.,
(g) Transfer of 680 shares from Marcelino, Sr. to the
following: 370 shares to Rogelio, Sr., 270 shares
to Divinagracia, 20 shares to Marcelino, Jr., and
20 shares to Teresita, and
(h) Increase in the authorized capital stock to
PI00,000,000.00 divided into 1,000,000 shares
with a par value of PI00.00 per share on
December 8, 1989, and the resulting
subscriptions.57
For the issuance of 1,250 shares to Consolidated
Broadcasting System, Inc., the Marcelino, Jr. Group argues
that Board Resolution No. 4 dated August 5, 1982, the
basis for the issuance of the 1,250 shares in favor of
Consolidated Broadcasting System, Inc., was a forgery: it
was simulated, unauthorized, and issued without a
quorum as required under Section 25 of the Corporation
Code.58 They add that Salome, who allegedly transferred
her 10 shares to complete the 1,250 share transfer, was
already dead at the time of the alleged transfer on
September 1, 1982.59 The Marcelino, Jr. Group claims that
no member of the Board attended the meeting referred to
in Board Resolution No. 4.60 They further allege that the
signature of Marcelino, Sr. in Board Resolution No. 4 is a
forgery.61 They argue that Marcelino, Sr. could not have
attended the meeting on August 5, 1982 because from July
12, 1982 to August 26, 1982,62 he was confined in Gov. B.
Lopez Memorial Hospital for quadriparesis and motor
aphasia.63 They also supplied the trial court with
specimen signatures of Marcelino, Sr. to prove that the
signature appearing on Board Resolution No. 4 was
forged.64chanroblesvirtuallawlibrary
The Marcelino, Jr. Group alleges that from the time
Marcelino, Sr. suffered a stroke on July 12, 1982 until his
death on October 3, 1990, he was no longer capable of
giving consent because of his quadriparesis and motor
aphasia.65 As they emphasized, "[q]uadriparesis means
weakness of the upper and lower extremities with
spasticity and tremors. Motor aphasia means that the
patient could not communicate, unable to talk, nor
responds [sic] to question or simple commands."66 Thus,
they conclude that all of the issuances of shares in favor of
Marcelino, Sr. and all of the transfers of shares to and from
Marcelino, Sr. from July 12, 1982 are void for lack of
consent.
With respect to the issuance of 610 shares to Newsounds
Broadcasting Network, Inc. and the subsequent transfer of
610 shares to Rogelio, Sr., the Marcelino, Jr. Group argues
that there is no deed of conveyance to support the transfer
and that the stock certificates representing the 610 shares
are missing. They conclude that because of the absence of
the stock certificates, there is no valid delivery and
endorsement as required by Section 63 of the Corporation
Code.67 Hence, the transfer is invalid.
Regarding the increase in the authorized capital stock of
People's Broadcasting, the Marcelino, Jr. Group argues
that the increase was procured by fraud because it was
made "by the new Board of Directors who were elected by
stockholders who were transferees of the illegal,
fraudulent and anomalous transfers, and therefore have
no power and authority to procure such increase."68 They
also pray that the subscriptions to the increase be
nullified.69chanroblesvirtuallawlibrary
After a declaration that the issuances and transfers are
void, the Marcelino, Jr. Group prays that the capital
structure of People's Broadcasting System be corrected to
reflect the following:70chanroblesvirtuallawlibrary
Beneficial Stockholder No. of Shares %
Marcelino Florete, Sr. 660 81.48
Salome Florete 100 12.35
Santiago Divinagracia 50 6.17
Total 810 100.00
The Marcelino, Jr. Group further claims that the award of
moral and exemplary damages is erroneous.71 They add
that the amounts of P25,000,000.00 as moral damages and
P5,000,000.00 as exemplary damages are
excessive. chanroblesvirtuallawlibrary
72
The Rogelio, Sr. Group seeks the denial of the Petition filed
by the Marcelino, Jr. Group, claiming that it raises factual
questions that may not be taken cognizance of in a petition
for review on certiorari under Rule
45.73chanroblesvirtuallawlibrary
They further argue that the Marcelino, Jr. Group has no
cause of action against them.74 They insist that
indispensable parties have not been impleaded75 and that
the Marcelino Jr. Group's claims should have been raised
during the settlement of the estates of deceased Spouses
Marcelino, Sr. and Salome Florete.76 They also argue that
the Marcelino, Jr. Group is already estopped from
questioning Sycip Gorres Velayo and Co.'s report because
they allowed 10 years to lapse before questioning the
truthfulness of the report. They add that the Marcelino, Jr.
Group's members have been voting their shares since
1963 without making any
reservation.77chanroblesvirtuallawlibrary

In G.R. No. 177275, Rogelio, Sr. argues that the Court of
Appeals erred in disallowing the immediate execution of
the Regional Trial Court Decision. He argues that the
Petition filed by the Marcelino, Jr. Group before the Court
of Appeals should not have been accepted because Rule 65
petitions require that there no longer be any appeal nor
any plain, speedy, and adequate remedy in the ordinary
course of law.78 He alleges that when the Petition was filed
by the Marcelino, Jr. Group, there was still a pending
appeal before the Court of Appeals to resolve the main
case.79 Rogelio, Sr. adds that the filing of a new petition
despite the pendency of the main case is a violation of the
rule against forum
shopping.80chanRoblesvirtualLawlibrary
I or hold the control of the corporation. In such actions, the
The sufficiency of the Marcelino, Jr. Group's plea for relief,
through their Complaint for Declaration of Nullity of
Issuances, Transfers and Sale of Shares in People's
Broadcasting Service, Inc. and All Posterior Subscriptions
and Increases thereto with Damages,81 hinges on a
characterization of the suit or action they initiated. This
characterization requires a determination of the cause of
action through which the Marcelino, Jr. Group came to
court for relief. It will, thus, clarify the parties who must
be included in their action and the procedural and
substantive requirements they must satisfy if their action
is to prosper.
A stockholder suing on account of wrongful or fraudulent
corporate actions (undertaken through directors,
associates, officers, or other persons) may sue in any of
three (3) capacities: as an individual; as part of a group or
specific class of stockholders; or as a representative of the
corporation.
Villamor v. Umale82 distinguished individual suits from
class or representative suits:
Individual suits are filed when the cause of action belongs
to the individual stockholder personally, and not to the
stockholders as a group or to the corporation, e.g., denial
of right to inspection and denial of dividends to a
stockholder. If the cause of action belongs to a group of
stockholders, such as when the rights violated belong to
preferred stockholders, a class or representative suit may
be filed to protect the stockholders in the
group.83chanroblesvirtuallawlibrary
Villamor further explained that a derivative suit "is an
action filed by stockholders to enforce a corporate
action."84A derivative suit, therefore, concerns "a wrong to
the corporation itself."85 The real party in interest is the
corporation, not the stockholders filing the suit. The
stockholders are technically nominal parties but are
nonetheless the active persons who pursue the action for
and on behalf of the corporation.
Remedies through derivative suits are not expressly
provided for in our statutes—more specifically, in the
Corporation Code and the Securities Regulation Code—
but they are "impliedly recognized when the said laws
make corporate directors or officers liable for damages
suffered by the corporation and its stockholders for
violation of their fiduciary duties."86 They are intended to
afford reliefs to stockholders in instances where those
responsible for running the affairs of a corporation would
not otherwise act:
However, in cases of mismanagement where the wrongful
acts are committed by the directors or trustees
themselves, a stockholder or member may find that he has
no redress because the former are vested by law with the
right to decide whether or not the corporation should sue,
and they will never be willing to sue themselves. The
corporation would thus be helpless to seek remedy.
Because of the frequent occurrence of such a situation, the
common law gradually recognized the right of a
stockholder to sue on behalf of a corporation in what
eventually became known as a "derivative suit." It has
been proven to be an effective remedy of the minority
against the abuses of management. Thus, an individual
stockholder is permitted to institute a derivative suit on
behalf of the corporation wherein he holds stock in order
to protect or vindicate corporate rights, whenever officials
of the corporation refuse to sue or are the ones to be sued
suing stockholder is regarded as the nominal party, with
the corporation as the party in interest.87chanrobleslaw
The distinction between individual and
class/representative suits on one hand and derivative
suits on the other is crucial. These are not discretionary
alternatives. The fact that stockholders suffer from a wrong
done to or involving a corporation does not vest in them a
sweeping license to sue in their own capacity. The
recognition of derivative suits as a vehicle for redress
distinct from individual and representative suits is an
acknowledgment that certain wrongs may be addressed
only through acts brought for the corporation:
Although in most every case of wrong to the corporation,
each stockholder is necessarily affected because the value
of his interest therein would be impaired, this fact of itself
is not sufficient to give him an individual cause of action
since the corporation is a person distinct and separate
from him, and can and should itself sue the
wrongdoer.88chanrobleslaw
In Asset Privatization Trust v. Court of Appeals,89 the
reasons for disallowing a direct individual suit were
further explained:
The reasons given for not allowing direct individual suit
are:
(1) . . . "the universally recognized doctrine that a
stockholder in a corporation has no title legal or equitable
to the corporate property; that both of these are in the
corporation itself for the benefit of the stockholders." In
other words, to allow shareholders to sue separately
would conflict with the separate corporate entity
principle;
(2) . . . that the prior rights of the creditors may be
prejudiced. Thus, our Supreme Court held in the case
of Evangelista v. Santos, that 'the stockholders may not
directly claim those damages for themselves for that
would result in the appropriation by, and the distribution
among them of part of the corporate assets before the
dissolution of the corporation and the liquidation of its
debts and liabilities, something which cannot be legally
done in view of Section 16 of the Corporation Law...";
(3) the filing of such suits would conflict with the duty of
the management to sue for the protection of all concerned;
(4) it would produce wasteful multiplicity of suits; and
(5) it would involve confusion in ascertaining the effect of
partial recovery by an individual on the damages
recoverable by the corporation for the same
act.90chanrobleslaw

The avenues for relief are, thus, mutually exclusive. The
determination of the appropriate remedy hinges on the
object of the wrong done. When the object is a specific
stockholder or a definite class of stockholders, an
individual suit or class/representative suit must be
resorted to. When the object of the wrong done is the
corporation itself or "the whole body of its stock and
property without any severance or distribution among
individual holders,"91 it is a derivative suit that a
stockholder must resort to. In Cua, Jr. v.
Tan:92chanroblesvirtuallawlibrary
Indeed, the Court notes American jurisprudence to the
effect that a derivative suit, on one hand, and individual
and class suits, on the other, are mutually
exclusive, viz.:ChanRoblesVirtualawlibrary
As the Supreme Court has explained: "A shareholder's
derivative suit seeks to recover for the benefit of the
corporation and its whole body of shareholders when
injury is caused to the corporation that may not otherwise
be redressed because of failure of the corporation to
act. Thus, 'the action is derivative, i.e., in the corporate right,
if the gravamen of the complaint is injury to the corporation,
or to the whole body of its stock and property without any
severance or distribution among individual holders, or it
seeks to recover assets for the corporation or to prevent
the dissipation of its assets.'" In contrast, "a direct action
[is one] filed by the shareholder individually (or on behalf
of a class of shareholders to which he or she belongs) for
injury to his or her interest as a shareholder.. . . [T]he two
actions are mutually exclusive: i.e., the right of action and
recovery belongs to either the shareholders (direct
action) or the corporation (derivative action)."
Thus, in Nelson v. Anderson, the minority shareholder
alleged that the other shareholder of the corporation
negligently managed the business, resulting in its total
failure. The appellate court concluded that the plaintiff
could not maintain the suit as a direct action: "Because the
gravamen of the complaint is injury to the whole body of its
stockholders, it was for the corporation to institute and
maintain a remedial action. A derivative action would have
been appropriate if its responsible officials had refused or
failed to act." The court went on to note that the damages
shown at trial were the loss of corporate profits. Since
"[shareholders own neither the property nor the earnings
of the corporation," any damages that the plaintiff alleged
that resulted from such loss of corporate profits "were
incidental to the injury to the corporation."93 (Emphasis
supplied, citations omitted)
Villamor recalls the requisites for filing derivative suits:
Rule 8, Section 1 of the Interim Rules of Procedure for
Intra Corporate Controversies (Interim Rules) provides
the five (5) requisites for filing derivative
suits:ChanRoblesVirtualawlibrary
SECTION 1. Derivative action.—A stockholder or member
may bring an action in the name of a corporation or
association, as the case may be, provided, that:
(1) He was a stockholder or member at the time the
acts or transactions subject of the action
occurred and at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the
same with particularity in the complaint, to
exhaust all remedies available under the articles
of incorporation, by-laws, laws or rules
governing the corporation or partnership to
obtain the relief he desires;
(3) No appraisal rights are available for the act or
acts complained of; and
(4) The suit is not a nuisance or harassment suit.
In case of nuisance or harassment suit, the court shall
forthwith dismiss the case.
The fifth requisite for filing derivative suits, while not
included in the enumeration, is implied in the first
paragraph of Rule 8, Section 1 of the Interim Rules: The
action brought by the stockholder or member must be "in
the name of [the] corporation or association. . . ." This
requirement has already been settled in jurisprudence.
Thus, in Western Institute of Technology, Inc., et al. v. Salas,
et al, this court said that "[a]mong the basic requirements
for a derivative suit to prosper is that the minority
shareholder who is suing for and on behalf of the
corporation must allege in his complaint before the
proper forum that he is suing on a derivative cause of
action on behalf of the corporation and all other
shareholders similarly situated who wish to join [him]." ...
Moreover, it is important that the corporation be made a
party to the case.94 (Citations omitted)
II
The greater number of cases that sustained stockholders'
recourse to derivative suits involved corporate acts
amounting to mismanagement by either the corporation's
directors or officers in relations to third persons. Several
cases serve as examples.
Hi-Yield Realty v. Court of Appeals95 affirmed the Regional
Trial Court's and Court of Appeals' characterization of a
Petition for Annulment of Real Estate Mortgage and
Foreclosure Sale96 as a derivative suit. The Petition was
initiated by private respondent Roberto H. Torres, a
stockholder, on behalf of the corporation Honorio Torres
& Sons, Inc. Petitioner Hi-Yield Realty, Inc. was among the
defendants to the Petition, along with the related parties,
Leonora, Ma. Theresa, Glenn, and Stephanie, all surnamed
Torres, as well as the Registers of Deeds of Marikina and
of Quezon City. Against Hi-Yield Realty, Inc.'s claims, this
court sustained the respondent's position that the Petition
was "primarily a derivative suit to redress the alleged
unauthorized acts of its corporate officers and major
stockholders in connection with the
lands." chanroblesvirtuallawlibrary
97
Cua, Jr. considered two corporate acts to be valid objects
of a derivative suit. The first was a resolution of the Board
of Directors of the corporation Philippine Racing Club, Inc.
to acquire up to 100% of the common shares of another
corporation, JTH Davies Holdings, Inc., as well as to
appoint Santiago Cua, Jr. "to act as attorney-in-fact and
proxy who could vote all the shares of [Philippine Racing
Club, Inc.] in [JTH Davies Holdings, Inc.], as well as
nominate, appoint, and vote into office directors and/or
officers during regular and special stockholders meetings
of [JTH Davies Holdings, Inc.]."98 The second was another
resolution of Philippine Racing Club, Inc.'s Board of
Directors "approving the property-for-shares exchange
between Philippine] R[acing] C[lub], I[nc]. and [JTH
Davies Holdings, Inc.]."99chanroblesvirtuallawlibrary
In Cua, Jr., the derivative suit grounded on the first was
dismissed by this court for being moot and
academic.100The suit grounded on the second was
similarly dismissed for failure to comply with one of the
requisites for instituting a derivative suit. The plaintiffs
"made no mention at all of appraisal rights, which could or
could not have been available to them[,]" thereby violating
Rule 8, Section 1 of the Interim Rules of Procedure for
Intra-Corporate
Controversies.101chanroblesvirtuallawlibrary
As with Hi-Yield Realty and Cua, Go v. Distinction Properties
Development and Construction, Inc.102 concerned a
corporate action taken in relation to a third person.
Petitioners Philip L. Go, Pacifico Q. Lim and Andrew Q. Lim
filed before the Housing and Land Use Regulatory Board a
Complaint, which they claimed was one for specific
performance intended to compel the developer of Phoenix
Heights Condominium, Distinction Properties
Development and Construction, Inc. (Distinction
Properties), to fulfill its contractual obligations. The
Complaint was filed in the wake of an agreement entered
into by Distinction Properties with the condominium
corporation Phoenix Heights Condominium Corporation
(PHCC). PHCC "approved a settlement offer from
[Distinction Properties] for the set-off of the latter's
association dues arrears with the assignment [from
Distinction Properties] of title over [two saleable
commercial units/spaces originally held by Distinction
Properties] and their conversion into common
areas."103chanroblesvirtuallawlibrary
This court clarified that the true purpose of the
petitioners' action was not to compel Distinction
Properties to fulfill its contractual obligations. Instead,
"petitioners [we]re actually seeking to nullify and
invalidate the duly constituted acts of PHCC - the April 29,
2005 Agreement entered into by PHCC with DPDCI and its
Board Resolution which authorized the acceptance of the
proposed offsetting/settlement of DPDCI's indebtedness
and approval of the conversion of certain units from
saleable to common areas." This court thereby concluded
that "the cause of action rightfully pertains to PHCC [and
that] [petitioners cannot exercise the same except through
a derivative suit."104chanroblesvirtuallawlibrary
The prevalence of derivative suits arising from corporate
actions taken in relation to third persons is to be expected.
After all, it is easier to perceive the wrong done to a
corporation when third persons unduly gain an advantage.
However, this does not mean that derivative suits cannot
arise with respect to conflicts among a corporation's
directors, officers, and stockholders.
Ching and Wellington v. Subic Bay Golf and Country
Club105 sustained the Regional Trial Court's and Court of
Appeals' characterization of the Complaint filed by
stockholders against officers of the corporation as a
derivative suit. Nestor Ching and Andrew Wellington filed
a Complaint in their own names and in their right as
individual stockholders assailing an amendment
introduced into Subic Bay Golf and Country Club's articles
of incorporation, which supposedly "takes away the right
of the shareholders to participate in the pro-rata
distribution of the assets of the corporation after its
dissolution."106 They anchored their action on Section 5(a)
of Presidential Decree No. 902-A.107 They claimed that this
statutory provision "allows any a stockholder to file a
complaint against the Board of Directors for employing
devices or schemes amounting to fraud and
misrepresentation which is detrimental to the interest of
the public and/or the
stockholders."108chanroblesvirtuallawlibrary
This court did not sustain Nestor Ching's and Andrew
Wellington's claim of a right to sue in their own capacity.
Concluding that the petitioners' action was a derivative
suit, this court explained:
The reliefs sought in the Complaint, namely that of
enjoining defendants from acting as officers and Board of
Directors of the corporation, the appointment of a
receiver, and the prayer for damages in the amount of the
decrease in the value of the shares of stock, clearly show
that the Complaint was filed to curb the alleged
mismanagement of [Subic Bay Gold and Country Club].
The causes of action pleaded by petitioners do not accrue
to a single shareholder or a class of shareholders but to the
corporation itself.109 (Emphasis supplied)
We are mindful that in 1979, in Gamboa v.
Victoriano,110 this court characterized an action to nullify
the sale of 823 unissued shares on the ground of violating
the plaintiffs' pre-emptive rights and in violation of the
voting requirement for the Board of Directors as not a
derivative suit. This court characterized the action as one
in which "the plaintiffs are alleging and vindicating their
own individual interests or prejudice, and not that of the
corporation."111chanroblesvirtuallawlibrary
This pronouncement cannot be considered as a binding
precedent for holding actions of the sort filed by the
plaintiffs therein to not be derivative suit. This point
in Gamboa was mere obiter dictum. The main issue
in Gamboa was the validity of the trial court's denial of the
Motion to Dismiss filed by four of the seven defendants
after the plaintiffs entered into a compromise agreement
with the three other defendants. The resolution of this
issue was contingent on the determination of whether the
compromise amounted to the plaintiff's waiver and
estoppel for having conceded the validity of the sale.
Besides, this court itself acknowledged that the statement
it made characterizing the action brought by the plaintiffs
was premature. Immediately after saying that "the
plaintiffs are alleging and vindicating their own individual
interests or prejudice, and not that of the
corporation[,]"112 this court stated: "At any rate, it is yet
too early in the proceedings since the issues have not been
joined."113chanRoblesvirtualLawlibrary
III
In this case, the Marcelino, Jr. Group anchored their
Complaint on violations of and liabilities arising from the
Corporation Code, specifically: Section 23114 (on
corporate decision-making being vested in the board of
directors), Section 25115 (quorum requirement for the
transaction of corporate business), Sections 39116 and
102117 (both on stockholders' preemptive rights), Section
62118 (stipulating the consideration for which stocks must
be issued), Section 63119 (stipulating that no transfer of
shares "shall be valid, except as between the parties, until
the transfer is recorded in the books of the corporation"),
and Section 65120 (on liabilities of directors and officers
"to the corporation and its creditors" for the issuance of
watered stocks) in relation to provisions in People's
Broadcasting's Articles of Incorporation and By-Laws as
regards conditions for issuances of and subscription to
shares. The Marcelino, Jr. Group ultimately prays that
People's Broadcasting's entire capital structure be
reconfigured to reflect a status quo
ante.121chanroblesvirtuallawlibrary
As with Ching and Wellington, the actions being assailed
by the Marcelino, Jr. Group pertain to parties that are not
extraneous to People's Broadcasting. They assail and seek
to nullify acts taken by various iterations of People's
Broadcasting's Board of Directors. All these acts and
incidents concern the capital structure of People's
Broadcasting. These acts reconfigured, through
redistribution and enlargement, the structure of People's
Broadcasting's equity ownership. These acts also
admitted into People's Broadcasting new equity holders
such as Consolidated Broadcasting System, Inc. and
Newsounds Broadcasting Network, Inc.
As Ching and Wellington exemplifies, the action should be
a proper derivative suit even if the assailed acts do not
pertain to a corporation's transactions with third
persons. Cua, Jr. established that the pivotal consideration
is whether the wrong done as well as the cause of action
arising from it accrues to the corporation itself or to the
whole body of its stockholders. Ching and
Wellington states that if "[t]he causes of action pleaded ...
do not accrue to a single shareholder or a class of
shareholders but to the corporation itself,"122 the action
should be deemed a derivative suit. Also, in Go, an action
"seeking to nullify and invalidate the duly constituted acts
[of a corporation]" entails a cause of action that "rightfully
pertains to [the corporation itself and which stockholders]
cannot exercise . . . except through a derivative
suit."123chanroblesvirtuallawlibrary
These are the same conditions in this case. What the
Marcelino, Jr. Group asks is the complete reversal of a
number of corporate acts undertaken by People'
Broadcasting's different boards of directors. These boards
supposedly engaged in outright fraud or, at the very least,
acted in such a manner that amounts to wanton
mismanagement of People's Broadcasting's affairs. The
ultimate effect of the remedy they seek is the
reconfiguration of People's Broadcasting's capital
structure.
The remedies that the Marcelino, Jr. Group seeks are for
People's Broadcasting itself to avail. Ordinarily, these
reliefs may be unavailing because objecting stockholders
such as those in the Marcelino, Jr. Group do not hold the
controlling interest in People's Broadcasting. This is
precisely the situation that the rule permitting derivative
suits contemplates: minority shareholders having no
other recourse "whenever the directors or officers of the
corporation refuse to sue to vindicate the rights of the
corporation or are the ones to be sued and are in control
of the corporation."124chanroblesvirtuallawlibrary
The Marcelino, Jr. Group points to violations of specific
provisions of the Corporation Code that supposedly attest
to how their rights as stockholders have been besmirched.
However, this is not enough to sustain a claim that the
Marcelino, Jr. Group initiated a valid individual or class
suit. To reiterate, whether stockholders suffer from a
wrong done to or involving a corporation does not readily
vest in them a sweeping license to sue in their own
capacity.
The specific provisions adverted to by the Marcelino, Jr.
Group signify alleged wrongdoing committed against the
corporation itself and not uniquely to those stockholders
who now comprise the Marcelino, Jr. Group. A violation of
Sections 23 and 25 of the Corporation Code—on how
decision-making is vested in the board of directors and on
the board's quorum requirement—implies that a decision
was wrongly made for the entire corporation, not just with
respect to a handful of stockholders. Section 65
specifically mentions that a director's or officer's liability
for the issuance of watered stocks in violation of Section
62 is solidary "to the corporation and its creditors," not to
any specific stockholder. Transfers of shares made in
violation of the registration requirement in Section 63 are
invalid and, thus, enable the corporation to impugn the
transfer. Notably, those in the Marcelino, Jr. Group have
not shown any specific interest in, or unique entitlement
or right to, the shares supposedly transferred in violation
of Section 63.
Also, the damage inflicted upon People's Broadcasting's
individual stockholders, if any, was indiscriminate. It was
not unique to those in the Marcelino, Jr. Group. It
pertained to "the whole body of [People's Broadcasting's]
stock."125 Accordingly, it was upon People's Broadcasting
itself that the causes of action now claimed by the
Marcelino Jr. Group accrued. While stockholders in the
Marcelino, Jr. Group were permitted to seek relief, they
should have done so not in their unique capacity as
individuals or as a group of stockholders but in place of
the corporation itself through a derivative suit. As they,
instead, sought relief in their individual capacity, they did
so bereft of a cause of action. Likewise, they did so without
even the slightest averment that the requisites for the
filing of a derivative suit, as spelled out in Rule 8, Section
1 of the Interim Rules of Procedure for Intra-Corporate
Controversies, have been satisfied. Since the Complaint
lacked a cause of action and failed to comply with the
requirements of the Marcelino, Jr. Group's vehicle for
relief, it was only proper for the Complaint to have been
dismissed.chanRoblesvirtualLawlibrary
IV
Erroneously pursuing a derivative suit as a class suit not
only meant that the Marcelino, Jr. Group lacked a cause of
action; it also meant that they failed to implead an
indispensable party.
In derivative suits, the corporation concerned must be
impleaded as a party. As explained in Asset Privatization
Trust:
Not only is the corporation an indispensible party, but it is
also the present rule that it must be served with process.
The reason given is that the judgment must be made
binding upon the corporation in order that the
corporation may get the benefit of the suit and may not
bring a subsequent suit against the same defendants for
the same cause of action. In other words the corporation
must be joined as party because it is its cause of action that
is being litigated and because judgment must be a res
ajudicata [sic] against it.126chanroblesvirtuallawlibrary
We have already discussed Go where this court concluded
that an action brought by three individual stockholders
was, in truth, a derivative suit. There, this court further
explained that a case cannot prosper when the proper
party is not impleaded:
As it is clear that the acts being assailed are those of PHHC,
this case cannot prosper for failure to implead the proper
party, PHCC.
An indispensable party is defined as one who has such an
interest in the controversy or subject matter that a final
adjudication cannot be made, in his absence, without
injuring or affecting that interest. In the recent case
of Nagkakaisang Lakas ng Manggagawa sa Keihin (NLMK-
OLALIA-KMU) v. Keihin Philippines Corporation, the Court
had the occasion to state
that:ChanRoblesVirtualawlibrary
Under Section 7, Rule 3 of the Rules of Court, "parties in
interest without whom no final determination can be had
of an action shall be joined as plaintiffs or defendants." If
there is a failure to implead an indispensable party, any
judgment rendered would have no effectiveness. It is
"precisely 'when an indispensable party is not before the
court (that) an action should be dismissed.' The absence
of an indispensable party renders all subsequent actions
of the court null and void for want of authority to act, not
only as to the absent parties but even to those present."
The purpose of the rules on joinder of indispensable
parties is a complete determination of all issues not only
between the parties themselves, but also as regards other
persons who may be affected by the judgment. A decision
valid on its face cannot attain real finality where there is
want of indispensable parties.
Similarly, in the case of Plasabas v. Court of Appeals, the
Court held that a final decree would necessarily affect the
rights of indispensable parties so that the Court could not
proceed without their presence. In support thereof, the
Court in Plasabas cited the following authorities,
thus:ChanRoblesVirtualawlibrary
The general rule with reference to the making of parties in
a civil action requires the joinder of all indispensable
parties under any and all conditions, their presence being
a sine qua non of the exercise of judicial power. For this
reason, our Supreme Court has held that when it appears
of record that there are other persons interested in the
subject matter of the litigation, who are not made parties
to the action, it is the duty of the court to suspend the trial
until such parties are made either plaintiffs or defendants,
x x x Where the petition failed to join as party defendant
the person interested in sustaining the proceeding in the
court, the same should be dismissed, x x x When an
indispensable party is not before the court, the action
should be dismissed.
Parties in interest without whom no final determination
can be had of an action shall be joined either as plaintiffs
or defendants. The burden of procuring the presence of all
indispensable parties is on the plaintiff. The evident
purpose of the rule is to prevent the multiplicity of suits
by requiring the person arresting a right against the
defendant to include with him, either as co-plaintiffs or as
co-defendants, all persons standing in the same position,
so that the whole matter in dispute may be determined
once and for all in one litigation.
From all indications, PHCC is an indispensable party and
should have been impleaded, either as a plaintiff or as a
defendant, in the complaint filed before the HLURB as it
would be directly and adversely affected by any
determination therein. To belabor the point, the causes of
action, or the acts complained of, were the acts of PHCC as
a corporate body[.]127 (Citations omitted)
V award of such damages is proper. We find no reason to
There are two consequences of a finding on appeal that
indispensable parties have not been joined. First, all
subsequent actions of the lower courts are null and void
for lack of jurisdiction.128 Second, the case should be
remanded to the trial court for the inclusion of
indispensable parties. It is only upon the plaintiff's refusal
to comply with an order to join indispensable parties that
the case may be dismissed.129chanroblesvirtuallawlibrary
All subsequent actions of lower courts are void as to both
the absent and present parties.130 To reiterate, the
inclusion of an indispensable party is
a jurisdictional requirement:
While the failure to implead an indispensable party is not
per se a ground for the dismissal of an action, considering
that said party may still be added by order of the court, on
motion of the party or on its own initiative at any stage of
the action and/or such times as are just, it remains
essential — as it is jurisdictional — that any indispensable
party be impleaded in the proceedings before the court
renders judgment. This is because the absence of such
indispensable party renders all subsequent actions of the
court null and void for want of authority to act, not only as
to the absent parties but even as to those
present.131 (Emphasis supplied, citation omitted)
In Metropolitan Bank and Trust Co. v. Alejo132 and Arcelona
v. Court of Appeals,133 this court clarified that the courts
must first acquire jurisdiction over the person of an
indispensable party. Any decision rendered by a court
without first obtaining the required jurisdiction over
indispensable parties is null and void for want of
jurisdiction: "the presence of indispensable parties is
necessary to vest the court with jurisdiction, which is 'the
authority to hear and determine a cause, the right to act in
a case.'"134chanroblesvirtuallawlibrary
In Divinagracia v. Parilla,135Macawadib v. Philippine
National Police Directorate for Personnel and Records
Management,136People v. Go,137 and Valdez-Tallorin v.
Heirs of Tarona,138 among others, this court annulled
judgments rendered by lower courts in the absence of
indispensible parties.
The second consequence is unavailing in this case. While
"[njeither misjoinder nor non-joinder of parties is ground
for dismissal of an action"139 and is, thus, not fatal to the
Marcelino, Jr. Group's action, we have shown that they lack
a cause of action. This warrants the dismissal of their
Complaint.
The first consequence, however, is crucial. It determines
the validity of the Regional Trial Court's award of damages
to Rogelio, Sr.
Since the Regional Trial Court did not have jurisdiction,
the decision awarding damages in favor of Rogelio, Sr. is
void.
Apart from this, there is no basis in jurisprudence for
awarding moral and exemplary damages in cases where
individual suits that were erroneously filed were
dismissed. In the analogous cases that we previously
discussed—Hi-Yield Realty, Cua, Jr., Go, and Ching and
Wellington—the dismissal alone of the erroneously filed
complaints sufficed. This court never saw the need to
award moral and exemplary damages. This is in keeping
with the Civil Code provisions that stipulate when the
conclude that the Marcelino, Jr. Group acted in so
malevolent, oppressive, or reckless a manner that moral
and exemplary damages must be awarded in such huge
amounts as the Regional Trial Court did.
From the conclusion that the Decision awarding damages
is void and unwarranted, it necessarily follows that the
Order of the Regional Trial Court to immediately execute
its Decision is likewise null and void. In Arcelona, the
Decision sought to be annulled was already being
executed. However, this court found that the assailed
Decision was promulgated without indispensable parties
being impleaded. Hence, the Decision was ruled to have
been made without jurisdiction. This court nullified the
judgment and declared:
A void judgment for want of jurisdiction is no judgment at
all. It cannot be the source of any right nor the creator
of any obligation. All acts performed pursuant to it and
all claims emanating from it have no legal effect. Hence, it
can never become final and any writ of execution based
on it is void: x x x it may be said to be a lawless thing which
can be treated as an outlaw and slain at sight, or ignored
wherever and whenever it exhibits its head.140 (Emphasis
supplied)
Accordingly, the subsequent Order of the Decision's
immediate execution is also void for lack of jurisdiction.
Contrary to Rogelio Sr.'s claim in its Petition, execution
cannot ensue. For this reason, the Petition docketed as G.R.
No. 177275 must be denied.
WHEREFORE, the Petition docketed as G.R. No. 174909
is PARTLY GRANTED and the Petition docketed as G.R.
No. 177275 is DENIED.
The Complaint filed by Marcelino M. Florete, Jr., Maria
Elena F. Muyco, and Raul A. Muyco for Declaration of
Nullity of Issuances, Transfers and Sale of Shares in
People's Broadcasting Service, Inc. and All Posterior
Subscriptions and Increases thereto with Damages is
dismissed as the complainants have no cause of action.
The award of P25,000,000.00 as moral damages and
P5,000,000.00 as exemplary damages in favor of Rogelio
Florete, Sr. is deleted. The Regional Trial Court Order
dated May 18, 2006 ordering the immediate execution of
its Decision dated August 2, 2005 is set aside.
SO ORDERED.cralawlawlibrary
SECOND DIVISION
G.R. No. 194964-65, January 11, 2016
UNIVERSITY OF MINDANAO,
INC., Petitioner, v. BANGKO SENTRAL PILIPINAS, ET
AL., Respondents.
DECISION
LEONEN, J.:
Acts of an officer that arc not authorized by the board of
directors/trustees do not bind the corporation unless the
corporation ratifies the acts or holds the officer out as a
person with authority to transact on its behalf.
This is a Petition for Review on Certiorari1 of the Court of
Appeals' December 17, 2009 Decision2 and December 20,
2010 Resolution.3 The Court of Appeals reversed the
Cagayan De Oro City trial court's and the Iligan City trial
court's Decisions to nullify mortgage contracts involving
University of Mindanao's properties.4
University of Mindanao is an educational institution. For
the year 1982, its Board of Trustees was chaired by
Guillermo B. Torres. His wife, Dolores P. Torres, sat as
University of Mindanao's Assistant Treasurer.5
Before 1982, Guillermo B. Torres and Dolores P. Torres
incorporated and operated two (2) thrift banks: (1) First
Iligan Savings & Loan Association, Inc. (FISLAI); and (2)
Davao Savings and Loan Association, Inc. (DSLAI).
Guillermo B. Torres chaired both thrift banks. He acted as
FISLAI's President, while his wife, Dolores P. Torres, acted
as DSLAI's President and FISLAI's Treasurer.6
Upon Guillermo B. Torres' request, Bangko Sentral ng
Pilipinas issued a P1.9 million standby emergency credit
to FISLAI. The release of standby emergency credit was
evidenced by three (3) promissory notes dated February
8, 1982, April 7, 1982, and May 4, 1982 in the amounts of
P500,000.00, P600,000.00, and P800,000.00, respectively.
All these promissory notes were signed by Guillermo B.
Torres, and were co-signed by either his wife, Dolores P.
Torres, or FISLAI's Special Assistant to the President,
Edmundo G. Ramos, Jr.7
On May 25, 1982, University of Mindanao's Vice President
for Finance, Saturnino Petalcorin, executed a deed of real
estate mortgage over University of Mindanao's property
in Cagayan de Oro City (covered by Transfer Certificate of
Title No. T-14345) in favor of Bangko Sentral ng
Pilipinas.8 "The mortgage served as security for FISLAI's
PI.9 Million loan[.]"9 It was allegedly executed on
University of Mindanao's behalf.10
As proof of his authority to execute a real estate mortgage
for University of Mindanao, Saturnino Petalcorin showed
a Secretary's Certificate signed on April 13, 1982 by
University of Mindanao's Corporate Secretary, Aurora de
Leon.11 The Secretary's Certificate
stated:chanRoblesvirtualLawlibrary
That at the regular meeting' of the Board of Trustees of the
aforesaid corporation [University of Mindanao] duly
convened on March 30, 1982, at which a quorum was
present, the following resolution was unanimously
adopted:chanRoblesvirtualLawlibrary
"Resolved that the University of Mindanao, Inc. be and is
hereby authorized, to mortgage real estate properties
with the Central Bank of the Philippines to serve as
security for the credit facility of First Iligan Savings and
Loan Association, hereby authorizing the President
and/or Vice-president for Finance, Saturnino R. Petalcorin
of the University of Mindanao,- Inc. to sign, execute and
deliver the covering mortgage document or any other
documents which may be proper[l]y required."12
cralawlawlibrary
The Secretary's Certificate was supported by an excerpt
from the minutes of the January 19, 1982 alleged meeting
of University of Mindanao's Board of Trustees. The
excerpt was certified by Aurora de Leon on March 13,
1982 to be a true copy of University of Mindanao's records
on file.13 The excerpt reads:chanRoblesvirtualLawlibrary
3 - Other Matters:
(a) Cagayan de Oro and Iligan properties:
Resolution No. 82-1-8
Authorizing the Chairman to appoint Saturnino R.
Petalcorin, Vice-President for Finance, to represent the
University of Mindanao to transact, transfer, convey, lease,
mortgage, or otherwise hypothecate any or all of the
following properties situated at Cagayan de Oro and Iligan
City and authorizing further Mr. Petalcorin to sign any or
all documents relative
thereto:chanRoblesvirtualLawlibrary
1. A parcel of land situated at Cagayan de Oro
City, covered and technically described in
TRANSFER CERTIFICATE OF TITLE No. T-
14345 of the Registry of Deeds of Cagayan
de Oro City;
2. A parcel of land situated at Iligan City,
covered and technically described in
TRANSFER CERTIFICATE OF TITLE NO..T-
15696 (a.t.) of the Registry of Deeds of
Iligan City; and
 3. A parcel of land situated at Iligan City,
covered and technically described in
TRANSFER CERTIFICATE OF TITLE NO. T-
15697 (a.f.) of the Registry of Deeds of
Iligan City.14
cralawlawlibrary
The mortgage deed executed by Saturnino Petalcorin in
favor of Bangko Sentral ng Pilipinas was annotated on the
certificate of title of the Cagayan de Oro City property
(Transfer Certificate of Title No. 14345) on June 25, 1982.
Aurora de Leon's'certification was also annotated on the
Cagayan de Oro City property's certificate of title
(Transfer Certificate of Title No. 14345).15
On October 21, 1982, Bangko Sentral ng Pilipinas granted
FISLAI an additional loan of P620,700.00. Guillermo B.
Torres and Edmundo Ramos executed a promissory note
on October 21, 1982 to cover that amount.16
On November 5, 1982, Saturnino Petalcorin executed
another deed of real estate mortgage, allegedly on behalf
of University of Mindanao, over its two properties in Iligan
City. This mortgage served as additional security for
FISLAI's loans. The two Iligan City properties were
covered by Transfer Certificates of Title Nos, T-15696 and
T-15697.17
On January 17, 1983, Bangko Sentral ng Pilipinas'
mortgage lien over the Iligan City properties and Aurora
de Leon's certification were annotated on Transfer
Certificates of Title Nos. T-15696 and T-15697.18 On
January 18, 1983, Bangko Sentral ng Pilipinas' mortgage
lien over the Iligan City properties was also annotated on
the tax declarations covering the Iligan City properties.19
Bangko Sentral ng Pilipinas also granted emergency
advances to DSLAI on May 27, 1983 and on August 20,
1984 in the amounts of P1,633,900.00 and P6,489,000.00,
respectively.20
On January 11, 1985, FISLAI, DSLAI, and Land Bank of the
Philippines entered into a Memorandum of Agreement
intended to rehabilitate the thrift banks, which had been
suffering from their depositors' heavy withdrawals.
Among the terms of the agreement was the merger of
FISLAI and DSLAI, with DSLAI as the surviving
corporation. DSLAI later became known as Mindanao
Savings and Loan Association, Inc. (MSLAI).21
Guillermo B. Torres died on March 2, 1989.22
MSLAI failed to recover from its losses and was liquidated
on May 24, 1991.23
On June 18, 1999, Bangko Sentral ng Pilipinas sent a letter
to University of Mindanao, informing it that the bank
would foreclose its properties if MSLAI's total outstanding
obligation of P12,534,907.73 remained unpaid.24
In its reply to Bangko Sentral ng Pilipinas' June 18, 1999
letter, University of Mindanao, through its Vice President
for Accounting, Gloria E. Detoya, denied that University of
Mindanao's properties were mortgaged. It also denied
having received any loan proceeds from Bangko Sentral ng
Pilipinas.25cralawred
On July 16, 1999, University of Mindanao filed two
Complaints for nullification and cancellation of mortgage.
One Complaint was filed before the Regional Trial Court of
Cagayan de Oro City, and the other Complaint was filed
before the Regional Trial Court of Iligan City.26
University of Mindanao alleged in its Complaints that it did
not obtain any loan from Bangko Sentral ng Pilipinas. It
also did not receive any loan proceeds from the bank.27
University of Mindanao also alleged that Aurora de Leon's
certification was anomalous. It never authorized
Saturnino Petalcorin to execute real estate mortgage
contracts involving its properties to secure FISLAI's debts.
It never ratified the execution of the mortgage contracts.
Moreover, as an educational institution, it cannot
mortgage its properties to secure another person's
debts.28
On November 23, 2001, the Regional Trial Court of
Cagayan de Oro City rendered a Decision in favor of
University of
Mindanao,29 thus:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, judgment is hereby
rendered in favor of plaintiff and against
defendants:chanRoblesvirtualLawlibrary
1. DECLARING the real estate mortgage Saturnino R.
Petalcorin executed in favor of BANGKO SENTRAL NG
PILIPINAS involving Lot 421-A located in Cagayan de Oro
City with an area of 482 square meters covered by TCT No.
T-14345 as annuled [sic];
2. ORDERING the Register of Deeds of Cagayan de Oro City
to cancel Entry No. 9951 and Entry No. 9952 annotated at
the back of said TCT No. T-14345, Registry of Deeds of
Cagayan de Oro City;
Prayer for attorney's fee [sic] is hereby denied there being
no proof that in demanding payment of the emergency
loan, defendant BANGKO SENTRAL NG PILIPINAS was
motivated by evident bad faith,
SO ORDERED.30 (Citation omitted)cralawlawlibrary
The Regional Trial Court of Cagayan de Oro City found that
there was no board resolution giving Saturnino Petalcorin
authority to execute mortgage contracts on behalf of
University of Mindanao. The Cagayan de Oro City trial
court gave weight to Aurora de Leon's testimony that
University ofMindanao's Board of Trustees did not issue a
board resolution that would support the Secretary's
Certificate she issued. She testified that she signed the
Secretary's Certificate only upon Guillermo B. Torres'
orders.31
Saturnino Petalcorin testified that he had no authority to
execute a mortgage contract on University ofMindanao's
behalf. He merely executed the contract because of
Guillermo B. Torres' request.32
Bangko Sentral ng Pilipinas' witness Daciano Pagui, Jr.
also admitted that there was no board resolution giving
Saturnino Petalcorin authority to execute mortgage
contracts on behalf of University of Mindanao.33
The Regional Trial Court of Cagayan de Oro City ruled that
Saturnino Petalcorin was not authorized to execute
mortgage contracts for University of Mindanao. Hence, the
mortgage of University ofMindanao's Cagayan de Oro City
property was unenforceable. Saturnino Petalcorin's
unauthorized acts should be annulled.34
Similarly, the Regional Trial Court of Iligan City rendered
a Decision on December 7, 2001 in favor of University of
Mindanao.35 The dispositive portion of the Decision
reads:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiff and against the
defendants, as follows:chanRoblesvirtualLawlibrary
1. Nullifying and canceling [sic] the subject Deed of Real
Estate Mortgage dated November 5, 1982 for being
unenforceable or void contract;
2. Ordering the Office of the Register of Deeds of Iligan City
to cancel the entries on TCT No. T-15696 and TCT No. T-
15697 with respect to the aforesaid Deed of Real Estate
Mortgage dated November 5, 1982 and all other entries
related thereto;
3. Ordering the defendant Bangko Sentral ng Pilipinas to
return the owner's duplicate copies of TCT No. T-15696
and TCT No. 15697 to the plaintiff;
4. Nullifying the subject [foreclosure [proceedings and the
[a]uction [s]ale conducted by defendant Atty. Gerardo
Paguio, Jr. on October 8, 1999 including all the acts
subsequent thereto and ordering the Register of Deeds of
Iligan City not to register any Certificate of Sale pursuant
to the said auction sale nor make any transfer of the
corresponding titles, and if already registered and
transferred, to cancel all the said entries in TCT No. T-
15696 and TCT No. T-15697 and/or cancel the
corresponding new TCTs in the name of defendant Bangko
Sentral ng Pilipinas;
5. Making the Preliminary Injunction per Order of this
Court dated October 13, 2000 permanent.
No pronouncement as to costs.36 (Citation
omitted)cralawlawlibrary
The Iligan City trial court found that the Secretary's
Certificate issued by Aurora de Leon was fictitious37and
irregular for being unnumbered.38 It also did not specify
the identity, description, or location of the mortgaged
properties.39
The Iligan City trial court gave credence to Aurora de
Leon's testimony that the University of Mindanao's Board
of Trustees did not take up the documents in its meetings.
Saturnino Petalcorin corroborated her testimony.40
The Iligan City trial court ruled that the lack of a board
resolution authorizing Saturnino Petalcorin to execute
documents of mortgage on behalf of University of
Mindanao made the real estate mortgage contract
unenforceable under Article 140341 of the Civil
Code.42 The mortgage contract and the subsequent acts of
foreclosure and auction sale were void because the
mortgage contract was executed without University of
Mindanao' s authority.43
The Iligan City trial court also ruled that the annotations
on the titles of University of Mindanao's properties do not
operate as notice to the University because annotations
only bind third parties and not owners.44 Further, Bangko
Sentral ng Pilipinas' right to foreclose the University of
Mindanao's properties had already prescribed.45
Bangko Sentral ng Pilipinas separately appealed the
Decisions of both the Cagayan de Oro City and the Iligan
City trial courts.46
After consolidating both cases, the Court of Appeals issued
a Decision on December 17, 2009 in favor of Bangko
Sentral ng Pilipinas, thus:chanRoblesvirtualLawlibrary
FOR THE REASONS STATED, the Decision dated 23
November 2001 of the Regional Trial Court of Cagayan de
Oro City, Branch 24 in Civil Case No. 99-414 and the
Decision dated 7 December 2001 of the Regional Trial
Court of Iligan City, Branch 1 in Civil Case No. 4790
are REVERSED and SET ASIDE. The Complaints in both
cases before the trial courts are DISMISSED. The Writ of
Preliminary Injunction issued by the Regional Trial Court
of Iligan City, Branch 1 in Civil Case No. 4790
is LIFTED and SET ASIDE.
SO ORDERED.47cralawlawlibrary
The Court of Appeals ruled that "[although BSP failed to
prove that the UM Board of Trustees actually passed a
Board Resolution authorizing Petalcorin to mortgage the
subject real properties,"48 Aurora de Leon's Secretary's
Certificate "clothed Petalcorin with apparent and
ostensible authority to execute the mortgage deed on its
behalf[.]"49 Bangko Sentral ng Pilipinas merely relied in
good faith on the Secretary's Certificate.50 University of
Mindanao is estopped from denying Saturnino
Petalcorin's authority.51
Moreover, the Secretary's Certificate was notarized. This
meant that it enjoyed the presumption of regularity as to
the truth of its statements and authenticity of the
signatures.52 Thus, "BSP cannot be faulted for relying on
the [Secretary's Certificate.]"53
The Court of Appeals also ruled that since University of
Mindanao's officers, Guillermo B. Torres and his wife,
Dolores P. Torres, signed the promissory notes, University
of Mindanao was presumed to have knowledge of the
transaction.54 Knowledge of an officer in relation to
matters within the scope of his or her authority is notice
to the corporation.55
The annotations on University of Mindanao's certificates
of title also operate as constructive notice to it that its
properties were mortgaged.56 Its failure to disown the
mortgages for more than a decade was implied
ratification.57
The Court of Appeals also ruled that Bangko Sentral ng
Pilipinas' action for foreclosure had not yet prescribed
because the due date extensions that Bangko Sentral ng
Pilipinas granted to FISLAI extended the due date of
payment to five (5) years from February 8, 1985.58 The
bank's demand letter to Dolores P. Torres on June 18,
1999 also interrupted the prescriptive period.59
University of Mindanao and Bangko Sentral ng Pilipinas
filed a Motion for Reconsideration60 and Motion for
Partial Reconsideration respectively of the Court of
Appeals' Decision. On December 20, 2010, the Court of
Appeals issued a Resolution,
thus:chanRoblesvirtualLawlibrary
Acting on the foregoing incidents, the Court RESOLVES
to:chanRoblesvirtualLawlibrary
1. GRANT the appellant's twin are LIFTED and SET
motions for extension of time to ASIDE."
file comment/opposition
and NOTE the Comment . on the
appellee's Motion for SO ORDERED.61 (Citation omitted)
Reconsideration it subsequently cralawlawlibrary
filed on June 23, 2010;
2. GRANT the appellee's three (3)
motions for extension of time to Hence, University of Mindanao filed this Petition for
file comment/opposition Review. The issues for resolution
and NOTE the Comment on the are:chanRoblesvirtualLawlibrary
appellant's Motion for Partial
Reconsideration it filed on July 26, First, whether respondent Bangko Sentral ng Pilipinas'
2010; action to foreclose the mortgaged properties had already
3. NOTE the appellant's "Motion for prescribed; and
Leave to File Attached Reply Dated
August 11, 2010" filed on August Second, whether petitioner University of Mindanao is
13, 2010 and DENY the attached bound by the real estate mortgage contracts executed by
"Reply to Comment Dated July 26, Saturnino Petalcorin.
2010";
4. DENY the appellee's Motion for We grant the Petition.
Reconsideration as it does' not I
offer any arguments sufficiently
meritorious to warrant Petitioner argues that respondent's action to foreclose its
modification or reversal of the mortgaged properties had already prescribed.
Court's 17 December 2009
Decision. The Court finds that Petitioner is mistaken.
there is no compelling reason to
reconsider its ruling; and Prescription is the mode of acquiring or losing rights
5. GRANT the appellant's Motion for through the lapse of time.62 Its purpose is "to protect the
Partial Reconsideration, as the diligent and vigilant, not those who sleep on their
Court finds it meritorious, rights."63
considering that it ruled in its
Decision that "BSP can still The prescriptive period for actions on mortgages is ten
foreclose on the UM's real (10) years from the day they may be brought.64Actions on
property in Cagayan de Oro City mortgages may be brought not upon the execution of the
covered by TCT No. T- 14345." It mortgage contract but upon default in payment of the
then follows that the injunctive obligation secured by the mortgage.65
writ issued by the RTC of Cagayan
de Oro City, Branch 24 must be A debtor is considered in default when he or she fails to
lifted. The Court's 17 December pay the obligation on due date and, subject to exceptions,
2009 Decision is after demands for payment were made by the creditor.
accordingly MODIFIED and AME Article 1169 of the Civil Code
NDED to read as provides:chanRoblesvirtualLawlibrary
follows:chanRoblesvirtualLawlibr ART. 1169. Those obliged to deliver or to do something
ary incur in delay from the time the obligee judicially or
"FOR THE REASONS extrajudicially demands from them the fulfillment of their
STATED, the Decision obligation.
dated 23 November 2001
of the Regional Trial Court However, the demand by the creditor shall not be
of Cagayan de Oro City, necessary in order that delay may
Branch 24 in Civil Case No. exist:chanRoblesvirtualLawlibrary
99-414 and the Decision
dated 7 December 2001 of (1) When the obligation or the law expressly so declare;
the Regional Trial Court of or
Iligan City, Branch 1 in
Civil Case No. 4790 (2) When from the nature and the circumstances of the
are REVERSED and SET obligation it appears that the designation of the time when
ASIDE. The Complaints in the thing is to be delivered or the service is to be rendered
both cases before the trial was a controlling motive for the establishment of the
courts are DISMISSED. The contract; or
Writs of Preliminary
Injunction issued by the (3) When demand would be useless, as when the obligor
Regional Trial Court of has rendered it beyond his power to
Iligan City, Branch 1 in perform.cralawlawlibrary
Civil Case No. 4790 and in
the Regional Trial Court of
Cagayan de Oro City, Article 1193 of the Civil'Code provides that an obligation
Branch 24 in Civil Case No. is demandable only upon due date. It
99-414 provides:chanRoblesvirtualLawlibrary
ART. 1193. Obligations for whose fulfillment a day certain
has been fixed, shall be demandable only when that day
comes.
Obligations with a resolutory period take effect at once,
but terminate upon arrival of the day certain.
A day certain is understood to be that which must
necessarily come, although it may not be known when.
If the uncertainty consists in whether the day will come or
not, the obligation is conditional, and it shall be regulated
by the rules of the preceding Section.cralawlawlibrary
In other words, as a general rule, a person defaults and
prescriptive period for action runs when (1) the obligation
becomes due and demandable; and (2) demand for
payment has been made.
The prescriptive period neither runs from the date of the
execution of a contract nor does the prescriptive period
necessarily run on the date when the loan becomes due
and demandable.66 Prescriptive period runs from the date
of demand,67 subject to certain exceptions.
In other words, ten (10) .years may lapse from the date of
the execution of contract, without barring a cause of action
on the mortgage when there is a gap between the period
of execution of the contract and the due date or between
the due date and the demand date in cases when demand
is necessary.68
The mortgage contracts in this case were executed by
Saturnino Petalcorin in 1982. The maturity dates of
FISLAI's loans were repeatedly extended until the loans
became due and demandable only in 1990. Respondent
informed petitioner of its decision to foreclose its
properties and demanded payment in 1999.
The running of the prescriptive period of respondent's
action on the mortgages did not start when it executed the
mortgage contracts with Saturnino Petalcorin in 1982.
The prescriptive period for filing an action may run either
(1) from 1990 when the loan became due, if the obligation
was covered by the exceptions under Article 1169 of the
Civil Code; (2) or from 1999 when respondent demanded
payment, if the obligation was not covered by the
exceptions under Article 1169 of the Civil Code.
In either case, respondent's Complaint with cause of
action based on the mortgage contract was filed well
within the prescriptive period.
Given the termination of all traces of FISLAI's
existence,70 demand may have been rendered
unnecessary under Article 1169(3) of the Civil Code.
71
Granting that this is the case,.respondent would have had
ten (10) years from due date in 1990 or until 2000 to
institute an action on the mortgage contract.
However, under Article 115572 of the Civil Code,
prescription of actions may be interrupted by (1) the filing
of a court action; (2) a written extrajudicial demand; and
(3) the written acknowledgment of the debt by the debtor.
Therefore, the running of the prescriptive period was
interrupted when respondent sent its demand letter to
petitioner on June 18, 1999. This eventually led to
petitioner's filing of its annulment of mortgage complaints
before the Regional Trial Courts of Iligan City and Cagayan
De Oro City on July 16, 1999.
Assuming that demand was necessary, respondent's
action was within the ten (10)-year prescriptive period.
Respondent demanded payment of the loans in 1999 and
filed an action in the same year.
II
Petitioner argues that the execution of the mortgage
contract was ultra vires. As an educational institution, it
may not secure the loans of third persons.73 Securing loans
of third persons is not among the purposes for which
petitioner was established.74
Petitioner, is correct.
Corporations are artificial entities granted legal
personalities upon their creation by their incorporators in
accordance with law. Unlike natural persons, they have no
inherent powers. Third persons dealing with corporations
cannot assume that corporations have powers. It is up to
those persons dealing with corporations to determine
their competence as expressly defined by the law and
their articles of incorporation.75
A corporation may exercise its powers only within those
definitions. Corporate acts that are outside those express
definitions under the law or articles of incorporation or
those "committed outside the object for which a
corporation is created"76 are ultra vires.
The only exception to this, rule is when acts are necessary
and incidental to carry out a corporation's purposes, and
to the exercise of powers conferred by the Corporation
Code and under a corporation's articles of
incorporation.77 This exception is specifically included in
the general powers of a corporation under Section 36 of
the Corporation Code:chanRoblesvirtualLawlibrary
SEC. 36. Corporate powers and capacity.—Every
corporation incorporated under this Code has the power
and capacity:chanRoblesvirtualLawlibrary
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the
period of time stated in the articles of
incorporation and the certificate of
incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in
accordance with the provisions of this
Code;
5. To adopt by-laws, not contrary to law,
morals, or public policy, and to amend or
repeal the same in accordance with this
Code;
6. In case of stock corporations, to issue or
sell stocks to subscribers and to sell
treasury stocks in accordance with the
provisions of this Code; and to admit
members to the corporation if it be a non
stock corporation;
7. To purchase, receive, take or grant, hold,
convey, sell, lease, pledge, mortgage and
otherwise deal with such real and
personal property, including securities
and bonds of other corporations, as the
transaction of the lawful business of the
corporation may reasonably and
 necessarily require, subject to the
limitations prescribed by law and the
Constitution;
8. To enter into merger or consolidation with
other corporations as provided in this
Code;
9. To make reasonable donations, including
those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or
similar purposes: Provided, That no
corporation, domestic or foreign, shall give
donations in aid of any political party or
candidate or for purposes of partisan
political activity;
10. To establish pension, retirement, and
other plans for the benefit of its directors,
trustees, officers and employees; and
11. To exercise such other powers as may be
essential or necessary to carry out its
purpose or purposes as stated in its articles
of incorporation. (Emphasis supplied)
cralawlawlibrary
Montelibano, et al. v. Bacolod-Murcia Milling Co.,
Inc.78 stated the test to determine if a corporate act is in
accordance with its
purposes:chanRoblesvirtualLawlibrary
It is a question, therefore, in each case, of the logical
relation of the act to the corporate purpose expressed in the
charter. If that act is one which is lawful in itself, and not
otherwise prohibited, is done for the purpose of serving
corporate ends, and is reasonably tributary to the
promotion of those ends, in a substantial, and not in a
remote and fanciful, sense, it may fairly be considered
within charter powers. The test to be applied is whether
the act in question is in direct and immediate furtherance
of the corporation's business, fairly incident to the express
powers and reasonably necessary to their exercise. If so, the
corporation has the power to do it; otherwise,
not.79 (Emphasis supplied)cralawlawlibrary
As an educational institution, petitioner
serves:chanRoblesvirtualLawlibrary
a. To establish, conduct and operate a college
or colleges, and/or university;
b. To acquire properties,, real and/or
personal, in connection with the
establishment and operation of such
college or colleges;
c. To do and perform the various and sundry
acts and things permitted by the laws of
the Philippines unto corporations like
classes and kinds;
d. To engage in agricultural, industrial,
and/or commercial pursuits in line with
educational program of the corporation
and to acquire all properties, real and
personal [,] necessary for the purposes[;]
e. To establish, operate, and/or acquire
broadcasting and television stations also
in line with the educational program of the
corporation and for such other purposes
as the Board of Trustees may determine
from time to time;
f. To undertake housing projects of faculty
members and employees, and to acquire
real estates for this purpose;
g. To establish, conduct and operate and/or
invest in educational foundations; [As
amended on December 15, 1965][;]
h. To establish, conduct and operate housing
and dental schools, medical facilities and
other related undertakings;
i. To invest in other corporations. [As
amended on December 9, 1998].
[Amended Articles of Incorporation of the
University of Mindanao, Inc. - the
Petitioner].80
cralawlawlibrary
Petitioner does not have the power to mortgage its
properties in order to secure loans of other persons. As an
educational institution, it is limited to developing human
capital thrpugh formal instruction. It is not a corporation
engaged in the business of securing loans of others.
Hiring professors, instructors, and personnel; acquiring
equipment and real estate; establishing housing facilities
for personnel and students; hiring a concessionaire; and
other activities that can be directly connected to the
operations and conduct of the education business may
constitute the necessary and incidental acts of an
educational institution.
Securing FISLAI's loans by mortgaging petitioner's
properties does not appear to have even the remotest
connection to the operations of petitioner as an
educational institution. Securing loans is not an adjunct of
the educational institution's conduct of business.81 It does
not appear that securing third-party loans was necessary
to maintain petitioner's business of providing instruction
to individuals.
This court upheld the validity of corporate acts when
those acts were shown to be clearly within the
corporation's powers or were connected to the
corporation's purposes.
In Pirovano, et al. v. De la Rama Steamship Co.,82 this court
declared valid the donation given to the children of a
deceased person who contributed to the growth of the
corporation.83 This court found that this donation was
within the broad scope of powers and purposes of the
corporation to "aid in any other manner any person . . . in
which any interest is held by this corporation or in the
affairs or prosperity of which this corporation has a lawful
interest."84
In Twin Towers Condominium Corporation v. Court of
Appeals, et al.,85 this court declared valid a rule by Twin
Towers Condominium denying delinquent members the
right to use condominium facilities. This court ruled that
the condominium's power to promulgate rules on the use
of facilities and to enforce provisions of the Master Deed
was clear in the Condominium Act, Master Deed, and By-
laws of the condominium.87 Moreover, the promulgation
of such rule was "reasonably necessary" to attain the
purposes of the condominium project.88
This court has, in effect, created a presumption that
corporate acts are valid if, on their face, the acts were
within the corporation's powers or purposes. This
presumption was explained as early as in 1915 in Coleman
v. Hotel De France,89 where this court ruled that contracts
entered into by corporations in the exercise of their
incidental powers are not ultra vires.90

Coleman involved a hotel's cancellation of an employment
contract it executed with a gymnast. One of the hotel's
contentions was the supposed ultra vires nature of the
contract.- It was executed outside its express and implied
powers under the articles of incorporation.91
In ruling in favor of the contract's validity, this court
considered the incidental powers of the hotel to include
the execution of employment contracts with entertainers
for the purpose of providing its guests entertainment and
increasing patronage.92
This court ruled that a contract executed by a corporation
shall be presumed valid if on its face its execution was not
beyond the powers of the corporation to
do.93 Thus:chanRoblesvirtualLawlibrary
When a contract is not on its face necessarily beyond the
scope of the power of the corporation by which it was
made, it will, in the absence of proof to the contrary, be
presumed to be valid. Corporations are presumed to
contract within their powers. The doctrine of ultra vires,
when invoked for or against a corporation, should not be
allowed to prevail where it would defeat the ends of
justice or work a legal wrong.94cralawlawlibrary
However, this should not be interpreted to mean that such
presumption applies to all cases, even when the act in
question is on its face beyond the corporation's power to
do or when the evidence contradicts the presumption.
Presumptions are "inference[s] as to the existence of a fact
not actually known, arising from its usual connection with
another which is known, or a conjecture based on past
experience as to what course human affairs ordinarily
take."95 Presumptions embody values and revealed
behavioral expectations under a given set of
circumstances.
Presumptions may be conclusive96 or disputable.97
Conclusive presumptions are presumptions that may not
be overturned by evidence, however strong the evidence
is.98 They are made conclusive not because there is an
established uniformity in behavior whenever identified
circumstances arise. They are conclusive because they are
declared as such under the law or the rules. Rule 131,
Section 2 of the Rules of Court identifies two (2)
conclusive presumptions:chanRoblesvirtualLawlibrary
SEC. 2. Conclusive presumptions.— The following are
instances of conclusive
presumptions:chanRoblesvirtualLawlibrary
(a) Whenever a party has, by his own declaration, act, or
omission, intentionally and deliberately led another to
believe a particular thing true, and to act upon such belief,
he cannot, in any litigation arising out of such declaration,
act or omission, be permitted to falsify it;
(b) The tenant is not permitted to deny the title of his
landlord at the time of the commencement of the relation
of landlord and tenant between them.cralawlawlibrary
On the other hand, disputable, presumptions are
presumptions that may be overcome by contrary
evidence.99 They are disputable in recognition of the
variability of human behavior. Presumptions are not
always true. They may be wrong under certain
circumstances, and courts are expected to apply them,
keeping in mind the nuances of every experience that may
render the expectations wrong.
Thus, the application of disputable presumptions on a
given circumstance must be based on the existence of
certain facts on which they are meant to operate.
"[Presumptions are not allegations, nor do they supply
their absence[.]"100 Presumptions are conclusions. They
do not apply when there are no facts or allegations to
support them.
If the facts exist to set in motion the operation of a
disputable presumption, courts may accept the
presumption. However, contrary evidence may be
presented to rebut the presumption.
Courts cannot disregard contrary evidence offered to
rebut disputable presumptions. Disputable presumptions
apply only in the absence of contrary evidence or
explanations. This court explained in Philippine Agila
Satellite Inc. v. Usec. Trinidad-
Lichauco: chanroblesvirtuallawlibrary
101
We do not doubt the existence of the presumptions of
"good faith" or "regular performance of official duty," yet
these presumptions are disputable and may be contradicted
and overcome by other evidence. Many civil actions are
oriented towards overcoming any number of these
presumptions, and a cause of action can certainly be
geared towards such effect. The very purpose of trial is to
allow a party to present evidence to overcome the
disputable presumptions involved. Otherwise, if trial is
deemed irrelevant or unnecessary, owing to the perceived
indisputability of the presumptions, the judicial exercise
would be relegated to a mere ascertainment of what
presumptions apply in a given case, nothing more.
Consequently, the entire Rules of Court is rendered as
excess verbiage, save perhaps for the provisions laying
down the legal presumptions.
If this reasoning of the Court of Appeals were ever adopted
as a jurisprudential rule, no public officer could ever be
sued for acts executed beyond their official functions or
authority, or for tortious conduct or behavior, since such
acts would "enjoy the presumption of good faith and in the
regular performance of official duty." Indeed, few civil
actions of any nature would ever reach the trial stage, if a
case can be adjudicated by a mere determination from the
complaint or answer as to which legal presumptions are
applicable. For-example, the presumption that a person is
innocent of a wrong is a disputable presumption on the
same level as that of the regular performance of official
duty. A civil complaint for damages necessarily alleges
that the defendant committed a wrongful act or omission
that would serve as basis for the award of damages. With
the rationale of the Court of Appeals, such complaint can
be dismissed upon a motion to dismiss solely on the
ground that the presumption is that a person is innocent
of a wrong.102 (Emphasis supplied, citations
omitted)cralawlawlibrary
In this case, the presumption that the execution of
mortgage contracts was within petitioner's corporate
powers does not apply. Securing third-party loans is not
connected to petitioner's purposes as an educational
institution.
III
Respondent argues that petitioner's act of mortgaging its
properties to guarantee FISLAI's loans was consistent
with petitioner's business interests, since petitioner was
presumably a FISLAI shareholder whose officers and
shareholders interlock with FISLAI. Respondent points
out that petitioner and its key officers held substantial
shares in MSLAI when DSLAI and FISLAI merged.
Therefore, it was safe to assume that when the mortgages
were executed in 1982, petitioner held substantial shares
in FISLAI.103
Parties dealing with corporations cannot simply assume
that their transaction is within the corporate powers. The
acts of a corporation are still limited by its powers and
purposes as provided in the law and its articles of
incorporation.
Acquiring shares in another corporation is not a means to
create new powers for the acquiring corporation. Being a
shareholder of another corporation does not
automatically change the nature and purpose of a
corporation's business. Appropriate amendments must be
made either to the law or the articles of incorporation
before a corporation can validly exercise powers outside
those provided in law or the articles of incorporation. In
other words, without an amendment, what is ultra vires
before a corporation acquires shares in other
corporations is still ultra vires after such acquisition.
Thus, regardless of the number of shares that petitioner
had with FISLAI, DSLAI, or MSLAI, securing loans of third
persons is still beyond petitioner's power to do. It is still
inconsistent with its purposes under the law104 and its
articles of incorporation.105
In attempting to show petitioner's interest in securing
FISLAI's loans by adverting to their interlocking, directors
and shareholders, respondent disregards petitioner's
separate personality from its officers, shareholders, and
other juridical persons.
The separate personality of corporations means that they
are "vest[ed] [with] rights, powers, and attributes [of their
own] as if they were natural persons[.]"106 Their assets
and liabilities are their own and not their officers',
shareholders', or another corporation's. In the same vein,
the assets and liabilities of their officers and shareholders
are not the corporations'. Obligations incurred by
corporations are not obligations of their officers and
shareholders. Obligations of officers and shareholders are
not obligations of corporations.107 In other words,
corporate interests are separate from the personal
interests of the natural persons that comprise
corporations.
Corporations are given separate personalities to allow
natural persons to balance the risks of business as they
accumulate capital. They are, however, given limited
competence as a means to protect the public from
fraudulent acts that may be committed using the separate
juridical personality given to corporations.
Petitioner's key officers, as shareholders of FISLAI, may
have an interest in ensuring the viability of FISLAI by
obtaining a loan from respondent and securing it by
whatever means. However, having interlocking officers
and stockholders with FISLAI does not mean that
petitioner, as an educational institution, is or must
necessarily be interested in the affairs of FISLAI.
Since petitioner is an entity distinct and separate not only
from its own officers and shareholders but also from
FISLAI, its interests as an educational institution may not
be consistent with FISLAI's.
Petitioner and FISLAI have different constituencies.
Petitioner's constituents comprise persons who have
committed to developing skills and acquiring knowledge
in their chosen fields by availing the formal instruction
provided by petitioner. On the other hand, FISLAI is a
thrift bank, which constituencies comprise investors.
While petitioner and FISLAI exist ultimately to benefit
their stockholders, their constituencies affect the means
by which they can maintain their existence. Their interests
are congruent with sustaining their constituents' needs
because their existence depends on that. Petitioner can
exist only if it continues to provide for the kind and quality
of instruction that is needed by its constituents. Its
operations and existence are placed at risk when
resources are used on activities that are not geared
toward the attainment of its purpose. Petitioner has no
business in securing FISLAI, DSLAI, or MSLAI's loans. This
activity is not compatible with its business of providing
quality instruction to its constituents.
Indeed, there are instances when we disregard the
separate corporate personalities of the corporation and its
stockholders, directors, or officers. This is called piercing
of the corporate veil.
Corporate veil is pierced when the separate personality of
the corporation is being used to perpetrate fraud,
illegalities, and injustices.108 In Lanuza, Jr. v. BF
Corporation:109chanroblesvirtuallawlibrary
Piercing the corporate veil is warranted when "[the
separate personality of a corporation] is used as a means
to perpetrate fraud or an illegal act, or as a vehicle for the
evasion of an existing obligation, the circumvention of
statutes, or to confuse legitimate issues." It is also
warranted in 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, agency, conduit
or adjunct of another corporation."110cralawlawlibrary
These instances have not been shown in this case. There is
no evidence pointing to the possibility that petitioner used
its separate personality to defraud third persons or
commit illegal acts. Neither is there evidence to show that
petitioner was merely a farce of a corporation. What has
been shown instead was that petitioner, too, had been
victimized by fraudulent and unauthorized acts of its own
officers and directors.
In this case, instead of guarding against fraud, we
perpetuate fraud if we accept respondent's contentions.
IV
Petitioner argues that it did not authorize Saturnino
Petalcorin to mortgage its properties on its behalf. There
was no board resolution to that effect. Thus, the
mortgages executed by Saturnino Petalcorin were
unenforceable.111
The mortgage contracts executed in favor of respondent
do not bind petitioner. They were executed without
authority from petitioner.
Petitioner must exercise its.powers and conduct its
business through its Board of Trustees. Section 23 of the
Corporation Code provides:chanRoblesvirtualLawlibrary
SEC. 23. The board of directors or trustees—Unless
otherwise provided in this Code, the corporate powers of
all corporations formed under this Code shall be exercised,
all business conducted and all property of such
corporations controlled and held by the board of directors
or trustees to be elected from among the holders of stocks,
or where there is no stock, from among the members of
the corporation, who shall hold office for one (1) year and
until their successors are elected and
qualified.cralawlawlibrary
Being a juridical person, petitioner cannot conduct its
business, make decisions, or act in any manner without
action from its Board of Trustees. The Board of Trustees
must act as a body in order to exercise corporate powers.
Individual trustees are not clothed with corporate powers
just by being a trustee. Hence, the individual trustee
cannot bind the corporation by himself or herself.
The corporation may, however, delegate through a board
resolution its corporate powers or functions to a
representative, subject to limitations under the law and
the corporation's articles of incorporation.112
The relationship between a corporation and its
representatives is governed by the general principles of
agency.113 Article 1317 of the Civil Code provides that
there must be authority from the principal before anyone
can act in his or her name:chanRoblesvirtualLawlibrary
ART. 1317. No one may contract in the name of another
without being authorized by the latter, or unless he has by
law a right to represent him.cralawlawlibrary
Hence, without delegation by the board of directors or
trustees, acts of a person—including those of the
corporation's directors, trustees, shareholders, or
officers—executed on behalf of the corporation are
generally not binding on the corporation.114
Contracts entered into in another's name without
authority or valid legal representation are generally
unenforceable. The Civil Code
provides:chanRoblesvirtualLawlibrary
ART. 1317. . . . void
A contract entered into in the name of another by one who
has no authority or legal representation, or who has acted
beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose
behalf it has been executed, before it is revoked by the
other contracting party.
. . . .
ART. 1403. The following contracts are unenforceable,
unless they are ratified:chanRoblesvirtualLawlibrary
(1) Those entered into in the name of another person by
one who has been given no authority or legal
representation, or who has acted beyond his
powers[.]cralawlawlibrary
The unenforceable status of contracts entered into by an
unauthorized person on behalf of another is based on the
basic principle that contracts must be consented to by
both parties.115 There is no contract without meeting of
the minds as to the subject matter and cause of the
obligations created under the contract.116
Consent of a person cannot be presumed from
representations of another, especially if obligations will be
incurred as a result. Thus, authority is required to make
actions made on his or her behalf binding on a person.
Contracts entered into by persons without authority from
the corporation shall generally be considered ultra vires
and unenforceable117 against the corporation.
Two trial courts118 found that the Secretary's Certificate
and the board resolution were either non-existent or
fictitious. The trial courts based their findings on the
testimony of the Corporate Secretary, Aurora de Leon
herself. She signed the Secretary's Certificate and the
excerpt of the minutes of the alleged board meeting
purporting to authorize Saturnino Petalcorin to mortgage
petitioner's properties. There was no board meeting to
that effect. Guillermo B. Torres ordered the issuance of the
Secretary's Certificate. Aurora de Leon's testimony was
corroborated by Saturnino Petalcorin.
Even the Court of Appeals, which reversed the trial courts'
decisions, recognized that "BSP failed to prove that the UM
Board of Trustees actually passed a Board Resolution
authorizing Petalcorin to mortgage the subject real
properties[.]"119
Well-entrenched is the rule that this court, not being a
trier of facts, is bound by the findings of fact of the trial
courts and the Court of Appeals when such findings are
supported by evidence on record.120 Hence, not having the
proper board resolution to authorize Saturnino Petalcorin
to execute the mortgage contracts for petitioner, the
contracts he executed are unenforceable against
petitioner. They cannot bind petitioner.
However, personal liabilities may be incurred by directors
who assented to such unauthorized act121 and by the
person who contracted in excess of the limits of his or her
authority without the corporation's knowledge.122
V
Unauthorized acts that are merely beyond the powers of
the corporation under its articles of incorporation are not
ab initio.
In Pirovano, et al, this court explained that corporate acts
may be ultra vires but not void.123 Corporate acts may be
capable of ratification:124chanroblesvirtuallawlibrary
[A] distinction should be made between corporate acts or
contracts which are illegal and those which are merely
ultra vires. The former contemplates the doing of an act
which is contrary to law, morals, or public order, or
contravene some rules of public policy or public duty, and
are, like similar transactions between individuals, void.
They cannot serve as basis of a court action, nor acquire
validity by performance, ratification, or estoppel. Mere
ultra vires acts, on the other hand, or those which are not
illegal and void ab initio, but are not merely within the
scope of the articles of incorporation, are merely voidable
and may become binding and enforceable when ratified by
the stockholders.125cralawlawlibrary
Thus, even though a person did not give another person
authority to act on his or her behalf, the action may be
enforced against him or her if it is shown that he or she
ratified it or allowed the other person to act as if he or she
had full authority to do so. The Civil Code
provides:chanRoblesvirtualLawlibrary
ART. 1910. The principal must comply with all the
obligations which the agent may have contracted within
the scope of his authority.
As for any obligation wherein the agent has exceeded his
power, the principal is not bound except when he ratifies it
expressly or tacitly.
ART. 1911. Even when the agent has exceeded his
authority, the principal is solidarily liable with the agent if
the former allowed the latter to act as though he had full
powers.(Emphasis supplied)cralawlawlibrary
Ratification is a voluntary and deliberate confirmation or
adoption of a previous unauthorized act. It.converts the
unauthorized act of an agent into an act of the
principal.127 It cures the lack of consent at the time of the
execution of the contract entered into by the
representative, making the contract valid and
enforceable.128 It is, in essence, consent belatedly given
through express or implied acts that are deemed a
confirmation or waiver of the right to impugn the
unauthorized act.129 Ratification has the effect of placing
the principal in a position as if he or she signed the original
contract. In Board of Liquidators v. Heirs ofM. Kalaw, et
al.:130chanroblesvirtuallawlibrary
Authorities, great in number, are one in the idea that
"ratification by a corporation of an unauthorized act or
contract by its officers or others relates back to the time of
the act or contract ratified, and is equivalent to original
authority;" and that "[t]he corporation and the other party
to the transaction are in precisely the same position as if
the act or contract had been authorized at the time." The
language of one case is expressive: "The adoption or
ratification of a contract by a corporation is nothing more
nor less than the making of an original contract. The
theory of corporate ratification is predicated on the right
of a corporation to contract, and any ratification or
adoption is equivalent to a grant of prior
authority."131 (Citations omitted)cralawlawlibrary
Implied ratification may take the form of silence,
acquiescence, acts consistent with approval of the act,, or
acceptance or retention of benefits.132 However, silence,
acquiescence, retention of benefits, and acts that may be
interpreted as approval of the act do not by themselves
constitute implied ratification. For an act to constitute an
implied ratification, there must be no acceptable
explanation for the act-other than that there is an
intention to adopt the act as his or her own.133 "[It] cannot
be inferred from acts that a principal has a right to do
independently of the unauthorized act of the agent."134
No act by petitioner can be interpreted as anything close
to ratification. It was not shown that it issued a resolution
ratifying the execution of the mortgage contracts. It was
not shown that it received proceeds of the loans secured
by the mortgage contracts. There was also no showing
that it received any consideration for the execution of the
mortgage contracts. It even appears that petitioner was
unaware of the mortgage contracts until respondent
notified it of its desire to foreclose the mortgaged
properties.
Ratification must be knowingly and voluntarily
done.135 Petitioner's lack of knowledge about the
mortgage executed in its name precludes an
interpretation that there was any ratification on its part.
Respondent further argues that petitioner is presumed to
have knowledge of its transactions with respondent
because its officers, the Spouses Guillermo and Dolores
Torres, participated in obtaining the loan.136
Indeed, a corporation, being a person created by mere
fiction of law, can act only through natural persons such
as its directors, officers, agents, and representatives.
Hence, the general rule is that knowledge of an officer is
considered knowledge of the corporation.
However, even though the Spouses Guillermo and Dolores
Torres were officers of both the thrift banks and petitioner,
their knowledge of the mortgage contracts cannot be
considered as knowledge of the corporation.
The rule that knowledge of an officer is considered
knowledge of the corporation applies only when the
officer is acting within the authority given to him or her by
the corporation. In Francisco v. Government Service
Insurance System:137chanroblesvirtuallawlibrary
Knowledge of facts acquired or possessed by an officer or
agent of a corporation in the course of his employment,
and in relation to matters within the scope of his authority,
is notice to the corporation, whether he communicates
such knowledge or not.138cralawlawlibrary
The public should be able to rely on and be protected from
the representations of a corporate representative acting
within the scope of his or her authority. This is why an
authorized officer's knowledge is considered knowledge
of corporation. However, just as the public should be able
to rely on and be protected from corporate
representations, corporations should also be able to
expect that they will not be bound by unauthorized
actions made on their account.
Thus, knowledge should be actually communicated to the
corporation through its authorized representatives. A
corporation cannot be expected to act or not act on a
knowledge that had not been communicated to it through
an authorized representative. There can be no implied
ratification without actual communication. Knowledge of
the existence of contract must be brought to the
corporation's representative who has authority to ratify it.
Further, "the circumstances must be shown from which
such knowledge may be presumed."139
The Spouses Guillermo and Dolores Torres' knowledge
cannot be interpreted as knowledge of petitioner. Their
knowledge was not obtained as petitioner's
representatives. It was not shown that they were acting
for and within the authority given by petitioner when they
acquired knowledge of the loan transactions and the
mortgages. The knowledge was obtained in the interest of
and as representatives of the thrift banks.
VI
Respondent argues that Satnrnino Petalcorin was clothed
with the authority to transact on behalf of petitioner,
based on the board resolution dated March 30, 1982 and
Aurora de Leon's notarized Secretary's
Certificate.140 According to respondent, petitioner is
bound by the mortgage contracts executed by Saturnino
Petalcorin.141
This court has recognized presumed or apparent
authority or capacity to bind corporate representatives in
instances when the corporation, through its silence or
other acts of recognition, allowed others to believe that
persons, through their usual exercise of corporate powers,
were conferred with authority to deal on the corporation's
behalf.142
The doctrine of apparent authority does not go into the
question of the corporation's competence or power to do
a particular act. It involves the question of whether the
officer has the power or is clothed with the appearance of
having the power to act for the corporation. A finding that
there is apparent authority is not the same as a finding
that the corporate act in question is within the
corporation's limited powers.
The rule on apparent authority is based on the principle of
estoppel. The Civil Code
provides:chanRoblesvirtualLawlibrary
ART. 1431. Through estoppel an admission or
representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against
the person relying thereon.
. . . .
ART, 1869. Agency may be express, or implied from the
acts of the principal, from his silence or lack of action, or
his failure to repudiate the agency, knowing that another
person is acting on his behalf without authority.
Agency may be oral, unless the law requires a specific
form.cralawlawlibrary
A corporation is estopped by its silence and acts of
recognition because we recognize that there is
information asymmetry between third persons who have
little to no information as to what happens during
corporate meetings, and the corporate officers, directors,
and representatives who are insiders to corporate
affairs.143
In People's Air car go and Warehousing Co. Inc. v. Court of
Appeals,144 this court held that the contract entered into by
the corporation's officer without a board resolution was
binding upon the corporation because it previously
allowed the officer to contract on its behalf despite the
lack of board resolution.145
In Francisco, this court ruled that Francisco's proposal for
redemption of property was accepted by and binding
upon the Government Service Insurance System. This
court did not appreciate the Government Service
Insurance System's defense that since it was the Board
Secretary and not the General Manager who sent
Francisco the acceptance telegram, it could not be made
binding upon the Government Service Insurance System.
It did not authorize the Board Secretary to sign for the
General Manager. This court appreciated the Government
Service Insurance System's failure to disown the telegram
sent by the Board Secretary and its silence while it
accepted all payments made by Francisco for the
redemption of property.146
There can be no apparent authority and the corporation
cannot be estopped from denying the binding affect of an
act when there is no evidence pointing to similar acts and
other circumstances that can be interpreted as the
corporation holding out a representative as having
authority to contract on its behalf. In Advance Paper
Corporation v. Arma Traders Corporation,147 this court had
the occasion to say:chanRoblesvirtualLawlibrary
The doctrine of apparent authority does not apply if the
principal did not commit any acts or conduct which a third
party knew and relied upon in good faith as a result of the
exercise of reasonable prudence. Moreover, the agent's
acts or conduct must have produced a change of position
to the third party's detriment. (Citation
omitted)cralawlawlibrary
Saturnino Petalcorin's authority to transact on behalf of
petitioner cannot be presumed based on a Secretary's
Certificate and excerpt from the minutes of the alleged
board meeting that were found to have been simulated.
These documents cannot be considered as the corporate
acts that held out Saturnino Petalcorin as petitioner's
authorized representative for mortgage transactions.
They were not supported by an actual board meeting.149
VII
Respondent argues that it may rely on the Secretary's
Certificate issued by Aurora de Leon because it was
notarized.
The Secretary's Certificate was void whether or not it was
notarized.
Notarization creates a presumption of regularity and
authenticity on the document. This presumption may be
rebutted by "strong, complete and conclusive proof"150 to
the contrary. While notarial acknowledgment "attaches
full faith and credit to the document concerned[,]"151 it
does not give the document its validity or binding effect.
When there is evidence showing that the document is
invalid, the presumption of regularity or authenticity is
not applicable.
In Basilio v. Court of Appeals152 this court was convinced
that the purported signatory on a deed of sale was not as
represented, despite testimony from the notary public
that the signatory appeared before him and signed the
instrument.153 Apart from finding that there was
forgery,154 this court noted:chanRoblesvirtualLawlibrary
The notary public, Atty. Ruben Silvestre, testified that he
was the one who notarized the document and that
Dionisio Z. Basilio appeared personally before him and
signed the. instrument himself. However, he admitted that
he did not know Dionisio Z. Basilio personally to ascertain
if the person who signed the document was actually
Dionisio Z. Basilio himself, or another person who stood in
his place. He could not even recall whether the document
had been executed in his office or not.
Thus, considering the testimonies of various witnesses
and a comparison of the signature in question with
admittedly genuine signatures, the Court is convinced that
Dionisio Z. Basilio did not execute the questioned deed of
sale. Although the questioned deed of sale was a public
document having in its favor the presumption of regularity,
such presumption was adequately refuted by competent
witnesses showing its forgery and the Court's own visual
analysis of the document. (Emphasis supplied, citations
omitted)cralawlawlibrary Property Registration Decree), and serves a warning to
third parties dealing with said property that someone is
In Suntay v. Court of Appeals,156 this court held that a claiming an interest on the same or a better right than that
notarized deed of sale was void because it was a mere of the registered owner thereof.169 (Emphasis
sham.157 It was not intended to have any effect between supplied)cralawlawlibrary
the parties.158 This court
said:chanRoblesvirtualLawlibrary
[I]t is not the intention nor the function of the notary Annotations are merely claims of interest or claims of the
public to validate and make binding' an instrument never, legal nature and incidents of relationship between the
in the first place, intended to have any binding legal effect person whose name appears on the document and the
upon the parties thereto.159cralawlawlibrary person who caused the annotation. It does not say
anything about the validity of the claim or convert a
Since the notarized Secretary's Certificate was found to defective claim or document into a valid one.170 These
have been issued without a supporting board resolution, claims may be proved or disproved during trial.
it produced no effect. It is not binding upon petitioner. It
should not have been relied on by respondent especially Thus, annotations are not conclusive upon courts or upon
given its status as a bank. owners who may not have reason to doubt the security of
their claim as their properties' title holders.
VIII
The banking institution is "impressed with public WHEREFORE, the Petition is GRANTED. The Court of
interest"160 such that the public's faith is "of paramount Appeals' Decision dated December 17, 2009
importance."161 Thus, banks are required to exercise the is REVERSED and SET ASIDE. The Regional Trial Courts'
highest degree of diligence in their Decisions of November 23, 2001 and December 7, 2001
transactions.162 In China Banking Corporation v. are REINSTATED.
Lagon,163 this court found that the bank was not a
mortgagee in good faith for its failure to question the due SO ORDERED.
execution of a Special Power of Attorney that was
presented to it in relation to a mortgage contract.164 This
court said:chanRoblesvirtualLawlibrary
Though petitioner is not expected to conduct an
exhaustive investigation on the history of the mortgagor's
title, it cannot be excused from the duty of exercising the
due diligence required of a banking institution. Banks are
expected to exercise more care and prudence than private
individuals in their dealings, even those that involve
registered lands, for their business is affected with public
interest.165 (Citations omitted) cralawlawlibrary

For its failure to exercise the degree of diligence required

of banks, respondent cannot claim good faith in the
execution of the mortgage contracts with Saturnino
Petalcorin. Respondent's witness, Daciano Paguio, Jr.,
testified that there was no board resolution authorizing
Saturnino Petalcorin to act on behalf of
petitioner.166 Respondent did not inquire further as to
Saturnino Petalcorin's authority.

Banks cannot rely on assumptions. This will be contrary

to the high standard of diligence required of them.
VI

According to respondent, the annotations of respondent's

mortgage interests on the certificates of titles of
petitioner's properties operated as constructive notice to
petitioner of the existence of such interests.167Hence,
petitioners are now estopped from claiming that they did
not know about the mortgage.

Annotations of adverse claims on certificates of title to

properties operate as constructive notice only to third
parties—not to the court or the registered owner.
In Sajonas v. Court of
Appeals:168chanroblesvirtuallawlibrary
[Annotation of an adverse claim is a measure designed to
protect the interest of a person over a piece of real
property where the registration of such interest or right is
not otherwise provided for by the Land Registration Act
or Act 496 (now [Presidential Decree No.] 1529 or the