G.R. No.

L-23145 November 29, 1968

TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary administrator-appellee,
vs.
BENGUET CONSOLIDATED, INC., oppositor-appellant.

Facts: Idonah Slade Perkins, who died on March 27, 1960 in New York City, left among others, two stock certificates
covering 33,002 shares of Benguet Consolidated, Inc. (BCI), the certificates being in the possession of the County Trust
Company of New York, which as noted, is the domiciliary administrator of the estate of the deceased.

On August 12, 1960, Prospero Sanidad instituted ancillary administration proceedings in the Court of First Instance of
Manila;

Lazaro A. Marquez was appointed ancillary administrator, and he was substituted by Renato D. Tayag.

A dispute arose between the domiciary administrator in New York and the ancillary administrator in the Philippines as to
which of them was entitled to the possession of the stock certificates in question.

CFI of Manila ordered the domiciliary administrator, County Trust Company, to "produce and deposit" them with the
ancillary administrator or with the Clerk of Court.

The domiciliary administrator did not comply with the order, and on February 11, 1964, the ancillary administrator
petitioned the court to "issue an order declaring the certificate or certificates of stocks covering the 33,002 shares issued
in the name of Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or] considered as lost."

Benguet Consolidated, Inc. admits that "it is immaterial" as to "who is entitled to the possession of the stock certificates in
question; BCI opposed the petition of the ancillary administrator because the said stock certificates are in existence, they
are today in the possession of the domiciliary administrator, the County Trust Company, in New York, U.S.A...." It is its
view, therefore, that under the circumstances, the stock certificates cannot be declared or considered as lost. Moreover, it
would allege that there was a failure to observe certain requirements of its by-laws before new stock certificates could be
issued. Hence, its appeal.

ISSUE: Whether BCI arguments are correct.

HELD: No. BCI is a corporation who owes its existence to Philippine laws. It has been given rights and privileges under
the law. It has obligations under the law; to follow valid legal orders. It is not immune from judicial control because it is
domiciled in the Philippines. BCI is a Philippine corporation owing full allegiance and subject to the unrestricted jurisdiction
of local courts. Its shares of stock cannot therefore be considered in any wise as immune from lawful court orders.
Further, to allow BCI’s opposition is to render the court order against CTC-NY a mere scrap of paper. It will leave Tayag
without any remedy simply because CTC-NY, a foreign entity refuses to comply with a valid court order. The final
recourse then is for our local courts to create a legal fiction such that the stock certificates in issue be declared lost even
though in reality they exist in the hands of CTC-NY. This is valid. As held time and again, fictions which the law may rely
upon in the pursuit of legitimate ends have played an important part in its development.

Further still, the argument invoked by BCI that it can only issue new stock certificates in accordance with its bylaws is
misplaced. It is worth noting that CTC-NY did not appeal the order of the court – it simply refused to turn over the stock
certificates hence ownership can be said to have been settled in favor of estate of Perkins here. Also, assuming that there
really is a conflict between BCI’s bylaws and the court order, what should prevail is the lawful court order. It would be
highly irregular if court orders would yield to the bylaws of a corporation. Again, a corporation is not immune from judicial
orders.

As Justice Tuason speaking for this Court made clear, it is a "general rule universally recognized" that administration,
whether principal or ancillary, certainly "extends to the assets of a decedent found within the state or country where it was
granted," the corollary being "that an administrator appointed in one state or country has no power over property in
another state or country." More specifically, appellant would stress that the "lower court could not "consider as lost"; that
the said stock certificates are in existence and are today in the possession of the domiciliary administrator in New York."

3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by its invoking one of the provisions of
its by-laws which would set forth the procedure to be followed in case of a lost, stolen or destroyed stock certificate; the
issuance of a new certificate or certificates would await the "final decision by [a] court regarding the ownership [thereof]."
ALFREDO CHING, Petitioner,
vs.
THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR ECILYN BURGOS-VILLAVERT, JUDGE EDGARDO SUDIAM of the
Regional Trial Court, Manila, Branch 52; RIZAL COMMERCIAL BANKING CORP. and THE PEOPLE OF THE
PHILIPPINES, Respondents.

Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI). PBMI, through petitioner, applied with the Rizal
Commercial Banking Corporation (RCBC) for the issuance of commercial letters of credit to finance its importation of assorted goods.

RCBC approved the application, and irrevocable letters of credit were issued in favor of petitioner. The goods were purchased and
delivered in trust to PBMI. Petitioner signed 13 trust receipts as surety, acknowledging delivery of the goods:

Under the receipts, petitioner agreed to hold the goods in trust for the RCBC, with authority to sell but not by way of conditional sale,
pledge or otherwise; and in case such goods were sold, to turn over the proceeds as soon as received, to apply against the relative
acceptances and payment of other indebtedness to respondent bank. In case the goods remained unsold within the specified period,
the goods were to be returned to respondent bank without any need of demand. Thus, said "goods, manufactured products or proceeds
thereof, whether in the form of money or bills, receivables, or accounts separate and capable of identification" were respondent bank’s
property.

When the trust receipts matured, petitioner failed to return the goods to respondent bank, or to return their value amounting to
₱6,940,280.66 despite demands. Thus, the bank filed a criminal complaint for estafa against petitioner in the Office of the City
Prosecutor of Manila.

After the requisite preliminary investigation, the City Prosecutor found probable cause estafa under Article 315, paragraph 1(b) of the
Revised Penal Code, in relation to Presidential Decree (P.D.) No. 115, otherwise known as the Trust Receipts Law. Thirteen (13)
Informations were filed against the petitioner before the Regional Trial Court (RTC) of Manila.

Secretary of Justice issued Resolution No. 250 granting the petition and reversing the assailed resolution of the City Prosecutor.
According to the Justice Secretary, the petitioner, as Senior Vice-President of PBMI, executed the 13 trust receipts and as such, was
the one responsible for the offense. Thus, the execution of said receipts is enough to indict the petitioner as the official responsible for
violation of P.D. No. 115.

The Justice Secretary further stated that the respondent bound himself under the terms of the trust receipts not only as a corporate
official of PBMI but also as its surety; hence, he could be proceeded against in two (2) ways: first, as surety as determined by the
Supreme Court in its decision in Rizal Commercial Banking Corporation v. Court of Appeals; 17 and second, as the corporate official
responsible for the offense under P.D. No. 115, via criminal prosecution.

ISSUE: WHETHER PETITIONER ALFREDO CHING IS THE OFFICER RESPONSIBLE FOR THE OFFENSE CHARGED
AND THAT THE ACTS OF PETITIONER FALL WITHIN THE AMBIT OF VIOLATION OF P.D. [No.] 115 IN RELATION TO
ARTICLE 315, PAR. 1(B) OF THE REVISED PENAL CODE.

RULING: "Section 13 of PD 115” ‘xxx If the violation or offense is committed by a corporation, partnership, association or other judicial
entities, the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or persons
therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense.’

"There is no dispute that it was the respondent, who as senior vice-president of PBM, executed the thirteen (13) trust receipts. As such,
the law points to him as the official responsible for the offense. Since a corporation cannot be proceeded against criminally because it
cannot commit crime in which personal violence or malicious intent is required, criminal action is limited to the corporate agents guilty of
an act amounting to a crime and never against the corporation itself. Thus, the execution by respondent of said receipts is enough to
indict him as the official responsible for violation of PD 115.

"Moreover, PD 115 explicitly allows the prosecution of corporate officers ‘without prejudice to the civil liabilities arising from the criminal
offense’ thus, the civil liability imposed on respondent in RCBC vs. Court of Appeals case is clearly separate and distinct from his
criminal liability under PD 115.’"

In the case at bar, the transaction between petitioner and respondent bank falls under the trust receipt transactions envisaged in P.D.
No. 115. Respondent bank imported the goods and entrusted the same to PBMI under the trust receipts signed by petitioner, as
entrustee, with the bank as entruster.

When a criminal statute designates an act of a corporation or a crime and prescribes punishment therefor, it creates a criminal offense
which, otherwise, would not exist and such can be committed only by the corporation. But when a penal statute does not expressly
apply to corporations, it does not create an offense for which a corporation may be punished. On the other hand, if the State, by statute,
defines a crime that may be committed by a corporation but prescribes the penalty therefor to be suffered by the officers, directors, or
employees of such corporation or other persons responsible for the offense, only such individuals will suffer such penalty. Corporate
officers or employees, through whose act, default or omission the corporation commits a crime, are themselves individually guilty of the
crime.

The principle applies whether or not the crime requires the consciousness of wrongdoing. It applies to those corporate agents who
themselves commit the crime and to those, who, by virtue of their managerial positions or other similar relation to the corporation, could
be deemed responsible for its commission, if by virtue of their relationship to the corporation, they had the power to prevent the act.
Moreover, all parties active in promoting a crime, whether agents or not, are principals. Whether such officers or employees are
benefited by their delictual acts is not a touchstone of their criminal liability. Benefit is not an operative fact.

In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind the cloak of the separate corporate personality
of PBMI. In the words of Chief Justice Earl Warren, a corporate officer cannot protect himself behind a corporation where he is the
actual, present and efficient actor.
BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, petitioners,
vs.
HON. JUDGE VIVENCIO M. RUIZ, MISAEL P. VERA, in his capacity as Commissioner of Internal Revenue,
ARTURO LOGRONIO, RODOLFO DE LEON, GAVINO VELASQUEZ, MIMIR DELLOSA, NICANOR ALCORDO, et
al, respondents.
FACTS:
On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal Revenue, wrote a letter addressed to
respondent Judge Vivencio M. Ruiz requesting the issuance of a search warrant against petitioners for violation of Section
46(a) of the National Internal Revenue Code, and authorizing Revenue Examiner Rodolfo de Leon, one of the
respondents, to make and file the application for search warrant which was attached to the letter.
De Leon and his witness, Arturo Logronio, went to the Court of First Instance of Rizal. They brought with them the
following papers: respondent Vera’s aforesaid letter-request; an application for search warrant already filled up but still
unsigned by respondent De Leon; an affidavit of respondent Logronio subscribed before respondent De Leon; a
deposition in printed form of respondent Logronio already accomplished and signed by him but not yet subscribed; and a
search warrant already accomplished but still unsigned by respondent Judge.
At that time respondent Judge was hearing a certain case; so, by means of a note, he instructed his Deputy Clerk of Court
to take the depositions of respondents De Leon and Logronio. After the session had adjourned, respondent Judge was
informed that the depositions had already been taken, respondent Judge asked respondent Logronio to take the oath and
warned him that if his deposition was found to be false and without legal basis, he could be charged for perjury.
Respondent Judge signed respondent de Leon’s application for search warrant and respondent Logronio’s deposition,
Search Warrant No. 2-M-70 was then sign by respondent Judge and accordingly issued.
BIR agents served the search warrant petitioners at the offices of petitioner corporation on Ayala Avenue, Makati, Rizal.
Petitioners’ lawyers protested the search on the ground that no formal complaint or transcript of testimony was attached to
the warrant. The agents nevertheless proceeded with their search which yielded six boxes of documents.
Petitioners filed a petition with the CFI of Rizal praying that the search warrant be quashed, dissolved or recalled, that
preliminary prohibitory and mandatory writs of injunction be issued, that the search warrant be declared null and void, and
that the respondents be ordered to pay petitioners, jointly and severally, damages and attorney’s fees. Petitioners came to
this Court.
The petition should be granted for the following reasons:
1. Respondent Judge failed to personally examine the complainant and his witness.
The implementing rule in the Revised Rules of Court, Sec. 4, Rule 126, is more emphatic and candid, for it requires the
judge, before issuing a search warrant, to “personally examine on oath or affirmation the complainant and any witnesses
he may produce . . .”
Personal examination by the judge of the complainant and his witnesses is necessary to enable him to determine the
existence or non-existence of a probable cause,
In the case at bar, no personal examination at all was conducted by respondent Judge of the complainant (respondent De
Leon) and his witness (respondent Logronio).
2. The search warrant was issued for more than one specific offense.
The question is: Was the said search warrant issued “in connection with one specific offense,” as required by Sec. 3, Rule
126?
To arrive at the correct answer it is essential to examine closely the provisions of the Tax Code referred to above. Thus
we find the following:
Sec. 46(a) requires the filing of income tax returns by corporations.
Sec. 53 requires the withholding of income taxes at source.
Sec. 72 imposes surcharges for failure to render income tax returns and for rendering false and fraudulent returns.
Sec. 73 provides the penalty for failure to pay the income tax, to make a return or to supply the information required under
the Tax Code.
Sec. 208 penalizes “[a]ny person who distills, rectifies, repacks, compounds, or manufactures any article subject to a
specific tax, without having paid the privilege tax therefore, or who aids or abets in the conduct of illicit distilling, rectifying,
compounding, or illicit manufacture of any article subject to specific tax . . .,” and provides that in the case of a
corporation, partnership, or association, the official and/or employee who caused the violation shall be responsible.
Sec. 209 penalizes the failure to make a return of receipts, sales, business, or gross value of output removed, or to pay
the tax due thereon.
The search warrant in question was issued for at least four distinct offenses under the Tax Code. The first is the violation
of Sec. 46(a), Sec. 72 and Sec. 73 (the filing of income tax returns), which are interrelated. The second is the violation of
Sec. 53 (withholding of income taxes at source). The third is the violation of Sec. 208 (unlawful pursuit of business or
occupation); and the fourth is the violation of Sec. 209 (failure to make a return of receipts, sales, business or gross value
of output actually removed or to pay the tax due thereon). Even in their classification the six above-mentioned provisions
are embraced in two different titles: Secs. 46(a), 53, 72 and 73 are under Title II (Income Tax); while Secs. 208 and 209
are under Title V (Privilege Tax on Business and Occupation).
3. The search warrant does not particularly describe the things to be seized.
The documents, papers and effects sought to be seized are described in Search Warrant No. 2-M-70 in this manner:
“Unregistered and private books of accounts (ledgers, journals, columnars, receipts and disbursements books, customers
ledgers); receipts for payments received; certificates of stocks and securities; contracts, promissory notes and deeds of
sale; telex and coded messages; business communications, accounting and business records; checks and check stubs;
records of bank deposits and withdrawals; and records of foreign remittances, covering the years 1966 to 1970.”
The description does not meet the requirement in Art III, Sec. 1, of the Constitution, and of Sec. 3, Rule 126 of the
Revised Rules of Court, that the warrant should particularly describe the things to be seized.
PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant No. 2-M-70 issued by respondent Judge
is declared null and void; respondents are permanently enjoined from enforcing the said search warrant; the documents,
papers and effects seized thereunder are ordered to be returned to petitioners; and respondent officials the Bureau of
Internal Revenue and their representatives are permanently enjoined from enforcing the assessments mentioned in
Annex “G” of the present petition, as well as other assessments based on the documents, papers and effects seized
under the search warrant herein nullified, and from using the same against petitioners in any criminal or other proceeding.
No pronouncement as to costs.
FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN
COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO, respondents.

FACTS: Expos is a radio documentary program hosted by Carmelo Mel Rima (Rima) and Hermogenes Jun Alegre (Alegre). Expos is
aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc. (FBNI). Expos is heard over Legazpi City,
the Albay municipalities and other Bicol areas.

In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from students, teachers and
parents against Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC) and its administrators. Claiming that
the broadcasts were defamatory, AMEC and Angelita Ago (Ago), as Dean of AMECs College of Medicine, filed a complaint for
damages against FBNI, Rima and Alegre on 27 February 1990. Quoted are portions of the allegedly libelous broadcasts:

JUN ALEGRE:

Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM, advise them to pass all
subjects because if they fail in any subject they will repeat their year level, taking up all subjects including those they have
passed already. Several students had approached me stating that they had consulted with the DECS which told them that there is no
such regulation. If [there] is no such regulation why is AMEC doing the same?

xxx

Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized by DECS. xxx

Third: Students are required to take and pay for the subject even if the subject does not have an instructor - such greed for
money on the part of AMECs administration. Take the subject Anatomy: students would pay for the subject upon enrolment because
it is offered by the school. However there would be no instructor for such subject. Students would be informed that course would be
moved to a later date because the school is still searching for the appropriate instructor.

xxx

On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-Institute of Mass
Communication in their effort to minimize expenses in terms of salary are absorbing or continues to accept rejects.

That AMEC is a dumping ground, garbage, not merely of moral and physical misfits. Probably they only qualify in terms of
intellect. The Dean of Student Affairs of AMEC is Justita Lola, as the family name implies.

MEL RIMA:

xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people. What does this mean? Immoral
and physically misfits as teachers.

May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to teach. You are too old. As an
aviation, your case is zero visibility. Dont insist.

xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that. The reason is practical
cost saving in salaries, because an old person is not fastidious, so long as she has money to buy the ingredient of beetle juice. The
elderly can get by thats why she (Lola) was taken in as Dean.

xxx

xxx On our end our task is to attend to the interests of students. It is likely that the students would be influenced by evil. When they
become members of society outside of campus will be liabilities rather than assets. What do you expect from a doctor who while
studying at AMEC is so much burdened with unreasonable imposition? What do you expect from a student who aside from peculiar
problems because not all students are rich in their struggle to improve their social status are even more burdened with false regulations.
xxx[9] (Emphasis supplied)

The complaint further alleged that AMEC is a reputable learning institution. With the supposed expos, FBNI, Rima and Alegre
transmitted malicious imputations, and as such, destroyed plaintiffs (AMEC and Ago) reputation. AMEC and Ago included FBNI as
defendant for allegedly failing to exercise due diligence in the selection and supervision of its employees, particularly Rima and Alegre.
On 14 December 1992, the trial court rendered a Decision finding FBNI and Alegre liable for libel except Rima. The trial court held
that the broadcasts are libelous per se. In holding FBNI liable for libel, the trial court found that FBNI failed to exercise diligence in the
selection and supervision of its employees.

Issues

FBNI raises the following issues for resolution:

I. WHETHER THE BROADCASTS ARE LIBELOUS;

 II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;

III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and

IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL DAMAGES, ATTORNEYS
FEES AND COSTS OF SUIT.

HELD:
I. Whether the broadcasts are libelous
A libel is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or omission, condition,
status, or circumstance tending to cause the dishonor, discredit, or contempt of a natural or juridical person, or to blacken the memory
of one who is dead.[24]
There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances tending to cause it
dishonor, discredit and contempt. Rima and Alegres remarks such as greed for money on the part of AMECs administrators; AMEC is a
dumping ground, garbage of xxx moral and physical misfits; and AMEC students who graduate will be liabilities rather than assets of
the society are libelous per se. Taken as a whole, the broadcasts suggest that AMEC is a money-making institution where physically
and morally unfit teachers abound.
Every defamatory imputation is presumed malicious. Rima and Alegre failed to show adequately their good intention and
justifiable motive in airing the supposed gripes of the students. As hosts of a documentary or public affairs program, Rima and Alegre
should have presented the public issues free from inaccurate and misleading information.[26] Hearing the students alleged complaints a
month before the expos,[27] they had sufficient time to verify their sources and information.
II.
Whether AMEC is entitled to moral damages

FBNI contends that AMEC is not entitled to moral damages because it is a corporation.
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical
suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.
Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219 [43] of the Civil Code. This provision expressly
authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Article 2219(7) does not qualify
whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or
any other form of defamation and claim for moral damages.
Moreover, where the broadcast is libelous per se, the law implies damages. In this case, the broadcasts are libelous per se. Thus,
AMEC is entitled to moral damages. Therefore, we reduce the award of moral damages from P300,000 to P150,000.

III.
Whether the award of attorneys fees is proper

FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of attorneys fees. FBNI adds
that the instant case does not fall under the enumeration in Article 2208 [48] of the Civil Code.
The award of attorneys fees is not proper because AMEC failed to justify satisfactorily its claim for attorneys fees. AMEC did not
adduce evidence to warrant the award of attorneys fees.

IV.
Whether FBNI is solidarily liable with Rima and Alegre
for moral damages, attorneys fees
and costs of suit

The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they commit.[52] Joint tort
feasors are all the persons who command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the
commission of a tort, or who approve of it after it is done, if done for their benefit. [53] Thus, AMEC correctly anchored its cause of action
against FBNI on Articles 2176 and 2180 of the Civil Code.
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages arising from the libelous
broadcasts. As stated by the Court of Appeals, recovery for defamatory statements published by radio or television may be had from
the owner of the station, a licensee, the operator of the station, or a person who procures, or participates in, the making of the
defamatory statements.[54] An employer and employee are solidarily liable for a defamatory statement by the employee within the
course and scope of his or her employment, at least when the employer authorizes or ratifies the defamation. [55] In this case, Rima and
Alegre were clearly performing their official duties as hosts of FBNIs radio program Expos when they aired the broadcasts. FBNI neither
alleged nor proved that Rima and Alegre went beyond the scope of their work at that time. There was likewise no showing that FBNI did
not authorize and ratify the defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due diligence in the selection and supervision of its
employees, particularly Rima and Alegre. FBNI merely showed that it exercised diligence in the selection of its broadcasters without
introducing any evidence to prove that it observed the same diligence in the supervision of Rima and Alegre. FBNI did not show how it
exercised diligence in supervising its broadcasters.
NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT, INC., and
MCARTHUR MINING, INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.

The Facts

Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a domestic corporation
organized and existing under Philippine laws, took interest in mining and exploring certain areas of the province of
Palawan. After inquiring with the Department of Environment and Natural Resources (DENR), it learned that the areas
where it wanted to undertake exploration and mining activities where already covered by Mineral Production Sharing
Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur.

Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed an application for an MPSA
and Exploration Permit (EP) with the Mines and Geo-Sciences Bureau (MGB), Region IV-B, Office of the Department of
Environment and Natural Resources (DENR).

Subsequently, SMMI was issued MPSA covering an area of over 1,782 hectares in Barangay Sumbiling, Municipality of
Bataraza, Province of Palawan and EP which includes an area of 3,720 hectares in Barangay Malatagao, Bataraza,
Palawan. The MPSA and EP were then transferred to Madridejos Mining Corporation (MMC) and, on November 6, 2006,
assigned to petitioner McArthur.

Petitioner Narra acquired its MPSA from Alpha Resources and Development Corporation and Patricia Louise Mining &
Development Corporation (PLMDC) which previously filed an application for an MPSA with the MGB, Region IV-B, DENR
on January 6, 1992. Through the said application, the DENR issued MPSA-IV-1-12 covering an area of 3.277 hectares in
barangays Calategas and San Isidro, Municipality of Narra, Palawan. Subsequently, PLMDC conveyed, transferred and/or
assigned its rights and interests over the MPSA application in favor of Narra.

Another MPSA application of SMMI was filed with the DENR Region IV-B, labeled as MPSA-AMA-IVB-154 (formerly EPA-
IVB-47) over 3,402 hectares in Barangays Malinao and Princesa Urduja, Municipality of Narra, Province of Palawan.
SMMI subsequently conveyed, transferred and assigned its rights and interest over the said MPSA application to Tesoro.

On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3) separate petitions for the
denial of petitioners’ applications for MPSA designated as AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12.

IRedmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned and controlled by MBMI
Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since MBMI is a considerable stockholder
of petitioners, it was the driving force behind petitioners’ filing of the MPSAs over the areas covered by applications since
it knows that it can only participate in mining activities through corporations which are deemed Filipino citizens. Redmont
argued that given that petitioners’ capital stocks were mostly owned by MBMI, they were likewise disqualified from
engaging in mining activities through MPSAs, which are reserved only for Filipino citizens.

WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur Mining Inc., Tesoro Mining and Development,
Inc., and Narra Nickel Mining and Development Corp. as, DISQUALIFIED for being considered as Foreign Corporations.
Their Mineral Production Sharing Agreement (MPSA) are hereby x x x DECLARED NULL AND VOID. 6

The POA considered petitioners as foreign corporations being "effectively controlled" by MBMI, a 100% Canadian
company and declared their MPSAs null and void. In the same Resolution, it gave due course to Redmont’s EPAs.

Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed a Complaint15 with the Securities and
Exchange Commission (SEC), seeking the revocation of the certificates for registration of petitioners on the ground that
they are foreign-owned or controlled corporations engaged in mining in violation of Philippine laws.

The Petition filed by Redmont Consolidated Mines Corporation on 02 January 2007 is hereby ordered DISMISSED. 17

CA found that there was doubt as to the nationality of petitioners when it realized that petitioners had a common major
investor, MBMI, a corporation composed of 100% Canadians.

Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be
considered as of Philippine nationality, but if the percentage of Filipino ownership in the corporation or partnership is less
than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality.
Thus, if 100,000 shares are registered in the name of a corporation or partnership at least 60% of the capital stock or
capital, respectively, of which belong to Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But if
less than 60%, or say, 50% of the capital stock or capital of the corporation or partnership, respectively, belongs to Filipino
citizens, only 50,000 shares shall be recorded as belonging to aliens.

In determining the nationality of petitioners, the CA looked into their corporate structures and their corresponding common
shareholders. Using the grandfather rule, the CA discovered that MBMI in effect owned majority of the common stocks of
the petitioners as well as at least 60% equity interest of other majority shareholders of petitioners through joint venture
agreements. The CA found that through a "web of corporate layering, it is clear that one common controlling investor in all
mining corporations involved x x x is MBMI." 25 Thus, it concluded that petitioners McArthur, Tesoro and Narra are also in
partnership with, or privies-in-interest of, MBMI.

ISSUE: this case is centered on the issue of petitioners’ nationality, whether Filipino or foreign.

Basically, there are two acknowledged tests in determining the nationality of a corporation: the control test and the
grandfather rule.

Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be
considered as of Philippine nationality, but if the percentage of Filipino ownership in the corporation or partnership is less
than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality.
Thus, if 100,000 shares are registered in the name of a corporation or partnership at least 60% of the capital stock or
capital, respectively, of which belong to Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But if
less than 60%, or say, 50% of the capital stock or capital of the corporation or partnership, respectively, belongs to Filipino
citizens, only 50,000 shares shall be counted as owned by Filipinos and the other 50,000 shall be recorded as belonging
to aliens.

The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to corporations or partnerships at least 60%
of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality," pertains to the control
test or the liberal rule. On the other hand, the second part of the DOJ Opinion which provides, "if the percentage of the
Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such
percentage shall be counted as Philippine nationality," pertains to the stricter, more stringent grandfather rule.

The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in said Paragraph 7 of the
1967 SEC Rules which states, "but if the percentage of Filipino ownership in the corporation or partnership is less than
60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality." Under
the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing Corporation and the Investee Corporation
must be traced (i.e., "grandfathered") to determine the total percentage of Filipino ownership.

Moreover, the ultimate Filipino ownership of the shares must first be traced to the level of the Investing Corporation and
added to the shares directly owned in the Investee Corporation x x x.

xxxx

In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second part of the SEC Rule
applies only when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the joint venture corporation
with Filipino and foreign stockholders with less than 60% Filipino stockholdings [or 59%] invests in other joint venture
corporation which is either 60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the 60-40 Filipino-
foreign equity ownership is not in doubt, the Grandfather Rule will not apply. (emphasis supplied)

After a scrutiny of the evidence extant on record, the Court finds that this case calls for the application of the grandfather
rule since, as ruled by the POA and affirmed by the OP, doubt prevails and persists in the corporate ownership of
petitioners. Also, as found by the CA, doubt is present in the 60-40 Filipino equity ownership of petitioners Narra,
McArthur and Tesoro, since their common investor, the 100% Canadian corporation––MBMI, funded them. However,
petitioners also claim that there is "doubt" only when the stockholdings of Filipinos are less than 60%. 43

The assertion of petitioners that "doubt" only exists when the stockholdings are less than 60% fails to convince this Court.
DOJ Opinion No. 20, which petitioners quoted in their petition, only made an example of an instance where "doubt" as to
the ownership of the corporation exists. It would be ludicrous to limit the application of the said word only to the instances
where the stockholdings of non-Filipino stockholders are more than 40% of the total stockholdings in a corporation. The
corporations interested in circumventing our laws would clearly strive to have "60% Filipino Ownership" at face value.

Thus, as demonstrated in this first corporation, McArthur, when it is "grandfathered," company layering was utilized by
MBMI to gain control over McArthur. It is apparent that MBMI has more than 60% or more equity interest in McArthur,
making the latter a foreign corporation.

Accordingly, after "grandfathering" petitioner Tesoro and factoring in Olympic’s participation in SMMI’s corporate structure,
it is clear that MBMI is in control of Tesoro and owns 60% or more equity interest in Tesoro. This makes petitioner Tesoro
a non-Filipino corporation and, thus, disqualifies it to participate in the exploitation, utilization and development of our
natural resources.

In ending, the "control test" is still the prevailing mode of determining whether or not a corporation is a Filipino corporation,
within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled to undertake the exploration, development and
utilization of the natural resources of the Philippines. When in the mind of the Court there is doubt, based on the attendant
facts and circumstances of the case, in the 60-40 Filipino-equity ownership in the corporation, then it may apply the
"grandfather rule."
IN THE MATTER OF:
THE CORPORATE REHABILITATION OF DAYAN TELECOMMUNICATIONS, INC. PURSUANT TO THE INTERIM RULES OF
PROCEDURE ON CORPORATE REHABILITATION (A.M. NO. 00-8-10-SC)
THE BANK OF NEW YORK AS TRUSTEE FOR THE HOLDERS OF THE US$200,000,000 13.5% SENIOR NOTES OF DAYAN
TELECOMMUNICATIONS, INC.
DUE 2006 ACTING ON THE INSTRUCTIONS OF THE INFORMAL STEERING COMMITTEE: AVENUE ASIA INVESTMENTS, L.P.,
AVENUE ASIA INTERNATIONAL, LTD., AVENUE ASIA SPECIAL SITUATIONS FUND II, L.P. AND AVENUE ASIA CAPITAL PARTNERS,
L.P., Petitioner,
vs.
DAYAN TELECOMMUNICATIONS, INC., Respondents.

x---------------x

IN THE MATTER OF:

THE CORPORATE REHABILITATION OF BAYAN TELECOMMUNICATIONS, INC. PURSUANT TO THE INTERIM RULES OF
PROCEDURE ON CORPORATE REHABILITATION (A.M. NO. 00-8-10-SC)
AVENUE ASIA INVESTMENTS, L.P., AVENUE ASIA INTERNATIONAL, LTD., AVENUE ASIA SPECIAL SITUATIONS FUND II, L.P.,
AVENUE ASIA CAPITAL PARTNERS, L.P. AND AVENUE ASIA SPECIAL SITUATIONS FUND III, L.P., Petitioner,
vs.
DAYAN TELECOMMUNICATIONS, INC., Respondents.

x---------------x

The facts, as culled from the records of these cases, follow:

Respondent Bayantel is a duly organized domestic corporation engaged in the business of providing telecommunication services. It is 98.6%
owned by Bayan Telecommunications Holdings Corporation (BTHC), which in turn is 85.4% owned by the Lopez Group of Companies and
Benpres Holdings Corporation

This is the case of “In the Matter of the Corporate Rehabilitation of Bayan Telecommunications Inc.” (G.R. Nos. 175418-20, December 5,
2012), which was consolidated with other cases relating to the rehabilitation of Bayan Telecommunications Inc. (Bayantel). In this case, The
Bank of New York filed a creditor-initiated petition to rehabilitate Bayantel. In due course, the receiver recommended the rehabilitation of
Bayantel by, among others, converting part of the company’s debt into equity. However, the rehabilitation receiver imposed, as a condition,
that the resulting equity ownership of foreign creditors should not exceed the 40-percent foreign ownership limit under the 1987 Constitution.

The Bank of New York disagreed, explaining that the acquisition of shares by foreign creditors would be done, both directly and indirectly, to
meet the control test under RA 7042, or the Foreign Investments Act of 1991 (FIA).

The control test deals with a situation where a corporation and its non-Filipino stockholders own stocks in an SEC-registered company. It
provides that, where at least 60 percent of the capital stock outstanding and entitled to vote of each of both corporations is owned and held by
citizens of the Philippines and at least 60 percent of the members of the board of directors of each of both corporations are Filipino citizens,
the investee company is considered a Philippine national.

The “grandfather rule,” on the other hand, requires that the citizenship of individuals or natural persons who ultimately own or control the
shares of stock of the corporation must be considered for purposes of determining compliance with the Filipino ownership requirement.

Under the proposed structure for Bayantel, the foreign creditors would convert part of Bayantel’s debt to common stock of the company. As a
result, they would own 40 percent of the outstanding capital stock of Bayantel, while the remaining 40 percent of the shares would be
registered to a holding company that would retain the other 60 percent equity reserved for Filipino citizens. According to The Bank of New
York, this structure would comply with the control test under the FIA and, therefore, would not violate the Filipinization requirement prescribed
by the Constitution for public utilities.

The issue was whether or not the proposed structure would violate the foreign ownership limit imposed by the Constitution for public utilities.

The relevant provision is Article XII, Section 11 of the 1987 Constitution, which states that “[n]o franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens.”

In ruling on the issue, the Supreme Court cited its 2011 en banc decision in Gamboa, which interpreted the term “capital” as referring only to
shares of stock (whether common or preferred shares) that are entitled to vote in the election of directors. The court held that two steps must
be taken to determine whether the conversion of debt to equity violates the constitutional limit on foreign ownership of a public utility: First,
identify which class of shares the debt will be converted into, whether common shares, preferred shares that have the right to vote in the
election of directors, or non-voting preferred shares; Second, determine the number of shares with voting rights held by foreign entities prior to
conversion. If upon conversion, the total number of shares held by foreign entities exceeds 40 percent of the capital stock with voting rights,
the constitutional limit on foreign ownership is violated.

The Supreme Court observed that the proposed structure would give foreigners a 77.7-percent effective ownership of the common shares of
Bayantel. It then ruled that the structure would violate the foreign ownership restriction for public utilities set by the Constitution.

The FIA expressly recognizes the control test in determining the nationality of a corporation in which there are foreign investors. Yet, the
Supreme Court disregarded the argument of The Bank of New York that its proposed structure is compliant with this test. The court stated that
the proposed structure “is precisely the scenario proscribed by the Filipinization provision of the Constitution.” It is also worth noting that in its
2012 Gamboa decision, the Court cited with approval the en banc ruling of the SEC in Redmont Consolidated Mines Corp. vs. McArthur
Mining Inc., et al. (SEC en banc case No. 09-09-177, March 25, 2010), which stated that “the Grandfather Rule must be applied to accurately
determine the actual participation, both direct and indirect, of foreigners in a corporation engaged in a nationalized activity or business.”
Interestingly, all members of the First Division who rendered the Bayantel decision participated in the 2012 Gamboa decision which, as stated
above, quoted with approval the Redmont decision of the SEC.
BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA M. CASTILLO, BERTILLA C. RADA,
MARIETTA C. ABAÑEZ, LEOVINA C. JALBUENA and SANTIAGO M. RIVERA, petitioners,
vs.
COURT OF APPEALS, BORMAHECO, INC. and PHILIPPINE MACHINERY PARTS MANUFACTURING CO.,
INC., respondents.

facts:

Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda. de Castillo. The Castillo family are
the owners of a parcel of land located in Lucena City which was given as security for a loan from the
Development Bank of the Philippines. For their failure to pay the amortization, foreclosure of the said
property was about to be initiated. This problem was made known to Santiago Rivera, who proposed to
them the conversion into subdivision of the four (4) parcels of land adjacent to the mortgaged property to
raise the necessary fund. The Idea was accepted by the Castillo family and to carry out the project, a
Memorandum of Agreement was executed by and between Slobec Realty and Development, Inc.,
represented by its President Santiago Rivera and the Castillo family. In this agreement, Santiago Rivera
obliged himself to pay the Castillo family the sum of P70,000.00 immediately after the execution of the
agreement and to pay the additional amount of P400,000.00 after the property has been converted into a
subdivision. Rivera, armed with the agreement, approached Mr. Modesto Cervantes, President of
defendant Bormaheco, and proposed to purchase from Bormaheco two (2) tractors Model D-7 and D-8
Subsequently, a Sales Agreement was executed on December 28,1970

On January 23, 1971, Bormaheco, Inc. and Slobec Realty and Development, Inc., represented by its
President, Santiago Rivera, executed a Sales Agreement over one unit of Caterpillar Tractor D-7 as
evidenced by the contract. As shown by the contract, the price was P230,000.00 of which P50,000.00
was to constitute a down payment, and the balance of P180,000.00 payable in eighteen monthly
installments. On the same date, Slobec, through Rivera, executed in favor of Bormaheco a Chattel
Mortgage over the said equipment as security for the payment of the aforesaid balance of P180,000.00.
As further security of the aforementioned unpaid balance, Slobec obtained from Insurance Corporation of
the Phil. a Surety Bond, with ICP (Insurance Corporation of the Phil.) as surety and Slobec as principal, in
favor of Bormaheco.

On April 10, 1975, Insurance Corporation of the Phil. ICP sold to Phil. Machinery Parts Manufacturing Co.
(PM Parts) the four (4) parcels of land and by virtue of said conveyance, PM Parts transferred unto itself
the titles over the lots in dispute so that said parcels of land are now covered by TCT Nos. T-24846, T-
24847, T-24848 and T-24849 (Exhs. Q-T, pp. 46-49, Rec.).

Plaintiff Buenaflor M. Castillo Umali as the appointed administratrix of the properties in question filed an
action for annulment of title before the then Court of First Instance of Quezon

The sale by Insurance Corporation of the- Philippines in favor of defendant Philippine Machinery Parts
Manufacturing Co., Inc., over Id four (4) parcels of land and Transfer Certificates of Title Nos. T 24846, T-
24847, T-24848 and T-24849 subsequently issued by virtue of said sale in the name of Philippine
Machinery Parts Manufacturing Co., Inc., are similarly declared null and void, and the Register of Deeds
of Lucena City is hereby directed to issue, in lieu thereof, transfer certificates of title in the names of the
plaintiffs, except Santiago Rivera.

ISSUE. The main issue for resolution is whether there was a valid foreclosure of the mortgaged properties by ICP
Petitioners argue that the foreclosure proceedings should be declared null and void for two reasons, viz.: (1) no written
notice was furnished by Bormaheco to ICP anent the failure of Slobec in paying its obligation with the former, plus the fact
that no receipt was presented to show the amount allegedly paid by ICP to Bormaheco; and (b) at the time of the
foreclosure of the mortgage, the liability of ICP under the surety bond had already expired.

1. Petitioners asseverate that there was no notice of default issued by Bormaheco to ICP which would have entitled
Bormaheco to demand payment from ICP under the suretyship contract.

IV. Private respondent PM Parts posits that it is a buyer in good faith and, therefore, it acquired a valid title over the
subject properties. The submission is without merit and the conclusion is specious

We have stated earlier that the doctrine of piercing the veil of corporate fiction is not applicable in this case. However, its
inapplicability has no bearing on the good faith or bad faith of private respondent PM Parts. It must be noted that Modesto
N. Cervantes served as Vice-President of Bormaheco and, later, as President of PM Parts. On this fact alone, it cannot be
said that PM Parts had no knowledge of the aforesaid several transactions executed between Bormaheco and petitioners.
In addition, Atty. Martin de Guzman, who is the Executive Vice-President of Bormaheco, was also the legal counsel of ICP
and PM Parts. These facts were admitted without qualification in the stipulation of facts submitted by the parties before
the trial court. Hence, the defense of good faith may not be resorted to by private respondent PM Parts which is charged
with knowledge of the true relations existing between Bormaheco, ICP and herein petitioners. Accordingly, the transfer
certificates of title issued in its name, as well as the certificate of sale, must be declared null and void since they cannot be
considered altogether free of the taint of bad faith.
The Register of Deeds of Lucena City is hereby directed to cancel Transfer Certificates of Title Nos. T-24846, T-24847,
T24848 and T-24849 in the name of Philippine Machinery Parts Manufacturing Co., Inc. and to issue in lieu thereof the
corresponding transfer certificates of title in the name of herein petitioners, except Santiago Rivera.

Mauricia Castillo was the administratrix in charge over a parcel of land left be Felipe Castillo. Said land was mortgaged to
the Development Bank of the Philippines and was about to be foreclosed but then Mauricia’s nephew, Santiago Rivera,
proposed that they convert the land into 4 subdivisions so that they can raise the necessary money to avoid foreclosure.
Mauricia agreed. Rivera sought to develop said land through his company, Slobec Realty Corporation (SRC), of which he
was also the president. SRC then contracted with Bormaheco, Inc. for the purchase of one tractor. Bormaheco agreed to
sell the tractor on an installment basis. At the same time, SRC mortgaged said tractor to Bormaheco as security just in
case SRC will default. As additional security, Mauricia and other family members executed a surety agreement whereby in
case of default in paying said tractor, the Insurance Corporation of the Philippines (ICP) shall pay the balance. The surety
bond agreement between Mauricia and ICP was secured by Mauricia’s parcel of land (same land to be developed).

SRC defaulted in paying said tractor. Bormaheco foreclosed the tractor but it wasn’t enough hence ICP paid the
deficiency. ICP then foreclosed the property of Mauricia. ICP later sold said property to Philippine Machinery Parts
Manufacturing Corporation (PMPMC). PMPMC then demanded Mauricia et al to vacate the premises of said property.

While all this was going on, Mauricia died. Her successor-administratrix, Buenaflor Umali, questioned the foreclosure
made by ICP. Umali alleged that all the transactions are void and simulated hence they were defrauded; that through
Bormaheco’s machinations, Mauricia was fooled into entering into a surety agreement with ICP; that Bormaheco even
made the premium payments to ICP for said surety bond; that the president of Bormaheco is a director of PMPMC; that
the counsel who assisted in all the transactions, Atty. Martin De Guzman, was the legal counsel of ICP, Bormaheco, and
PMPMC.

ISSUE: Whether or not the veil of corporate fiction should be pierced.

HELD: No. There is no clear showing of fraud in this case. The mere fact that Bormaheco paid said premium payments to
ICP does not constitute fraud per se. As it turned out, Bormaheco is an agent of ICP. SRC, through Rivera, agreed that
part of the payment of the mortgage shall be paid for the insurance. Naturally, when Rivera was paying some portions of
the mortgage to Bormaheco, Bormaheco is applying some parts thereof for the payment of the premium – and this was
agreed upon beforehand.

Further, piercing the veil of corporate fiction is not the proper remedy in order that the foreclosure conducted by ICP be
declared a nullity. The nullity may be attacked directly without disregarding the separate identity of the corporations
involved. Further still, Umali et al are not enforcing a claim against the individual members of the corporations. They are
not claiming said members to be liable. Umali et al are merely questioning the validity of the foreclosure.

The veil of corporate fiction can’t be pierced also by the simple reason that the businesses of two or more corporations
are interrelated, absent sufficient showing that the corporate entity was purposely used as a shield to defraud creditors
and third persons of their rights. In this case, there is no justification for disregarding their separate personalities.
CONSTRUCTION & DEVELOPMENT CORPORATION OF THE PHILIPPINES (now PHILIPPINE NATIONAL
CONSTRUCTION CORPORATION), petitioner, vs. RODOLFO M. CUENCA and MALAYAN INSURANCE CO.,
INC., respondents.

FACTS: Ultra International Trading Corporation (UITC) applied for a surety bond from Malayan Insurance Co., Inc.
(MICI), to guarantee its credits, indebtedness, obligations and liabilities of any kind to Goodyear Tire and Rubber
Company of the Philippines (Goodyear). MICI approved the application and issued MICO Bond for an amount not
exceeding P600,000.00. The surety bond was valid for 12 months, and was renewed several times, the last time being on
May 15, 1983.
To protect MICIs interests, UITC, Edilberto Cuenca, and Rodolfo Cuenca, herein respondent, executed an Indemnity
Agreement in favor of MICI. Edilberto was then the President, while Rodolfo was a member of the Board of Directors of
UITC. Edilberto signed the indemnity agreement in his official and personal capacity, while Rodolfo signed in his personal
capacity only. In the said agreement, UITC, Edilberto and Rodolfo bound themselves jointly and severally to indemnify
MICI of any payment it would make under the surety bond.
On February 18, 1983, Goodyear sent a letter to MICI informing it of UITCs default on its obligation. In the said letter,
Goodyear requested MICI to pay P600,000.00 under the surety bond. MICI sent several demand letters to UITC, Edilberto
and Rodolfo, requiring them to immediately settle Goodyears claim.[6] UITC, Edilberto and Rodolfo failed to settle the
account with Goodyear. Thus, on April 25, 1983, MICI paid Goodyear P600,000.00.[7]
On May 3, 1983, MICI sent a demand letter to UITC, Edilberto and Rodolfo for reimbursement of the payment it
made to Goodyear, plus legal interest. UITC replied that Construction & Development Corporation of the Philippines
(CDCP), now Philippine National Construction Corporation (PNCC), had initiated a complete review of UITCs financial
plans to enable it to pay its creditors, like MICI.[9]UITC was a subsidiary of petitioner PNCC,[10] with the latter owning
around 78% of the formers shares of stock.[11] UITC requested MICI to delay the filing of any suit against it, to give it time
to work out an acceptable repayment plan.[12] MICI agreed and gave UITC until May 20, 1983 to come up with an offer. [13]
However, UITC, Edilberto and Rodolfo still failed to pay MICI. On July 1, 1983, MICI filed a Complaint [14] for sum of
money against UITC, Edilberto and Rodolfo, praying for indemnity of the amount it paid to Goodyear, plus interest per
annum compounded quarterly from April 25, 1983 until fully paid, and 20% of the amount involved as attorneys fees and
costs of the suit.
On January 6, 1994, the Regional Trial Court (RTC) of Manila, Branch 51, rendered a decision holding UITC and
PNCC, jointly and solidarily liable to MICI under the indemnity agreement. The trial court ruled that UITC was bound by
the indemnity agreement entered into by its two officers, even though there was no board resolution specifically
authorizing them to do so because it had, in effect, ratified the acts of the said officers. Moreover, UITC has
acknowledged its obligation to MICI in the letters it sent to the latter, and when it had remitted P150,000.00 as partial
payment. It also held PNCC solidarily liable with UITC on the basis of the board resolution attesting to the fact that PNCC
had assumed all liabilities arising from the guarantees made by its officers in other affiliated corporations. [20] The trial court
dismissed the complaint as against the Cuencas.
ISSU: whether or not the petitioner is jointly and solidarily liable with UITC, a subsidiary corporation, to respondent
MICI under the indemnity agreement for reimbursement, attorneys fees and costs.
In any case, petitioner PNCC, as majority stockholder, may not be held liable for UITCs obligation. A corporation,
upon coming into existence, is invested by law with a personality separate and distinct from those persons composing it
as well as from any other legal entity to which it may be related. [38] The veil of corporate fiction may only be disregarded in
cases where the corporate vehicle is being used to defeat public convenience, justify a wrong, protect fraud, or defend a
crime.[39] Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a
corporation is not of itself sufficient ground for disregarding the separate corporate personality. [40] To disregard the
separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established.[41]
Neither can the petitioner be made liable under the indemnity agreement on the ground that it had assumed the
personal liability of respondent Cuenca. To reiterate, the decision of the CA dismissing the case against respondent
Cuenca has already become final and executory. The Court has, likewise, pointed out that respondent Cuenca impleaded
the petitioner as a remedy over, and not as one directly liable to MICI. Since the petitioners liability is grounded on that of
respondent Cuencas, it is imperative that the latter be first adjudged liable to MICI before the petitioner may be held liable.
Indeed, the Court ruled in Samala v. Victor,[42] thus:
petitioner PNCC is absolved from any liability under the indemnity agreement. The third-party complaint against the
petitioner is DISMISSED for lack of merit.
ESTELITA BURGOS LIPAT and ALFREDO LIPAT, petitioners, vs. PACIFIC BANKING CORPORATION, REGISTER
OF DEEDS, RTC EX-OFFICIO SHERIFF OF QUEZON CITY and the Heirs of EUGENIO D. TRINIDAD, respondents.

FACTS: Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned Belas Export Trading (BET), a single
proprietorship with principal office at No. 814 Aurora Boulevard, Cubao, Quezon City. BET was engaged in the
manufacture of garments for domestic and foreign consumption. The Lipats also owned the Mystical Fashions in the
United States, which sells goods imported from the Philippines through BET. Mrs. Lipat designated her daughter, Teresita
B. Lipat, to manage BET in the Philippines while she was managing Mystical Fashions in the United States.
In order to facilitate the convenient operation of BET, Estelita Lipat executed a special power of attorney appointing
Teresita Lipat as her attorney-in-fact to obtain loans and other credit accommodations from respondent Pacific Banking
Corporation (Pacific Bank). She likewise authorized Teresita to execute mortgage contracts on properties owned or co-
owned by her as security for the obligations to be extended by Pacific Bank including any extension or renewal thereof.
Sometime in April 1979, Teresita, by virtue of the special power of attorney, was able to secure for and in behalf of
her mother, Mrs. Lipat and BET, a loan from Pacific Bank amounting to P583,854.00 to buy fabrics to be manufactured by
BET and exported to Mystical Fashions in the United States. As security therefor, the Lipat spouses, as represented by
Teresita, executed a Real Estate Mortgage over their property located at No. 814 Aurora Blvd., Cubao, Quezon City. Said
property was likewise made to secure other additional or new loans, discounting lines, overdrafts and credit
accommodations, of whatever amount, which the Mortgagor and/or Debtor may subsequently obtain from the Mortgagee
as well as any renewal or extension by the Mortgagor and/or Debtor of the whole or part of said original, additional or new
loans, discounting lines, overdrafts and other credit accommodations, including interest and expenses or other obligations
of the Mortgagor and/or Debtor owing to the Mortgagee, whether directly, or indirectly, principal or secondary, as appears
in the accounts, books and records of the Mortgagee.[4]
On September 5, 1979, BET was incorporated into a family corporation named Belas Export Corporation (BEC) in
order to facilitate the management of the business. BEC was engaged in the business of manufacturing and exportation of
all kinds of garments of whatever kind and description [5] and utilized the same machineries and equipment previously
used by BET. Its incorporators and directors included the Lipat spouses who owned a combined 300 shares out of the
420 shares subscribed, Teresita Lipat who owned 20 shares, and other close relatives and friends of the Lipats. [6] Estelita
Lipat was named president of BEC, while Teresita became the vice-president and general manager.
Eventually, the loan was later restructured in the name of BEC and subsequent loans were obtained by BEC with the
corresponding promissory notes duly executed by Teresita on behalf of the corporation. A letter of credit was also opened
by Pacific Bank in favor of A. O. Knitting Manufacturing Co., Inc., upon the request of BEC after BEC executed the
corresponding trust receipt therefor. Export bills were also executed in favor of Pacific Bank for additional finances. These
transactions were all secured by the real estate mortgage over the Lipats property.
The promissory notes, export bills, and trust receipt eventually became due and demandable. Unfortunately, BEC
defaulted in its payments. After receipt of Pacific Banks demand letters, Estelita Lipat went to the office of the banks
liquidator and asked for additional time to enable her to personally settle BECs obligations. The bank acceded to her
request but Estelita failed to fulfill her promise.
Consequently, the real estate mortgage was foreclosed and after compliance with the requirements of the law the
mortgaged property was sold at public auction. On January 31, 1989, a certificate of sale was issued to respondent
Eugenio D. Trinidad as the highest bidder.
Sps. Lipat filed before the Quezon City RTC a complaint for annulment of the real estate mortgage, extrajudicial
foreclosure and the certificate of sale issued over the property against Pacific Bank and Eugenio D. Trinidad.
The complaint, alleged, among others, that the promissory notes, trust receipt, and export bills were all ultra
vires acts of Teresita as they were executed without the requisite board resolution of the Board of Directors of BEC. The
Lipats also averred that assuming said acts were valid and binding on BEC, the same were the corporation sole
obligation, it having a personality distinct and separate from spouses Lipat. It was likewise pointed out that Teresitas
authority to secure a loan from Pacific Bank was specifically limited to Mrs. Lipats sole use and benefit and that the real
estate mortgage was executed to secure the Lipats and BETs P583,854.00 loan only.
In their respective answers, Pacific Bank and Trinidad alleged in common that petitioners Lipat cannot evade
payments of the value of the promissory notes, trust receipt, and export bills with their property because they and the BEC
are one and the same, the latter being a family corporation. Respondent Trinidad further claimed that he was a buyer in
good faith and for value and that petitioners are estopped from denying BECs existence after holding themselves out as a
corporation.
1. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in this case;
2. Whether or not petitioners' property under the real estate mortgage is liable not only for the amount
of P583,854.00 but also for the value of the promissory notes, trust receipt, and export bills subsequently incurred by
BEC; and
3. Whether or not petitioners are liable to pay the 15% attorneys fees stipulated in the deed of real estate mortgage.
On the first issue, petitioners contend that both the appellate and trial courts erred in holding them liable for the
obligations incurred by BEC through the application of the doctrine of piercing the veil of corporate fiction absent any clear
showing of fraud on their part.
Respondents counter that there is clear and convincing evidence to show fraud on part of petitioners given the
findings of the trial court, as affirmed by the Court of Appeals, that BEC was organized as a business conduit for the
benefit of petitioners.
 Petitioners contentions fail to persuade this Court. A careful reading of the judgment of the RTC and the resolution of
the appellate court show that in finding petitioners mortgaged property liable for the obligations of BEC, both courts below
relied upon the alter egodoctrine or instrumentality rule, rather than fraud in piercing the veil of corporate fiction. When the
corporation is the mere alter ego or business conduit of a person, the separate personality of the corporation may be
disregarded.[12] This is commonly referred to as the instrumentality rule or the alter ego doctrine, which the courts have
applied in disregarding the separate juridical personality of corporations. As held in one case,

Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere
instrumentality or adjunct of the other, the fiction of the corporate entity of the instrumentality may be disregarded. The
control necessary to invoke the rule is not majority or even complete stock control but such domination of finances,
policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and
is but a conduit for its principal. xxx[13]

We find that the evidence on record demolishes, rather than buttresses, petitioners contention that BET and BEC are
separate business entities. Note that Estelita Lipat admitted that she and her husband, Alfredo, were the owners of
BET[14] and were two of the incorporators and majority stockholders of BEC. [15] It is also undisputed that Estelita Lipat
executed a special power of attorney in favor of her daughter, Teresita, to obtain loans and credit lines from Pacific Bank
on her behalf.[16] Incidentally, Teresita was designated as executive-vice president and general manager of both BET and
BEC, respectively.[17] We note further that: (1) Estelita and Alfredo Lipat are the owners and majority shareholders of BET
and BEC, respectively;[18] (2) both firms were managed by their daughter, Teresita;[19] (3) both firms were engaged in the
garment business, supplying products to Mystical Fashion, a U.S. firm established by Estelita Lipat; (4) both firms held
office in the same building owned by the Lipats;[20] (5) BEC is a family corporation with the Lipats as its majority
stockholders; (6) the business operations of the BEC were so merged with those of Mrs. Lipat such that they were
practically indistinguishable; (7) the corporate funds were held by Estelita Lipat and the corporation itself had no visible
assets; (8) the board of directors of BEC was composed of the Burgos and Lipat family members; [21] (9) Estelita had full
control over the activities of and decided business matters of the corporation; [22] and that (10) Estelita Lipat had benefited
from the loans secured from Pacific Bank to finance her business abroad [23] and from the export bills secured by BEC for
the account of Mystical Fashion.[24] It could not have been coincidental that BET and BEC are so intertwined with each
other in terms of ownership, business purpose, and management. Apparently, BET and BEC are one and the same and
the latter is a conduit of and merely succeeded the former. Petitioners attempt to isolate themselves from and hide
behind the corporate personality of BEC so as to evade their liabilities to Pacific Bank is precisely what the classical
doctrine of piercing the veil of corporate entity seeks to prevent and remedy. In our view, BEC is a mere continuation and
successor of BET, and petitioners cannot evade their obligations in the mortgage contract secured under the name of
BEC on the pretext that it was signed for the benefit and under the name of BET. We are thus constrained to rule that the
Court of Appeals did not err when it applied the instrumentality doctrine in piercing the corporate veil of BEC.
On the second issue, petitioners contend that their mortgaged property should not be made liable for the subsequent
credit lines and loans incurred by BEC because, first, it was not covered by the mortgage contract of BET which only
covered the loan of P583,854.00 and which allegedly had already been paid; and, second, it was secured by Teresita
Lipat without any authorization or board resolution of BEC.
We find petitioners contention untenable. As found by the Court of Appeals, the mortgaged property is not limited to
answer for the loan of P583,854.00. Thus:

Finally, the extent to which the Lipats property can be held liable under the real estate mortgage is not limited to
P583,854.00. It can be held liable for the value of the promissory notes, trust receipt and export bills as well. For the
mortgage was executed not only for the purpose of securing the Belas Export Tradings original loan of P583,854.00, but
also for other additional or new loans, discounting lines, overdrafts and credit accommodations, of whatever amount,
which the Mortgagor and/or Debtor may subsequently obtain from the mortgagee as well as any renewal or extension by
the Mortgagor and/or Debtor of the whole or part of said original, additional or new loans, discounting lines, overdrafts and
other credit accommodations, including interest and expenses or other obligations of the Mortgagor and/or Debtor owing
to the Mortgagee, whether directly, or indirectly principal or secondary, as appears in the accounts, books and records of
the mortgagee.[25]

As a general rule, findings of fact of the Court of Appeals are final and conclusive, and cannot be reviewed on appeal
by the Supreme Court, provided they are borne out by the record or based on substantial evidence. [26] As noted earlier,
BEC merely succeeded BET as petitioners alter ego; hence, petitioners mortgaged property must be held liable for the
subsequent loans and credit lines of BEC.
Further, petitioners contention that the original loan had already been paid, hence, the mortgaged property should
not be made liable to the loans of BEC, is unsupported by any substantial evidence other than Estelita Lipats self-serving
testimony. Two disputable presumptions under the rules on evidence weigh against petitioners, namely: (a) that a person
takes ordinary care of his concerns;[27] and (b) that things have happened according to the ordinary course of nature and
the ordinary habits of life.[28] Here, if the original loan had indeed been paid, then logically, petitioners would have asked
from Pacific Bank for the required documents evidencing receipt and payment of the loans and, as owners of the
mortgaged property, would have immediately asked for the cancellation of the mortgage in the ordinary course of
things. However, the records are bereft of any evidence contradicting or overcoming said disputable presumptions.
Petitioners contend further that the mortgaged property should not bind the loans and credit lines obtained by BEC
as they were secured without any proper authorization or board resolution. They also blame the bank for its laxity and
complacency in not requiring a board resolution as a requisite for approving the loans.
Such contentions deserve scant consideration.
Firstly, it could not have been possible for BEC to release a board resolution since per admissions by both petitioner
Estelita Lipat and Alice Burgos, petitioners rebuttal witness, no business or stockholders meetings were conducted nor
were there election of officers held since its incorporation. In fact, not a single board resolution was passed by the
corporate board[29] and it was Estelita Lipat and/or Teresita Lipat who decided business matters. [30]
Secondly, the principle of estoppel precludes petitioners from denying the validity of the transactions entered into by
Teresita Lipat with Pacific Bank, who in good faith, relied on the authority of the former as manager to act on behalf of
petitioner Estelita Lipat and both BET and BEC. While the power and responsibility to decide whether the corporation
should enter into a contract that will bind the corporation is lodged in its board of directors, subject to the articles of
incorporation, by-laws, or relevant provisions of law, yet, just as a natural person may authorize another to do certain acts
for and on his behalf, the board of directors may validly delegate some of its functions and powers to officers, committees,
or agents. The authority of such individuals to bind the corporation is generally derived from law, corporate by-laws, or
authorization from the board, either expressly or impliedly by habit, custom, or acquiescence in the general course of
business.[31] Apparent authority, is derived not merely from practice. Its existence may be ascertained through (1) the
general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the
apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature,
with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers.[32]
In this case, Teresita Lipat had dealt with Pacific Bank on the mortgage contract by virtue of a special power of
attorney executed by Estelita Lipat. Recall that Teresita Lipat acted as the manager of both BEC and BET and had been
deciding business matters in the absence of Estelita Lipat. Further, the export bills secured by BEC were for the benefit of
Mystical Fashion owned by Estelita Lipat.[33]Hence, Pacific Bank cannot be faulted for relying on the same authority
granted to Teresita Lipat by Estelita Lipat by virtue of a special power of attorney. It is a familiar doctrine that if a
corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, it
holds him out to the public as possessing the power to do those acts; thus, the corporation will, as against anyone who
has in good faith dealt with it through such agent, be estopped from denying the agents authority. [34]
We find no necessity to extensively deal with the liability of Alfredo Lipat for the subsequent credit lines of
BEC. Suffice it to state that Alfredo Lipat never disputed the validity of the real estate mortgage of the original loan; hence,
he cannot now dispute the subsequent loans obtained using the same mortgage contract since it is, by its very terms, a
continuing mortgage contract.
On the third and final issue, petitioners assail the decision of the Court of Appeals for not taking cognizance of the
issue on attorneys fees on the ground that it was raised for the first time on appeal. We find the conclusion of the Court of
Appeals to be in accord with settled jurisprudence. Basic is the rule that matters not raised in the complaint cannot be
raised for the first time on appeal.[35] A close perusal of the complaint yields no allegations disputing the attorneys fees
imposed under the real estate mortgage and petitioners cannot now allege that they have impliedly disputed the same
when they sought the annulment of the contract.
In sum, we find no reversible error of law committed by the Court of Appeals in rendering the decision and resolution
herein assailed by petitioners.
G.R. No. 142616 July 31, 2001

PHILIPPINE NATIONAL BANK, petitioner,

vs.
RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN GENERAL MERCHANDISE,respondents.

KAPUNAN, J.:

In a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner seeks to annul and set aside
the Court of Appeals' decision in C.A. CV G.R. S.P. No. 55374 dated March 27, 2000, affirming the Order issuing a writ of
preliminary injunction of the Regional Trial Court of Makati, Branch 147 dated June 30, 1999, and its Order dated October
4, 1999, which denied petitioner's motion to dismiss.

The antecedents of this case are as follows:

Petitioner Philippine National Bank is a domestic corporation organized and existing under Philippine law. Meanwhile,
respondents Ritratto Group, Inc., Riatto International, Inc. and Dadasan General Merchandise are domestic corporations,
likewise, organized and existing under Philippine law.

On May 29, 1996, PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB, organized and doing business
in Hong Kong, extended a letter of credit in favor of the respondents in the amount of US$300,000.00 secured by real
estate mortgages constituted over four (4) parcels of land in Makati City. This credit facility was later increased
successively to US$1,140,000.00 in September 1996; to US$1,290,000.00 in November 1996; to US$1,425,000.00 in
February 1997; and decreased to US$1,421,316.18 in April 1998. Respondents made repayments of the loan incurred by
remitting those amounts to their loan account with PNB-IFL in Hong Kong.

However, as of April 30, 1998, their outstanding obligations stood at US$1,497,274.70. Pursuant to the terms of the real
estate mortgages, PNB-IFL, through its attorney-in-fact PNB, notified the respondents of the foreclosure of all the real
estate mortgages and that the properties subject thereof were to be sold at a public auction on May 27, 1999 at the Makati
City Hall.

On May 25, 1999, respondents filed a complaint for injunction with prayer for the issuance of a writ of preliminary
injunction and/or temporary restraining order before the Regional Trial Court of Makati. The Executive Judge of the
Regional Trial Court of Makati issued a 72-hour temporary restraining order. On May 28, 1999, the case was raffled to
Branch 147 of the Regional Trial Court of Makati. The trial judge then set a hearing on June 8, 1999. At the hearing of the
application for preliminary injunction, petitioner was given a period of seven days to file its written opposition to the
application. On June 15, 1999, petitioner filed an opposition to the application for a writ of preliminary injunction to which
the respondents filed a reply. On June 25, 1999, petitioner filed a motion to dismiss on the grounds of failure to state a
cause of action and the absence of any privity between the petitioner and respondents. On June 30, 1999, the trial court
judge issued an Order for the issuance of a writ of preliminary injunction, which writ was correspondingly issued on July
14, 1999. On October 4, 1999, the motion to dismiss was denied by the trial court judge for lack of merit.

Petitioner, thereafter, in a petition for certiorari and prohibition assailed the issuance of the writ of preliminary injunction
before the Court of Appeals. In the impugned decision,1 the appellate court dismissed the petition. Petitioner thus seeks
recourse to this Court and raises the following errors:

1.

THE COURT OF APPEALS PALPABLY ERRED IN NOT DISMISSING THE COMPLAINT A QUO,
CONSIDERING THAT BY THE ALLEGATIONS OF THE COMPLAINT, NO CAUSE OF ACTION EXISTS
AGAINST PETITIONER, WHICH IS NOT A REAL PARTY IN INTEREST BEING A MERE ATTORNEY-IN-FACT
AUTHORIZED TO ENFORCE AN ANCILLARY CONTRACT.

2.

THE COURT OF APPEALS PALPABLY ERRED IN ALLOWING THE TRIAL COURT TO ISSUE IN EXCESS OR
LACK OF JURISDICTION A WRIT OF PRELIMINARY INJUNCTION OVER AND BEYOND WHAT WAS
PRAYED FOR IN THE COMPLAINT A QUO CONTRARY TO CHIEF OF STAFF, AFP VS. GUADIZ JR., 101
SCRA 827.2

Petitioner prays, inter alia, that the Court of Appeals' Decision dated March 27, 2000 and the trial court's Orders dated
June 30, 1999 and October 4, 1999 be set aside and the dismissal of the complaint in the instant case. 3

In their Comment, respondents argue that even assuming arguendo that petitioner and PNB-IFL are two separate entities,
petitioner is still the party-in-interest in the application for preliminary injunction because it is tasked to commit acts of
foreclosing respondents' properties.4 Respondents maintain that the entire credit facility is void as it contains stipulations
in violation of the principle of mutuality of contracts. 5 In addition, respondents justified the act of the court a quo in
applying the doctrine of "Piercing the Veil of Corporate Identity" by stating that petitioner is merely an alter ego or a
business conduit of PNB-IFL.6

The petition is impressed with merit.

Respondents, in their complaint, anchor their prayer for injunction on alleged invalid provisions of the contract:

GROUNDS

THE DETERMINATION OF THE INTEREST RATES BEING LEFT TO THE SOLE DISCRETION OF THE
DEFENDANT PNB CONTRAVENES THE PRINCIPAL OF MUTUALITY OF CONTRACTS.

II

THERE BEING A STIPULATION IN THE LOAN AGREEMENT THAT THE RATE OF INTEREST AGREED UPON
MAY BE UNILATERALLY MODIFIED BY DEFENDANT, THERE WAS NO STIPULATION THAT THE RATE OF
INTEREST SHALL BE REDUCED IN THE EVENT THAT THE APPLICABLE MAXIMUM RATE OF INTEREST IS
REDUCED BY LAW OR BY THE MONETARY BOARD.7

Based on the aforementioned grounds, respondents sought to enjoin and restrain PNB from the foreclosure and eventual
sale of the property in order to protect their rights to said property by reason of void credit facilities as bases for the real
estate mortgage over the said property.8

The contract questioned is one entered into between respondent and PNB-IFL, not PNB. In their complaint, respondents
admit that petitioner is a mere attorney-in-fact for the PNB-IFL with full power and authority to, inter alia, foreclose on the
properties mortgaged to secure their loan obligations with PNB-IFL. In other words, herein petitioner is an agent with
limited authority and specific duties under a special power of attorney incorporated in the real estate mortgage. It is not
privy to the loan contracts entered into by respondents and PNB-IFL.

The issue of the validity of the loan contracts is a matter between PNB-IFL, the petitioner's principal and the party to the
loan contracts, and the respondents. Yet, despite the recognition that petitioner is a mere agent, the respondents in their
complaint prayed that the petitioner PNB be ordered to re-compute the rescheduling of the interest to be paid by them in
accordance with the terms and conditions in the documents evidencing the credit facilities, and crediting the amount
previously paid to PNB by herein respondents.9

Clearly, petitioner not being a part to the contract has no power to re-compute the interest rates set forth in the contract.
Respondents, therefore, do not have any cause of action against petitioner.

The trial court, however, in its Order dated October 4, 1994, ruled that since PNB-IFL, is a wholly owned subsidiary of
defendant Philippine National Bank, the suit against the defendant PNB is a suit against PNB-IFL.10 In justifying its ruling,
the trial court, citing the case of Koppel Phil. Inc. vs. Yatco,11 reasoned that the corporate entity may be disregarded
where a corporation is the mere alter ego, or business conduit of a person or where the corporation is so organized and
controlled and its affairs are so conducted, as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation.12

We disagree.

The general rule is that as a legal entity, a corporation has a personality distinct and separate from its individual
stockholders or members, and is not affected by the personal rights, obligations and transactions of the latter.13 The mere
fact that a corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify their being
treated as one entity. If used to perform legitimate functions, a subsidiary's separate existence may be respected, and the
liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective business.
The courts may in the exercise of judicial discretion step in to prevent the abuses of separate entity privilege and pierce
the veil of corporate entity.

We find, however, that the ruling in Koppel finds no application in the case at bar. In said case, this Court disregarded the
separate existence of the parent and the subsidiary on the ground that the latter was formed merely for the purpose of
evading the payment of higher taxes. In the case at bar, respondents fail to show any cogent reason why the separate
entities of the PNB and PNB-IFL should be disregarded.

While there exists no definite test of general application in determining when a subsidiary may be treated as a mere
instrumentality of the parent corporation, some factors have been identified that will justify the application of the treatment
of the doctrine of the piercing of the corporate veil. The case of Garrett vs. Southern Railway Co.14 is enlightening. The
case involved a suit against the Southern Railway Company. Plaintiff was employed by Lenoir Car Works and alleged that
he sustained injuries while working for Lenoir. He, however, filed a suit against Southern Railway Company on the ground
that Southern had acquired the entire capital stock of Lenoir Car Works, hence, the latter corporation was but a mere
instrumentality of the former. The Tennessee Supreme Court stated that as a general rule the stock ownership alone by
one corporation of the stock of another does not thereby render the dominant corporation liable for the torts of the
subsidiary unless the separate corporate existence of the subsidiary is a mere sham, or unless the control of the
subsidiary is such that it is but an instrumentality or adjunct of the dominant corporation. Said Court then outlined the
circumstances which may be useful in the determination of whether the subsidiary is but a mere instrumentality of the
parent-corporation:
 The Circumstance rendering the subsidiary an instrumentality. It is manifestly impossible to catalogue the infinite
variations of fact that can arise but there are certain common circumstances which are important and which, if
present in the proper combination, are controlling.

These are as follows:

(a) The parent corporation owns all or most of the capital stock of the subsidiary.

(b) The parent and subsidiary corporations have common directors or officers.

(c) The parent corporation finances the subsidiary.

(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its
incorporation.

(e) The subsidiary has grossly inadequate capital.

(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.

(g) The subsidiary has substantially no business except with the parent corporation or no assets except those
conveyed to or by the parent corporation.

(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a
department or division of the parent corporation, or its business or financial responsibility is referred to as the
parent corporation's own.

(i) The parent corporation uses the property of the subsidiary as its own.

(j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take
their orders from the parent corporation.

(k) The formal legal requirements of the subsidiary are not observed.

The Tennessee Supreme Court thus ruled:

In the case at bar only two of the eleven listed indicia occur, namely, the ownership of most of the capital stock of
Lenoir by Southern, and possibly subscription to the capital stock of Lenoir. . . The complaint must be dismissed.

Similarly, in this jurisdiction, we have held that the doctrine of piercing the corporate veil is an equitable doctrine
developed to address situations where the separate corporate personality of a corporation is abused or used for wrongful
purposes. The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect
fraud or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is the
mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are
so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. 15

In Concept Builders, Inc. v. NLRC,16 we have laid the test in determining the applicability of the doctrine of piercing the veil
of corporate fiction, to wit:

1. Control, not mere majority or complete control, but complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at
the time no separate mind, will or existence of its own.

2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or dishonest and, unjust act in contravention of plaintiffs legal rights; and,

3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

The absence of any one of these elements prevents "piercing the corporate veil." In applying the "instrumentality"
or "alter ego" doctrine, the courts are concerned with reality and not form, with how the corporation operated and
the individual defendant's relationship to the operation.17

Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no showing of the indicative
factors that the former corporation is a mere instrumentality of the latter are present. Neither is there a demonstration that
any of the evils sought to be prevented by the doctrine of piercing the corporate veil exists. Inescapably, therefore, the
doctrine of piercing the corporate veil based on the alter ego or instrumentality doctrine finds no application in the case at
bar.

In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal relationship involved
in this case since the petitioner was not sued because it is the parent company of PNB-IFL. Rather, the petitioner was
sued because it acted as an attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings. A suit against an agent
cannot without compelling reasons be considered a suit against the principal. Under the Rules of Court, every action must
be prosecuted or defended in the name of the real party-in-interest, unless otherwise authorized by law or these
Rules.18 In mandatory terms, the Rules require that "parties-in-interest without whom no final determination can be had,
an action shall be joined either as plaintiffs or defendants."19 In the case at bar, the injunction suit is directed only against
the agent, not the principal.

Anent the issuance of the preliminary injunction, the same must be lifted as it is a mere provisional remedy but adjunct to
the main suit.20 A writ of preliminary injunction is an ancillary or preventive remedy that may only be resorted to by a
litigant to protect or preserve his rights or interests and for no other purpose during the pendency of the principal action.
The dismissal of the principal action thus results in the denial of the prayer for the issuance of the writ. Further, there is no
showing that respondents are entitled to the issuance of the writ. Section 3, Rule 58, of the 1997 Rules of Civil Procedure
provides:

SECTION 3. Grounds for issuance of preliminary injunction. — A preliminary injunction may be granted when it is
established:

(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining
the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts,
either for a limited period or perpetually,

(b) That the commission, continuance or non-performance of the acts or acts complained of during the litigation
would probably work injustice to the applicant; or

(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering
to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action
or proceeding, and tending to render the judgment ineffectual.

Thus, an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious consequences
which cannot be remedied under any standard compensation. 21 Respondents do not deny their indebtedness. Their
properties are by their own choice encumbered by real estate mortgages. Upon the non-payment of the loans, which were
secured by the mortgages sought to be foreclosed, the mortgaged properties are properly subject to a foreclosure sale.
Moreover, respondents questioned the alleged void stipulations in the contract only when petitioner initiated the
foreclosure proceedings. Clearly, respondents have failed to prove that they have a right protected and that the acts
against which the writ is to be directed are violative of said right. 22 The Court is not unmindful of the findings of both the
trial court and the appellate court that there may be serious grounds to nullify the provisions of the loan agreement.
However, as earlier discussed, respondents committed the mistake of filing the case against the wrong party, thus, they
must suffer the consequences of their error.

All told, respondents do not have a cause of action against the petitioner as the latter is not privy to the contract the
provisions of which respondents seek to declare void. Accordingly, the case before the Regional Trial Court must be
dismissed and the preliminary injunction issued in connection therewith, must be lifted.

IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The assailed decision of the Court of Appeals is
hereby REVERSED. The Orders dated June 30, 1999 and October 4, 1999 of the Regional Trial Court of Makati, Branch
147 in Civil Case No. 99-1037 are hereby ANNULLED and SET ASIDE and the complaint in said case DISMISSED.

[G.R. Nos. 116124-25. November 22, 2000] BIBIANO O. REYNOSO, IV, petitioner, vs. HON. COURT OF APPEALS
and GENERAL CREDIT CORPORATION, respondents.

FACTS: Sometime in the early 1960s, the Commercial Credit Corporation (hereinafter, CCC), a financing and
investment firm, decided to organize franchise companies in different parts of the country, wherein it shall hold thirty
percent (30%) equity. Employees of the CCC were designated as resident managers of the franchise
companies. Petitioner Bibiano O. Reynoso, IV was designated as the resident manager of the franchise company in
Quezon City, known as the Commercial Credit Corporation of Quezon City (hereinafter, CCC-QC).
CCC-QC entered into an exclusive management contract with CCC whereby the latter was granted the management
and full control of the business activities of the former. Under the contract, CCC-QC shall sell, discount and/or assign its
receivables to CCC. Subsequently, however, this discounting arrangement was discontinued pursuant to the so-called
DOSRI Rule, prohibiting the lending of funds by corporations to its directors, officers, stockholders and other persons with
related interests therein.
On account of the new restrictions imposed by the Central Bank policy by virtue of the DOSRI Rule, CCC decided to
form CCC Equity Corporation, (hereinafter, CCC-Equity), a wholly-owned subsidiary, to which CCC transferred its thirty
(30%) percent equity in CCC-QC, together with two seats in the latters Board of Directors.
Under the new set-up, several officials of Commercial Credit Corporation, including petitioner Reynoso, became
employees of CCC-Equity. While petitioner continued to be the Resident Manager of CCC-QC, he drew his salaries and
allowances from CCC-Equity.Furthermore, although an employee of CCC-Equity, petitioner, as well as all employees of
CCC-QC, became qualified members of the Commercial Credit Corporation Employees Pension Plan.
 As Resident Manager of CCC-QC, petitioner oversaw the operations of CCC-QC and supervised its employees. The
business activities of CCC-QC pertain to the acceptance of funds from depositors who are issued interest-bearing
promissory notes. The amounts deposited are then loaned out to various borrowers. Petitioner, in order to boost the
business activities of CCC-QC, deposited his personal funds in the company. In return, CCC-QC issued to him its interest-
bearing promissory notes.
On August 15, 1980, a complaint for sum of money with preliminary attachment, [1] docketed as Civil Case No. Q-
30583, was instituted in the then Court of First Instance of Rizal by CCC-QC against petitioner, who had in the meantime
been dismissed from his employment by CCC-Equity. The complaint was subsequently amended in order to include
Hidelita Nuval, petitioners wife, as a party defendant. [2] The complaint alleged that petitioner embezzled the funds of CCC-
QC amounting to P1,300,593.11. Out of this amount, at least P630,000.00 was used for the purchase of a house and lot
located at No. 12 Macopa Street, Valle Verde I, Pasig City. The property was mortgaged to CCC, and was later
foreclosed.
In his amended Answer, petitioner denied having unlawfully used funds of CCC-QC and asserted that the sum of
P1,300,593.11 represented his money placements in CCC-QC, as shown by twenty-three (23) checks which he issued to
the said company.[3]
The case was subsequently transferred to the Regional Trial Court of Quezon City, Branch 86, pursuant to the
Judiciary Reorganization Act of 1980.
ISSUE: whether or not the judgment in favor of petitioner may be executed against respondent General Credit
Corporation. The latter contends that it is a corporation separate and distinct from CCC-QC and, therefore, its properties
may not be levied upon to satisfy the monetary judgment in favor of petitioner. In short, respondent raises corporate fiction
as its defense. Hence, we are necessarily called upon to apply the doctrine of piercing the veil of corporate entity in order
to determine if General Credit Corporation, formerly CCC, may be held liable for the obligations of CCC-QC.
The petition is impressed with merit.
A corporation is an artificial being created by operation of law, having the right of succession and the powers,
attributes, and properties expressly authorized by law or incident to its existence. [17] It is an artificial being invested by law
with a personality separate and distinct from those of the persons composing it as well as from that of any other legal
entity to which it may be related.[18] It was evolved to make possible the aggregation and assembling of huge amounts of
capital upon which big business depends. It also has the advantage of non-dependence on the lives of those who
compose it even as it enjoys certain rights and conducts activities of natural persons.
Precisely because the corporation is such a prevalent and dominating factor in the business life of the country, the
law has to look carefully into the exercise of powers by these artificial persons it has created.
Any piercing of the corporate veil has to be done with caution. However, the Court will not hesitate to use its
supervisory and adjudicative powers where the corporate fiction is used as an unfair device to achieve an inequitable
result, defraud creditors, evade contracts and obligations, or to shield it from the effects of a court decision. The corporate
fiction has to be disregarded when necessary in the interest of justice.
In First Philippine International Bank v. Court of Appeals, et al.,[19] we held:

When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of
knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who
compose it will be lifted to allow for its consideration merely as an aggregation of individuals.

Also in the above-cited case, we stated that this Court has pierced the veil of corporate fiction in numerous cases
where it was used, among others, to avoid a judgment credit; [20] to avoid inclusion of corporate assets as part of the estate
of a decedent;[21] to avoid liability arising from debt;[22] when made use of as a shield to perpetrate fraud and/or confuse
legitimate issues;[23] or to promote unfair objectives or otherwise to shield them.[24]
In the appealed judgment, the Court of Appeals sustained respondents arguments of separateness and its character
as a different corporation which is a non-party or stranger to this case.
The defense of separateness will be disregarded where the business affairs of a subsidiary corporation are so
controlled by the mother corporation to the extent that it becomes an instrument or agent of its parent. But even when
there is dominance over the affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction applies only when
such fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime. [25]
Precisely for the above reasons, we grant the instant petition.
It is obvious that the use by CCC-QC of the same name of Commercial Credit Corporation was intended to publicly
identify it as a component of the CCC group of companies engaged in one and the same business, i.e., investment and
financing. Aside from CCC-Quezon City, other franchise companies were organized such as CCC-North Manila and CCC-
Cagayan Valley. The organization of subsidiary corporations as what was done here is usually resorted to for the
aggrupation of capital, the ability to cover more territory and population, the decentralization of activities best
decentralized, and the securing of other legitimate advantages. But when the mother corporation and its subsidiary cease
to act in good faith and honest business judgment, when the corporate device is used by the parent to avoid its liability for
legitimate obligations of the subsidiary, and when the corporate fiction is used to perpetrate fraud or promote injustice, the
law steps in to remedy the problem. When that happens, the corporate character is not necessarily abrogated. It
continues for legitimate objectives. However, it is pierced in order to remedy injustice, such as that inflicted in this case.
Factually and legally, the CCC had dominant control of the business operations of CCC-QC. The exclusive
management contract insured that CCC-QC would be managed and controlled by CCC and would not deviate from the
commands of the mother corporation. In addition to the exclusive management contract, CCC appointed its own
employee, petitioner, as the resident manager of CCC-QC.
Petitioners designation as resident manager implies that he was placed in CCC-QC by a superior authority. In fact,
even after his assignment to the subsidiary corporation, petitioner continued to receive his salaries, allowances, and
benefits from CCC, which later became respondent General Credit Corporation. Not only that. Petitioner and the other
permanent employees of CCC-QC were qualified members and participants of the Employees Pension Plan of CCC.
There are other indications in the record which attest to the applicability of the identity rule in this case, namely: the
unity of interests, management, and control; the transfer of funds to suit their individual corporate conveniences; and the
dominance of policy and practice by the mother corporation insure that CCC-QC was an instrumentality or agency of
CCC.
As petitioner stresses, both CCC and CCC-QC were engaged in the same principal line of business involving a
single transaction process. Under their discounting arrangements, CCC financed the operations of CCC-QC. The
subsidiary sold, discounted, or assigned its accounts receivables to CCC.
The testimony of Joselito D. Liwanag, accountant and auditor of CCC since 1971, shows the pervasive and intensive
auditing function of CCC over CCC-QC.[27] The two corporations also shared the same office space. CCC-QC had no
office of its own.
The complaint in Civil Case No. Q-30583, instituted by CCC-QC, was even verified by the director-representative of
CCC. The lawyers who filed the complaint and amended complaint were all in-house lawyers of CCC.
The challenged decision of the Court of Appeals states that CCC, now General Credit Corporation, is not a formal
party in the case.The reason for this is that the complaint was filed by CCC-QC against petitioner. The choice of parties
was with CCC-QC. The judgment award in this case arose from the counterclaim which petitioner set up against CCC-
QC.
The circumstances which led to the filing of the aforesaid complaint are quite revealing. As narrated above, the
discounting agreements through which CCC controlled the finances of its subordinates became unlawful when Central
Bank adopted the DOSRI prohibitions. Under this rule the directors, officers, and stockholders are prohibited from
borrowing from their company. Instead of adhering to the letter and spirit of the regulations by avoiding DOSRI loans
altogether, CCC used the corporate device to continue the prohibited practice. CCC organized still another corporation,
the CCC-Equity Corporation. However, as a wholly owned subsidiary, CCC-Equity was in fact only another name for
CCC. Key officials of CCC, including the resident managers of subsidiary corporations, were appointed to positions in
CCC-Equity.
In order to circumvent the Central Banks disapproval of CCC-QCs mode of reducing its DOSRI lender accounts and
its directive to follow Central Bank requirements, resident managers, including petitioner, were told to observe a pseudo-
compliance with the phasing out orders. For his unwillingness to satisfactorily conform to these directives and his
reluctance to resort to illegal practices, petitioner earned the ire of his employers. Eventually, his services were
terminated, and criminal and civil cases were filed against him.
Petitioner issued twenty-three checks as money placements with CCC-QC because of difficulties faced by the firm in
implementing the required phase-out program. Funds from his current account in the Far East Bank and Trust Company
were transferred to CCC-QC.These monies were alleged in the criminal complaints against him as having been
stolen. Complaints for qualified theft and estafa were brought by CCC-QC against petitioner. These criminal cases were
later dismissed. Similarly, the civil complaint which was filed with the Court of First Instance of Pasig and later transferred
to the Regional Trial Court of Quezon City was dismissed, but his counterclaims were granted.
Faced with the financial obligations which CCC-QC had to satisfy, the mother firm closed CCC-QC, in obvious fraud
of its creditors.CCC-QC, instead of opposing its closure, cooperated in its own demise. Conveniently, CCC-QC stated in
its opposition to the motion for alias writ of execution that all its properties and assets had been transferred and taken over
by CCC.
Under the foregoing circumstances, the contention of respondent General Credit Corporation, the new name of CCC,
that the corporate fiction should be appreciated in its favor is without merit.
Paraphrasing the ruling in Claparols v. Court of Industrial Relations,[28] reiterated in Concept Builders Inc. v. National
Labor Relations,[29] it is very obvious that respondent seeks the protective shield of a corporate fiction whose veil the
present case could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation
of its employees.
If the corporate fiction is sustained, it becomes a handy deception to avoid a judgment debt and work an
injustice. The decision raised to us for review is an invitation to multiplicity of litigation. As we stated in Islamic Directorate
vs. Court of Appeals,[30] the ends of justice are not served if further litigation is encouraged when the issue is determinable
based on the records.
A court judgment becomes useless and ineffective if the employer, in this case CCC as a mother corporation, is
placed beyond the legal reach of the judgment creditor who, after protracted litigation, has been found entitled to positive
relief. Courts have been organized to put an end to controversy. This purpose should not be negated by an inapplicable
and wrong use of the fiction of the corporate veil.